UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, ~~2021~~2022
OR
☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to _____

Commission File Number: 001-40261

Soluna Holdings, Inc.

~~Mechanical Technology, Incorporated~~

(Exact name of registrant as specified in its charter)

Nevada		14-1462255
State or other jurisdiction		(I.R.S. Employer
of incorporation or organization		Identification No.)

325 Washington Avenue Extension, Albany, New York 12205

(Address of principal executive offices) (Zip Code)

(~~518~~(518)) 218-2550

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	~~Trading Symbol~~	Trading symbol(s)	Name of each exchange on which registered

Common Stock, ~~($0.001~~ par ~~value)~~value $0.001 per share		~~MKTY~~SLNH	The Nasdaq Stock Market LLC
9.0% Series A Cumulative Perpetual Preferred Stock, par value $0.001 per share		SLNHP	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of August ~~9, 2021,~~10, 2022, the Registrant had ~~12,699,670~~14,720,033 shares of common stock outstanding.

~~MECHANICAL TECHNOLOGY, INCORPORATED~~SOLUNA HOLDINGS, INC. AND SUBSIDIARIES

INDEX

PART I. FINANCIAL INFORMATION		2

Item 1.	Financial Statements	2
~~Item 1. Financial Statements~~			2

Condensed Consolidated Balance Sheets As of June 30, ~~2021~~2022 (Unaudited) and December 31, ~~2020~~2021			2

Condensed Consolidated Statements of Operations (Unaudited) For the Three and Six Months Ended June 30, ~~2021~~2022 and ~~2020~~2021			3

Condensed Consolidated Statements of Changes in Equity For the Year Ended December 31, 2021 and the Three and Six Months Ended June 30, ~~2021 and 2020~~2022 (Unaudited)			~~4-5~~4

Condensed Consolidated Statements of Cash Flows (Unaudited) For the Six Months Ended June 30, ~~2021~~2022 and ~~2020~~2021			6

Notes to Condensed Consolidated Financial Statements (Unaudited)			7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		1829

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		2539

Item 4.	Controls and Procedures		2539

PART II. OTHER INFORMATION			2640

Item 1.	Legal Proceedings		2640

Item 1A.	Risk Factors		2640

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		2740

Item 3.	Defaults Upon Senior Securities		2740

Item 4.	Mine Safety Disclosures		2740

Item 5.	Other Information		2740

Item 6.	Exhibits		2741

SIGNATURES			2943

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

~~Mechanical Technology, Incorporated~~Soluna Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

As of June 30, ~~2021~~2022 (Unaudited) and December 31, ~~2020~~

2021

(Dollars in thousands, except per share) June 30, December 31,
2021 2020
Assets
Current Assets:
   Cash $ 12,096 $ 2,630
   Accounts receivable 780 975
   Inventories 1,187 828
   Prepaid expenses and other current assets 6,499 346
   Total Current Assets 20,562 4,779
Other assets 311 309
Deferred income taxes, net 759 759
Equity investment 750 750
Property, plant and equipment, net 2,132 847
Operating lease right-of-use assets 1,045 1,203
   Total Assets $ 25,559 $ 8,647

Liabilities and Stockholders’ Equity
Current Liabilities:
   Accounts payable $ 2,009 $ 300
   Accrued liabilities 1,375 1,019
   Operating lease liability 327 316
   Income taxes payable 2 2
      Total Current Liabilities 3,713 1,637

Other liabilities 264 203
Operating lease liability 725 891
      Total Liabilities 4,702 2,731

Commitments and Contingencies (Note 8)

Stockholders’ Equity:
Common stock, par value $0.001 per share, authorized 75,000,000; 13,715,163 issued and outstanding as of June 30, 2021 and 10,750,100 issued and outstanding as of December 31, 2020
14 11
  Additional paid-in capital 154,240 137,462
  Accumulated deficit (119,633 ) (117,793 )
  Common stock in treasury, at cost, 1,015,493 shares in both 2021 and 2020 (13,764 ) (13,764 )
   Total Stockholders’ Equity 20,857 5,916
   Total Liabilities and Stockholders’ Equity $ 25,559 $ 8,647

(Dollars in thousands, except per share)

	June 30,			December 31,
	2022			2021
Assets
Current Assets:
Cash	$	4,626		$	10,258
Accounts receivable		688			531
Prepaid expenses and other current assets		1,573			977
Deposits on equipment		10,668			10,188
Current assets associated with discontinued operations		-			3,028
Total Current Assets		17,555			24,982
Other assets		1,065			1,121
Equity investment		750			750
Property, plant and equipment, net		87,048			44,597
Intangible assets, net		41,178			45,839
Operating lease right-of-use assets		323			405
Total Assets	$	147,919		$	117,694

Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	4,840		$	2,958
Accrued liabilities		2,923			2,859
Line of credit		1,000			1,000
Notes payable		10,450			7,121
Current portion of debt		7,526			—
Deferred revenue		307			316
Operating lease liability		196			184
Income taxes payable		2			2
Current liabilities associated with discontinued operations		-			1,243
Total Current Liabilities		27,244			15,683

Other liabilities		509			509
Long term debt		3,982			—
Operating lease liability		142			237
Deferred tax liability, net		9,476			10,277
Total Liabilities		41,353			26,706

Commitments and Contingencies (Note 10)

Stockholders’ Equity:
9.0% Series A Cumulative Perpetual Preferred Stock, par value $0.001 per share, $25.00 liquidation preference; authorized 6,040,000; 3,061,245 shares issued and outstanding as of June 30, 2022 and 1,252,299 shares issued and outstanding as of December 31, 2021		3			1
Common stock, par value $0.001 per share, authorized 75,000,000; 15,122,661 shares issued and 14,104,145 shares issued and outstanding as of June 30, 2022 and 14,769,699 shares issued and 13,754,206 shares issued and outstanding as of December 31, 2021		15			15
Additional paid-in capital		258,863			227,790
Accumulated deficit		(138,517	)		(123,054	)
Common stock in treasury, at cost, 1,018,516 shares at June 30, 2022 and 1,015,493 shares at December 31, 2021		(13,798	)		(13,764	)
Total Stockholders’ Equity		106,566			90,988

Total Liabilities and Stockholders’ Equity	$	147,919		$	117,694

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Soluna Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

For the Three and Six Months Ended June 30, 2022 and 2021

(Dollars in thousands, except per share)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021

Cryptocurrency mining revenue	$	7,497		$	1,657		$	15,309		$	2,652
Data hosting revenue		1,179			-			2,683			-
Total revenue		8,676			1,657			17,992			2,652
Operating costs:
Cost of cryptocurrency mining revenue, exclusive of depreciation		3,596			396			6,992			650
Depreciation costs associated with cryptocurrency mining		5,538			149			9,862			225
Total cost of cryptocurrency mining revenue		9,134			545			16,854			875
Cost of data hosting revenue		975			-			2,114			-
Operating expenses:
General and administrative expenses, exclusive of depreciation and amortization		4,873			2,503			9,755			3,799
Depreciation and amortization associated with general and administrative expenses		2,376			-			4,749			-
Total general and administrative expenses		7,249			2,503			14,504			3,799
Impairment on fixed assets		750				-		750			-
Operating loss		(9,432	)		(1,391	)		(16,230	)		(2,022	)
Interest expense		(3,305	)		-			(6,185	)		-
Loss on sale of fixed assets		(1,618	)		-			(1,618	)		-
Other income, net		-			3			-			8
Loss before income taxes from continuing operations		(14,355	)		(1,388	)		(24,033	)		(2,014	)
Income tax benefit (expense) from continuing operations		251			(3	)		797			(3	)
Net loss from continuing operations		(14,104	)		(1,391	)		(23,236	)		(2,017	)
Income before income taxes from discontinued operations (including gain on sale of MTI Instruments of $7,602 for three and six months ended June 30, 2022)		7,477			217			7,702			177
Income tax benefit from discontinued operations		70			-			70			-
Net income from discontinued operations		7,547			217			7,772			177
Net loss	$	(6,557	)	$	(1,174	)	$	(15,464	)	$	(1,840	)

Basic (loss) earnings per common share:
Net loss from continuing operations per share (Basic)	$	(1.11	)	$	(0.12	)	$	(1.82	)	$	(0.19	)
Net income from discontinued operations per share (Basic)	$	0.54		$	0.02		$	0.56		$	0.02
Basic loss per share	$	(0.57	)	$	(0.10	)	$	(1.26	)	$	(0.17	)

Diluted (loss) earnings per common share:
Net loss from continuing operations per share (Diluted)	$	(1.11	)	$	(0.12	)	$	(1.82	)	$	(0.19	)
Net Income from discontinued operations per share (Diluted)	$	0.54		$	0.02		$	0.56		$	0.02
Diluted loss per share	$	(0.57	)	$	(0.10	)	$	(1.26	)	$	(0.17	)

Weighted average shares outstanding (Basic and Diluted)		14,048,253			11,709,851			13,958,437			10,758,641

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Soluna Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Equity
For the Year Ended December 31, 2021

(Dollars in thousands, except per share)


	Preferred Stock				Common Stock										Treasury Stock

	Shares		Amount		Shares		Amount		Additional Paid-in Capital			Accumulated Deficit			Shares			Amount			Total Stockholders’ Equity
December 31, 2020		0	$	—		10,750,100	$	11	$	137,462		$	(117,793	)		1,015,493		$	(13,764	)	$	5,916

Net loss		—		—		—		—		—			(666	)		—			—			(666	)

Stock-based compensation		—		—		—		—		34			—			—			—			34

Issuance of shares – option exercises		—		—		77,250		—		62			—			—			—			62

Issuance of shares – restricted stock		—		—		57,500		—		49			—			—			—			49

March 31, 2021		0	$	—		10,884,850	$	11	$	137,607		$	(118,459	)		1,015,493		$	(13,764	)	$	5,395

Net loss		—		—		—		—		—			(1,174	)		—			—			(1,174	)

Stock-based compensation		—		—		—		—		1,005			—			—			—			1,005

Issuance of shares – stock offering		—		—		2,782,258		3		15,400			—			—			—			15,403

Issuance of shares – option exercises		—		—		27,650		—		21			—			—			—			21

Issuance of shares – restricted stock		—		—		20,405		—		207			—			—			—			207

June 30, 2021		0	$	—		13,715,163	$	14	$	154,240		$	(119,633	)		1,015,493		$	(13,764	)	$	20,857

Net loss		—		—		—		—		—			(610	)		—			—			(610	)

Preferred dividends		—		—		—		—		(176)			—			—			—			(176)

Stock-based compensation		—		—		—		—		334			—			—			—			334

Issuance of shares – preferred offering		806,585		1		—		—		18,297			—			—			—			18,298

Issuance of shares – option exercises		—		—		16,500		—		18			—			—			—			18

Issuance of shares – warrant exercises		—		—		1,050		—		9			—			—			—			9

September 30, 2021		806,585	$	1		13,732,713	$	14	$	172,722		$	(120,243	)		1,015,493		$	(13,764	)	$	38,730

Net loss		—		—		—		—		—			(2,811	)		—			—			(2,811)

Preferred dividends		—		—		—		—		(454)			—			—			—			(454)

Stock-based compensation		—		—		—		—		648			—			—			—			648

Issuance of shares – preferred offering		445,714		—		—		—		6,759			—			—			—			6,759

Issuance of shares – option exercises		—		—		2,000		—		1			—			—			—			1
																	��
Issuance of shares- restricted stock		—		—		154,426		—		—			—			—			—			—

Issuance of shares- Notes conversion		—		—		150,000		—		1,377			—			—			—			1,377

Issuance of shares- termination shares		—		—		150,000		—		1,917			—			—			—			1,917

Warrants issued in relation to debt financing		—		—		—		—		7,037			—			—			—			7,037
											��
Share consideration of asset acquisition		—		—		—		—		33,000			—			—			—			33,000

Issuance of shares – warrant exercises		—		—		580,560		1		4,783			—			—			—			4,784

December 31, 2021		1,252,299	$	1		14,769,699	$	15	$	227,790		$	(123,054	)		1,015,493		$	(13,764	)	$	90,988

~~Mechanical Technology, Incorporated~~Soluna Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of ~~Operations (Unaudited)~~Changes in Equity

For the Three and Six Months Ended June 30, ~~2021 and 2020~~ 2022 (Unaudited)

(Dollars in thousands, except per share) Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020

Product revenue $ 1,647 $ 2,390 $ 2,984 $ 3,973
Cryptocurrency revenue 1,657 50 2,652 50
     Total revenue 3,304 2,440 5,636 4,023
Operating costs and expenses:
     Cost of product revenue 502 631 954 1,159
     Cost of cryptocurrency revenue 545 0 873 0
     Research and product development expenses 406 362 792 764
     Selling, general and administrative expenses 3,030 847 4,867 1,642
Operating (loss) income (1,179 ) 600 (1,850 ) 458
Other income, net 8 2 13 4
(Loss) income before income taxes (1,171 ) 602 (1,837 ) 462
Income tax (expense) benefit (3 ) 0   (3 ) 3
      Net (loss) income $ (1,174 ) $ 602 $ (1,840 ) $ 465

Net loss per share (Basic) $ (.10 ) $ .06 $ (.17 ) $ .05
Net loss per share (Diluted) $ (.10 ) $ .06 $ (.17 ) $ .05

Weighted average shares outstanding (Basic) 11,709,851 9,570,677 10,758,641 9,570,677

Weighted average shares outstanding (Diluted) 11,709,851 9,651,615 10,758,641 9,655,514

(Dollars in thousands, except per share)


	Preferred Stock				Common Stock									Treasury Stock
		Shares		Amount		Shares		Amount		Additional Paid-in Capital		Accumulated Deficit			Shares		Amount			Total Stockholders’ Equity
December 31, 2021		1,252,299	$	1		14,769,699	$	15	$	227,790	$	(123,054	)		1,015,493	$	(13,764	)	$	90,988

Net loss		—		—		—		—		—		(8,906	)		—		—			(8,906	)

Preferred dividends distribution		—		—		—		—		(749)		—			—		—			(749	)

Stock-based compensation		—		—		—		—		955		—			—		—			955

Issuance of shares – preferred offering		66,857		—		—		—		957		—			—		—			957

Restricted stock units vested		—		—		14,301		—		—		—			—		—			—

Issuance of shares – warrant exercises		—		—		89,500		—		738		—			—		—			738

Issuance of shares- Notes conversion		—		—		146,165		—		1,342		—			—		—			1,342

Warrants issued in relation to debt financing		—		—		—		—		2,257		—			—		—			2,257
March 31, 2022		1,319,156	$	1		15,019,665	$	15	$	233,290	$	(131,960	)		1,015,493	$	(13,764	)	$	87,582

Net loss		—		—		—		—		—		(6,557	)		—		—			(6,557	)

Preferred dividends distribution		—		—		—		—		(1,382)		—			—		—			(1,382	)

Stock-based compensation		—		—		—		—		1,064		—			—		—			1,064

Issuance of shares – option exercises		—		—		91,050		—		77		—			—		—			77

Issuance of shares – preferred offering		599,232		1		—		—		8,796		—			—		—			8,797

Issuance of shares-restricted stock						3,250		—		23		—			—		—			23

Restricted stock units vested		—		—		3,696		—		—		—			—		—			—

Issuance of shares – warrant exercises		—		—		5,000		—		41		—			—		—			41

Promissory note conversion to preferred shares		1,142,857		1		—		—		13,894		—			—		—			13,895

Warrants issued in relation to debt financing		—		—		—		—		3,060		—			—		—			3,060

Treasury Shares conversion		—		—		—		—		—		—			3,023		(34)			(34)
June 30, 2022		3,061,245	$	3		15,122,661	$	15	$	258,863	$	(138,517	)		1,018,516	$	(13,798	)	$	106,566

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

~~Mechanical Technology, Incorporated and Subsidiaries~~
~~Condensed Consolidated Statements of Changes in Equity (Unaudited)~~

~~For the Three and Six-Month Period Ended June 30, 2021(Unaudited):~~

~~(Dollars in thousands, except per share)~~

Common Stock Treasury Stock

Shares

Amount

Additional Paid-
in Capital

Accumulated
Deficit

Shares

Amount
Total
Stockholders’ Equity
December 31, 2020 10,750,100 $ 11 $ 137,462 $ (117,793 ) 1,015,493 $ (13,764 ) $ 5,916

Net loss — — — (666 ) — — (666 )

Stock based compensation — — 34 — — — 34

Issuance of shares – option exercises 77,250 — 62 — — — 62

Issuance of shares – restricted stock 57,500 — 49 — — — 49

March 31, 2021 10,884,850 11 137,607 (118,459 ) 1,015,493 (13,764 ) 5,395
Net loss — — — (1,174 ) — — (1,174 )

Stock based compensation — — 1,005 — — — 1,005

Issuance of shares – stock offering 2,782.258 3 15,400 — — — 15,403

Issuance of shares – option exercises 27,650 — 21 — — — 21

Issuance of shares – restricted stock 20,405 — 207 — — — 207

June 30, 2021 13,715,163 $ 14 $ 154,240 $ (119,633 ) 1,015,493 $ (13,764 ) $ 20,857

~~The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.~~

~~For the Three and Six-Month Period Ended June 30, 2020 (Unaudited):~~

~~(Dollars in thousands, except per share)~~

~~The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.~~

~~Mechanical Technology, Incorporated~~Soluna Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)

For the Six Months Ended June, ~~30,~~2022 and 2021 ~~and 2020~~

(Dollars in thousands)


(Dollars in thousands)	Six Month Ended June 30,
							Six Months Ended June 30,
	2021			2020			2022			2021
Operating Activities
Net (Loss) income	$	(1,840	)	$	465
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		258			53
Stock based compensation		1,039			24
Net loss							$	(15,464	)	$	(1,840	)
Net income from discontinued operations (including gain on sale of MTI Instruments of $7,602 for the six months ended June 30, 2022)								(7,772	)		(177	)
Net loss from continuing operations								(23,236	)		(2,017	)

Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization								14,611			225
Stock-based compensation								1,952			1,039
Consultant stock compensation		49			—			67			49
Provision (recovery) for excess and obsolete inventories		(20	)		—
Loss on disposal of equipment		—			3
Deferred income taxes								(797	)		-
Impairment on fixed assets								750			-
Amortization of operating lease asset								100			76
Amortization on deferred financing costs and discount on notes								5,353			-
Loss on sale of fixed assets								1,618			-
Changes in operating assets and liabilities:
Accounts receivable		195			(511	)		(157	)		(27	)
Inventories		(339	)		(498	)
Prepaid expenses and other current assets		(6,487	)		(32	)		(393	)		(371	)
Other long-term assets		(2	)		(289	)		56			(2	)
Accounts payable		1,689			395			1,882			1,507
Operating lease, net		4			—
Deferred revenue								(9	)		-
Operating lease liabilities								(98	)		(73	)
Other liabilities		61			203			-			61
Accrued liabilities		356			126			64			328
Net cash used in operating activities		(5,037	)		(61	)
Net cash provided by operating activities								1,763			795
Net cash provided by operating activities- discontinued operations								328			301
Investing Activities
Purchases of equipment		(1,336	)		(348	)		(52,618	)		(1,319	)
Purchase of stock in equity investment		—			(750	)
Purchases of intangible assets								(79	)		-
Proceeds from disposal on equipment								465			-
Deposits of equipment, net								1,603			(6,133	)
Net cash used in investing activities		(1,336	)		(1,098	)		(50,629	)		(7,452	)
Net cash provided by (used in) investing activities- discontinued operations								9,025			(17	)
Financing Activities
Proceeds from equity offering		17,250			0
Costs of equity offering		(1,495	)		0
Proceeds from preferred offering								11,657			-
Proceeds from common stock offering								-			17,250
Proceeds from notes and debt issuance								29,736			-
Costs of preferred offering								(1,904	)		-
Costs of common stock offering								-			(1,495	)
Costs of notes and short term debt issuance								(4,333	)		-
Cash dividend distribution on preferred stock								(2,131	)		-
Proceeds from stock option exercises		84			0			77			84
Proceeds from common stock warrant exercises								779			-
Net cash provided by financing activities		15,839			0			33,881			15,839
Increase (decrease) in cash		9,466			(1,159	)

(Decrease) increase in cash-continuing operations								(14,985	)		9,182
Increase in cash- discontinued operations								9,353			284
Cash – beginning of period		2,630			2,510			10,258			2,630
Cash – end of period	$	12,096		$	1,351		$	4,626		$	12,096

Supplemental Disclosure of Cash Flow Information
Noncash equipment financing								4,620
Interest paid on NYDIG loans								770
Proceed receivable from sale of MTI Instruments								205
Notes converted to common stock								1,342
Warrant consideration in relation to promissory notes								5,317
Promissory note conversion to preferred shares								15,236
Purchase of miner equipment using restricted stock		(207	)		—						(207	)
Registration statement fees in prepaids and accounts payable		352			—
Registration fees in prepaids and accounts payable											352

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Soluna Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Nature of Operations

Description of Business

~~Mechanical Technology, Incorporated (“MTI”~~

Unless the context requires otherwise in these notes to the consolidated financial statements, the terms “SHI,” the “Company,” “we,” “us,” and “our” refer to Soluna Holdings, Inc. together with its consolidated subsidiaries, “SCI” refers to Soluna Computing, Inc., formerly known as EcoChain, Inc., and “MTI Instruments” refers to MTI Instruments, Inc.

SHI currently conducts our business through our wholly-owned subsidiary, SCI. SCI is engaged in the mining of cryptocurrency through data centers that can be powered by renewable energy sources. Recently, SCI has built, and intends to continue to develop and build, modular data centers that are used for cryptocurrency mining and that in the future can be used for computing intensive, batchable applications, such as artificial intelligence and machine learning, with the goal of providing a cost-effective alternative to battery storage or ~~“the Company”), was~~transmission lines. Headquartered in Albany, New York, the Company uses technology and intentional design to solve complex, real-world challenges.

SCI incorporated in ~~Nevada~~Delaware on ~~March 24, 2021, and is the successor to Mechanical Technology,~~January 8, 2020 as EcoChain, Inc., which ~~was incorporated~~operates a cryptocurrency mining facility that integrates with the cryptocurrency blockchain network in the State of ~~New York in 1961,~~Washington. Through the October 2021 acquisition by EcoChain, Inc. of an entity at the time named Soluna Computing, Inc., SCI also has a pipeline of certain cryptocurrency mining projects previously owned by Harmattan Energy, Ltd. (“HEL”) (formerly known as Soluna Technologies, Ltd.), a ~~result~~Canadian corporation incorporated under the laws of ~~a merger which became effective~~the Province of British Colombia that develops vertically-integrated, utility-scale computing facilities focused on ~~March 29,~~cryptocurrency mining and cutting-edge blockchain applications. Following such acquisition, on November 15, 2021, SCI completed its conversion and ~~is headquartered in Albany, New York.~~redomicile to Nevada and changed its name from “EcoChain, Inc.” to “Soluna Computing, Inc.”. The ~~Company conducts two core businesses through~~following day, the acquired entity, Soluna Computing, Inc., changed its ~~wholly-owned subsidiaries~~name to “Soluna Callisto Holdings Inc.” (“Soluna Callisto”).

Until the April 11, 2022 sale described below, we also operated though our wholly owned subsidiary, MTI Instruments, ~~Inc. (“MTI Instruments”), which designs, manufactures and markets its products also at the Albany, New York location, and EcoChain, Inc. (“EcoChain”), which is~~an instruments business engaged in ~~cryptocurrency mining powered by renewable energy.~~

the design, manufacture and sale of vibration measurement and system balancing solutions, precision linear displacement sensors, instruments and system solutions, and wafer inspection tools. MTI Instruments was incorporated in New York on March 8, ~~2000 and is a supplier of vibration measurement and balancing systems, precision linear displacement solutions, and wafer inspection tools.~~2000. MTI ~~Instruments~~Instruments’ products consist of engine vibration analysis systems for both military and commercial aircraft and electronic gauging instruments for position, displacement and vibration application within the industrial manufacturing markets, as well as in the research, design and process development markets. These systems, tools and solutions are developed for markets and applications that require consistent operation of complex machinery and the precise measurements and control of products, processes, and the development and implementation of automated manufacturing and assembly.

~~EcoChain~~ On December 17, 2021, we announced that we had entered into a non-binding letter of intent with a potential buyer (the “Buyer”) regarding the potential sale of MTI Instruments (the “LOI”) to an unrelated third party. Pursuant to the LOI, the Buyer would acquire 100% of the issued and outstanding common stock of MTI Instruments (the “Sale”). As a result of the foregoing, the MTI Instruments business was ~~incorporated~~reported as discontinued operations in ~~Delaware~~our consolidated financial statements as of December 31, 2021 and prior periods included in our Annual Report on ~~January 8, 2020. EcoChain has established a new business line focused on cryptocurrency mining and~~Form 10-K for the ~~blockchain ecosystem. In connection~~year ended December 31, 2021, filed with the ~~creation~~SEC on March 31, 2022 (our “Annual Report”), as well as in these consolidated financial statements as of June 30, 2022 and prior periods. On April 11, 2022, we consummated the ~~new business line, EcoChain has established~~Sale, MTI Instruments ceased to be our wholly-owned subsidiary and, as a ~~cryptocurrency mining facility that integrates with~~result, we have exited the ~~cryptocurrency blockchain network in Washington State. EcoChain focuses~~instruments business. See Note 14 for additional information on ~~sites that can be powered by renewable energy sources. In connection with~~ the establishment of the EcoChain business, MTI purchased Class A Preferred Shares of Soluna Technologies, Ltd. (“Soluna”), a Canadian company that develops vertically-integrated, utility-scale computing facilities focused on cryptocurrency mining and cutting-edge blockchain applications.Sale.

~~On April~~Soluna Holdings, Inc., formerly known as Mechanical Technology, Incorporated was incorporated in Nevada on March 24, 2021, and is the successor to Mechanical Technology, Inc., which was incorporated in the State of New York in 1961, as a result of a merger which became effective on March 29, 2021, and is headquartered in Albany, New York. Effective November 2, 2021, the Company ~~closed~~changed its name from “Mechanical Technology, Incorporated” to “Soluna Holdings, Inc.”

On April 11, 2022, SHI entered into a ~~public securities offering~~Stock Purchase Agreement (the ~~“April Offering”~~“Stock Purchase Agreement”) with NKX Acquiror, Inc. (the “Purchaser”), pursuant to which the Company sold on such date all of the issued and ~~sold~~ ~~2,419,355~~outstanding shares of ~~the Company’s common~~capital stock ~~and warrants to purchase up to~~ ~~604,839~~ ~~shares~~ of ~~common stock~~its wholly-owned subsidiary, MTI Instruments for ~~gross proceeds of $15,000,001, less underwriting discounts of~~ ~~7.0% ($1,050,000) and other offering expenses, resulting~~approximately $9.25 million in ~~aggregate net proceeds to the Company of $13,725,001. In addition, on May 27, 2021, the underwriter, exercised its over-allotment option, in full, in connection with the April Offering, pursuant to which the Company issued and sold an additional~~ ~~362,903~~ ~~shares of common stock and warrants to purchase up to an additional~~ ~~90,726~~ ~~shares of common stock, on the same terms as the securities sold in the April Offering, resulting in additional aggregate gross proceeds of approximately $2,250,000, less underwriter discounts of~~ ~~7.0% ($157,500) and other offering expenses, resulting in net proceeds to the Company of $2,029,999. The Company’s aggregate net proceeds in relation to the April Offering, including the over-allotment option, was $15,755,000. The warrants have an initial exercise price of $8.24~~,cash, subject to certain adjustments ~~per whole share of common stock and expire~~ ~~five years~~ ~~from their date of issuance. In connection with~~as set forth in the ~~April Offering,~~Stock Purchase Agreement (the “Sale”). The consideration paid by the Purchaser to the Company ~~also issued to the underwriter, as a portion~~was based on an aggregate enterprise value of ~~its compensation, warrants to purchase up to 139,113 shares of Common Stock, at an initial exercise price of $6.82 per share, subject to certain adjustments.~~approximately $10.75 million. The Company ~~also incurred additional expenses~~recognized a gain on sale of ~~$351,850 in conjunction with the April Offering resulting in total Common Stock of $2,782 and Additional-Paid-in-Capital of $15,400,367.~~

approximately $7.6 million.

~~On May 4, 2021, EcoChain Block, LLC, a Delaware limited liability company (“ECB”), a wholly-owned subsidiary of EcoChain, executed a~~ 25-year ground lease with a power-providing cooperative with respect to an existing building and certain surrounding land (the “Building Lease”), and a 25-year ground lease with the same landlord with respect to certain vacant land adjacent thereto, both located in the Southeastern United States (the “Vacant Land Lease”, and together with the Building Lease, the “Ground Leases”). In addition, ECB and the landlord entered into a Power Supply Agreement (the “Power Supply Agreement”) whereby the landlord has agreed to supply power to the building leased under the Building Lease (the “Building Lease Premises”) and to the premises leased under the Vacant Land Lease (the “Vacant Land Premises”), some of which power, under certain circumstances, may be terminated by the landlord, on at least 6 months prior notice, any time after 12 months after the Building Commencement Date (as hereafter defined), in which case the landlord is required to reimburse ECB for all of its construction costs, subject to certain exceptions, relating to buildings and other improvements developed by ECB on the Vacant Land Premises. As of August 10, 2021, this lease has not commenced.

~~ECB has agreed to pay rent to the landlord of $500,000 on the effective date of the Building Lease (such date, the “Building Commencement Date”) and the sum of $4,000,000 in periodic payments~~ (the “Vacancy Payments”). We executed a guaranty in favor of the landlord with respect to the Vacancy Payments (the “Guaranty of Rent”). The amount of each Vacancy Payment is determined based on the percentage of the building that has been vacated by existing tenants and available for use by ECB. The final Vacancy Payment is due within 60 days after the building has been completely vacated by the existing tenants, which date is contractually scheduled to be no later than March 31, 2022. ECB has the option of making the Vacancy Payments in cash or by our issuance of common stock in an amount that equals the Vacancy Payment then due based on the prior day’s closing price (any such shares, “Vacancy Payment Shares”). If ECB elects to make any payment in Vacancy Payment Shares, then the landlord has an option to accept such Vacancy Payment Shares or require such shares to be converted to cash as more fully provided in the Building Lease. The Building Lease also includes provisions relating to the issuance of additional shares of our common stock, which may be applied as an advance against future Vacancy Payments, all as fully provided in the Building Lease.

~~We are required to issue to the landlord~~ ~~100,000~~ ~~shares of our common stock, in connection with the Vacant Land Lease, upon the effective date of the Vacant Land Lease, which may not occur prior the Building Commencement Date. In addition, ECB~~Going Concern and the landlord have entered into a memorandum of understanding providing ECB with a six-month exclusivity period to expand the Vacant Land Premises, including the obtaining additional power, in connection therewith. ECB and the landlord have not agreed on any of the terms of such expansion other than the exclusivity period previously described. ECB and the landlord have also entered into a transition services agreement (the “Transition Services Agreement”) by which the landlord will provide certain transition services to ECB at a fee to be mutually agreed by the landlord and ECB. The Transition Services Agreement also requires the landlord to pay ECB an amount approximately equal to the landlord’s net profits received from the landlord’s other tenants operating out of the Building Lease Premises.Liquidity

The Company’s financial statements as of June 30, 2022 have been prepared using generally accepted accounting principles in the United States of America (“U.S. GAAP”) applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company did not generate sufficient revenue to generate net income, and has negative working capital as of June 30, 2022. In addition, the Company has seen a decline in the price of Bitcoin due its volatility, which could have material and negative impact to our operations. These factors, among others indicate that there is substantial doubt about the Company’s ability to continue as a going concern within one year after issuance of these financial statements as of June 30, 2022, or August 15, 2022.

~~On June 24, 2021,~~The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and ~~American Stock Transfer & Trust~~repay its liabilities arising from normal business operations when they come due. In the near term, management is evaluating and implementing different strategies to obtain financing to fund the Company’s expenses and growth to achieve a level of revenue adequate to support the Company’s current cost structure. Financing strategies may include, but are not limited to, stock issuance, project level equity, debt borrowings, partnerships and/or collaborations.

In addition, as discussed above and further in Notes 14, and 15, the Company ~~LLC~~sold the MTI Instruments business in April 2022 to focus on developing and monetizing green, zero-carbon computing and cryptocurrency mining facilities. The Company received approximately $9.0 million in cash, net of transaction costs, from the Sale and expects to receive another $0.2 million following Purchaser’s approval of the final working capital.

Following June 30, 2022, to further implement management’s strategy, the Company entered into ~~Amendment No. 2~~various transactions as further described in Note 17 to ~~Rights Agreement (the “Amendment”)~~recapitalize and negotiate revised terms with senior secured lenders, which released collateral (thus enabling execution of the project financing strategy) and to provide a ~~Rights Agreement, dated~~means for holders of the secured obligations to reduce their debt through the equity markets, including entering into the Addendum (as defined in Note 17) to allow the Company to convert $3.3 million in notes payable to common stock and redeem up to $6.6 million of notes payable, the issuance and sale of $5.0 million in a new series of preferred stock. In addition, also as ~~of October 6, 2016, which was amended by Amendment No. 1 to Rights Agreement, dated as of October 20, 2016 (collectively, the “Rights Agreement”~~further described in Note 17, in May 2022, SCI entered into a structural understanding with Soluna SLC Fund I Projects Holdco LLC, a Delaware limited liability company (“Spring Lane”), pursuant to which Spring Lane agreed to provide up to $35.0 million in project financing subject to various milestones and conditions precedent and following the recapitalization and restructuring discussed above, in August 2022, the Company entered into an agreement with Spring Lane for an initial funding of up to $12.5 million of the up to $35.0 million commitment for the Company’s development site in Texas. Management will continue to evaluate different strategies to obtain financing to fund operations, but believes that these transactions, and the availability of up to $7.1 million in additional equipment financing with a third party lender, together with the ~~approval~~Company’s cash on hand of the Board, the Final Expiration Date (as such term is defined in the Rights Agreement) was amended and accelerated from October 26, 2026 to June 24, 2021, and, as a result, the Rights Agreement was terminated effectiveapproximately $4.6 million as of June ~~24, 2021.~~30, 2022 and proceeds from potential capital raising activities and/or increasing the available under our credit facilities, will allow the Company to meet its outstanding commitments relating to capital expenditures as of June 30, 2022 of $1.5 million and other operational needs. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. These financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

~~As a~~The COVID-19 global pandemic has been unprecedented and unpredictable and the impact is likely to continue to result ~~of the termination of the Rights Agreement, certain stockholders of~~in significant national and global economic disruption, which may adversely affect our business. Although the Company ~~who, pursuant~~has experienced some minor changes to our miner shipments due to disruptions in the global supply chain, the Company does not expect any material impact on our long-term strategic plans, our operations, or our liquidity due to the ~~terms~~impacts of COVID-19. Further, various macroeconomic factors could adversely affect our business and the ~~Rights Agreement, held certain rights entitling them, under certain circumstances, to be issued additional shares~~results of our ~~common stock~~operations and financial condition, including changes in inflation, interest rates and overall economic conditions. For instance, inflation could negatively impact the ~~event we issued shares of~~Company by increasing our ~~common stock~~labor costs, through higher wages and higher interest rates. If inflation or other factors were to ~~any other person resulting in such person acquiring beneficial ownership of 4.99% or more of~~significantly increase our ~~outstanding shares of common stock, are no longer entitled to such rights. These rights were established in an effort to protect~~business costs, our ability to ~~use~~develop our ~~net operating loss carryforwards (“NOLs”). The Board, in connection with its authorization and approval~~current projects may be negatively affected. Interest rates, the liquidity of the ~~Amendment, determined that keeping~~credit markets and the ~~Rights Agreement in effect was placing undue restrictions on~~volatility of the capital markets could also affect the operation of our business and our ability to raise capital ~~which it determined outweighed any benefits provided~~in order to ~~protect~~fund our operations. However, the ~~NOLs.~~Company is actively monitoring this situation and the possible effects on our financial condition, liquidity, operations, suppliers, and the industry.

~~Liquidity~~

The Company has historically incurred significant losses primarily due to its past efforts to fund direct methanol fuel cell product development and commercialization programs and had a consolidated accumulated deficit of approximately $~~119.6 million~~ ~~as of June 30, 2021. As of June 30, 2021, the Company had working capital of approximately $16.8 million, no debt, outstanding commitments related to EcoChain for $8.3 million~~ ~~for capital expenditures, and approximately $12.0 million~~ ~~of cash available to fund operations.~~

Based on recent business developments, including changes in production levels, staffing requirements, and network infrastructure improvements, the Company will require additional capital equipment in the foreseeable future. With respect to MTI and MTI Instruments, the Company expects to spend a total of approximately $300 thousand on computer equipment and software and $1.6 million on research and development during 2021. As the Company has done historically, the Company expects to finance these expenditures and continue funding of MTI’s and MTI Instruments’ operations from the Company’s current cash position and the Company’s projected 2021 cash flows. If necessary, the Company may also seek to supplement its resources by increasing credit facilities to fund operational working capital and capital expenditure requirements. With respect to EcoChain, the Company expects to fund growth (additional cryptocurrency mining facilities and miners) through capital raise activities to the extent that the Company can successfully raise capital through additional securities sales. Any additional financing, if required, may not be available to the Company on acceptable terms or at all.

While it cannot be assured, management believes that, due in part to the Company’s current working capital level and projected cash requirements for operations and capital expenditures, its current available cash of approximately $~~12.0 million~~, and the Company’s projected 2021 cash flow pursuant to management’s plans, the Company will have adequate resources to fund operations and capital expenditures for MTI and MTI Instruments for the year ending December 31, 2021 and through at least the end of the third quarter of 2022. As noted above, the Company expects to fund capital expenditures for EcoChain through capital raises, while EcoChain’s operations will be funded through its cash flows. The Company expects to have adequate resources to fund EcoChain’s operations for the year ending December 31, 2021 and through at least the third quarter of 2022.

Basis of Presentation

In the opinion of management, the Company’s condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the periods presented in accordance with ~~United States of America’s Generally Accepted Accounting Principles (“~~U.S. ~~GAAP”).~~GAAP. The results of operations for the interim periods presented are not necessarily indicative of results for the full year.

Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in ~~the Company’s~~our Annual ~~Report on Form 10-K for the year ended December 31, 2020 (“the Annual Report”).~~Report.

The information presented in the accompanying condensed consolidated balance sheet as of December 31, ~~2020~~2021 has been derived from the Company’s audited consolidated financial statements. All other information has been derived from the Company’s unaudited condensed consolidated financial statements for the three and six months ended June 30, ~~2021~~2022 and June 30, ~~2020.~~2021.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and ~~its~~our wholly-owned ~~subsidiaries,~~subsidiary, SCI, as of June 30, 2022 and for the three and six months ended June 30, 2022 and 2021, also includes the accounts of our then wholly-owned subsidiary, MTI ~~Instruments and EcoChain.~~Instruments. All intercompany balances and transactions are eliminated in consolidation.

Change in Par Value

Unless otherwise noted, all capital values, share and per share amounts in the condensed consolidated financial statements have been retroactively restated for the effects of the Company’s change in par value from $~~0.01~~$0.01 to $~~0.001~~,$0.001, which became effective after the redomestication to the State of Nevada on March 29, 2021.

Reclassification

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations or net assets. The reclassifications relate to the presentation of discontinued operations and a correction of an error.

Correction of an Error

The Company recorded cash preferred dividend distributions of $630 thousand in the Annual Report presentation as an increase within accumulated deficit. However, in the absence of retained earnings, cash dividends should generally be charged to Additional-Paid-in Capital (“APIC”). This treatment is supported by Accounting Standards Codification (“ASC”) 480-10-S99-2, which requires accretion of redeemable preferred stock to be charged to APIC in the absence of retained earnings. As the Company did not have accumulated profit (i.e.: absence of retained earnings), the preferred cash dividends should have been charged to APIC.

The following tables present the effects of the correction of the prior period error to the Condensed Consolidated Statement of Equity:

Preferred Stock Common Stock Treasury Stock

Shares Amount Shares Amount Additional
Paid-in
Capital Accumulated
Deficit Shares Amount Total
Stockholders’
Equity

September 30, 2021 806,585 $ 1 13,732,713 $ 14 $ 172,898 $ (120,419 ) 1,015,493 $ (13,764 ) $ 38,730

Adjustment for correction of an error-Preferred dividends — — — — (176 ) 176 — — —
Balance September 30, 2021-as adjusted 806,585 $ 1 13,732,713 $ 14 $ 172,722 $ (120,243 ) 1,015,493 $ (13,764 ) $ 38,730
December 31, 2021
1,252,299 $ 1 14,769,699 $ 15 $ 228,420 $ (123,684 ) 1,015,493 $ (13,764 ) $ 90,988

Adjustment for correction of an error-Preferred dividends — — — — (630 ) 630 — — —

December 31, 2021-as adjusted 1,252,299 $ 1 14,769,699 $ 15 $ 227,790 $ (123,054 ) 1,015,493 $ (13,764 ) $ 90,988

3. Accounts Receivable
Accounts receivables consist of the following at:

(Dollars in thousands)
June 30, 2021 December 31, 2020

U.S. and State Government $ 53 $ 2
Commercial 638 909
Other 89 64
  Total $ 780 $ 975

(Dollars in thousands) June 30,
2022 December 31,
2021
Data Hosting $ 72 450
Other receivable 616 81
Total $ 688 $ 531
~~For the three months ended June 30, 2021 and 2020, the largest commercial customer represented~~ ~~14.2% and~~ ~~7.1%, respectively, and the largest governmental agency represented~~ ~~35.5% and~~ ~~65.8%, respectively, of the Company’s product revenue. For the six months ended June 30, 2021 and 2020, the largest commercial customer represented~~ ~~12.7% and~~ ~~9.6%, respectively, and the largest governmental agency represented~~ ~~27.3% and~~ ~~42.3%, respectively, of the Company’s product revenue. As of June 30, 2021 and December 31, 2020, the largest commercial customer receivable represented~~ ~~16.4% and~~ ~~15.9%, respectively, and the largest governmental customer receivable represented~~ ~~6.8% and~~ ~~0.3%, respectively, of the Company’s accounts receivable.~~
The ~~Company's~~Company’s allowance for doubtful accounts was $0 ~~at both~~as of June 30, ~~2021~~2022 and December 31, ~~2020.~~2021. The Company had a $484 thousand balance as of June 30, 2022 in other receivable related to a reimbursement fee for a project that is being developed in Texas. There were no such receivables as of December 31, 2021.

4. ~~Inventories~~
~~Inventories consist of the following at:~~

(Dollars in thousands)
June 30, 2021 December 31, 2020

Finished goods $ 570 $ 371
Work in process 263 139
Raw materials 354 318
  Total $ 1,187 $ 828
Employee Receivables

Certain employees have a receivable due to the Company related to the vesting of stock awards, in which $135 thousand and $0 were outstanding as of June 30, 2022 and December 31, 2021, respectively. The balance is currently included within prepaid and other assets on the condensed consolidated financial statements.
9
5.4. Property, Plant and Equipment
Property, plant and equipment consist of the following at:
(Dollars in thousands) June 30, 2021 December 31, 2020

Land $ 52 $ —
Leasehold improvements 262 262
Computers and related software 2,639 1,603
Machinery and equipment 902 885
Office furniture and fixtures 39 38
Construction in progress 437 —
4,331 2,788
Less: Accumulated depreciation 2,199 1,941
$ 2,132 $ 847

(Dollars in thousands) June 30,
2022 December 31,
2021
Land $ 52 $ 52
Land improvements 488 238
Buildings 7,188 5,650
Leasehold improvements 366 317
Vehicles 15 15
Computers and related software 66,773 30,890
Machinery and equipment 4,753 2,588
Office furniture and fixtures 22 22
Construction in progress 19,489 7,590
99,146 47,362
Less: Accumulated depreciation (12,098 ) (2,765 )
$ 87,048 $ 44,597
Depreciation expense was $~~165~~5.5 ~~thousand~~million and $31149 thousand for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Depreciation expense was $~~258~~9.9 ~~thousand~~million and $53225 thousand for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

The Company incurred a $1.6 million loss for the three and six months ended June 30, 2022 in connection with the disposal of miners with a net book value of approximately $2.1 million in which the Company received proceeds of $465 thousand. There were no such disposals on equipment for the three and six months ended June 30, 2021.
During the three and six months ended June 30, 2022, the Company concluded that there were impairment indicators on property, plant and equipment associated with the S-9 miners. As a result, a quantitative impairment analysis was required as of June 30, 2022. As such, the Company reassessed its estimates and forecasts as of June 30, 2022, to determine the fair values of the S-9 miners. As a result of the analysis, as of June 30, 2022, the Company concluded the carrying amount of the property, plant and equipment associated with the S-9 miners exceeded its fair value, which resulted in impairment charges of $750 thousand on the condensed consolidated statements of operations for the three and six months ended June 30, 2022.
5. Asset Acquisition
As discussed above, on October 29, 2021, we completed the Soluna Callisto acquisition pursuant to an Agreement and Plan of Merger dated as of August 11, 2021, by and among the Company, SCI and Soluna Callisto (the “Merger Agreement”). The purpose of the transaction was for SCI to acquire substantially all of the assets (other than those assets physically located in Morocco) formerly held by HEL, which assets consisted of Soluna Callisto’s existing pipeline of certain cryptocurrency mining projects that HEL previously transferred to Soluna Callisto and to provide SCI with the opportunity to directly employ or retain the services of four individuals whose services it had retained through HEL prior to the merger. As a result of the merger, each share of common stock of Soluna Callisto issued and outstanding immediately prior to the effective time of the merger, other than shares owned by the Company or any of our subsidiaries, was cancelled and converted into the right to receive a proportionate share of up to 2,970,000 shares (the “Merger Shares”) of the Company’s common stock payable upon the achievement of certain milestones within five years after the effective date in the merger, as set forth in the merger agreement and the schedules thereto (the “Merger Consideration”). See Note 11 for further information regarding our relationship with HEL.
The acquisition was accounted for, for purposes of U.S. GAAP, using the asset acquisition method of accounting under the ASC 805-50. We determined that we acquired in the acquisition a group of similar identifiable assets (primarily, the “strategic pipeline contract” of certain cryptocurrency mining projects), which it classified as an intangible asset for accounting purposes. As a result, our acquisition of the set of assets and activities constituted an asset acquisition, as opposed to a business acquisition, under ASC 805. ASC 805-50 provides that assets acquired in an asset acquisition are measured based on the costs of the acquisition, which is the consideration that the acquirer transfers to the seller, and includes direct transaction costs related to the acquisition. We include Soluna Callisto’s results of operations in our results of operations beginning on the effective date of the acquisition.
Termination Consideration
In connection with the Soluna Callisto acquisition, effective as of October 29, 2021, pursuant to the terms of a termination agreement dated as of August 11, 2021 by and among the Company, SCI, and HEL, on November 5, 2021, (the “Termination Agreement”), SCI paid HEL $725,000 and SHI issued to HEL 150,000 shares of our common stock (the “Termination Shares”). SCI also reimbursed HEL $75,000 for transaction-related fees and expenses. SHI included the termination costs as part of asset acquisition per ASC 805-50. Based on the closing price of the SHI common stock on The Nasdaq Stock Market LLC (“Nasdaq”) on November 5, 2021, SHI has valued the aggregate termination consideration at approximately $1.9 million.
910

Merger Consideration
The fair value of the Merger Consideration includes various assumptions, including those related to the allocation of the estimated value of the maximum number of Merger Shares (2,970,000) issuable as Merger Consideration, which issuance is contingent on the achievement of certain milestones of generating active Megawatts from Qualified Projects in which the Cost Requirement is satisfied within five years after the effective date of the merger, as set forth in the Merger Agreement and the schedules thereto, as set forth below. The Merger Consideration and the timing of the payment thereof is subject to the following qualifications and limitations:
6.1a) ~~Income Taxes~~Upon buyer achieving each one active MegaWatts (“Active MWs”) from the projects in which the cost requirement is satisfied, this will cause SHI to issue to HEL 19,800 shares for each one MW up to a maximum 150 Active MW.
i. If, on or before June 30, 2022, SCI or Soluna Callisto directly or indirectly achieves at least 50 active MWs from one or more of three current projects as set forth in the Merger Agreement that satisfy the Cost Requirement as defined within the Merger Agreement, then the Merger Shares will be issued at an accelerated rate of 29,700 Merger Shares for each of such first 50 Active MW, such that the Merger Shares in respect of the remaining 100 Active MWs (if any) will be issued at a reduced rate of 14,850 Merger Shares per Active MW;
ii. If, by June 30, 2023, SCI or Soluna Calisto fail to achieve directly or indirectly (other than pursuant to a Portfolio Acquisition) at least 50 Active MW from Projects that satisfy the Cost Requirement, then the maximum aggregate number of Merger Shares shall be reduced from 2,970,000 to 1,485,000;
iii. No Merger Shares will be issued to HEL without our prior written consent;
iv. Issuance of the Merger Shares will also be subject to the continued employment with or engagement by SCI or the surviving corporation of (A) John Belizaire and (B) at least two of Dipul Patel, Mohammed Larbi Loudiyi, (through ML&K Contractor), and Phillip Ng at the time that such Merger Shares are earned. If both (A) and (B) cease to be satisfied on or prior to the date that all Merger Shares are earned (such date, a “Trigger Date”), then “Qualified Projects” for purposes of determining Merger Shares shall only apply to those Qualified Projects that are in the pipeline as of the Trigger Date. For these purposes, if any such individual’s employment or service relationship with SCI is terminated without cause, as a result of his death or disability, or with good reason (as such terms are defined in the employment and consulting agreements), such individual shall be deemed to continue to be employed or engaged by SCI for these purposes;
v. If SHI or SCI consummates a Change of Control before the fifth anniversary of the date of the closing of the merger, then we will be obligated to issue all of the unissued Merger Shares (subject to (ii) and (iii) above). The Merger Agreement defines “Change of Control” as (A) the sale, exchange, transfer, or other disposition of all or substantially all of the assets of us or SCI, (B) our failure to continue to own (directly or indirectly) 100% of the outstanding equity securities of SCI and/or the surviving corporation, or (C) a merger, consolidation, or other transaction in which the holders of SHI’s, SCI’s, or the surviving corporation’s outstanding voting securities immediately prior to such transaction own, immediately after such transaction, securities representing less than 50% of the voting power of the corporation or other entity surviving such transaction (excluding any such transaction principally for bona fide equity financing purposes, so long as, in the case of SHI or SCI (but not the surviving corporation) such transactions, individually and in the aggregate, do not result in a change in membership of such entity’s board of directors so that the persons who were members of the board of directors immediately prior to the first such transaction constitute less than 50% of the board membership at any time after such transaction(s) are consummated). Notwithstanding the foregoing, a transaction shall not constitute a Change of Control if its sole purpose is to change the state of SHI’s or SCI’s incorporation or to create a holding company that will be owned in the same proportions by the persons who held SHI’s or SCI’s securities immediately prior to such transaction; and
vi. if on any of the fifth anniversary of the effective time of the merger, June 30, 2022 or June 30, 2023, a facility has not become a Qualified Facility and therefore is not taken into consideration in the calculation of Active MW because any of the elements set forth in the definition of “Qualified Facility” as defined in the Merger Agreement have not been met for reasons beyond the reasonable control of SCI’s management team, but SCI’s management team is then actively engaged in the process of completing and is diligently pursuing the completion of the missing elements, then (A) the target dates set forth above shall be extended for an additional 90 days, and (B) additional extensions of time may be granted by our Board of Directors (the “Board”) in its commercially reasonable discretion, in each case for the purpose of enabling SCI’s management team to complete the steps needed to qualify the facility as a Qualified Facility.
The number of Merger Shares is also subject to customary anti-dilution adjustments in the event of any stock split, stock consolidation, stock dividend, or similar event involving the shares of our common stock. Based on the assessment performed, the fair value of the merger consideration as of October 29, 2021 was approximately $33.0 million.
Based on management’s evaluation, management concluded that due to the high volatility of its share price, the low probability of not achieving the MW targets, and the fact the value associated with meeting the performance measures are not intended to drive the number of shares to be issued, but rather act as a proxy for and driver of share value, the monetary value of the obligation at inception is predominantly a function of equity shares. As such, the consideration will be treated as equity as ASC 480-10-25-14 is not applicable since the monetary value of the Merger Shares is not (1) fixed, or (2) dependent on (i) variations in something other than the fair value of the Company’s equity shares, or (ii) variations inversely related to changes in the fair value of the Company’s equity shares and is instead exposed to changes in the fair value of the Company’s share price, and as such does not represent a liability under ASC 480. The economic risks and characteristics of the share consideration are clearly and closely related to a residual equity interest since the underlying (i.e., the incremental shares of common stock delivered upon achievement of each MW target) will participate in the increase in value of the common equity of the Company, similar to a call option on common stock. Based on guidance in ASC 815-40-25-7 through 25-35, the share consideration is considered to be indexed to the Company’s stock and meets the additional criteria for equity classification.
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6. Intangible Assets
Intangible assets consist of the following as of June 30, 2022:
(Dollars in thousands) Intangible
Assets Accumulated
Amortization Total

Strategic pipeline contract $ 46,885 $ 6,251 $ 40,634
Assembled workforce 500 67 433
Patents 112 1 111
Total $ 47,497 $ 6,319 $ 41,178
Intangible assets consist of the following as of December 31, 2021:
(Dollars in thousands) Intangible
Assets Accumulated
Amortization Total

Strategic pipeline contract $ 46,885 $ 1,562 $ 45,323
Assembled workforce 500 17 483
Patents 33 0 33
Total $ 47,418 $ 1,579 $ 45,839
There were no intangible assets or amortization expense as of June 30, 2021. Amortization expense for the three and six months ended June 30, 2022 was approximately $2.4 million and $4.7 million, respectively.
The strategic pipeline contract relates to supply of a critical input to our digital mining business. The Company has analyzed this strategic pipeline contract similar to a permit for future benefit. The strategic pipeline contract relates to potential renewable energy datacenters that fit in the alignment of the Company structure to expand operations of the Company’s new focus in their business.
The Company expects to record amortization expense of intangible assets over the next five years and thereafter as follows:
(Dollars in thousands)
Year ending December 31,
2022 (remainder of the year) $ 4,741
2023 9,482
2024 9,482
2025 9,482
2026 7,903
Thereafter 88
Total $ 41,178
7. Income Taxes
During the three and six months ended June 30, 2022, the Company’s effective income tax rate on the tax benefit was 1.75% and 3.32%, and for each of the three and six months ended June 30, 2021, the Company’s effective income tax rate was ~~0.0~~0%. The projected annual effective tax rate is less than the Federal statutory rate of 2121%%, primarily due to the change in the valuation allowance, as well as changes to estimated taxable income for ~~2021~~2022 and permanent differences. There was an$251 thousand and $797 thousand deferred income tax ~~expense of $~~3 ~~thousand~~benefit for the three and six months ended June 30, 2022 and for the three and six months ended June 30, 2021, ~~and $~~0 ~~for the three months ended June 30, 2020 and~~there was an income tax ~~benefit~~expense of $3 ~~thousand for~~ thousand.
In connection with the strategic contract pipeline acquired in the Soluna Callisto acquisition as further discussed in Note 5, ASC 740-10-25-51 requires the recognition of a deferred tax impact of acquiring an asset in a transaction that is not a business combination when the amount paid exceeds the tax basis on the acquisition date. As such, the Company is required to adjust the value of the strategic contract pipeline by approximately $10.9 million at inception date, in which was recorded as a deferred tax liability and this amount will be amortized over the life of the asset. For the three and six months ended June 30, ~~2020.~~2022, the Company amortized $547 thousand and approximately $1.1 million, respectively.
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The Company provides for recognition of deferred tax assets if the realization of such assets is more likely than not to occur in accordance with accounting standards that address income taxes. Significant management judgment is required in determining the period in which the reversal of a valuation allowance should occur. The Company has considered all available evidence, both positive and negative, such as historical levels of income and future forecasts of taxable income amongst other items, in determining its valuation allowance. In addition, the Company’s assessment requires us to schedule future taxable income in accordance with accounting standards that address income taxes to assess the appropriateness of a valuation allowance which further requires the exercise of significant management judgment.
The Company believes that the accounting estimate for the valuation of deferred tax assets is a critical accounting estimate because judgment is required in assessing the likely future tax consequences of events that have been recognized in our financial statements or tax returns. The Company based the estimate of deferred tax assets and liabilities on current tax laws and rates and, in certain cases, business plans and other expectations about future outcomes. In the event that actual results differ from these estimates or the Company adjusts these estimates in future periods, the Company may need to adjust the recorded valuation allowance, which could materially impact our financial position and results of operations. The valuation allowance was $~~10.2~~$16.5 million and $~~9.7~~11.9 million atas of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. We will continue to evaluate the ability to realize our deferred tax assets and related valuation allowance on a quarterly basis.
8. Debt
Convertible Notes
Debt consists of the following
(dollar in thousands):
Maturity Date Interest Rate June 30, 2022 December 31, 2021
Convertible Note October 25, 2022 8 % $ 13,585 $ 14,927
Less: debt discount 349 967
Less: discount from issuance of warrants 2,408 5,747
Less: debt issuance costs 424 1,092
Total convertible notes, net of discount and issuance costs $ 10,404 $ 7,121
On October 25, 2021, pursuant to a Securities Purchase Agreement (the “October SPA”), the Company issued to certain accredited investors (i) secured convertible notes in an aggregate principal amount of $16.3 million for an aggregate purchase price of $15 million (collectively, the “October Notes”), which are, subject to certain conditions, convertible at any time by the investors, into an aggregate of 1,776,073 shares (the “October Conversion Shares”) of the Company’s common stock, at a price per share of $9.18 (the “Fixed Conversion Price”) and (ii) Class A, Class B and Class C common stock purchase warrants (collectively, the “October Warrants”) to purchase up to an aggregate of 1,776,073 shares of common stock, at an exercise price $12.50, $15 and $18 per share, respectively. The October Warrants are legally detachable and can be separately exercised immediately for five years upon issuance, subject to applicable Nasdaq rules.
The Notes, subject to an original issue discount of 8%, have a maturity date of October 25, 2022 (the “Maturity Date”), upon which the Notes shall be payable in full. Commencing on the Maturity Date and also five (5) days after the occurrence of any Event of Default (as defined in the Notes), interest on the Notes will accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law. If any Event of Default or a Fundamental Transaction (as defined in the Notes) or a Change of Control (as defined in the Notes) occurs, the outstanding principal amount of the Notes, liquidated damages and other amounts owing in respect thereof through the date of acceleration, will become, at the Investor’s election, immediately due and payable in cash at the Mandatory Default Amount (as defined in the Notes). The Notes may not be prepaid, redeemed or mandatory converted without the consent of the Investors. The obligations of the Company pursuant to the Notes are (i) secured to the extent and as provided in the Security Agreement, dated as of October 25, 2021, by and among the Company, MTI Instruments and SCI, Soluna MC, LLC and Soluna SW, LLC (both of which are wholly owned subsidiaries of SCI, and together with MTI Instruments and SCI, the “Subsidiary Guarantors”), and Collateral Services LLC (the “Collateral Agent”), as collateral agent for and the holders of the Notes (the “October Security Agreement”); and (ii) guaranteed jointly and severally by the Subsidiary Guarantors pursuant to each Subsidiary Guaranty, dated as of October 25, 2021, by and among each Subsidiary Guarantor and the purchasers (the “October Purchasers”) signatory to the SPA (each, a “Subsidiary Guaranty”). On July 19, 2022, the Company entered into an Addendum with the Collateral Agent and the October Purchasers to amend certain terms of the October SPA and the October Security Agreement (the “Addendum”). See Note 17. Subsequent Events for additional information on the Addendum.

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The fair value of the October Warrants, as of the issuance date, was $7.0 million and is recorded as equity with the offset recorded as debt discount against the net proceeds. The proceeds of $15.0 million were allocated between the October Notes and the October Warrants, in which the discount related to the warrants are being amortized based on the straight-line method over the twelve months term of the October Notes. For the three and six months ended June 30, 2022, the Company has recorded amortized debt discount related to the warrants, the amount of $1.6 million and $3.4 million which is included in interest expense. The Company has also recorded a debt discount on the October Notes as the difference between the face amount of the notes payable of $16.3 million and purchase price of $15.0 million of $1.3 million in which approximately $950 thousand has been amortized over the life of the notes. There was also debt issuance costs of approximately $1.3 million and approximately $900 thousand has been amortized over the life of the October Notes. All amortized costs are included in interest expense.
During the six months ended June 30, 2022 and year ended December 31, 2021, $13.6 million and $14.9 million, respectively, was remaining in the principal balance of the October Notes. For the six months ended June 30, 2022, approximately $1.3 million was converted into 146,165 shares of our common stock, respectively. Through June 30, 2022, a total of approximately $2.7 million was converted into 296,165 shares of our common stock, respectively.
Promissory Notes
On February 22, 2022, the Company issued to certain institutional lenders (the “Lenders”) promissory notes in an aggregate principal amount of $7.6 million for an aggregate purchase price of $7.6 million (collectively, the “First Tranche Notes”). The Notes were issued as the first tranche of an aggregate financing of $20.0 million. On March 10, 2022, the Company has issued to the lenders a second tranche of an aggregate principal amount of $2.4 million (the “Second Tranche Notes”). The Company issued to the Lenders a third tranche of promissory notes in an aggregate principal amount of $10.0 million for an aggregate purchase price of $10.0 million (the “Third Tranche Notes” and, together with the First Tranche Notes and Second Tranche Notes, the “Notes”) along with Class D common stock purchase warrants (collectively, the “Warrants”) to purchase up to an aggregate of 1,000,000 shares of common stock of the Company, at an exercise price of $11.50 per share on April 13, 2022. The Warrants are immediately exercisable for two years upon issuance, subject to applicable Nasdaq rules.
The exercise of the Warrants is subject to beneficial ownership limitations such that the Lenders may not exercise the Warrants to the extent that such exercise would result in each of the Lenders being the beneficial owner in excess of 4.99% (or, upon election of such Lender, 9.99%) of the number of shares of the common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable upon such exercise, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not be effective until 61 days following notice to the Company.
The total fair value of the Warrants, as of the issuance date, was $4.8 million and is recorded as equity with the offset recorded as debt discount against the net proceeds. The proceeds of $20.00 million were allocated between the Promissory Notes and the Warrants, in which the discount related to the warrants is being amortized based on the straight-line method through the date of Maturity. None of the Warrants have been exercised and exchanged for the Company’s common stock as of June 30, 2022.
On April 29, 2022, the Company issued in a concurrent registered direct offering 1,142,857 shares of Series A Cumulative Perpetual Preferred Stock, par value $0.001 per share, of the Company (the “Series A Preferred Stock”) to the Lenders, at an offering price of $17.50 per share, the same price as the public offering price of the shares of Series A Preferred Stock in the underwritten public offering, in full satisfaction of the Company’s obligations under the outstanding Notes in an aggregate amount of $20 million. The only remaining balance as of June 30, 2022 was $46 thousand in interest payable to the lenders.
NYDIG Financing
Maturity Dates Interest Rate June 30, 2022
NYDIG Loans #1-11 April 25, 2023
thru January 25, 2027 12% thru 15% $ 14,387
Less: principal payments 2,590
Less: debt issuance costs 289
Total outstanding debt 11,508
Less: current portion of debt 7,526
Total Long term debt $ 3,982
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On December 30, 2021, Soluna MC Borrowing 2021-1 LLC (“Borrower”), an indirect wholly owned subsidiary of the Company entered into a Master Equipment Finance Agreement (the “Master Agreement”) with NYDIG ABL LLC (“NYDIG”) as lender, servicer and collateral agent. The Master Agreement outlined the framework for a financing up to approximately $14.4 million in aggregate equipment financing. Subsequently, the parties negotiated the specific terms of each equipment financing transaction as well as the terms upon which the investors in our October 2021 Senior Secured Convertible Notes (the “Convertible Investors”) would consent to the transactions contemplated by the Master Agreement.
On January 14, 2022, the Borrower effected an initial drawdown under the Master Agreement in the aggregate principal amount of approximately $4.6 million that bore interest at 14% and will be repaid over 24 months. On January 26, 2022, the Borrower had a subsequent drawdown of $9.6 million. As part of the transactions contemplated under the Master Agreement, (i) the Company’s indirect wholly owned subsidiary, Soluna MC LLC, formerly EcoChain Block LLC (“Guarantor”), which is the owner of 100% of the equity interests of Borrower, executed a Guaranty Agreement in favor of NYDIG, as lender, dated as of December 30, 2021 (the “Guaranty Agreement”), (ii) Borrower has granted a lien on, and security interest in, all of its assets to NYDIG, as collateral agent, (iii) Guarantor entered into an equipment financing arrangement on assets purchased with the borrowed funds, (iv) Borrower will borrow from NYDIG the loans as forth in certain loan schedules (the “Specified Loans”), and (v) Borrower has executed a Digital Asset Account Control Agreement (the “ACA Wallet Agreement”) with NYDIG, as collateral agent and secured party, and NYDIG Trust Company LLC, as custodian, dated as of December 30, 2021, as well as such other agreements related to the foregoing as mutually agreed (collectively, the “NYDIG Transactions”).
In connection with the NYDIG Transactions, on January 13, 2022, the Company entered into a Consent and Waiver Agreement, dated as of January 13, 2022 (the “Consent”), with the Convertible Investors, in connection with the SPA, pursuant to which the Convertible Investors agreed to waive any lien on, and security interest in, certain assets, provided various contingencies are fulfilled, and each Investor who acquired on the Closing Date Notes having a principal amount of not less than $3,000,000 agreed to waive its rights under Section 4.17 of the SPA to participate in Subsequent Financings with respect to the NYDIG Transactions and any additional loans under the MEFA that only finance the purchase of equipment from NYDIG, in order to consent to the NYDIG Transactions. Pursuant to the Consent, the Investors also waived the current requirement of the SPA and the other Transaction Documents (collectively, the “SPA Documents”) that the Borrower become an Additional Debtor (as defined in the Security Agreement) and execute an Additional Debtor Joinder (as defined in the Security Agreement) for so long as the Specified Loans are outstanding, and NYDIG not entering into a subordination or intercreditor agreement with respect to the Guaranty. Further, pursuant to the Consent, the Purchasers waived the right to accelerate the Maturity Date of the Notes and the right to charge a default rate of interest on such Notes, in each case, with respect to certain changes in names of, and jurisdiction of incorporation, of the Debtors (as defined in the SPA Documents), which waiver does not waive any other Event of Default (as defined in any of the SPA Documents), known or unknown, as of the date of Consent.
Promptly after the date of the Consent, the Company issued warrants to purchase up to 85,000 shares of common stock to the Convertible Investor holding the largest outstanding principal amount of Notes as of the date of the Consent. Such warrants are substantially in form similar to the other Warrants held by the Convertible Investors. Such warrants are exercisable for three years from the date of the Consent at an exercise price per share of the Company’s common stock, equal to 130% of the closing price per share of the common stock as of the date of the Consent.
Line of Credit
On September 13, 2021, the Company entered into a $1.0 million unsecured line of credit with KeyBank National Association, that will, among other things, allow the Company to request loans and to use the proceeds of such loans for working capital and other general corporate purposes. The line of credit may be drawn at the discretion of the Company, and bears interest at a rate of Prime + 0.75% per annum (5.5% interest rate as of June 30, 2022). Accrued interest is due monthly and principal is due in full following lender’s demand. As of June 30, 2022 and December 31, 2021, the entire line of credit of $1.0 million was drawn and outstanding.
7.9. ~~Stockholders~~Stockholders’ Equity~~’ Equity~~
Preferred Stock
As of August 15, 2022, the Company has two series of preferred stock outstanding: the Series A Preferred Stock, with a $25.00 liquidation preference; and the Series B Convertible Preferred Stock, par value $0.001 per share, with a stated value equal to $100.00 (the “Series B Preferred Stock”). As of June 30, 2022 and December 31, 2021, there were 3,061,245 and 1,252,299 shares of Series A Preferred Stock issued and outstanding, respectively, and no shares of Series B Preferred Stock issued and outstanding.
Common Stock
The Company has one class of common stock, par value $0.001. Each share of the Company’s common stock is entitled to one vote on all matters submitted to stockholders. As of June 30, ~~2021~~2022, and December 31, ~~2020,~~2021, there were ~~12,699,670~~14,104,145 and ~~9,734,607~~13,754,206 shares of common stock issued and outstanding, respectively.
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Dividends
~~Dividends are recorded~~
Pursuant to the Certificate of Designations, Preferences and Rights of 9.0% Series A Cumulative Perpetual Preferred Stock of the Company, dividends, when, as and if declared by the ~~Company’s~~Board (or a duly authorized committee of the Board), will be payable monthly in arrears on the final day of each month, beginning August 31, 2021. During the three and six months ended June 30, 2022, the Board declared and paid the Company aggregate dividends on the shares of ~~Directors. There were no dividends declared or paid during 2020 or 2021.~~Series A Preferred Stock of approximately $1.4 million and $2.1 million, respectively.
Reservation of Shares
The Company had reserved shares of common stock for future issuance as follows as of June 30, ~~2021:~~2022:

Stock options outstanding ~~1,010,050~~898,600
Restricted stock units outstanding ~~15,000~~773,861
Warrants outstanding 3,217,315
Common stock available for future equity awards or issuance of options ~~692.616~~524,449
Number of common shares reserved ~~1,717,666~~5,414,225

Income (Loss) per Share
The Company computes basic income (loss) per common share by dividing net income (loss) by the weighted average number of common shares outstanding during the reporting period. Diluted income (loss) per share reflects the potential dilution, if any, computed by dividing income (loss) by the combination of dilutive common stock equivalents, comprised of shares issuable under outstanding investment rights, warrants and the Company’s stock-based compensation plans, and the weighted average number of shares of common stock outstanding during the reporting period. Dilutive common stock equivalents include the dilutive effect of in-the-money stock options, which are calculated based on the average share price for each period using the treasury stock method. Under the treasury stock method, the exercise price of a stock option and the amount of compensation cost, if any, for future service that the Company has not yet recognized are assumed to be used to repurchase shares in the current period.
The Company notes as continuing operations was in a Net loss position for the three and six months ended June 30, 2022 and 2021, as such basic and diluted Earnings-per-share (“EPS”) is the same amount as continuing operations acts as the control amount in which would cause antidilution. Not included in the computation of earnings per share, assuming dilution, for the three and six months ended June 30, ~~2021,~~2022, were options to purchase ~~658,550~~898,600 shares ~~and~~ ~~15,000~~ ~~restricted stock units~~ of the Company’s common ~~stock.~~stock, 773,861 nonvested restricted stock units, 3,217,315 outstanding warrants not exercised, and 1,479,908 shares of convertible notes outstanding. These potentially dilutive items were excluded because the ~~Company incurred a loss during the period and their inclusion would be anti-dilutive.~~ calculation of incremental shares resulted in an anti-dilutive effect.
Not included in the computation of earnings per share, assuming dilution, for the three and six months ended June 30, 2021, were options to purchase 1,010,050 shares of the Company’s common stock and 15,000 restricted stock units of the Company’s common stock. These potentially dilutive items were excluded because the Company incurred a loss during the period and their inclusion would be anti-dilutive.
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~~Not included in the computation of earnings per share, assuming dilution, for the three months ended June 30, 2020, were options to purchase~~ ~~491,430~~ shares of the Company’s common stock. These potentially dilutive items were excluded because the average market price of the shares of common stock exceeded the exercise price of the options. Not included in the computation of earnings per share, assuming dilution, for the six months ended June 30, 2021, were options to purchase ~~491,430~~ ~~shares of the Company’s common stock. These potentially dilutive items were excluded because the average market price of the shares of common stock exceeded the exercise price of the options.~~

8.10. Commitments and Contingencies
Commitments:
Leases

The Company determines whether an arrangement is a lease at inception. The Company and ~~its~~our subsidiaries have operating leases for certain manufacturing, laboratory, office facilities and certain equipment. The leases have remaining lease terms of less than one year to less than five years. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company ~~has~~had no assets recorded under finance leases.
Lease expense for these leases is recognized on a straight-line basis over the lease term. For the three and six months ended June 30, 2022 and 2021, total lease costs are comprised of the following:

(Dollars in thousands)
Three Months Ended
June 30,

Six Months Ended
June 30,

2021 2020 2021 2020

Operating lease cost $ 93 $ 66 $ 187 $ 121
Short-term lease cost — 2 — 2
       Total net lease cost $ 93 $ 68 $ 187 $ 123

(Dollars in thousands) Three Months Ended
June 30, Six Months Ended
June 30,
2022 2021 2022 2021

Operating lease cost $ 50 $ 38 $ 100 $ 76
Short-term lease cost — — — —
Total net lease cost $ 50 $ 38 $ 100 $ 76
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Short-term leases are leases having a term of twelve months or less. The Company recognizes short-term leases on a straight-line basis and does not record a related lease asset or liability for such leases.
Other information related to leases was as follows:
(Dollars in thousands, except lease term and discount rate)
(Dollars in thousands)
Six Months Ended
June 30, ~~2021~~2022

Weighted Average Remaining Lease Term (in years):
Operating leases ~~3.64~~1.88

Weighted Average Discount Rate:
Operating leases ~~5.51~~3.83 %

(Dollars in thousands)
Six Months Ended June 30, 2021 Six Months Ended June 30, 2020

Supplemental Cash Flows Information:
Cash paid for amounts included in the measurement of lease liabilities:
     Operating cash flows from operating leases $ 187 $ 121

Non-Cash Activity Right-of-use assets obtained in exchange for lease obligations:
     Operating leases $ —   $ 387
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(Dollars in thousands, except lease term and discount rate)
(Dollars in thousands)
Six Months Ended
June 30, 2022 Six Months Ended
June 30, 2021

Supplemental Cash Flows Information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 98 $ 73

Non-Cash Activity Right-of-use assets obtained in exchange for lease obligations:
Operating leases $ 13 $ —
Maturities of noncancellable operating lease ~~liabilitie~~sliabilities are as follows for the ~~quarter~~six months ending June 30:
(Dollars in thousands)
2021 2022
2021 $ 374
2022 376
2022 (remainder of year) $ 103
2023 290 164
2024 103 84
2025 —
Total lease payments 1,143 351
Less: imputed interest (91 ) (13 )
Total lease obligations 1,052 338
Less: current obligations (327 ) (196 )
Long-term lease obligations $ 725 $ 142
As of June 30, ~~2021, except for the ground lease entered into as described in Note 1,~~2022, there were no additional operating lease commitments that had not yet commenced.
~~Warranties~~
~~Product warranty liabilities are included in “Accrued liabilities” in the Condensed Consolidated Balance Sheets. Below is a reconciliation of changes in product warranty liabilities:~~

(Dollars in thousands) Six Months Ended
June 30,
2021 2020
Balance, January 1 $ 22 $ 16
Accruals for warranties issued 8 10
Accruals for pre-existing warranties — —
Settlements made (in cash or in kind) (4 ) (3 )
Balance, end of period $ 26 $ 23
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Contingencies:
Legal
We are subject to legal proceedings, claims and liabilities which arise in the ordinary course of business. When applicable, we accrue for losses associated with legal claims when such losses are probable and can be reasonably estimated. These accruals are adjusted as additional information becomes available or circumstances change. Legal fees are charged to expense as they are incurred.
The Company has been named as a party in the December 19, 2019 United States Environmental Protection Agency (“EPA”) Demand Letter regarding the Malta Rocket Fuel Area Superfund Site (“Site”) located in Malta and Stillwater, New York in connection with an alleged release of hazardous materials into the environment. The EPA is seeking reimbursement of response costs from all named parties in the amount of approximately $358 thousand plus interest in connection with the investigation and disposal activities associated with the various drum caches discovered at the Site, issuance of the Explanation of Significant Differences (“ESD”) of the Site, and implementation of the work contemplated by the ESD. The Company considers the likelihood of a material adverse outcome to be remote and does not currently anticipate that any expense or liability it may incur as a result of these matters in the future will be material to the ~~Company's~~Company’s financial condition.

9.11. Related Party Transactions
MeOH Power, Inc.
On December 18, 2013, MeOH Power, Inc. and the Company executed a Senior Demand Promissory Note (the “Note”) in the amount of $380 thousand to secure the intercompany amounts due to the Company from MeOH Power, Inc. upon the deconsolidation of MeOH Power, Inc. Interest accrues on the Note at the Prime Rate in effect on the first business day of the month, as published in the Wall Street Journal. At the Company’s option, all or part of the principal and interest due on this Note may be converted to shares of common stock of MeOH Power, Inc. at a rate of $0.07 per share. Interest began accruing on January 1, 2014. The Company recorded a full allowance against the Note. As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, $~~325~~334 thousand and $~~321~~329 thousand, respectively, of principal and interest are available to convert into shares of common stock of MeOH Power, Inc. Any adjustments to the allowance are recorded as miscellaneous expense during the period incurred.
12
Legal Services
During the three and six months ended June 30, ~~2021,~~2022, the Company incurred $71 thousand and $152 thousand, respectively, to Couch White, LLP for legal services associated with contract review. During the three and six months ended June 30, ~~2020,~~2021, the Company incurred $197 thousand and $7715 thousand, ~~respectively, to Couch White, LLP for legal services associated with contract review.~~respectively. A partner at Couch White, LLP is an immediate family member of one of our Directors.
~~Soluna~~HEL Transactions
On January 8, 2020, the Company formed ~~EcoChain~~SCI as a wholly-owned subsidiary to pursue a new business line focused on cryptocurrency and the blockchain ecosystem. In connection with this new business line, ~~EcoChain~~SCI established a facility to mine cryptocurrencies and integrate with the blockchain network. Pursuant to an Operating and Management Agreement dated January 13, 2020, by and between ~~EcoChain~~SCI and Soluna Technologies, Ltd. (“Soluna”), a Canadian company that develops vertically-integrated, utility-scale computing facilities focused on cryptocurrency mining and cutting-edge blockchain applications, SolunaHEL, HEL assisted the Company, and later ~~EcoChain,~~SCI, in developing, and is now operating, the cryptocurrency mining facility. The Operating and Management Agreement requires, among other things, that ~~Soluna~~HEL provide project sourcing services to SCI, including acquisition negotiations and establishing an operating model, investments/financing timeline, and a project development path, as well as developmental and operational services, as directed by ~~EcoChain,~~SCI, with respect to the applicable cryptocurrency mining facility in exchange for ~~EcoChain’s~~SCI’s payment to ~~Soluna~~HEL of a one-time management fee ofranging from $6565,000 ~~thousand~~to $350,000 and profit-based success payments in the event ~~EcoChain~~that SCI achieves explicit profitability thresholds. ~~Once~~These agreements also provided that once aggregate earnings before interest, taxes, depreciation, and amortization of the applicable mine ~~exceeds~~exceeded the total amount of funding provided by ~~EcoChain~~SCI to ~~Soluna~~HEL (whether pursuant to ~~this~~the applicable agreement or otherwise) for the purposes of creating, developing, assembling, and constructing the mine, ~~(the “Threshold”), Soluna is~~HEL was entitled to ongoing success payments of 20.0% of the earnings before interest, taxes, depreciation, and amortization of the mine. ~~As of June 30, 2021,~~ $~~118~~237 thousand of payments ~~have~~had been made ~~or are due,~~for fiscal year 2021, as certain Thresholds have been achieved.
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Pursuant to the Operating and Management Agreement, during the developmental phase of the cryptocurrency mining facility, which ended on March 14, 2020, ~~Soluna~~HEL gathered and analyzed information with respect to ~~EcoChain's~~SCI’s cryptocurrency mining efforts and produced budgets, financial models, and technical and operational plans, including a detailed business plan, that it delivered to ~~EcoChain~~SCI in March 2020 (the “Deliverables”), all of which was designed to assist with the efficient implementation of a cryptocurrency mine. The agreement provided that, following ~~EcoChain’s~~SCI’s acceptance of the Deliverables, which occurred on March 23, 2020, ~~Soluna,~~HEL, on behalf of ~~EcoChain,~~SCI, would commence operations of the cryptocurrency mine in a manner that would allow ~~EcoChain~~SCI to mine and sell cryptocurrency. In that regard, on May 21, 2020, ~~EcoChain~~SCI acquired the intellectual property of GigaWatt, Inc. (“GigaWatt”) and certain other property and rights of GigaWatt associated with GigaWatt’s operation of a crypto-mining operation located in Washington State. The acquired assets formed the cornerstone of ~~EcoChain’s~~SCI’s current cryptocurrency mining operation. ~~EcoChain~~SCI sells for U.S. dollars all cryptocurrency it mines and is not in the business of accumulating cryptocurrency on ~~its~~our balance sheet for speculative gains. On October 22, 2020, ~~EcoChain~~SCI loaned ~~Soluna $112~~HEL $112 thousand to acquire additional assets from the bankruptcy trustee for GigaWatt’s assets. On the same day, ~~Soluna~~HEL transferred title of the assets to ~~EcoChain,~~SCI, which under the terms thereof paid off the note.
On November 19, 2020, ~~EcoChain~~SCI and ~~Soluna~~HEL entered into a second Operating and Management Agreement related to a potential location for a cryptocurrency mine in the Southeast United States. In accordance with the terms of the agreement, which are consistent with the first Operating and Management agreement noted above, ~~Soluna~~HEL is entitled to ongoing success payments of 20.0% of the earnings before interest, taxes, depreciation and amortization of the mine. ~~EcoChain~~SCI paid ~~Soluna~~HEL $~~150~~221 thousand ~~in 2020 and $100~~ ~~thousand in~~for the ~~six months~~fiscal year ended ~~June~~December 31, 2021 related to the one-time fees.
On December 1, 2020, ~~EcoChain~~SCI and ~~Soluna~~HEL entered into a third Operating and Management Agreement with respect to a potential location for a cryptocurrency mine in the Southwestern United States. In accordance with the terms of the agreement, which are consistent with the first Operating and Management agreement noted above, ~~Soluna~~HEL is entitled to ongoing success payments of ~~20.0~~20.0%% of the earnings before interest, taxes, depreciation and amortization of the mine. ~~EcoChain paid Soluna $38,000~~ ~~during 2020~~ SCI did not make any payments in ~~relation to the one-time fees;~~2021 as this target location did not meet the business requirements to continue pursuing the potential acquisition, and as a result ~~EcoChain will~~SCI did not make any further payments to ~~Soluna~~HEL under this agreement.

On February 8, 2021, ~~EcoChain~~SCI and ~~Soluna~~HEL entered into a fourth Operating and Management Agreement related to a potential location for a cryptocurrency mine in the Southeast United States. In accordance with the terms of the agreement, which are consistent with the first Operating and Management agreement noted above, ~~Soluna~~HEL is entitled to ongoing success payments of 20.0% of the earnings before interest, taxes, depreciation and amortization of the mine. ~~EcoChain~~SCI paid ~~Soluna~~HEL $70544 thousand ~~during~~for the ~~six months~~fiscal year ended ~~June 30,~~December 31, 2021 in relation to the one-time fees.
For the fiscal year ended December 31, 2021, the Company paid $245 thousand in expense reimbursements and other related fees in addition to the Operating and Management payments.
Each Operating and Management Agreement, ~~requires~~all of which were terminated effective November 5, 2021, pursuant to the Termination Agreement, among other things, required that ~~Soluna~~HEL provide project sourcing services to ~~EcoChain,~~SCI, including acquisition negotiations and establishing an operating model, investments/financing timeline, and project development path. The Company made one final payment to HEL in 2022 of $50 thousand to settle all final Operating and Management Agreements.
Simultaneously with entering into the initial Operating and Management Agreement with ~~Soluna,~~HEL, the Company, pursuant to a purchase agreement it entered into with ~~Soluna,~~HEL, made a strategic investment in ~~Soluna~~HEL by purchasing 158,730 Class A Preferred Shares of ~~Soluna~~HEL for an aggregate purchase price of $500 thousand on January 13, 2020. After acceptance of the Deliverables, as required by the terms of the purchase agreement, on March 23, 2020, the Company purchased an additional 79,365 Class A Preferred Shares of ~~Soluna~~HEL for an aggregate purchase price of $250 thousand. The Company also has the right, but not the obligation, to purchase additional equity securities of ~~Soluna~~HEL and its subsidiaries (including additional Class A Preferred Shares of ~~Soluna)~~HEL) if ~~Soluna~~HEL secures certain levels or types of project financing with respect to its own wind power generation facilities. Each preferred share may be converted at any time and without payment of additional consideration, into Common shares. The Company has additionally entered into a Side Letter Agreement, dated January 13, 2020, with ~~Soluna~~ HEL Technologies Investment I, LLC, a Delaware limited liability company that owns, on a fully diluted basis, ~~58.8%~~57.9% of ~~Soluna~~HEL and is controlled by a Brookstone Partners-affiliated director of the Company. The Side Letter Agreement provides for the transfer to the Company, without the payment of any consideration by the Company, of additional Class A Preferred Shares of ~~Soluna~~HEL in the event ~~Soluna~~HEL issues additional equity below agreed-upon valuation thresholds.
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As discussed above, on October 29, 2021, we completed the Soluna Callisto acquisition pursuant to the Merger Agreement. The purpose of the transaction was for SCI to acquire substantially all of the assets (other than those assets physically located in Morocco) formerly held by HEL, which assets consisted of SCI’s existing pipeline of certain cryptocurrency mining projects that HEL previously transferred to SCI, which was formed expressly for this purpose, and to provide SCI with the opportunity to directly employ or retain the services of four individuals whose services it had retained through HEL prior to the merger. As a result of the merger, each share of common stock of Soluna Callisto issued and outstanding immediately prior to the effective time of the merger, other than shares owned by the Company or any of our subsidiaries, was cancelled and converted into the right to receive a proportionate share of the Merger Consideration.
In connection with the Soluna Callisto acquisition, effective as of October 29, 2021, upon and subject to the terms and conditions of the Termination Agreement, on November 5, 2021: (1) the existing Operating and Management Agreements between HEL and SCI were terminated in all respects; and (2)(A) SCI paid HEL $725,000, (B) SHI issued to HEL the Termination Shares, and (C) HEL and SHI entered into an Amended and Restated Contingent Rights Agreement that, among other things, amended the existing Contingent Rights Agreement by and between HEL and SHI, dated January 13, 2020, to provide SHI the right to invest directly in certain cryptocurrency mining opportunities being pursued by HEL. SHI filed a registration statement with the SEC to register the resale of the Termination Shares on February 14, 2022.
Please see Note 5 for additional information regarding the Soluna Callisto acquisition and related transactions.
Several of ~~Soluna’s equityholders~~HEL’s equity holders are affiliated with Brookstone Partners, the investment firm that holds an equity interest in the Company through Brookstone Partners Acquisition XXIV, LLC. The Company’s two Brookstone-affiliated directors also serve as directors and, in one case, as an officer, of ~~Soluna~~HEL and also have ownership interest in ~~Soluna.~~HEL. In light of these relationships, the various transactions by and between the Company and ~~EcoChain,~~SCI, on the one hand, and ~~Soluna,~~HEL, on the other hand, were negotiated on behalf of the Company and ~~EcoChain~~SCI via an independent investment committee of the Board and separate legal representation. The transactions were subsequently unanimously approved by both the independent investment committee and the full Board.
13
~~Three~~Five of the Company’s directors have various affiliations with ~~Soluna.~~HEL.
Michael Toporek, our Chief Executive Officer and a director, owns (i) 90% of the equity of Soluna Technologies Investment I, LLC, which owns ~~58.8%~~57.9% of ~~Soluna~~HEL and (ii) 100% of the equity of MJT Park Investors, Inc., which owns 3.1% of ~~Soluna,~~HEL, in each case on a fully-diluted basis. Mr. Toporek does not own directly, or indirectly, any equity interest in Tera Joule, LLC, which owns ~~8.4%~~9.2% of ~~Soluna;~~HEL; however, as a result of his 100% ownership of Brookstone IAC, Inc., which is the manager of Tera Joule, LLC, he has dispositive power over the equity interests that Tera Joule owns in ~~Soluna.~~HEL.
In addition, one of the Company’s directors, Matthew E. Lipman, serves as a director and currently acting as ~~acting Secretary and Treasurer~~President of ~~Soluna.~~HEL. Mr. Lipman does not directly own any equity interest in Tera Joule, LLC, which owns ~~8.4%~~9.2% of ~~Soluna;~~HEL; however, as a result of his position as a director and officer of Brookstone IAC, Inc., which is the manager of Tera Joule, LLC, he has dispositive power over the equity interests that Tera Joule owns in ~~Soluna.~~
~~Finally, the Company’s director William P. Phelan serves as an observer on Soluna’s board of directors on behalf of the Company.As~~HEL. As a result, the approximate dollar value of the amount of Mr. ~~Toporek's~~Toporek’s and Mr. ~~Lipman's~~Lipman’s interest in the ~~Company's~~Company’s transactions with ~~Soluna through~~HEL for the three and six months ended June 30, ~~2021,~~2022 was $0 and $0.
John Belizaire and John Bottomley, who were $elected to the Board upon the effective time of SCI’s acquisition of Soluna Callisto, serve as directors of HEL. In addition, Mr. Belizaire is the beneficial 98 ~~thousand~~owner of 1,317,567 shares of common stock of HEL and $0102,380 Class Seed Preferred shares, which are convertible into 86,763 shares of common stock of HEL. These interests give Mr. Belizaire an ownership of 10.54% in HEL. Mr. Belizaire also owns an interest in HEL indirectly through his 5.0139% interest of Tera Joule, LLC’s 965,945 Class Seed Preferred shares, which are convertible into 818,596 shares of common stock of HEL. Mr. Bottomley is the beneficial owner of 96,189, or approximately 0.72%, ~~respectively.~~of the outstanding shares of common stock of HEL.
Finally, William P. Phelan, Chairman of the Board, served as an observer on HEL’s board of directors on behalf of the Company through March 2021.
The Company’s investment in ~~Soluna~~HEL is carried at the cost of investment and was $750 thousand as of June 30, ~~2021.~~2022. The Company owned approximately ~~1.83~~1.79%% of ~~Soluna,~~HEL, calculated on a converted fully-diluted basis, as of June 30, ~~2021.~~2022. The Company may enter into additional transactions with ~~Soluna~~HEL in the future.

~~10.~~       ~~Stock Based~~
12. Stock-Based Compensation
2021 Plan
The Company’s 2021 Stock Incentive Plan ~~(the “2021 Plan”)~~ was initially adopted by the Board on February 12, 2021 and approved by the stockholders on March 25, 2021. The 2021 Plan was amended and restated effective as of October 29, 2021 and as of May 27, 2022 (as amended and restated, the “2021 Plan”). The 2021 Plan authorizes the Company to issue shares of common stock upon the exercise of stock options, the grant of restricted stock awards, and the conversion of restricted stock units (collectively, the ~~"Awards"~~“Awards”). The Compensation Committee has full authority, subject to the terms of the 2021 Plan, to interpret the 2021 Plan and establish rules and regulations for the proper administration of the 2021 Plan. Subject to certain adjustments as provided in the 2021 Plan, the maximum aggregate number of shares of the Company’s common stock that may be issued under the 2021 Plan (i) pursuant to the exercise of stock options, (ii) as unrestricted or restricted stock, and (iii) ~~as available pursuant to~~in settlement of restricted stock units shall be limited to (A) during the ~~Company's~~Company’s fiscal year ending December 31, 2021, 1,460,191 shares of common stock, ~~and (B) beginning with the Company's fiscal year ending December 31, 2022,~~which is equal to 15% of the number of shares of common stock ~~outstanding.~~outstanding on January 1, 2021, (B) for the period from January 1, 2022 to June 30, 2022, fifteen percent (15%) of the number of shares of common stock outstanding as of January 3, 2022, which was the first trading day of 2022, and (C) beginning with the third quarter of the Company’s fiscal year ending December 31, 2022 (or July 1, 2022), 15% of the number of shares of common stock outstanding as of the first trading day of each quarter. Subject to certain adjustments as provided in the 2021 Plan, (i) shares of ~~the Company’s~~ common stock subject to the 2021 Plan shall include shares of common stock ~~forfeited~~which reverted back to the 2021 Plan pursuant to the paragraph below in a prior quarter or fiscal year, as applicable, and (ii) the number of shares of common stock that may be issued under the 2021 Plan may never be less than the number of shares of ~~the Company’s~~ common stock that are then outstanding under ~~outstanding Awards.~~(or available to settle existing) Award grants.
20
In the event that, prior to the date on which the 2021 Plan shall terminate, any Award granted under the 2021 Plan expires unexercised or unvested or is terminated, surrendered, or cancelled without the delivery of shares of common stock, or any Awards are forfeited back to the Company, then the shares of common stock subject to such Award may be made available for subsequent Awards under the terms of the 2021 Plan.
During the three months ended June 30, 2022, the Company awarded 58,442 restricted stock units under the 2021 Plan, valued at $4.96 through $10.85 per share based on the closing market price of the Company’s common stock on the date of the grant, with a weighted average fair value of $7.55. 58,442 shares of common stock subject to vest as follows: 25% of such restricted stock units shall vest on the first anniversary, and the remaining shares shall vest ratably over the succeeding 36-month period, with (1/36) of such vesting on the last day of each such calendar month.
During the six months ended June 30, 2022, the Company awarded 480,207 restricted stock units under the 2021 Plan, valued at $4.96 through $10.85 per share based on the closing market price of the Company’s common stock on the date of the grant, with a weighted average fair value of $10.03. 306,500 shares of common stock subject vesting as follows: 37% vests 12 months from the date of the grant, 33% vests 24 months from the date of the grant, and 30% vests 36 months from the date of the grant, in each case subject to the reporting person remaining in the service of the issuer on each such vesting date. 126,777 shares of common stock subject to vest as follows: 25% of such restricted stock units shall vest on the first anniversary, and the remaining shares shall vest ratably over the succeeding 36-month period, with (1/36) of such vesting on the last day of each such calendar month. 46,498 shares of common stock are performance-based awards that will vest in the following year in January based on approval of the Board based on achievement of key performance objectives. The remaining 432 shares of common stock are performance-based awards that were granted and vested during January 2022 as approved by the Board based on the achievement of key performance objectives during the prior year.
During the three months ended June 30, 2021, the Company granted options to purchase 686,200 shares of the Company’s common stock under the 2021 Plan, of which 186,200 shares immediately vested with an exercise price of $7.52 per share, based on the closing price plus 10%10% of the Company’s common stock on the date of the grant. The remaining 500,000 shares will vest in equal installments of 33 1/3% on each of the three anniversaries of the date of grant, the exercise price of these awards are $6.84 per share. Using a Black-Scholes Option Pricing Model, the weighted average fair value of these options was $~~4.86~~$4.86 per share and was estimated at the date of grant.
During the six months ended June 30, 2021, the Company granted options to purchase 716,200 shares of the Company’s common stock under the 2021 Plan, of which 186,200 shares immediately vested with an exercise price of $7.52 per share, based on the closing price plus 10%10% of the Company’s common stock on the date of the grant. The remaining 530,000 shares will vest in equal installments of 33 1/3% on each of the three anniversaries of the date of the grant. The weighted exercise price of these options is $~~7.08~~$7.08 per share and was based on the closing market price of the Company’s common stock on the dates of grant. Using a Black-Scholes Option Pricing Model, the weighted average fair value of these options was $~~5.04~~$5.04 per share and was estimated at the date of grant.
During the six months ended June 30, 2021, the Company awarded 47,500 shares of restricted common stock under the 2021 Plan, valued at $11.10 per share based on the closing market price of the Company’s common stock on the date of the award. The shares will be restricted for one year, with the entire award vesting on the first anniversary of the award date.
~~During the six months ended June 30, 2021, the Company awarded~~ ~~15,000~~ ~~restricted stock units under the 2021 Plan, valued at $11.10~~ per share based on the closing market price of the Company’s common stock on the date of the grant. 33 1/3% of such restricted stock units will vest on each of the first three anniversaries of the date of the grant.

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13. Effect of Recent Accounting Updates

~~11.~~       ~~Effect of Recent Accounting Updates~~
Accounting Updates Not Yet Effective
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (the “FASB”) in the form of accounting standard updates (“ASUs”) to the FASB’s Accounting Standards Codification (“ASC”). The Company considered the applicability and impact of all ASUs. ASUs not mentioned below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position or results of operations.
21
In June 2016, the FASB issued ASU 2016-13 (Financial Instruments - Credit Losses (Topic 326)) and its subsequent amendments to the initial guidance within ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11 and ASU 2020-02, respectively (collectively, Topic 326). Topic 326 changes how entities will measure credit losses for most financial assets and certain other instruments that are not accounted for at fair value through net income. This standard replaces the existing incurred credit loss model and establishes a single credit loss framework based on a current expected credit loss model for financial assets carried at amortized cost, including loans and held-to- maturity debt securities. The current expected loss model requires an entity to estimate credit losses expected over the life of the credit exposure upon initial recognition of that exposure when the financial asset is originated or acquired, which will generally result in earlier recognition of credit losses. This standard also requires expanded credit quality disclosures. For available-for-sale debt securities, entities will be required to record allowances rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. This standard also simplifies the accounting model for purchased credit-impaired debt securities and loans. This standard will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2018-19 clarifies that receivables arising from operating leases are accounted for using lease guidance and not as financial instruments. ASU 2019-04 clarifies that equity instruments without readily determinable fair values for which an entity has elected the measurement alternative should be remeasured to fair value as of the date that an observable transaction occurred. ASU 2019-05 provides an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost. This standard should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. This standard will be effective for the Company for annual and interim reporting periods beginning on or after December 15, 2022, and while early adoption is permitted, the Company does not expect to elect that option. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements, including assessing and evaluating assumptions and models to estimate losses. Upon adoption of this standard on January 1, 2023, the Company will be required to record a cumulative effect adjustment to retained earnings for the impact as of the date of adoption. The impact will depend on the Company’s portfolio composition and credit quality at the date of adoption, as well as forecasts at that time.
~~Accounting Updates Recently Adopted by the Company~~
On January 1, 2021, the Company adopted ASU 2019-12 (Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes). This standard removes exceptions to the general principles in Topic 740 for allocating tax expense between financial statement components, accounting basis differences stemming from an ownership change in foreign investments and interim period income tax accounting for year-to-date losses that exceed projected losses. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
On January 1, 2021, the Company adopted ASU 2020-01 (Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)). This standard clarifies certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815, which could change how an entity accounts for an equity security under the measurement alternative or a forward contract or purchased option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option in accordance with Topic 825, Financial Instruments. This standard improves current GAAP by reducing diversity in practice and increasing comparability of the accounting for these interactions. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

There have been no other significant changes in the Company’s reported financial position or results of operations and cash flows as a result of ~~its~~our adoption of new accounting pronouncements or changes to ~~its~~our significant accounting policies that were disclosed in its consolidated financial statements for the fiscal year ended December 31, ~~2020.~~2021 (the “2021 Fiscal Year”).
14. Discontinued Operations
As described in Note 1, the Company entered into a Stock Purchase Agreement with Purchaser, pursuant to which the Company sold on April 11, 2022 all of the issued and outstanding shares of capital stock of its wholly-owned subsidiary, MTI Instruments for approximately $9.0 million in cash, net of transaction costs. As of June 30, 2022, our Instrumentation business segment was classified as discontinued operations in our financial statements for all periods presented. Our consolidated balance sheets and consolidated statements of operations report discontinued operations separate from continuing operations. Our consolidated statements of equity and statements of cash flows combine continuing and discontinuing operations.

Set forth below are the results of the discontinued operations:

(Dollars in thousands)
Three Months Ended
June 30,

Six Months Ended
June 30,

2022 2021 ^(*) 2022 2021 ^(*)

Product revenue $ 160 $ 1,647 $ 1,799 $ 2,984
Cost of sales 166 502 728 954
Research and development 30 406 398 792
General and administrative expenses 89 526 573 1,066
Other income - (4 ) - (5 )
(Loss) income from discontinued operations before gain on disposal and income taxes (125 ) 217 100 177
Pretax gain on sale of MTI Instruments 7,602 - 7,602 -
Deferred tax benefit 70 - 70 -
Net income from discontinued operations $ 7,547 $ 217 $ 7,772 $ 177
(*) Reclassified to conform with the current period presentation
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The following table summarizes information about assets and liabilities from discontinued operations held for sale as of June 30, 2022 and December 31, 2021:
(Dollars in thousands)
June 30, December 31,
2022 2021
Assets held for sale from discontinued operations:
Accounts receivable $ - $ 1,189
Inventories - 964
Prepaid expenses and other current assets - 54
Property, plant and equipment, net - 92
Deferred tax assets, net - 101
Operating lease right-of-use assets - 628
Total Assets held for sale from discontinued operations $ - $ 3,028

Liabilities held for sale from discontinued operations:
Accounts payable $ - $ 136
Accrued liabilities - 479
Operating lease liability - 628

Total Liabilities held for sale from discontinued operations $ - $ 1,243
~~12.~~15. MTI Instruments Sale
As described in Note 1, the Company entered into a Stock Purchase Agreement with Purchaser, pursuant to which the Company sold on April 11, 2022 all of the issued and outstanding shares of capital stock of our wholly-owned subsidiary, MTI Instruments for an all-cash purchase price of $10.75 million, subject to working capital and certain other adjustments as set forth in the Stock Purchase Agreement. The purchase price did not include specified debt of MTI Instruments, which is the responsibility of the Company. This debt was transferred to the Purchaser at the date of Sale and is included in the closing balance sheet as shown below, which resulted in a reduction in the consideration payable to the Company.
The following table presents the gain associated with the sale.
(Dollars in thousands)
As of April 11,
2022
Consideration received $ 10,750
Plus: closing cash 1
Less: transaction costs (998 )
Less: closing indebtedness (483 )
    Plus: new working capital adjustments (40 )
Adjusted consideration received 9,230

Cash 1
Accounts receivable, net 1,119
Inventories 888
Prepaid expense and other current assets 42
Operating lease right-of-use assets 579
Deferred tax assets 171
Property, plant and equipment, net 76
     Total assets 2,876

Accounts payable 122
Accrued liabilities 547
Operating lease liability 579
Total liabilities 1,248

Net assets transferred 1,628

Gain on sale $ 7,602
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16. Segment Information
The Company ~~operates~~applies ASC 280, Segment Reporting, in determining its reportable segments. As of June 30, 2022, the Company had two ~~business~~ reportable segments in Continuing Operations: Cryptocurrency Mining and Data Center Hosting. The Company notes that previously there was an additional segment: Test and Measurement Instrumentation, however as discussed in Notes 1, 14, and ~~Cryptocurrency.~~15, the Company sold MTI Instruments in April 2022, and therefore has classified as discontinued operations. The ~~Test~~guidance requires that segment disclosures present the measure(s) used by the Chief Operating Decision Maker (“CODM”) to decide how to allocate resources and ~~Measurement Instrumentation segment designs, manufactures, markets and services computer-based balancing systems~~ for aircraft engines, high performance test and measurement instruments and systems, and wafer characterization tools for the semiconductor and solar industries. The Cryptocurrency segment is focused on cryptocurrency and the blockchain ecosystem.purposes of assessing such segments’ performance. The Company’s ~~principal operations in~~CODM is comprised of several members of its executive management team who use revenue and cost of revenues of both reporting segments ~~are located in North America.~~to assess the performance of the business of our reportable operating segments.

No operating segments have been aggregated to form the reportable segments. The Company does not allocate all assets to the reporting segments as these are managed on an entity-wide basis. Therefore, the Company does not separately disclose the total assets of its reportable operating segments.
15

The ~~accounting policies~~Cryptocurrency Mining segment generates revenue from the cryptocurrency the Company earns through its mining activities. The Data Center Hosting segment generates revenue from contracts for the provision/consumption of electricity and operation of the ~~Test~~data center from the Company’s high performance computing facility in Calvert City, Kentucky.
For the three months ended June 30, 2022 and ~~Measurement Instrumentation~~2021, respectively, approximately 6% and ~~Cryptocurrency segments are similar to those described~~60% of the Company’s cryptocurrency mining revenue was generated from our operations in East Wenatchee, Washington, 41% and 40% from our operations in Calvert City, Kentucky and 53% and 0% from our operations in Murray, Kentucky. For the ~~summary~~six months ended June 30, 2022 and 2021, respectively, approximately 6% and 71% of ~~significant accounting policies herein~~the Company’s cryptocurrency mining revenue was generated from our operations in East Wenatchee, Washington, 43% and 29% from our operations in Calvert City, Kentucky and 51% and 0% from our operations in Murray, Kentucky. 100% of the ~~Annual Report.~~ Company’s data center hosting revenue was generated from the facility in Calvert City, Kentucky from hosting with two customers for the three and six months ended June 30, 2022.
The Company evaluates performance based on profit or loss from operations before income taxes, accounting changes, items management does not deem relevant to segment performance, and interest income and expense. Inter-segment sales and expenses are not significant. Non-cash items of depreciation and amortization are included within both costs of sales and general and administrative expenses.

~~Summarized financial information concerning~~The following table details revenue and cost of revenues for the Company’s reportable segments ~~is shown in~~for three and six months ended June 30, 2022 and 2021, and reconciles to net loss on the following table. The “Other” column includes corporate related items and items such as income taxes or unusual items, which are not allocated to reportable segments. In addition, segments’ non-cash items include any depreciation and amortization in reported profit or loss.consolidated statements of operations :
(Dollars in thousands)
Test and Measurement Instrumentation Cryptocurrency Other Condensed Consolidated Totals
Three months ended June 30, 2021
Product revenue $ 1,647 $ — $ — $ 1,647
Cryptocurrency revenue — 1,657 — 1,657
Research and product development expenses 406 — — 406
Selling, general and administrative expenses 526 292 2,212 3,030
Segment profit / (loss) from operations before income taxes (270 ) 710 (1,611 ) (1,171 )
Segment profit / (loss) (270 ) 710 (1,614 ) (1,174 )
Total assets 2,636 3,883 19,040 25,559
Capital expenditures 13 1,229 — 1,242
Depreciation and amortization 17 149 — 166

Three months ended June 30, 2020
Product revenue $ 2,390 $ — $ — $ 2,390
Cryptocurrency revenue — 50 — 50
Research and product development expenses 362 — — 362
Selling, general and administrative expenses 437 109 301 847
Segment profit / (loss) from operations before income taxes 831 (73 ) (156 ) 602
Segment profit / (loss) 831 (73 ) (156 ) 602
Total assets 3,687 1,090 2,480 7,257
Capital expenditures 5 335 — 340
Depreciation and amortization 21 9 — 30

Six months ended June 30, 2021
Product revenue $ 2,984 $ — $ — $ 2,984
Cryptocurrency revenue — 2,652 — 2,652
Research and product development expenses 792 — — 792
Selling, general and administrative expenses 1,066 855 2,946 4,867
Segment profit / (loss) from operations before income taxes (672 ) 771 (1,936 ) (1,837 )
Segment profit / (loss) (672 ) 771 (1,939 ) (1,840 )
Total assets 2,636 3,883 19,040 25,559
Capital expenditures 18 1,525 — 1,543
Depreciation and amortization 34 224 — 258

Six months ended June 30, 2020

Product revenue $ 3,973 $ — $ — $ 3,973
Cryptocurrency revenue — 50 — 50
Research and product development expenses 764 — — 764
Selling, general and administrative expenses 853 180 609 1,642
Segment profit / (loss) from operations before income taxes 959 (144 ) (353 ) 462
Segment profit / (loss) 959 (144 ) (350 ) 465
Total assets 3,687 1,090 2,480 7,257
Capital expenditures 13 335 — 348
Depreciation and amortization 44 9 — 53
(Dollars in thousands)
Three Months Ended
June 30,

Six Months Ended
June 30,

2022 2021 2022 2021
Reportable segment revenue:
Cryptocurrency mining revenue $ 7,497 $ 1,657 $ 15,309 $ 2,652
Data hosting revenue 1,179 - 2,683 -
Total segment and consolidated revenue 8,676 1,657 17,992 2,652
Reportable segment cost of revenue:
Cost of cryptocurrency mining revenue, inclusive of depreciation 9,134 545 16,854 875
Cost of data hosting revenue 975 0 2,114 -
Total segment and consolidated cost of revenues 10,109 545 18,968 875
Reconciling items:
General and administrative expenses 7,249 2,503 14,504 3,799
Impairment on fixed assets 750 - 750 -
Interest expense 3,305 - 6,185 -
Loss on sale of fixed assets 1,618 - 1,618 -
Other income, net - (3 ) - (8 )
Income tax (benefit) expense from continuing operations (251 ) 3 (797 ) 3
Net loss from continuing operations (14,104 ) (1,391 ) (23,236 ) (2,017 )
Income before income tax from discontinued operations (including gain on sale of MTI Instruments of $7,602 for the three and six months ended June 30, 2022) 7,477 217 7,702 177
Income tax benefit from discontinued operations 70 - 70 -
Net income from discontinued operations 7,547 217 7,772 177
Net loss $ (6,557 ) $ (1,174 ) $ (15,464 ) $ (1,840 )

Capital expenditures
27,180 1,023 52,618 1,319
Depreciation and amortization 7,914 149 14,611 225
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17. Subsequent Events

October SPA Addendum
On July 19, 2022, the Company entered into the Addendum to amend certain terms of the October SPA and the October Security Agreement. Pursuant to the Addendum, among other things, the assets of the Company related to the Company’s development site in Texas which secure the Company’s obligations under the October Security Agreement will be released in three tranches in connection with three tranches of conversions or redemptions of the October Notes. In connection with the first tranche, $1,100,000 of October Notes was converted to common stock between July 25, 2022 and August 1, 2022; in connection with the second tranche, $1,100,000 of October Notes will be converted to common stock; and in connection with the third tranche, $1,100,000 of October Notes will be converted to common stock (each, the “Required Conversion Amount”), in each case at the then in effect Conversion Price. Prior to each conversion the Conversion Price of the Note will be reduced (but not increased) to a 20% discount to the 5-day volume-weighted average price (“VWAP”) of the common stock. The Conversion Price for the first tranche is $3.75.In addition, the October Purchasers may require the Company to redeem up to $2,200,000 worth of October Notes in connection with each tranche at a rate of $1.20 for every $1.00 owed, less the amount of October Notes converted during such tranche, not including the Required Conversion Amount if the October Purchasers are unable to convert out of such amount of the Notes in each tranche. Each tranche is equal to $3,300,000 of the October Notes and the Addendum contemplates that at least $9,900,000 of the October Notes may be reduced under the terms of the Addendum. The first tranche begins upon receipt of Nasdaq’s approval of the transaction (which was received) and ends 50 trading days thereafter, the subsequent tranches will begin upon the later of five days after the previous tranche and receipts of any necessary approvals of Nasdaq and the Company’s shareholders of the transaction and ends 45 trading days thereafter. The second and third tranches are subject to delay as set forth in the Addendum. The Company is required to deposit up to $1,950,000 in an escrow account in connection with each tranche to satisfy any redemptions. The Company has undertaken to obtain shareholder approval, if necessary under Nasdaq rules, to be able to complete the second and third tranches.
Pursuant to the Addendum, the exercise price of the Class A Warrants and Class B Warrants and 85,000 warrants to purchase common stock issued to the October Purchasers on January 13, 2022 was reduced to $9.50 a share. In addition, the Company agreed to exchange the Class C Warrants for 296,013 shares of common stock, which exchanges were completed between July 25, 2022 and August 1, 2022.
Except under certain circumstances, the Company is prohibited from engaging in any capital raising transactions without the consent of the October Purchasers until the Company’s obligations under the October Security Agreement have been paid in full.
Series B Convertible Preferred Stock Private Placement
Securities Purchase Agreement
On July 19, 2022, the Company entered into a Securities Purchase Agreement (the “Series B SPA”) with an accredited investor (the “Series B Investor”) pursuant to which the Company issued to the Series B Investor 62,500 shares of Series B Preferred Stock, for a purchase price of $5,000,000, on July 20, 2022 (the “Series B Closing”), which are initially convertible into 1,155,268 shares of our common stock (the “Series B Conversion Shares”), at a price per share of $5.41 (“Conversion Price”), a 20% premium to the close of the common stock on July 18, 2022, subject to adjustment as set forth in the Certificate of Designation (as defined below) governing the terms of the Preferred Stock.In addition on July 19, 2022, the Company issued to the Series B Investor common stock purchase warrants (collectively, the “Series B Warrants”) to purchase up to an aggregate of 1,000,000 shares of common stock at an initial exercise price of $10.00 per share of common stock (the “Series B Warrant Shares” and collectively with the Series B Preferred Stock, the Series B Conversion Shares, and the Series B Warrants, the “Series B Securities”).In addition, at the Series B Closing, the Investor delivered to the Company a warrant to acquire 1,000,000 shares of common stock at an exercise price of $11.50 per share for cancellation.
1625

~~The following table presents~~Until the ~~details~~earlier of ~~“Other” segment loss:~~

(Dollars in thousands)
Three Months Ended
June 30,

Six Months Ended
June 30,

2021 2020 2021 2020
Corporate and other (expenses) income:
  Salaries and Benefits $ (1,279 ) $ (119 ) $ (1,480 ) $ (240 )
  Income tax (expense) benefit (3 ) — (3 ) 3
  Other expense, net (332 ) (37 ) (456 ) (113 )
Total income (expense) $ (1,614 ) $ (156 ) $ (1,939 ) $ (350 )
~~13.~~ ~~Line of Credit~~
~~On May 7, 2020,~~(i) three years after the Series B Closing or (ii) if in ~~connection with receipt~~excess of $500,000 of Series B Preferred Stock or at least 100,000 Series B Warrants remain outstanding, the Company agreed not to (a) issue any common stock, common stock equivalents, preferred stock or other equity securities at a price that is less than the highest price per share of the ~~$3.3 million United States Air Force delivery order, MTI Instruments obtained a $300~~ ~~thousand secured~~Series B Securities, (b) file any registration statement, with certain exceptions, or (c) enter into an equity line of credit ~~from Pioneer Bank that will, among other things, assist with MTI Instruments' timely fulfillment~~or at the market offering. In addition, the Company may buy out the rights of the ~~delivery order. The line of credit may be drawn~~Series B Investor under the preceding sentence for $10,000,000 less any Profit (as defined in the ~~discretion~~Series B SPA) the Series B Investor has earned from the Series B Securities, including pursuant to any amount paid for waiver under the following sentences. The Series B Investor has a right of ~~MTI Instruments and bears interest at a rate~~first refusal with respect to the offerings described in the first sentence of ~~Prime +1% per annum. Accrued interest is due monthly, and principal is payable over~~this paragraph for a period of ~~30 days following lender's demand.~~three years beginning on the later of (i) January 1, 2023 and (ii) the date the October Notes have been fully redeemed or converted. The ~~line~~Company can obtain the Series B Investor’s waiver to the right of ~~credit is secured~~first refusal by delivering to the Series B Investor 10% of the amount raised by the ~~assets of MTI Instruments and is guaranteed~~Company in any such offering in cash or in the same securities issued by the Company. AsThe Series B Investor also has a right to participate in up to 35% of ~~June 30, 2021 and December 31, 2020, there were~~ 0 ~~amounts outstanding under~~any such offerings for the ~~line of credit.~~same three year period.

At the written request of the Investor, at any time after the October Notes have been fully redeemed or converted and for a period of one year thereafter, the Company agreed to file a registration statement to register the Series B Preferred Stock and the Series B Conversion Shares.
~~14.~~ ~~Subsequent Events~~
~~Management~~The conversion of the Series B Preferred Stock and the exercise of the Series B Warrants are each subject to beneficial ownership limitations such that the Investor may not convert the Preferred Stock or exercise the Series B Warrants to the extent that such conversion or exercise would result in the Investor being the beneficial owner in excess of 4.99% (or, upon election of such Series B Investor, 9.99%) of the number of shares of the common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable upon such conversion or exercise, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not be effective until 61 days following notice to the Company.
Certificate of Designation
On July 20, 2022, the Company filed a Certificate of Designations of Preferences, Rights and Limitations for the Series B Preferred Stock with the Secretary of State of Nevada (the “Certificate of Designation”) and designated 187,500 shares of its authorized and unissued preferred stock as Series B Convertible Preferred Stock. Each share of Series B Preferred Stock has ~~evaluated~~a par value of $0.0001 per share and a stated value equal to $100.00 (the “Stated Value”). The Series B Preferred Stock will initially be issued in a physical certificate. The subscription price for each share of Preferred Stock is $80.00 per share. The Series B Preferred Stock shares can vote with the shares of common stock, on an as-converted to common stock basis, with respect to all ~~events~~matters on which the holders of common stock are entitled to vote, subject to any applicable Beneficial Ownership Limitations (as defined in the Certificate of Designation).
The Certificate of Designation provides that the Series B Preferred Stock includes a 10% accruing dividend compounded daily for 12 months from the original issue date (the “Dividend Termination Date”) that may be paid in cash or stock at the Company’s option at the earlier of (i) the date the Preferred Stock is converted, or (ii) the Dividend Termination Date.
In the event of the voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, the holders of shares the Series B Preferred Stock are entitled to be paid out of the Company’s assets legally available for distribution to its stockholders, the greater of (i) the Stated Value, or (ii) the amount holder would have received if the Series B Preferred Stock was fully converted to common stock, plus any amount equal to any accumulated and ~~transactions that occurred subsequent~~unpaid dividends to ~~June 30, 2021 through~~ the date of ~~issuance of these condensed consolidated financial statements. During this period, the Company did not have any significant subsequent events.~~payment.

Each share of Series B Preferred Stock is convertible at any time at the option of the holder after the later of a date that is (i) 180 days after the original issue date or (ii) the date on which October Notes have been fully redeemed or converted (the “Note Release Date”) into a number of shares of common stock determined by dividing the Stated Value by the conversion price then in effect (the “Series B Conversion Price”). The initial Series B Conversion Price is $5.41, subject to adjustment as set forth in the Certificate of Designation. The Series B Conversion Price is also subject to adjustment as follows: (i) upon the United States Securities and Exchange Commission (the “SEC”) declaring effective the resale registration statement referred to in Series B SPA (the “Series B Resale Registration Statement”), the Series B Conversion Price will be equal to 90% of the average VWAP reported on Nasdaq for the five consecutive trading dates after the effective date of the Series B Resale Registration Statement, and (ii) in the event that the Company undertakes a public offering of its common stock or common stock equivalents, upon the completion of the public offering (the “Public Offering”), the Series B Conversion Price will be equal to 90% of the average VWAP reported on Nasdaq for the five consecutive trading dates after the completion date of the Public Offering. The Series B Conversion Price for the Series B Preferred Stock will be rounded down to the nearest $0.01 and will in no event be lower than $1.08.
The Series B Preferred Stock has no stated maturity date and is not subject to any mandatory redemption or sinking fund. Provided no shares of the Series A Preferred Stock is outstanding, either the Company or the holder of the Series B Preferred Stock may at any time after the later of (i) the third anniversary of the original issue date, or (ii) the Note Release Date, redeem the Series B Preferred Stock, in whole or part, for the Stated Value. The Certificate of Designation also provides that the Series B Preferred Stock is subject to a call pursuant to which the Company, upon ten days prior notice to the holder, may demand that the holder convert the Series B Preferred Stock and Series B Warrants issued pursuant to the SPA, in whole or in part, if the closing bid price of the common stock equals or exceeds $12.98 less Profit (as defined in the Series B SPA) divided by the number of shares of common stock into which the Series B Preferred Stock is convertible on the date of such notice, subject to any price adjustments, for twenty (20) consecutive trading days. If the holder fails to convert the remaining stated value of the Series B Preferred Stock in its entirety within thirty (30) trading days after receiving the Company’s notice, the Company may redeem such remaining balance and the Series B Warrants at the remaining Stated Value plus accrued dividends.
1726

The Series B Preferred Stock will, as to dividend rights and rights as to the distribution of assets upon the Company’s liquidation, dissolution or winding-up, rank senior to all classes or series of common stock and to all other capital stock issued by the Company expressly designated as ranking junior to the Series B Preferred Stock. Without the consent of the holders of the Series B Preferred Stock, the Company may not issue any capital stock that is (i) senior to the preferred stock in respect of dividend rights and rights as to the distribution of assets upon the Company’s liquidation, dissolution or winding-up, except that the Series B Preferred Stock will be parri passu with respect to the Series A Preferred Stock, or (ii) parri passu with respect to dividend rights and rights as to the distribution of assets upon the Company’s liquidation, dissolution or winding-up.
Series B Warrants
The Series B Warrants have an issue date of July 19, 2022. The Series B Warrants have an initial exercise price of $10.00 per share of common stock, subject to adjustment as set forth in the Series B Warrants. The holder is entitled to exercise the Series B Warrants at any time on or after the date that is 180 days following the issue date and on or prior to January 19, 2028. On the closing date of the next public offering of the common stock or other securities, the exercise price of the Series B Warrants adjusts to a price equal to the lower of (a) the exercise price then in effect, or (b) the price of the warrants issued in the Company’s next public offering, or if no warrants are issued in the Company’s next public offering, 110% of the price per share of the common stock issued in the Company’s next public offering.
The Series B Preferred Stock and the Series B Warrants were issued without registration under the Securities Act of 1933, as amended (the “Securities Act”), based on the exemption from registration afforded by Section 4(a)(2) of the Securities Act and/or Rule 506 promulgated thereunder. The Company did not engage in general solicitation or advertising with regard to the issuance and sale of the Securities. The Series B Investor represented that he/she/it is an accredited investor and purchased the Series B Securities for investment and not with a view to distribution.
Leak-Out Agreement
On July 19, 2022, the Company and the Series B Investor entered into a Leak-Out Agreement (the “Leak-Out Agreement”). The Leak-Out Agreement remains in effect so long as any Series B Preferred Stock or shares of Series A Preferred Stock remain outstanding, unless otherwise expressly extended in writing by the Series B Investor (the “Leak Out Period”), at which time the Series B Investor shall no longer be subject to the Leak Out restrictions. Pursuant to the Leak-Out Agreement, the Series B Investor agreed during the Leak-Out Period not to sell, dispose or otherwise transfer on any trading day, in the aggregate, more than 15% of the composite daily trading volume of the common stock as reported by Bloomberg, LP. The Series B Investor also agreed to execute any lock-up agreement reasonably requested by an underwriter in connection with an underwritten offering of the Company’s securities.
Appointment of New Chief Financial Officer
On July 28, 2022, the Board appointed Philip F. Patman, Jr. to assume the role of Chief Financial Officer, Secretary and Treasurer of the Company, effective as of August 16, 2022.
Mr. Patman, 54, most recently has been Vice President and Head of Renewable Fuels M&A and Strategy at Ameresco, Inc., a cleantech technology integrator with a comprehensive portfolio of energy efficiency and renewable energy supply solutions, and has been employed by Ameresco since August 2021. Prior to that, Mr. Patman was with Huron Consulting Group, Inc., a global consultancy firm providing management consulting services to small- and mid-cap businesses primarily in the oil, gas, and diversified energy sectors, from May 2020 through June 2021, most recently serving as Managing Director. From April 2017 through March 2019, Mr. Patman was the Chief Financial Officer of VAALCO Energy, Inc. (NYSE:EGY), an oil operator that owns and operates shallow water offshore platforms in Gabon, West Africa. From 2012 to March 2017, he served PTT Exploration and Production Public Company, Ltd. (“PTTEP”), one of the largest publicly traded companies in the Kingdom of Thailand, as Senior Vice President, Business Development, for The Americas region (2012-16) and later as Senior External Advisor (2016-17); he had primary responsibility for leading PTTEP’s mergers and acquisitions activities in the US, Canada and Brazil. Cumulatively, Mr. Patman has more than 25 years of experience in finance operations, capital formation, and M&A / corporate development for companies engaged in global energy and infrastructure markets, including the above-described companies as well as AES Corporation, Franklin Templeton Investments, Globeleq Limited, Marathon Oil Corporation, and Enron Corp. Mr. Patman received a Bachelor of Arts degree in 1990 from the University of Texas at Austin through its Plan II Honors Program, and a J.D. from the University of Houston Law Center in 1993. He is currently a licensed attorney in the state of Texas.
27
In connection with Mr. Patman’s appointment as the Company’s Chief Financial Officer, Secretary and Treasurer, the Company and Mr. Patman entered into an employment agreement (the “Agreement”), dated July 29, 2022, providing for his employment, effective as of August 15, 2022, and continuing for a two-year term, which shall continue thereafter on an “at-will” basis (the “Employment Term”). Pursuant to the Agreement, the Company has agreed to pay Mr. Patman an annual salary of $350,000 (the “Base Salary”), payable in accordance with the Company’s customary payroll practices. The Agreement further provides that Mr. Patman is eligible for the following cash bonuses, as determined and based upon annual criteria set by the Board or the compensation committee of the Board (the “Compensation Committee”): (a) commencing August 15, 2022 and through December 31, 2022, Mr. Patman is eligible to receive a cash bonus in an amount up to 50% of his Base Salary paid to Mr. Patman during such period; and (b) commencing upon the 2023 calendar year and during the Employment Term, Mr. Patman is eligible to receive an annual cash bonus equal to an amount up to 50% of the then-current Base Salary, with each bonus payable in accordance with the Company’s standard payment practices.
In addition, pursuant to the Agreement, the Company has agreed to grant to Mr. Patman, within sixty (60) calendar days following August 15, 2022, subject to certain conditions, a one-time award of a number of restricted stock units (“RSUs”) equal to $175,000, divided by the thirty (30)-day trailing volume weighted average price as of August 15, 2022. Further pursuant to the Agreement, the Company has agreed to grant to Mr. Patman, commencing in calendar year 2023 and subject to such approvals specified by the Compensation Committee, an annual equity award consisting of a number of RSUs in an amount equal to $125,000. Mr. Patman is also entitled to other benefits normally available to other similarly situated employees of the Company.
Under the Agreement, the Employment Term is terminable by the Company upon 30 days’ prior written notice or by Mr. Patman upon 60 days’ prior written notice. As described in the Agreement, Mr. Patman is entitled to severance, in certain circumstances up to a total of six (6) months of base salary plus a pro-rata portion of his annual cash bonus.
Spring Lane Initial Funding
On May 3, 2022, SCI entered into a Bilateral Master Contribution Agreement (the “Bilateral Contribution Agreement”) with Spring Lane, pursuant to which Spring Lane agreed, pursuant to the terms and conditions of such agreement, to make one or more capital contributions to, and in exchange for equity in, SCI or one of its subsidiaries up to an aggregate amount of $35 million to fund certain projects to develop green data centers co-located with renewable energy assets (the “Spring Lane Commitment”). We anticipate that these capital contributions, once deployed into the projects, will help develop three behind-the-meter (BTM) projects designed to convert wasted renewable energy into clean computing services such as bitcoin mining and artificial intelligence. The Bilatera Contribution Agreement outlines the framework for the Spring Lane Commitment; however, neither we nor Spring Lane are obligated to complete any projects under such agreement and any actual capital contributions are subject to various conditions precedent, including the receipt of requisite lender and other consents, acceptance by Spring Lane of specific projects and negotiations of agreements regarding those projects, including milestones and structure. In partial consideration of the amendment to the October notes discussed above, the investors agreed to release certain collateral covered by their security agreement to permit the Company to proceed forward with the initial phase of the development site in Texas, which we expect to be partially funded by Spring Lane, which the Company expects to complete in the near future.
On August 5, 2022, the Company entered into a Contribution Agreement (the “Dorothy Contribution Agreement”)with Spring Lane, Soluna DV Devco, LLC (“Devco”), an indirect wholly-owned subsidiary of SCI, and Soluna DVSL ComputeCo, LLC (“DVSL”) an entity formed in order to further the Company’s development project in Texas, (each, a “Party” and, together, the “Parties”) . Pursuant to the Dorothy Contribution Agreement, the Company committed to a capital contribution of up to approximately $26.3 million to DVSL (the “Company Commitment”), and on August 5, 2022, the Company was deemed to have contributed approximately $8.1 million, through payment of capital expenditures and development costs made on behalf of DVSL by the Company prior to August 5, 2022. Further under the Agreement, Spring Lane committed to a capital contribution of up to $12.5 million to DVSL (the “Spring Lane Dorothy Commitment”), and on August 5, 2022, Spring Lane contributed approximately $3.9 million. Under the Dorothy Contribution Agreement, the Company and Spring Lane have committed to make subsequent contributions, up to their respective Company Commitment and Spring Lane Dorothy Commitment amounts, on a pro rata basis, upon receipt of a contribution request from DVSL, as set forth in the Dorothy Contribution Agreement and subject to the satisfaction of certain conditions described therein. The proceeds of any subsequent commitments will be applied to pay project costs in accordance with the project budget.
In exchange for their contributions, the Company and Spring Lane were issued 67.8% and 32.2% of the Class B Membership Interests in DVSL, respectively, and were admitted as Class B members of DVSL. Further pursuant to the Agreement, DVSL issued 100% of its Class A Membership Interests to Devco. The Dorothy Contribution Agreement contains customary indemnification provisions, liquidation provisions and governance provisions with respect to DVSL. The Parties also entered into an Amended and Restated Limited Liability Company Agreement of DVSL providing for the governance of DVSL.
28
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless the context requires otherwise, the terms ~~“MTI,~~“SHI,” ~~“the Company”,~~the “Company,” “we,” “us,” and “our” refer to ~~Mechanical Technology, Incorporated,~~Soluna Holdings, Inc. together with its consolidated subsidiaries, “SCI” refers to Soluna Computing, Inc., formerly known as EcoChain, Inc., and “MTI Instruments” refers to MTI Instruments, ~~Inc., and “EcoChain” refers to EcoChain,~~ Inc.

The following discussion of our financial condition and results of operations should be read in conjunction with the Condensed Consolidated Financial Statements and the related notes thereto included in Item 1 of Part I of this Quarterly Report on Form 10-Q and the audited Consolidated Financial Statements and the related notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, ~~2020~~2021 contained in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020,~~2021, as filed with the Securities and Exchange Commission (the “SEC”) on March 31, ~~2021.~~2022 (our “Annual Report”).
In addition to historical information, the following discussion contains forward-looking statements, which involve risk and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements. Important factors that could cause actual results to differ include those set forth in Part I Item 1A-Risk Factors in our Annual Report ~~on Form 10-K for the fiscal year ended December 31, 2020~~ and elsewhere in this Quarterly Report on Form 10-Q. Readers should not place undue reliance on our forward-looking statements. These forward-looking statements speak only as of the date on which the statements were made and are not guarantees of future performance. Except as may be required by applicable law, we do not undertake or intend to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q. Please see “Statement Concerning Forward-Looking Statements” below.
Overview
~~MTI~~SHI currently conducts ~~its~~our business through our wholly-owned subsidiary, SCI. SCI is engaged in the mining of cryptocurrency through data centers that can be powered by renewable energy sources. Recently, SCI has built, and intends to continue to develop and build, modular data centers that are currently used for cryptocurrency mining and that in the future can be used for computing intensive, batchable applications, such as artificial intelligence and machine learning, with the goal of providing a cost-effective alternative to battery storage or transmission lines. Headquartered in Albany, New York, the Company uses technology and intentional design to solve complex, real-world challenges.
SCI incorporated in Delaware on January 8, 2020 as EcoChain, Inc., which operates a cryptocurrency mining facility that integrates with the cryptocurrency blockchain network in the State of Washington. Through the October 2021 acquisition by EcoChain, Inc. of an entity at the time named Soluna Computing, Inc., SCI also has a pipeline of certain cryptocurrency mining projects previously owned by Harmattan Energy, Ltd. (“HEL”) (formerly known as Soluna Technologies, Ltd.), a Canadian corporation incorporated under the laws of the Province of British Colombia that develops vertically-integrated, utility-scale computing facilities focused on cryptocurrency mining and cutting-edge blockchain applications. Following such acquisition, on November 15, 2021, SCI completed its ~~wholly-owned subsidiaries,~~conversion and redomicile to Nevada and changed its name from “EcoChain, Inc.” to “Soluna Computing, Inc.”. The following day, the acquired entity, Soluna Computing, Inc., changed its name to “Soluna Callisto Holdings Inc.” (“Soluna Callisto”). We earn revenue from this business as the mined cryptocurrencies are converted into U.S. dollars. SCI has also began mining operations in fiscal year 2021 in Murray, Kentucky and Calvert City, Kentucky. Each of these locations have a potential 25-megawatt capacity. The mining facility in Calvert City currently performs hosting services and prop mining in which 10 megawatts is used for hosting services and 15 megawatts is used for prop mining. The mining facility in Murray, Kentucky operates fully on prop mining with a capacity of 25 megawatts.
Until the April 11, 2022 sale described below, we also operated though our wholly owned subsidiary, MTI Instruments, ~~and EcoChain.~~
~~MTI Instruments, incorporated in New York in 2000, is~~an instruments business engaged in the design, manufacture and sale of vibration measurement and system balancing solutions, precision linear displacement sensors, instruments and system solutions, and wafer inspection ~~tools, serving markets that require 1)~~tools. MTI Instruments was incorporated in New York on March 8, 2000. MTI Instruments’ products consist of engine ~~balancing and~~ vibration analysis systems for both military and commercial aircraft 2)and electronic gauging instruments for position, displacement and vibration application within the industrial manufacturing markets, as well as in the research, design and process development markets. These systems, tools and solutions are developed for markets and applications that require consistent operation of complex machinery and the precise measurements and control of products, processes, and ~~processes in~~the development and implementation of automated manufacturing ~~assembly,~~ and ~~consistent operation~~assembly. On December 17, 2021, we announced that we had entered into a non-binding letter of ~~complex machinery,~~intent with a potential buyer (the “Buyer”) regarding the potential sale of MTI Instruments (the “LOI”) to an unrelated third party. Pursuant to the LOI, the Buyer would acquire 100% of the issued and ~~3) metrology tools for semiconductor and solar wafer characterization.~~
~~EcoChain,~~outstanding common stock of MTI Instruments (the “Sale”). As a ~~Delaware corporation incorporated~~result of the foregoing, the MTI Instruments business was reported as discontinued operations in January 2020, is engaged in cryptocurrency mining powered by renewable energy. Related to this new core business, we made a strategic investment, and hold an equity position, in Soluna Technologies, Ltd. (“Soluna”), a Canadian company that develops vertically-integrated, utility-scale computing facilities focused on cryptocurrency mining and cutting-edge blockchain applications. Through Soluna, we currently operate a mining facility in Wenatchee, Washington, that houses the majorityour consolidated financial statements as of our cryptocurrency miners, which are the cryptocurrency assets, consisting of hardware and software, that perform the computations needed to mine cryptocurrencies. We purchased additional miners in April and MayDecember 31, 2021 and in May 2021 entered into two ground leases for a building located in the Southeast region of the United States that will be EcoChain’s second cryptocurrency mining facility, which includes surrounding land for potential additional capacity. The ground leases will not be effective until certain conditions set forth therein are met, and in the meantime the miners we purchased in April are located in this facility. We are paying the owner of that facility, at a flat fee per miner, for the space, electricity, and anything else needed for the miners to operate, an arrangement known as “hosting”; this arrangement will terminate upon the effective date of the ground leases, at which time Soluna will commence operating this facility pursuant to an operations and management agreement between Soluna and EcoChain. The primary cryptocurrencies that EcoChain mines are Bitcoin and, to a lesser degree, Ethereum and LiteCoin. EcoChain recognizes revenue when its mined cryptocurrencies are transferred to its account at a cryptocurrency exchange (i.e. a platform that facilitates the exchange of cryptocurrencies for other assets, such as conventional money or other digital currencies). The applicable exchange converts the cryptocurrencies heldprior periods included in our account to U.S. dollars daily. The Company intends to continue to grow EcoChain through acquisitions of existing cryptocurrency mining facilities and properties that can be repurposed to operate cryptocurrency mining facilities,Annual Report as well as ~~through constructing~~in these consolidated financial statements as of June 30, 2022 and prior periods. On April 11, 2022, we consummated the Sale, MTI Instruments ceased to be our ~~own cryptocurrency mining facilities, along with purchases~~wholly-owned subsidiary and, as a result, we have exited the instruments business. See Notes 1, 14, and 15 of ~~any real property, equipment, and miners necessary to do so.~~our consolidated financial statements for additional information on the Sale.
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Recent Developments and Trends
We used the net proceeds of our recent debt financing and preferred stock offerings during the quarter primarily for the acquisition, development and growth of our cryptocurrency mining facilities in Kentucky, which expanded SCI’s cryptocurrency business for three and six months ended June 30, 2022, and into the future with an additional facility in Texas planned to launch in fiscal year 2022 and additional pipelines for the future. We expect to develop and implement a capital strategy consisting of debt and equity to finance new projects, equipment purchases and upgrades in fiscal year 2022.
Miner Purchases and Deployments
As of June 30, 2022, we had purchased, received and/or deployed the following miners:
Number of
Miners
Miners deployed as of January 1, 2022 13,240
Miners received and deployed during the six months ended June 30, 2022 9,684
Miners received through June 30, 2022, but not deployed 2,311
Miners sold during the first six months of June 30, 2022 (3,098 )
Total Miners as of June 30, 2022 22,137
During the first six months of 2022, we received 11,995 additional miners and disposed of 3,098 miners and had 22,137 miners within in our mining operations as of June 30, 2022.
Consolidated Results of Operations
Consolidated Results of Operations for the Three and Six Months Ended June 30, ~~2021~~2022 Compared to the Three and Six Months Ended June 30, ~~2020.~~2021.
The following table summarizes changes in the various components of our net loss during the three months ended June 30, ~~2021~~2022 compared to the three months ended June 30, ~~2020.~~ 2021.
(Dollars in thousands)

Three Months
Ended
June 30,
2021

Three Months Ended
June 30,
2020

$
Change

%
Change

Product revenue $ 1,647 $ 2,390 $ (743 ) (31.1 %)
Cryptocurrency revenue $ 1,657 $ 50 $ 1,607 3,214.0 %
Operating costs and expenses:
    Cost of product revenue $ 502 $ 631 $ (129 ) (20.4 %)
    Cost of cryptocurrency revenue $ 545 $ — $ 545 100.0 %
    Research and product development expenses $ 406 $ 362 $ 44 12.2 %
    Selling, general and administrative expenses $ 3,030 $ 847 $ 2,183 257.7 %
Operating (loss) income $ (1,179 ) $ 600 $ (1,779 ) (296.5 %)
Other income, net $ 8 $ 2 $ 6 300.0 %
(Loss) income before income taxes $ (1,171 ) $ 602 $ (1,773 ) (294.5 %)
Income tax expense $ (3 ) $ — $ (3 ) (100.0 %)
  Net (loss) income $ (1,174 ) $ 602 $ (1,776 ) (295.0 %)
(Dollars in thousands) Three Months Ended
June 30, 2022 Three Months Ended
June 30, 2021 $
Change %
Change
Cryptocurrency mining revenue $ 7,497 1,657 5,840 352 %
Data hosting revenue $ 1,179 - 1,179 100 %
Operating costs and expenses:
Cost of cryptocurrency mining revenue, exclusive of depreciation $ 3,596 396 3,200 808 %
Cost of data hosting revenue $ 975 - 975 100 %
General and administrative expenses, exclusive of depreciation and amortization $ 4,873 2,503 2,370 95 %
Depreciation and amortization expense $ 7,914 149 7,765 5,211 %
Impairment on fixed assets $ 750 - 750 100 %
Operating loss $ (9,432 ) (1,391 ) (8,041 ) 578 %
Other income, net $ - 3 (3 ) (100 %)
Interest expense $ (3,305 ) - (3,305 ) 100 %
Loss on sale of fixed assets $ (1,618 ) - (1,618 ) 100 %
Loss before income taxes from continuing operations $ (14,355 ) (1,388 ) (12,967 ) 934 %
Income tax benefit (expense) from continuing operations $ 251 (3 ) 254 (8,467 )%
Net loss from continuing operations $ (14,104 ) (1,391 ) (12,713 ) 914 %
Income before income taxes from discontinued operations (including gain on sale of MTI Instruments of $7,602 for the three and six months ended June 30, 2022) $ 7,477 217 7,260 3,346 %
Income tax benefit from discontinued operations $ 70 - 70 100 %
Net income from discontinued operations $ 7,547 217 7,330 3,378 %
Net loss $ (6,557 ) (1,174 ) (5,383 ) 459 %
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The following table summarizes changes in the various components of our net loss during the six months ended June 30, ~~2021~~2022 compared to the six months ended June 30, ~~2020.~~2021.

(Dollars in thousands)

Six Months
Ended
June 30,
2021

Six Months Ended
June 30,
2020

$
Change

%
Change

Product revenue $ 2,984 $ 3,973 $ (989 ) (24.9 %)
Cryptocurrency revenue $ 2,652 $ 50 $ 2,602 5,204.0 %
Operating costs and expenses:
    Cost of product revenue $ 954 $ 1,159 $ (205 ) (17.7 %)
    Cost of cryptocurrency revenue $ 873 $ —   $ 873 100.0 %
    Research and product development expenses $ 792 $ 764 $ 28 3.7 %
    Selling, general and administrative expenses $ 4,867 $ 1,642 $ 3,225 196.4 %
Operating (loss) income $ (1,850 ) $ 458 $ (2,308 ) (503.9 %)
Other income, net $ 13 $ 4 $ 9 225.0 %
(Loss) income before income taxes $ (1,837 ) $ 462 $ (2,299 ) (497.6 %)
Income tax (expense) benefit $ (3 ) $ 3 $ (6 ) (200.0 %)
  Net (loss) income $ (1,840 ) $ 465 $ (2,305 ) (495.7 %)
(Dollars in thousands) Six Months Ended
June 30, 2022 Six Months Ended
June 30, 2021 $
Change %
Change
Cryptocurrency mining revenue $ 15,309 2,652 12,657 477 %
Data hosting revenue $ 2,683 - 2,683 100 %
Operating costs and expenses:
Cost of cryptocurrency mining revenue, exclusive of depreciation $ 6,992 650 6,342 976 %
Cost of data hosting revenue $ 2,114 - 2,114 100 %
General and administrative expenses, exclusive of depreciation and amortization $ 9,755 3,799 5,956 157 %
Depreciation and amortization expense 14,611 225 14,386 6,394 %
Impairment on fixed assets $ 750 - 750 100 %
Operating loss $ (16,230 ) (2,022 ) (14,208 ) 703 %
Other income, net $ - 8 (8 ) (100 %)
Interest expense $ (6,185 ) - (6,185 ) 100 %
Loss on sale of fixed assets $ (1,618 ) - (1,618 ) 100 %
Loss before income taxes from continuing operations $ (24,033 ) (2,014 ) (22,019 ) 1,093 %
Income tax benefit (expense) from continuing operations $ 797 (3 ) 800 (26,667 %)
Net loss from continuing operations $ (23,236 ) (2,017 ) (21,219 ) 1,052 %
Income before income taxes from discontinued operations (including gain on sale of MTI Instruments of $7,602 for the three and six months ended June 30, 2022) $ 7,702 177 7,525 4,251 %
Income tax benefit from discontinued operations $ 70 - 70 100 %
Net income from discontinued operations $ 7,772 177 7,595 4,291 %
Net loss $ (15,464 ) (1,840 ) (13,624 ) 740 %
~~Product Revenue:~~ Cryptocurrency Mining Revenue~~Product~~: Cryptocurrency mining revenue consists of revenue recognized from ~~sales of MTI Instruments’ products and the provision of related maintenance and repair services.~~SCI’s cryptocurrency mining operations.

~~Product~~Cryptocurrency mining revenue was approximately $7.5 million and $15.3 million for the three and six months ended June 30, ~~2021 decreased by $743 thousand, or 31.1%,~~2022, respectively, compared to ~~$1.6~~$1.7 million ~~from $2.4~~and $2.7 million for the three months ended June 30, 2020. The primary reason for this decrease was a $935 thousand decline in portable balancing systems (“PBS”) revenue due to lower new PBS sales, of which $750 thousand was driven by a decrease in units shipped for the United States Air Force of 17 additional units in 2020, this was partially offset by increase of capacitance sales of $100 thousand and ~~an increase of PBS repairs of $100 thousand for the three months ended June 30, 2021.~~
~~Product revenue for the~~ six months ended June 30, 2021, decreased by $989 thousand, or 24.9%, to $3.0 million from $4.0 million during the six months ended June 30, 2020. The primary reason for the decrease was a $935 thousand decline in portable balancing systems (“PBS”) revenue due to lower new PBS sales, of which $750 thousand was driven by a decrease in units shipped for the United States Air Force of 15 additional units in 2020. In addition customers located in Asia accounted for a decrease of $185 thousand in PBS revenue. The decrease was primarily due to a large order placed in 2020. The decline in Asia was due to lingering issues related to the COVID pandemic and related travel restrictions, which challenged communications due to   language barriers related to having to conduct sales presentations and otherwise interact with customers remotely, which we have found to be less effective than in-person interactions.
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~~Information regarding government contracts included in product revenue is as follows:~~
(Dollars in thousands)

Revenues for the
Three Months Ended

June 30,
Contract⁽¹⁾ Expiration 2021 2020

$9.35 million U.S. Air Force Systems, Accessories and Maintenance 06/30/2021 ⁽²⁾ $ 584 $ 1,764
(Dollars in thousands)

Revenues for the
Six Months Ended

Contract Revenues
to Date
Date

Total Contract
Orders Received
To Date

June 30, June 30, June 30,
Contract⁽¹⁾ Expiration 2021 2020 2021 2021

$9.35 million U.S. Air Force Systems, Accessories and Maintenance 06/30/2021 ⁽² ⁾ $ 814 $ 1,828 $ 9,474 $ 9,870
~~(1)~~ ~~Contract values represent maximum potential values at time of contract placement and may not be representative of actual results.~~
~~(2)~~ ~~Date represents expiration of contract, including the exercise of option extensions.~~
We are in discussions with the U.S. Air Force regarding renewing their current contract, which expired as of June 30, 2021. We do not anticipate any issues with the renewal of the contract and we expect to enter into a renewed contract with the U.S. Air Force in September. As a result, we do not expect that there will be any material impact on our results of operations, cash flows, liquidity, or financial condition as a result of the pending expiration of our current contract with the U.S. Air Force.
~~Cryptocurrency Revenue~~~~: Cryptocurrency revenue consists of revenue recognized from EcoChain’s cryptocurrency mining operations.~~
Cryptocurrency revenue was $1.7 million for the three months ended June 30, 2021, compared to $50 thousand for the three months ended June 30, 2020. Cryptocurrency revenue was $2.7 million for the six months ended June 30, 2021, compared to $50 thousand for the six months ended June 30, 2020. EcoChainrespectively. SCI did not commence its cryptocurrency mining operations until the second quarter of 2020. We maintained our facility in Washington and in 2021 added two new mining site operations in Murray, Kentucky and Calvert City, Kentucky, however minimal operations were involved in the first six months of 2021, and we began ramping operations in the third quarter of 2021. Megawatts deployed increased from approximately 2 megawatts at the end of 2020 and ~~therefore there was no material cryptocurrency revenue~~increased slowly in fiscal year 2021 to approximately 20 and 33 megawatts per the 2 facilities in Kentucky for the six months ended June 30, ~~2020.~~2022. This ~~revenue represents the cash received upon the daily sale of the various cryptocurrencies mined at EcoChain’s mining facility during the six months ended June 30, 2021.~~
~~Cost of Product Revenue; Gross Margin:~~ ~~Cost of product revenue includes the direct material and labor cost as well as an allocation of overhead costs that relate~~growth in capacity contributed to the ~~manufacturing of products that we sell. Cost of product revenue also includes~~growth in the ~~labor and material costs incurred for product maintenance, replacement parts, and service under our contractual obligations.~~
Cost of product revenue for the three months ended June 30, 2021 decreased by $129 thousand, or 20.4%, to $502 thousand from $631 thousand for the three months ended June 30, 2021. Cost of product revenue for the six months ended June 30, 2021 decreased by $205 thousand, or 17.7%, to $954 thousand from $1.2 million for the six months ended June 30, 2020. The reason for this decreasebusiness for the three and six months ~~was the decrease in product sales compared to the year to date~~ of ~~2020, as discussed above in “Product Revenue.”~~2022.

~~Cost as~~Data Hosting Revenue: In August 2021, SCI began cryptocurrency hosting services in which SCI provides energized space and operating services to third-party mining companies who locate their mining hardware at one of SCI’s mining locations, in which they may receive a ~~percentage of product~~fee per miner installed, revenue share and if additional services are rendered, an additional service fee is charged to the outside parties. The Company’s revenue was ~~unfavorable comparable~~approximately $1.2 million and $2.7 million for the three and six months ended June 30, ~~2021~~2022, respectively, with no comparable toservices noted for the three and six months ended June 30, ~~2020, decreasing~~2021. The 2022 revenue is entirely attributed to ~~as a percentage of product revenue, 68.0% during~~ the year to date of 2021 compared to 70.8% in the comparable 2020 period. This was due to a mix change (lower volume in sales in the higher margin products) from the decrease in the PBS sales and lower proportion to total sales.Kentucky data center location.
20

Cost of Cryptocurrency Mining Revenue: Cost of cryptocurrency revenue includes direct utility costs, site overhead expenses, depreciation expenses, as well as overhead costs that relate to the operations of ~~EcoChain’s~~SCI’s cryptocurrency mining facility. Going forward, cost of cryptocurrency revenue will also include any costs related to the hosting of our miners in third-party facilities as well as the costs of operations of any additional EcoChain cryptocurrency mining facilities, including the anticipated Southeast region facility, discussed above, once the ground leases become effective.facilities.

Cost of cryptocurrency mining revenue, exclusive of depreciation expense was ~~$545 thousand~~approximately $3.6 million and $7.0 million for the three ~~months ended June 30, 2121. Cost of cryptocurrency revenue was $873 thousand for the~~and six months ended June 30, ~~2021.~~2022, respectively, compared to approximately $400 thousand and $650 thousand for the three and six months ended June 30, 2021, respectively. Depreciation costs associated with cryptocurrency revenue was approximately $5.5 million and $9.9 million for the three and six months ended June 30, 2022, respectively, compared to $150 thousand and $225 thousand for the three and six months ended June 30, 2021, respectively. As noted above, ~~EcoChain~~SCI did not commence cryptocurrency mining operations until the second quarter of 2020 and ~~therefore~~did not start to significantly increase capacity until the third quarter of 2021. Therefore, there was no material cryptocurrency mining revenue or associated costs ~~during the first six month ended June 30, 2020.~~
~~Research and Product Development Expenses:~~ ~~Research and product development expenses includes the costs of materials to build development and prototype units, cash and non-cash compensation and benefits~~ for the ~~engineering~~three and related staff, expenses for contract engineers, fees paid to outside suppliers for subcontracted components and services, fees paid to consultants for services provided, materials and supplies consumed, facility-related costs such as computer and network services, and other general overhead costs associated with our research and development activities, to the extent not reimbursed by our customers.
~~Research and product development expenses decreased $28 thousand, or 3.7%, during the~~ six months ended June 30, ~~2021 compared~~2021. As the Company began increasing their capacity, the associated costs began to increase. As noted above, depreciation costs associated with cryptocurrency mining revenue began to significantly increase as miners and equipment were being installed into operations and being depreciated over time.
31
Cost of Data Hosting Revenue: Cost of data hosting revenue includes utility charges, site overhead expenses, and other charges. These expenses are allocated based on the ~~2020 period. This decrease was primarily due to the movement of a highly-compensated engineering employee from full-time to part-time status during the third quarter of 2020.~~cost driving activity.

Cost of data hosting revenue was approximately $1.0 million and $2.1 million for the three and six months ended June 30, 2022. As noted above, SCI began hosting services in August 2021. As such, there were no related charges in the three and six months ended June 30, 2021.
~~Selling,~~
General and Administrative Expenses: ~~Selling, general~~General and administrative expenses ~~includes~~include cash and non-cash compensation, benefits and related costs in support of our general corporate functions, including general management, finance and accounting, human resources, ~~selling and~~ marketing, information technology, and legal services.
~~Selling, general~~General and administrative expenses, exclusive of depreciation and amortization for the three months ended June 30, ~~2021~~2022 increased by ~~$2.1~~$2.4 million or ~~257.7%~~95%, to ~~$3.0~~$4.9 million from ~~$847 thousand~~$2.5 million for the three months ended June 30, ~~2020.~~2021. This increase was a result of ~~both~~ expenses incurred in ~~2021~~the three months ended June 30, 2022 for which there was no comparable expense in ~~2020~~the quarter ended June 30, 2021. These 2022 expenses related to the hiring of new employees for the Soluna Callisto transactions (i.e.: salary, stock-based compensation and future pipeline expenses), as well as from changes in a number of our traditional ~~selling,~~ general and administrative expenses. ~~Expenses for which there was~~There were no ~~comparable outlay in 2020 consisted non-cash stock option grants of $1.0 million to our Chief Executive Officer (“CEO”) and Board of Directors, $480 in legal and other expenses~~employees related to ~~pipeline acquisition costs~~SCI for the three months ended June 30, 2021.
Audit and ~~CEO and Board compensation review. The Company expects these expenses~~tax fees increased by $45 thousand associated with the nature of the Company’s operations changing from an instrumentation business to a ~~one-time expense.~~cryptocurrency mining business. Consultant fees increased by $350 thousand due to valuations of complex transactions, advisory fees for complex accounting research matters, and pipeline development project costs, in which the Company involves multiple consultants to help build out future plans.

Salaries and ~~benefits~~benefit expenses increased by $1.3 million during the three months ended June 30, 2022 compared to the three months ended June 30, 2021. Approximately $990 thousand related to salary and fringe benefits for new employees of Soluna Callisto in connection with the October 2021 acquisition, as compared to no payroll expenses for SCI as there were no employees in the comparable prior period. Approximately $237 thousand related to an increase in the salary of the Company’s Chief Financial Officer, as well as the hiring of a Corporate Controller (hired in January of 2022), and Financial Reporting Manager (hired in July 2021). The Company had nine SHI employees as of June 30, 2022 compared to four SHI employees as of June 30, 2021. The Company saw increases in bonuses of $240 thousand for the three months ended June 30, 2022 compared to three months ended June 30, 2021 due to growth in the Company’s operations in the cryptocurrency mining and other operating initiatives set for the three months ended June 30, 2022. The Company also incurred an increase in temporary help of $50 thousand and recruitment fees of $62 thousand due to the rapid growth of the Company’s operations.
Directors’ and officers’ insurance premiums and other insurance expenses increased by approximately $150 thousand during the three months ended June 30, ~~2021,~~2022 compared to the three months ended June 30, 2020, $130 thousand of which was related to the salary and benefits of our Chief Financial Officer and Compliance Manager, who were hired in July 2020 and November 2020, respectively, and change in employment status to full time for the Corporate Controller, $110 thousand of which is related to the salary, recruiting fees and benefits of the new President of MTI Instruments, who was originally hired as Director of Marketing in the third quarter of 2019 and promoted to Chief Operating Officer of MTI Instruments in May 2020 and President of MTI Instruments in September 2020, in addition to adding an HR manager. Compensation expense for Board members increased by $19 thousand due to the Company’s change in Board compensation and adding two Directors to the Board in February 2021. In addition, compared to the three months ended June 30, 2020, we experienced an increase of $50 thousand in audit and consulting fees due to compliance with the auditing standards of the Public Company Accounting Oversight Board (“PCAOB”). During the three months ended June 30, 2020, we did not file reports with the SEC and therefore the annual audit of our financial statements did not need to comply with PCAOB requirements, which resulted in lower audit fees for the 2020 period. Directors and Officers insurance premiums increased by $95 thousand during the three months ended June 30, 2021 ~~compared to the three months ended June 30, 2020. This is due~~primarily to our status as an SEC reporting company and the increase in cryptocurrency operations. Travel and living expenses increased by approximately $150 thousand due to increased travel to promote business ~~unit. We expect these expenses~~and build on future pipelines, for the three months ended June 30, 2022 compared to ~~continue~~the three months ended June 30, 2021. With the growth of the Company in 2022, we saw an increase in software license fees of $100 thousand as the Company was working on developing and ~~not~~growing new technology to ~~be one-time expenses.~~help build a stronger and more efficient internal infrastructure.

~~Selling, general~~General and administrative expenses, exclusive of depreciation and amortization for the six months ended June 30, ~~2021~~2022 increased by ~~$3.2~~$6.0 million or ~~196.4%~~157%, to ~~$4.9~~$9.8 million from ~~$1.6~~$3.8 million for the six months ended June 30, ~~2020.~~ 2021. This increase was a result of ~~both~~ expenses incurred in ~~2021~~the six months ended June 30, 2022 for which there was no comparable expense in ~~2020~~the six months ended June 30, 2021. These 2022 expenses related to the hiring of new employees for the Soluna Callisto transactions (i.e.: salary, stock-based compensation and future pipeline expenses), as well as from changes in a number of our traditional ~~selling,~~ general and administrative expenses. ~~Expenses~~There were no employees related to SCI for ~~which there was no comparable outlay in 2020 consisted of non-cash stock option~~the six months ended June 30, 2021.
Stock-based compensation costs included $1.3 million and $151 thousand, respectively for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 related to grants of ~~$1.0 million~~restricted stock units to members of our ~~CEO and~~ Board of Directors ~~$790~~(the “Board”) and employees, and $566 thousand for the six months ended June 30, 2022 compared to $877 thousand for the six months ended June 30, 2021 related to grants of stock options. Stock-based compensation costs to consultants were $67 thousand for the six months ended June 30, 2022 compared to $49 thousand for the six months ended June 30, 2021, respectively.
Audit and tax fees increased by $370 thousand associated with increased fees for the fiscal year 2021 audit, as well as the nature of the Company’s operations changing from an instrumentation business to a cryptocurrency mining business. Consultant fees increased by $650 thousand due to valuations of complex transactions, advisory fees for complex accounting research matters, and pipeline development project costs, in ~~legal~~which the Company involves multiple consultants to help build out future plans.
Salaries and benefit expenses increased by $2.2 million during the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Approximately $1.7 million related to salary and fringe benefits for new employees of Soluna Callisto in connection with the October 2021 acquisition, as compared to no payroll expenses associated with SCI as there were no employees for the six months ended June 30, 2021. Approximately $400 thousand related to increase in the salary of the Company’s Chief Financial Officer, as well as the hiring of a Corporate Controller (hired in January of 2022), and Financial Reporting Manager (hired in July 2021). The Company had nine SHI employees as of June 30, 2022 compared to four SHI employees as of June 30, 2021. The Company saw increases in bonuses of $480 thousand for the six months ended June 30, 2022 compared to six months ended due to growth in Company’s operations in the cryptocurrency mining and other operating initiatives set for the six months ended June 30, 2022. The Company also incurred an increase in temporary help of $80 thousand and recruitment fees ~~$440~~of $140 thousand due to the rapid growth of the Company’s operations.
32
Directors’ and officers’ insurance premiums and other insurance expenses increased by approximately $300 thousand during the six months ended June 30, 2022 compared to the six months ended June 30, 2021 primarily to our status as an SEC reporting company and the increase in cryptocurrency operations. Travel and living expenses increased by approximately $185 thousand due to increased travel to promote business and build on future pipelines, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. With the growth of the Company in 2022, we saw an increase in software license fees of $150 thousand as the Company was working on developing and growing new technology to help build a stronger and more efficient internal infrastructure
The Company expects general and administrative expenses to continue to increase for the remainder of fiscal year 2022 and generally going forward as the Company significantly expands their cryptocurrency operations.
Depreciation and Amortization: Depreciation and amortization expense during the three and six months ended June 30, 2022 totaled approximately $7.9 million and $14.6 million, respectively, which is an increase of approximately $7.8 million and $14.4 million, respectively, as compared to $149 thousand and $225 thousand for the three and six months ended June 30, 2021, respectively. This increase was primarily due to higher depreciation recognized of $5.4 million and $9.6 million during the three and six months ended June 30, 2022, respectively, for the two facilities deployed in Kentucky and the associated miners which began operations in the third quarter of 2021, in addition to amortization expense of approximately $2.4 million and $4.7 million for the three and six months ended June 30, 2022, respectively, related to the strategic pipeline contract that was acquired in October 2021.
Impairment on Fixed Assets: During the three and six months ended June 30, 2022, the Company concluded that there were impairment indicators on property, plant and equipment associated with the S-9 miners. As a result, a quantitative impairment analysis was required as of June 30, 2022. As such, the Company reassessed its estimates and forecasts as of June 30, 2022, to determine the fair values of the S-9 miners. As a result of the analysis, as of June 30, 2022, the Company concluded the carrying amount of the property, plant and equipment associated with the S-9 miners exceeded its fair value, which resulted in impairment charges of $750 thousand on the condensed consolidated statements of operations for the three and six months ended June 30, 2022.
Operating Loss: Operating loss increased to $9.4 million and $16.2 million for the three and six months ended June 30, 2022, respectively, from $1.4 million and $2.0 million during the three and six months ended June 30, 2021, respectively. This $8.0 million and $14.2 million loss increase for the three and six months ended June 30, 2022, respectively, was the result of the factors noted above, that is, significant increases in general, and administrative expenses for items not incurred in the prior year, as well as the significant growth in the SCI operations, which led to increased sales and costs for the year.
Interest Expense: Interest expense for the three and six months ended June 30, 2022 was $3.3 million and $6.2 million, respectively. Interest expense was primarily related to the $2.8 million and $5.2 million of interest expense for the three and six months ended June 30, 2022, respectively in relation to the October Notes issued at the end of October 2021 and promissory notes issued in February, March, and April of 2022. Interest expense of $480 thousand and $845 thousand for the three and six months ended June 30, 2022, respectively was also incurred related to the NYDIG financing in January of 2022. The Company did not incur any interest expense for the three and six months ended June 30, 2021.
Loss on Sale of Fixed Assets: The Company sold and disposed of approximately $2.1 million worth of fixed assets in the second quarter of 2022, for a loss on sale of fixed assets of approximately $1.6 million. There was no loss on sale of fixed assets for the three and six months ended June 30, 2021.
Income Tax Benefit (Expense) from Continuing Operations: Income tax benefit from continuing operations for the three and six months ended June 30, 2022 was $251 thousand and $797 thousand, respectively, compared to an income tax expense from continuing operations of $3 thousand for the three and six months ended June 30, 2021, respectively. The increase in income tax benefit for the three and six months ended June 30, 2022 was related to deferred tax amortization impact of acquiring an asset in a transaction that is not a business combination when the amount paid exceeds the tax basis on the acquisition date. As such, the Company is required to adjust the value of the strategic contract pipeline by approximately $10.9 million at inception date (October 29, 2021), in which was recorded as a deferred tax liability. This amount will be amortized over the life of the asset. For the three months and six months ended June 30, 2022, the Company amortized $547 thousand and $1.1 million, respectively. The benefit was offset by a $295 thousand deferred tax expense incurred in the second quarter of 2022 related to increasing the Company’s valuation allowance associated with the deferred tax asset.
Net Loss from Continuing Operations: Net loss from continuing operations for the three and six months ended June 30, 2022 was $14.1 million and $23.2 million, respectively, compared to net loss from continuing operations of $1.4 million and $2.0 million for the three and six months ended June 30, 2021, respectively. The increase in loss for the three and six months ended June 30, 2022 were the result of the factors noted above, including expenses not incurred in the prior year period, such as amortization expense for the strategic pipeline contract intangible, depreciation on miners installed, utilities operating in the Company’s two facilities in Kentucky, and noncash compensation expense related to equity awards, partially offset by increases in cryptocurrency mining revenue and data hosting revenue.
Net Income from Discontinued Operations: As of June 30, 2022, the Company’s MTI Instruments business was reported as discontinued operations up to the date of the sale on April 11, 2022. Net income from discontinued operations for the three months ended June 30, 2022 was $7.5 million compared to net income of $217 thousand for the three months ended June 30, 2021. This was primarily due to the $7.6 million gain on the sale of MTI Instruments offset with MTI Instruments only having ten days of operations prior to the sale on April 11, 2022, in addition to fewer sales of higher margin products, incurred a loss for the ten days in April, compared to a full three months of operations for the second quarter of 2021, when MTI Instruments had a stronger product mix of selling higher margin products, therefore resulting in net income of $217 thousand for the three months ended June 30, 2021. Net income for the six months ended June 30, 2022 and 2021 was $7.8 million and $177 thousand, respectively. As noted above, included in the $7.8 million was the $7.6 million gain on sale of MTI Instruments. Although there was a decline in sales in the six months ended June 30, 2022 due to the sale of MTI Instruments in April, the relative costs and administration expenses were in line with the six months ended June 30, 2021, as such the net income was relatively consistent.
33
Net Loss: Net loss for the three and six months ended June 30, 2022 was $6.6 million and $15.5 million, respectively, compared to net loss of approximately $1.2 million and $1.8 million for the three and six months ended June 30, 2021, respectively, primarily as a result of the factors noted above with the losses incurred in continued operations, as the Company continues to grow and build out their operations for the future.
Non-GAAP Measures
In addition to financial measures calculated in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), we also use “Adjusted EBITDA.” Adjusted EBITDA is a non-GAAP financial measure defined as net income (loss) from continuing operations before interest, taxes, depreciation and amortization (“EBITDA”) adjusted to eliminate the effects of certain non-cash, non-recurring items, that do not reflect our ongoing strategic business operations. Management believes that Adjusted EBITDA results in a performance measurement that represents a key indicator of the Company’s business operations of cryptocurrency mining.
We believe Adjusted EBITDA can be an important financial measure because it allows management, investors, and the Board to evaluate and compare our operating results, including our return on capital and operating efficiencies, from period-to-period by making such adjustments. Non-GAAP financial measures are subject to material limitations as they are not in accordance with, or a substitute for, measurements prepared in accordance with U.S. GAAP. For example, we expect that stock-based compensation costs, which is excluded from the non-GAAP financial measures, will continue to be a significant recurring expense over the coming years and is an important part of the compensation provided to certain employees, officers, and directors. Similarly, we expect that depreciation and amortization of fixed assets will continue to be a recurring expense over the term of the useful life of the assets.
Adjusted EBITDA is provided in addition to and should not be considered to be a substitute for, or superior to net income, the comparable measure calculated in accordance with U.S. GAAP. Further, Adjusted EBITDA should not be considered as an alternative to revenue growth, net income, diluted earnings per share or any other performance measure calculated in accordance with U.S. GAAP, or as an alternative to cash flow from operating activities as a measure of our liquidity. Adjusted EBITDA has limitations as an analytical tool, and you should not consider such measures either in isolation or as substitutes for analyzing our results as reported under U.S. GAAP.
Reconciliations of Adjusted EBITDA to net income from continuing operations, the most comparable U.S. GAAP financial metric, for historical periods are presented in the table below:
(Dollars in thousands) Three Months Ended
June 30, Six Months Ended
June 30,
2022 2021 2022 2021

Net loss from continuing operations $ (14,104 ) $ (1,391 ) $ (23,236 ) $ (2,017 )
Interest expense (income), net 3,305 (4 ) 6,185 (7 )
Income tax (benefit) expense (251 ) 3 (797 ) 3
Depreciation and amortization 7,914 149 14,611 225
EBITDA (3,136 ) (1,243 ) (3,237 ) (1,796 )

Adjustments: Non-cash items

Stock-based compensation costs 1,064 1,034 2,019 1,088
Loss on sale of fixed assets 1,618 — 1,618 —
Impairment on fixed assets 750 — 750 —
Adjustments: Non-recurring items
Exchange registration expenses — 43 — 293
Adjusted EBITDA $ 296 $ (166 ) $ 1,150 $ (415 )
34
Stock-based compensation costs included approximately $630 thousand and $1.4 million for the three and six months ended June 30, 2022 compared to approximately $130 thousand and $151 thousand for the three and six months ended June 30, 2021, respectively, related to grants of restricted stock units to members of the Board and employees, and approximately $360 thousand and $570 thousand for the three and six months ended June 30, 2022 compared to $870 thousand and $880 thousand for the three and six months ended June 30, 2021, respectively, related to grants of stock options. Stock-based compensation costs to consultants were $67 thousand for the six months ended June 30, 2022 compared to $49 thousand for the six months ended June 30, 2021, respectively.
The exchange registration expenses related to ~~pipeline~~non-recurring expenses of approximately $30 thousand and ~~due diligence activities,~~$189 thousand for the three and $300 thousand in expenses related to investor relations matters. $455 thousand of such legal fees were related to the transaction to lease the building for EcoChain’s new cryptocurrency mining facility and the surrounding land located in the Southeast region of the U.S., discussed above, and expenses for additional pipeline opportunities including expenses related to due diligence activities, $165 thousand in legal expenses. and the remaining $335 thousand were corporate legal expenses, $83 thousand of which was related tosix months ended June 30, 2021 associated with the Company’s reincorporation in Nevada ~~the preparation and adoption of its~~in March 2021 ~~Stock Incentive Plan,~~ and the related special meeting of ~~shareholders~~stockholders we held on March 25, 2021 ~~at which the Company’s stockholders approved (among another matter)~~to approve the reincorporation and the adoption of the 2021 Stock Incentive Plan. In addition, ~~$65~~the Company incurred approximately $13 thousand ~~related to CEO~~ and ~~Board compensation consultation~~$104 thousand for the three and ~~the annual stockholders meeting, $38 thousand of the increase~~six months ended June 30, 2021 in ~~legal~~ fees related to the initial listing of our common stock on ~~The~~ Nasdaq ~~Stock Market LLC (“Nasdaq”),~~ and ~~$141 thousand of such increase was for~~associated legal assistance in connection with ~~other SEC filings, primarily~~ our ~~Annual Report on Form 10-K~~registration matters. There were no comparable exchange registration expenses related for the ~~year ended December 31, 2020~~three and Form 8-K filings, which we did not have to file during the quarter ended June 30, 2020 as we were not then subject to the filing requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Of these $790 thousand of legal fees, the Company expects that approximately $680 thousand are one-time expenditures. The Company expects the $440 thousand incurred for activities related to pipeline and due diligence during the three months ended June 30, 2021 to be a one-time expense.
21
~~Investor relations expenses we incurred during the~~ six months ended June 30, 2021, and for which there was no comparable expense during the six months ended June 30, 2020, were $300 thousand, consisting primarily of $88 thousand for Nasdaq registration fees in connection with the initial listing of our common stock, $84 thousand related to our retention of an investor relations consulting firm to assist us with creating a more formal investor relations strategy given our status as an SEC reporting and Nasdaq-listed company, $51 thousand related to the special meeting, including the fees and expenses of the proxy solicitor we retained in connection therewith, and $50 thousand in conjunction with the Company’s annual stockholders meeting. Of the $300 thousand in investor relations expenses for which there was no comparable expenditures during the six months ended June 30, 2020, we expect approximately $125 thousand thereof, to be one-time expenditures.2022.

Salaries and benefits expenses increased by $515 thousand during the six months ended June 30, 2021, compared to the six months ended June 30, 2020, $260 thousand of which is related to the salary and benefits of our Chief Financial Officer and Compliance Manager, who were hired in July 2020 and November 2020, respectively, and change in employment status to full time for the Corporate Controller, $255 thousand of which is related to the salary, recruiting fees and benefits of the new President of MTI Instruments, who was originally hired as Director of Marketing in the third quarter of 2019 and promoted to Chief Operating Officer of MTI Instruments in May 2020 and President of MTI Instruments in September 2020, in addition to adding an HR manager. Compensation expense for Board members increased by $38 thousand due to the Company’s change in Board compensation and adding two Directors to the Board in February 2021. In addition, compared to the six months ended June 30, 2020, we experienced an increase of $100 thousand in audit and consulting fees due to having to be conducted in accordance with the auditing standards of the Public Company Accounting Oversight Board (“PCAOB”). During the six months ended of 2020 we did not file reports with the SEC and therefore the annual audit of our financial statements did not need to comply with PCAOB requirements, which resulted in lower audit fees for the 2020 period. Directors and officers insurance premiums increased by $95 thousand during the six months ended June 30, 2021, compared to the six months ended June 30, 2020. This is due to our status as an SEC reporting company and the cryptocurrency business unit. We expect these expenses to continue and not to be one-time expenses.
The Company also expects selling, general and administrative expenses to continue to increase in 2021 and generally going forward as a result of its resumption of filing periodic reports, annual proxy statements, and other filings with the SEC following the effectiveness of its Form 10 registration statement in November 2020.
~~Operating Loss:~~
Operating loss increased to $1.2 million for the three months ended June 30, 2021 from a profit of $600 thousand during the comparable 2020 period. This decrease was the result of the $2.1 million increase in selling, general and administrative expenses. The increase in loss was partially offset by the EcoChain contribution margin (i.e. the aggregate incremental revenue generated from cryptocurrency revenue after deducting the direct costs) of $1.1 million. In addition, of the $2.1 million increase in selling, general and administrative expenses, we expect $1.5 million to be one-time expenses, as described above.
Operating loss increased to $1.8 million for the six months ended June 30, 2021 from a profit of $465 thousand during the comparable 2020 period. This decrease was the result of the $3.2 million increase in selling, general and administrative expenses. The increase in loss was partially offset by the EcoChain contribution margin (i.e. the aggregate incremental revenue generated from cryptocurrency revenue after deducting the direct costs) of $1.7 million. In addition, of the $3.2 million increase in selling, general and administrative expenses, we expect $2.2 million to be one-time expenses, as described above.
Liquidity and Capital Resources

Several key indicators of our liquidity are summarized in the following table:

(Dollars in thousands) Six Months Ended or As of Six Months Ended or As of Year Ended or As of
June 30, June 31, December 31,
2021 2020 2020
Cash $ 12,096 $ 1,351 $ 2,630
Working capital 16,849 3,092 3,142
Net (loss) income (1,840 ) 602 1,946
Net cash provided by (used in) operating activities (5,037 ) (61 ) 1,622
Purchase of property, plant and equipment (1,543 ) (348 ) (835 )
22
(Dollars in thousands) Six Months Ended or As of Six Months Ended or As of Year Ended or As of
June 30, June 30, December 31,
2022 2021 2021
Cash $ 4,626 $ 12,096 $ 10,258
Working capital (9,689 ) 17,144 9,299
Net loss from continuing operations (23,236 ) (2,017 ) (6,388 )
Net income from discontinued operations 7,772 177 1,127
Net cash provided by operating activities 1,763 795 4,635
Net cash provided by operating activities- discontinued operations 328 301 917
Purchases of property, plant and equipment (52,618 ) (1,319 ) (45,792 )
Cash dividends distributed on preferred stock (2,131 ) — (630 )

The Company has historically incurred significant losses primarily due to ~~its~~our past efforts to fund direct methanol fuel cell product development and commercialization programs, and most recently with the Company’s operations in cryptocurrency mining. The Company had a consolidated accumulated deficit of approximately ~~$119.6~~$138.5 million as of June 30, ~~2021.~~2022. As of June 30, ~~2021,~~2022, the Company had negative working capital of approximately ~~$16.8~~$9.7 million, ~~no debt,~~a line of credit outstanding of $1.0 million, $10.5 million outstanding in notes payable that may be converted to common stock, and received additional equipment financing for up to $14.6 million, of which $7.5 million was current. The Company had outstanding commitments as of June 30, 2022 related to ~~EcoChain~~SCI for ~~$8.3~~$1.5 million ~~for~~in capital expenditures, approximately $1.8 million in cash provided by operating activities for continuing operations, and approximately ~~$12.0~~$4.6 million of cash available to fund our operations.

Based on business developments, including changes in production levels, staffing requirements, and network infrastructure improvements, we will require additional capital equipment in the foreseeable future. With ~~respect to MTI~~the Company’s shift in focus of the business, and the sale of the MTI Instruments ~~we expect to spend a total of approximately $300 thousand~~business that occurred in April 2022, the Company has now exited the instrumentation business and is focused on ~~computer equipment~~developing and ~~software~~monetizing green, zero-carbon computing and ~~$1.6 million on research and development during 2021.~~ cryptocurrency mining facilities.
As we have done historically, we expect to ~~finance these expenditures and~~ continue funding ~~their~~ operations from our current cash position and our projected ~~2021~~2022 cash flows pursuant to management’s plans. If necessary, we may also seek to supplement our resources by increasing credit facilities to fund operational working capital and capital expenditure requirements. ~~With respect to EcoChain, we~~We expect to fund growth (additional cryptocurrency mining facilities and miners) through capital raise activities, to the extent that we can successfully raise capital through sales of additional ~~securities sales.~~debt or equity securities. Any additional financing, if required, may not be available to us on acceptable terms or at all.

~~While it cannot be assured, management believes that, due~~As shown in ~~part~~the accompanying financial statements, the Company did not generate sufficient revenue to generate net income and has negative working capital as of June 30, 2022. In addition, the Company has seen a decline in the price of Bitcoin, which could have material and negative impacts to our ~~current working capital level~~operations. These factors, among others, may indicate that there is substantial doubt about the Company’s ability to continue as a going concern within one year after issuance of the financial statements as of June 30, 2022, or August 15, 2022.
Further, various macroeconomic factors could adversely affect our business and ~~projected cash requirements for~~the results of our operations and financial condition, including changes in inflation, interest rates and overall economic conditions. For instance, inflation could negatively impact the Company by increasing our labor costs, through higher wages and higher interest rates. If inflation or other factors were to significantly increase our business costs, our ability to develop our current projects may be negatively affected. Interest rates, the liquidity of the credit markets and the volatility of the capital ~~expenditures, its current available cash~~markets could also affect the operation of ~~approximately $12.0 million,~~our business and our ~~projected 2021 cash flow pursuant~~ability to ~~management’s plans, the Company will have adequate resources~~raise capital in order to fund operations and capital expenditures for MTI and MTI Instruments for the year ending December 31, 2021 and through at least the end of the third quarter of 2022. As noted above, we expect to fund capital expenditures for EcoChain through capital raises, while EcoChain’s operations will be funded through its cash flows. We expect to have adequate resources to fund EcoChain’s operations for the year ending December 31, 2021 and through at least the third quarter of 2022.our operations.
If our revenue estimates are off either in timing or amount, or if cash generated from operations is insufficient to satisfy the operational working capital and capital expenditure requirements, the Company ~~may need~~plans to implement additional steps to ensure liquidity including, but not limited to, the deferral of planned capital spending and/or delaying existing or pending product development initiatives, or the Company may be required to obtain credit facilities or other loans, if available, to fund these initiatives. ~~The~~However, the Company ~~has no other formal commitments~~is actively monitoring this situation and the possible effects on our financial condition, liquidity, operations, suppliers, and the industry.
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Operating Activities
Net cash provided by operating activities from continuing operations was approximately $1.8 million during the six months ended June 30, 2022. Cash was provided from operations by a net loss from continuing operations of $23.2 million, less non-cash items of $23.6 million, consisting primarily of $14.6 million of amortization and depreciation expense for ~~funding its future needs at this time~~the year for the intangible asset acquired in 2021 and ~~any additional~~significant additions in fixed assets, approximately $2.0 million in stock-based compensation expense, $1.6 million in loss on sale of fixed assets, $750 thousand for impairment on fixed assets, and $5.4 million for amortization on deferred financing ~~we may require~~costs and discount on notes payables issued during the year, ~~ending December 31,~~offset with $797 thousand in deferred income tax benefits. The change in asset and liabilities of $1.3 million consisted primarily of an increase in accounts payable of $1.9 million offset by $393 thousand of increases in prepaids and other assets (excluding proceed receivable from the sale of MTI Instruments of approximately $205 thousand) and $157 thousand in accounts receivable.
Net cash provided by operating activities from continuing operations was $795 thousand during the six months ended June 30, 2021. Cash was consumed from operations by a net loss of $2.0 million, less $225 thousand of depreciation, $1.0 million of stock-based compensation expense, and $76 thousand for amortization of the Company’s operating lease assets. The change in assets and liabilities of $1.4 million was mainly due to increases in the year of accounts payable and accrued liabilities of $1.8 million, offset with an increase in prepaid expenses and other current assets of $371 thousand.
Net cash provided by operating activities from discontinued operations was $328 thousand during the six months ended June 30, 2022 compared to $301 thousand for the six months ended June 30, 2021, respectively. The relative changes in assets and liabilities were comparable between the two periods.
Investing Activities
Net cash used in investing activities from continuing operations during the six months ended June 30, 2022 was approximately $50.6 million compared to $7.5 million for the six months ended June 30, 2021. For the six months ended June 30, 2022, we had $52.6 million worth of capital expenditures, a net change in deposits on equipment of $1.6 million, and $465 thousand in proceeds from the sale of equipment. For the six months ended June 30, 2021, we had $1.3 million in capital expenditures and $6.1 million net change in deposits on equipment.
Net cash provided by investing activities from discontinued operations during the six months ended June 30, 2022 was approximately $9.0 million compared to net cash used in investing activities from discontinued operations of $17 thousand during the six months ended June 30, 2021. The change represented the net cash proceeds from the sale of MTI Instruments of $9.0 million for the six months ended June 30, 2022.
Financing Activities
Net cash provided by financing activities was approximately $33.9 million during the six months ended June 30, 2022, which consisted primarily of $9.8 million in net proceeds from the sale of Series A Preferred Stock and $25.4 million in net proceeds from notes and short term debt issuances. Proceeds of $779 thousand were also received in relation to common stock warrant exercises. During the six months ended June 30, 2022, the Company made cash dividend payments of approximately $2.1 million to holders of its Series A Preferred Stock. During the six months ended June 30, 2021, the Company’s net cash provided by financing activities of $15.8 million consisted primarily of net proceeds from a common stock capital raise.
On June 9, 2022, we entered into an At-the-Market Issuance Sales Agreement (the “Sales Agreement”) with Univest Securities, LLC (“Univest”) pursuant to which we may sell, at our option, up to an aggregate of $10 million in shares of Series A Preferred Stock, with a $25.00 liquidation preference per share (the “Shares”) through Univest, as sales agent. Sales of the Shares made pursuant to the Sales Agreement, if any, will be made under the Company’s previously filed and currently effective shelf Registration Statement on Form S-3. Prior to any sales under the Sales Agreement, the Company will deliver a placement notice to Univest that will set the parameters for such sale of Shares, including the number of Shares to be sold, the time period during which sales are requested to be made, any limitation on the number of Shares that may be sold in any one trading day and any minimum price below which sales may not be ~~available~~made. Subject to usthe terms and conditions of the Sales Agreement, Univest may sell the Shares, if any, only by methods deemed to be an “at the market” offering as defined in Rule 415 promulgated under the Securities Act, including, without limitation, sales made directly through the Nasdaq or any other trading market on ~~acceptable~~which the Shares are listed or quoted or to or through a market maker. In addition, subject to the terms and conditions of the Sales Agreement, with the Company’s prior written consent, Univest may also sell Shares by any other method permitted by law, or ~~at all. Any one~~as may be required by the rules and regulations of Nasdaq or ~~more~~such other trading market on which the Company’s common stock is listed or quoted, including, but not limited to, in negotiated transactions. Univest will use commercially reasonable efforts consistent with its normal trading and sales practices to sell the Shares in accordance with the terms of ~~such steps, if required, could potentially~~the Sales Agreement and any applicable placement notice. The Company cannot provide any assurances that Univest will sell any Shares pursuant to the Sales Agreement. No Shares have ~~a material and adverse effect on our business, results of operations, and financial condition.~~been sold pursuant to the Sales Agreement to date.
36

Debt

On ~~May 7, 2020, in connection with receipt of~~September 13, 2021, the Company entered into a ~~$3.3~~$1.0 million ~~U.S. Air Force delivery order, MTI Instruments obtained a $300 thousand secured~~unsecured line of credit ~~from Pioneer Bank.~~with KeyBank National Association, that, among other things, allows the Company to request loans and to use the proceeds of such loans for working capital and other general corporate purposes. The line of credit may be drawn inat the discretion of ~~MTI Instruments~~the Company and bears interest at a rate of ~~Prime +1%~~prime +.75% per annum. Accrued interest is due monthly, and principal is ~~payable over a period of 30 days~~due in full following the lender’s demand. ~~The line of credit is secured by the assets of MTI Instruments and is guaranteed by the Company.~~ As of June 30, ~~2021, there were no amounts outstanding under~~2022, the entire line of ~~credit.~~credit of $1.0 million was drawn and outstanding.

~~We had no additional credit facilities available or debt outstanding~~On October 25, 2021, the Company issued to certain institution investors secured convertible notes in the aggregate principal amount of approximately $16.3 million for an aggregate purchase price of $15.0 million. The notes are convertible, subject to certain conditions, at ~~either June 30, 2021 or December 31, 2020.~~
~~Backlog, Inventory and Accounts Receivable~~
~~At June 30, 2021, our order backlog was $1,097 thousand compared to $555 thousand at December 31, 2020. The increase in backlog from December 2020 was due to three large orders placed~~any time at the ~~end~~option of ~~2021 second quarter.~~the investors, into an aggregate of 1,776,073 shares of the Company’s common stock. As discussed further in Note 17, Subsequent Events of our consolidated financial statements, on July 19, 2022, the Company entered into an addendum with the investors to amend the terms of the remaining balance of approximately $13 million of convertible notes. The notes will restrike the conversion price up to 3 times at a 20% discount to the 5-day VWAP. The notes currently have a fixed conversion price of $9.18. See Note 17, Subsequent Events of our consolidated financial statements for additional information on the addendum.

~~Our inventory turnover ratios~~On January 14, 2022, the Company effected an initial drawdown under the Master Equipment Finance Agreement with NYDIG in the aggregate principal amount of approximately $4.6 million that bore interest at 14% and ~~average accounts receivable days outstanding for~~will be repaid over 24 months. On January 26, 2022, the ~~trailing 12 month periods and their changes at June 30, 2021 and 2020 are as follows:~~Company had a subsequent drawdown of $9.6 million.

2021 2020 Change
Inventory turnover 2.3 2.1 0.2
Average accounts receivable days outstanding 40 40 —
On May 3, 2022, SCI entered into the Contribution Agreement with Spring Lane, pursuant to which Spring Lane agreed, pursuant to the terms and conditions of such agreement, to the Spring Lane Commitment. We anticipate that these capital contributions, once deployed into the projects, will help develop three behind-the-meter (BTM) projects designed to convert wasted renewable energy into clean computing services such as bitcoin mining and artificial intelligence. The Contribution Agreement outlines the framework for the Spring Lane Commitment; however, neither we nor Spring Lane are obligated to complete any projects under such agreement and any actual capital contributions are subject to various conditions precedent, including the receipt of requisite lender and other consents, acceptance by Spring Lane of specific projects and negotiations of agreements regarding those projects, including milestones and structure. In partial consideration of the amendment to the October notes discussed above, the investors agreed to release certain collateral covered by their security agreement to permit the Company to proceed forward with the initial phase of the development site in Texas, which we expect to be partially funded by Spring Lane, which the Company expects to complete in the near future. On August 5, 2022, the Company entered into the Dorothy Contribution Agreement with Spring Lane for an initial funding of up to $12.5 million for the Company’s development site in Texas. See Note 17. Subsequent Events of our consolidated financial statements for additional information regarding these transactions.

The COVID-19 Pandemic and Related Economic Conditions
In response to the COVID-19 global pandemic, the Company has implemented procedures to support flexible working arrangements for our workforce based on business needs. While these measures have been necessary and appropriate, they may result in additional costs and may adversely impact the Company’s business and financial performance. As the Company’s response to the pandemic evolves, the Company may incur additional costs and will potentially experience adverse impacts to our business, each of which are uncertain at this time.
Further, various macroeconomic factors could adversely affect our business and the results of our operations and financial condition, including changes in inflation, interest rates and overall economic conditions. For instance, inflation could negatively impact the Company by increasing our labor costs, through higher wages and higher interest rates. If inflation or other factors were to significantly increase our business costs, our ability to develop our current projects may be negatively affected. Interest rates, the liquidity of the credit markets and the volatility of the capital markets could also affect the operation of our business and our ability to raise capital in order to fund our operations.
2337

Critical Accounting Policies and Significant Judgments and Estimates
The above discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. Note 2, Accounting Policies, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 includes a summary of our most significant accounting policies. There have been no material changes to the critical accounting policies previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. The preparation of these condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, ~~inventories,~~ income taxes, fair value measurements, and stock-based compensation. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Periodically, our management reviews our critical accounting estimates with the Audit Committee of ~~our Board of Directors.~~the Board.
Statement Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Exchange Act. Any statements contained in this Form 10-Q that are not statements of historical fact may be forward-looking statements. When we use the words “anticipate,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend,” “should,” “could,” “may,” “will” and similar words or phrases, we are identifying forward-looking statements. Such forward-looking statements include, but are not limited to, statements regarding:
● management’s strategy and planned initiatives, including anticipated growth;
● management’s belief that it will have adequate resources to fund MTI’s and MTI Instruments’ operations and capital expenditures and EcoChain’s operations for the year ending December 31, 2021 and through the end of the third quarter of 2022;
● ~~the expected impact of recent accounting updates;~~
● our ~~expectations regarding the renewal of our contract with the U.S. Air Force which expired on June 30, 2021 and the expected impact thereof;~~ability to continue as a going concern;
● ~~our expectations regarding increases~~conditions in ~~certain selling, general and administrative expenses, including from increased business travel going forward;~~the energy or cryptocurrency industries;
● ~~potential acquisitions by EcoChain;~~
● ~~our expectations with respect to future capital raises;~~
● ~~our expectations with respect to pending legal proceedings;~~
● future capital expenditures and spending on research and development; ~~and~~
● ~~expected funding of future cash expenditures.~~
Forward-looking statements involve risks, uncertainties, estimates and assumptions that may cause our actual results, performance or achievements to be materially different from those expressed or implied by forward-looking statements. Important factors that could cause these differences include the following:
· the course of the COVID-19 pandemic in the United States and internationally, particularly in Asia and, to a lesser extent, in Europe, and the related uncertainty of the U.S. and global economy as a result thereof;
· ~~sales revenue growth may not be achieved or maintained;~~
· ~~the dependence of~~ our ~~business on a small number of customers and potential loss of government contracts - particularly in light of potential cuts that may be imposed as a result of U.S. government budget appropriations;~~
· ~~our lack of long-term purchase commitments from our customers and the~~ ability ~~of our customers to cancel, reduce, or delay orders for our products;~~
· ~~our inability to build and maintain relationships with our customers;~~
· ~~our inability~~ to develop and utilize new products and technologies that address the needs of our customers;
·● our ~~inability to retain existing or obtain new credit facilities;~~realization of income tax benefits in future years;
·● ~~the cyclical nature~~expected funding of ~~the electronics and military industries;~~ future cash expenditures;
·● ~~the impact of future exchange rate fluctuations;~~ our expectations with respect to pending legal proceedings;
·● our expected operations and any adverse impacts on our business, operating results and financial condition;
● failure of our strategic alliances to achieve their objectives or perform as contemplated and the risk of cancellation or early termination of such alliance by either party;
·● our expectations regarding increases in certain general and administrative expenses;
● potential dispositions or acquisitions;
● our issuance of additional preferred equity or debt securities, particularly in connection with growth or acquisition activities;
● the ~~loss~~expected impact of ~~services of one or more of our key employees or the inability to hire, train, and retain key personnel;~~pending accounting updates;
·● ~~risks related to protection~~general economic conditions and ~~infringement~~the uncertainty of ~~intellectual property;~~ the U.S. and global economy, particularly in light of the continuing COVID-19 pandemic, the impact of recent inflation in the U.S. and the impacts of the pandemic, and the foreign and domestic government sanctions imposed on Russia as a result of their recent invasion of Ukraine;
·● ~~our occasional dependence on sole suppliers or a limited group of suppliers;~~
· ~~risks related to the limitation of the use, for tax purposes, of our net historical operating losses in the event of certain ownership changes;~~
· ~~the risks related to EcoChain’s development efforts with respect to its current~~anticipated cryptocurrency mining facility plans and ~~the construction of additional operational cryptocurrency mines;~~
· the risks related to the volatility in the EcoChain business and cryptocurrency mining facilities, including that they may not achieve or maintain profitability in our expected timeframe or at all depending on numerous uncertainties, including the costs of operation, the future price of cryptocurrencies and fluctuations in such prices, government and quasi-government regulation of cryptocurrencies and their use, restrictions on or regulation of access to and operation of blockchain networks or similar systems, and the availability and popularity of other forms or methods of buying and selling goods and services, including government-backed cryptocurrencies;operations;
2438

· ~~risks related to scaling EcoChain’s cryptocurrency operations to larger-scale (multiple) cryptocurrency mining operations;~~
· ~~the general risk that the EcoChain business may not be successful;~~
· ~~uncertainty regarding EcoChain’s ability to consistently monetize cryptocurrency;~~
·● fluctuating valuations of cryptocurrency; and
·● other factors discussed under the heading “Risk Factors” in this report and in our Annual ~~Report on Form 10-K for the fiscal year ended December 31, 2020.~~Report.

Forward-looking statements speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
Factors Expected to Affect Our Future Results
We expect our revenues to comprise a combination of: (i) block rewards in Bitcoin, which are fixed rewards programmed into the Bitcoin software that are awarded to a miner or a group of miners for solving the cryptographic problem required to create a new block on a given blockchain and (ii) transaction fees in Bitcoin, which are flexible fees earned for verifying transactions in support of the blockchain.
Block rewards are fixed and the Bitcoin network is designed to periodically reduce them through halving. Currently the block rewards are fixed at 6.25 Bitcoin per block, and it is estimated that it will halve again to 3.125 Bitcoin in March 2024.
Bitcoin miners also collect transaction fees for each transaction they confirm. Miners validate unconfirmed transactions by adding the previously unconfirmed transactions to new blocks in the blockchain. Miners are not forced to confirm any specific transaction, but they are economically incentivized to confirm valid transactions as a means of collecting fees. Miners have historically accepted relatively low transaction confirmation fees, because miners have a very low marginal cost of validating unconfirmed transactions; however, unlike the fixed block rewards, transaction fees may vary, depending on the consensus set within the network.
As the use of the Bitcoin network expands and the total number of Bitcoin available to mine and, thus, the block rewards, declines over time, we expect the mining incentive structure to transition to a higher reliance on transaction confirmation fees, and the transaction fees to become a larger proportion of the revenues to miners.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.

Item 4. Controls and Procedures
The certifications of our Chief Executive Officer and Chief Financial Officers are attached as Exhibits 31.1 and 31.2 to this Quarterly Report on Form 10-Q include, in paragraph 4 of such certification, information concerning our disclosure controls and procedures and internal control over financial reporting. Such certification should be read in conjunction with the information contained in this Item 4 for a more complete understanding of the matters covered by such certification.

(a) Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of ~~MTI’s~~our disclosure controls and procedures as of June 30, ~~2021.~~2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including ~~its~~our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. We recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and we necessarily apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, ~~2021,~~2022, our Chief Executive Officer and our Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

(b) Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our fiscal quarter ended June 30, ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
2539

PART II. OTHER INFORMATION

Item 1. ~~Item 1.~~ Legal Proceedings
At any point in time, we may be involved in various lawsuits or other legal proceedings. Such lawsuits could arise from the sale of products or services or from other matters relating to our regular business activities, compliance with various governmental regulations and requirements, or other transactions or circumstances.

We have been named as a party in the December 19, 2019 United States Environmental Protection Agency (“EPA”) Demand Letter regarding the Malta Rocket Fuel Area Superfund Site (“Site”) located in Malta and Stillwater, New York, in connection with an alleged release of hazardous materials into the environment. The EPA is seeking reimbursement of response costs from all named parties in the amount of approximately $358 thousand plus interest in connection with the investigation and disposal activities associated with the various drum caches discovered at the Site, issuance of the Explanation of Significant Differences (“ESD”) of the Site, and implementation of the work contemplated by the ESD. We consider the likelihood of a material adverse outcome with respect to this matter to be remote and do not currently anticipate that any expense or liability that we may incur as a result of this matter in the future will be material to the Company’s business or financial condition. Further, we are not presently involved in any other litigation that we believe is likely, individually or in the aggregate, to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.
Item 1A. Risk Factors
Part II, Item 1A (Risk Factors) of our ~~most recently filed~~ Annual Report ~~on Form 10-K with the SEC, filed on March 31, 2021,~~ sets forth information relating to important risks and uncertainties that could materially adversely affect our business, financial condition and operating results. Except ~~as to the risk factors set forth below and~~ to the extent that information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors (including, without limitation, the matters described in Part I, Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations – Statement Concerning Forward Looking Statements)), and as set forth below, there have been no material changes to our risk factors disclosed in our ~~most recently filed~~ Annual ~~Report on Form 10-K.~~Report. Those risk factors continue to be relevant to an understanding of our business, financial condition and operating results, however, and, accordingly, you should review and consider such risk factors in making any investment decision with respect to our securities.

There is substantial doubt about our ability to continue as a going concern.
As shown in the accompanying financial statements as of June 30, 2022, the Company did not generate sufficient revenue to generate net income, and has negative working capital as of June 30, 2022. In ~~connection with~~addition, the ~~ground leases for~~Company has seen a decline in the price of Bitcoin due its volatility, which could have material and negative impact to our ~~new cryptocurrency mining operations, we rely on~~operations. These factors, among others including, but not limited to the l~~andlord~~ changes in inflation, interest rates and overall economic conditions, may indicate that there is substantial doubt about the Company’s ability to ~~sell us the power required for our operations, and any failure~~continue as a going concern within one year after issuance of the ~~landlord~~financial statements for the three months ended June 30, 2022, or August 15, 2022. If we are unable to ~~supply such power, whether as a result of its failure~~meet our financial obligations, we could be forced to ~~pay the Tennessee Valley Authority (“TVA”)~~restructure or ~~otherwise, would materially impact~~refinance, seek additional equity capital or sell our ~~operations.~~
EcoChain Block, a wholly-owned subsidiary of EcoChain, entered into the Power Supply Agreement, in connection with the ground leases executed on May 4, 2021. Under the terms of the Power Supply Agreement, EcoChain Block will purchase the power for its cryptocurrency mining operations from the landlord, who purchases such power directly from the TVA. The rates payable by EcoChain Block to the landlord willassets. We might then be at the same pre-negotiated rates paid by landlord, which are less than EcoChain could obtain directly from the TVA. landlord’s failure to provide power to EcoChain, as a result of the termination of such power supply to the landlord by the TVA, as a result of the landlord’s failure to pay the TVA for such power, or otherwise, would, in all likelihood, result in our inability to obtain the power we need for our cryptocurrency mining operations, unless and until we were ableunable to obtain such ~~power directly from the TVA, which would result in a significant interruption to~~financing or capital or sell our business. We may also incur significant costs associated with negotiating and entering into a new agreement with the TVA to supply power to EcoChain Block’s cryptocurrency mining facilities, and with setting up the corresponding infrastructure to receive such power directly. Further, thereassets on satisfactory terms. There can be no assurance that ~~EcoChain Block~~additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to ~~negotiate~~obtain the additional financing on a ~~power supply agreement with the TVA on equally favorable terms as the landlord,~~timely basis, if ~~at all.~~
~~The properties on which certain~~and when it is needed, we will be forced to delay or scale down some or all of our ~~ground leases are located are subject to possible forfeiture to~~development activities or perhaps even cease the ~~U.S. government, and, if seized, would, in all likelihood, require us to spend significant funds to maintain our cryptocurrency mining rights.~~
In August 2020, the United States Department of Justice’s Money Laundering & Asset Recovery Section (“DOJ”), together with the U.S. Attorney’s Office for the Southern District of Florida, filed civil asset forfeiture complaints against parties related to the landlord (the “Landlord Owners”) in connection with certain real properties, including the real properties that are the subject of the Ground Leases (the “Subject Properties”). The complaints, which are all currently pending before a federal judge, alleged that the funds used by Landlord Owners to purchase the Subject Properties were traceable to the proceeds of a bank fraud purportedly committed internationally in Ukraine by the Landlord Owners. Though the DOJ has not filed a civil forfeiture action against the Subject Properties, the complaint the government submitted in support of its asset forfeiture requests against certain properties, including the Subject Properties, included a description of the Ukrainian bank fraud and the various properties located in the United States that the DOJ believes were purchased with the proceeds of that international bank fraud, including the Subject Properties. In the event that the Subject Properties are seized by the U.S. government, EcoChain Block may be required to negotiate with the U.S. government for the supply of power which EcoChain was receiving from the landlord pursuant to the Power Supply Agreement. Additionally, the U.S. government, in all likelihood, would place the Subject Properties for sale at an auction, or otherwise, and we would likely be required to purchase the Subject Properties to assure the continuationoperation of our ~~cryptocurrency mining operations at such facility, all of which would require our expenditure of significant funds and could have a material adverse impact on our results of operations.~~business.
26

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On May 13, 2021, the Company granted to its CEO Michael Toporek under the Company’s 2021 Stock Incentive Plan: options to purchase 500,000 shares of common stock, at an exercise price of $6.84 per share to vest in equal installments on the first, second and third anniversaries of May 13, 2021, so long as he remains in the service of the Company on each subsequent anniversary. These options were granted pursuant to Section 4(a)(2) of the Securities Act because Mr. Toporek had sufficient sophistication and knowledge of the Company, and the grant did not involve any form of general solicitation or general advertising. Mr. Toporek made representations that the options were being acquired for investment purposes and not with a view towards resale.None

On May 13, 2021, the Company granted to its directors under the Company’s 2021 Stock Incentive Plan: options to purchase 26,600 shares of common stock, at an exercise price of $7.52 per share. These options were granted pursuant to Section 4(a)(2) of the Securities Act because the directors had sufficient sophistication and knowledge of the Company, and the grants did not involve any form of general solicitation or general advertising. The directors made representations that the options were being acquired for investment purposes and not with a view towards resale.
Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable.
Item 5. Other Information

None
40

Item 6. Exhibits
Exhibit No. Description
3.1 Articles of Incorporation (Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2021).
3.2 Articles of Merger filed with the Secretary of State of Nevada on March 29, 2021 (Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2021).
3.3 Certificate of Merger filed with the Department of State of New York on March 29, 2021 (Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2021).
3.4 Certificate of Amendment filed with the Secretary of State of Nevada dated June 9, 2021 (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on June 15, 2021).
3.5 Certificate of Amendment to Articles of Incorporation filed with the Secretary of State of Nevada on November 2, 2021 (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on November 4, 2021).
4.1 Certificate of Designations, Preferences and Rights of 9.0% Series A Cumulative Perpetual Preferred Stock filed with the Secretary of State of the State of Nevada on August 18, 2021 (Incorporated by reference to the Company’s Form 8-A, filed with the SEC on August 19, 2021).
4.2 Form of 9.0% Series A Cumulative Perpetual Preferred Stock Certificate (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on August 23, 2021).
4.3 Certificate of Amendment ~~No. 2~~ to ~~Registration~~Certificate of Designations, Preferences and Rights of 9.0% Series A Cumulative Perpetual Preferred Stock, filed with the Secretary of State of the State of Nevada on December 22, 2021 (Incorporated by reference to the Company’s Form 8-K Report filed with the SEC on December 29, 2021).
4.4 Certificate of Amendment to Certificate of Designations, Preferences and Rights of 9.0% Series A Cumulative Perpetual Preferred Stock, filed with the Secretary of State of the State of Nevada on April 21, 2022 (Incorporated by reference to the Company’s Form 8-K Report filed with the SEC on April 27, 2022).
4.5 Form of Underwriter’s Warrant (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on April 29, 2022).
4.6 Form of Class D Common Stock Purchase Warrants (Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2022).
4.7 Certificate of Designation of Series B Convertible Preferred Stock, filed with the Secretary of State of the State of Nevada on December 22, 2021 (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on July 20, 2022).
4.8 Form of Common Stock Purchase Warrant (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on July 20, 2022).
10.1 Stock Purchase Agreement, dated as of ~~June 24, 2021,~~April 11, 2022, by and between ~~Mechanical Technology,~~ Soluna Holdings, Inc. and NKX Acquiror, Inc. (Incorporated by reference to the Company’s Current Report on Form 8-K Report filed with the SEC on April 15, 2022).
10.2
Form of Subscription Agreement (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on April 29, 2022).
10.3 Consent and Waiver Agreement, dated January 13, 2022, by and among the Company and the purchasers signatory to the Securities Purchase Agreement, dated as of October 20, 2021(Incorporated by reference to the Company’s Current Report on Form 8-K Report filed with the SEC on Janurary 18, 2022).
10.4

Form of Note by and ~~American~~between Soluna Holdings, Inc. and certain institutional lenders (Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2022).
41
10.5 Employment Agreement, by and between Soluna Holdings, Inc. and Philip F. Patman, Jr, dated as of July 29, 2022 (Incorporated by reference to the Company’s Current Report on Form 8-K Report filed with the SEC on August 3, 2022).
10.6 Second Amended And Restated 2021 Stock ~~Transfer & Trust~~Incentive Plan (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on June 1, 2022).
10.7 Form of Option Agreement for the Second Amended And Restated 2021 Stock Incentive Plan.
10.8 Form of Restricted Stock Agreement for the Second Amended And Restated 2021 Stock Incentive Plan.
10.9 Form of Restricted Stock Unit Agreement for the Second Amended And Restated 2021 Stock Incentive Plan.
10.10 Form of Addendum by and between the Company, Collateral Agent, and each purchaser identified on Schedule A hereto (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on July 20, 2022).
10.11 Form of Securities Purchase Agreement by and among the Company and the purchasers signatory thereto (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on July 20, 2022).
10.12 Form of Leak-Out Agreement by and between the Company and the signatory thereto (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on July 20, 2022).
10.13 At-the-Market Issuance Sales Agreement, dated June 9, 2022, by and between the Company and the Univest Securities, LLC (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on June ~~24, 2021)~~9, 2022).
~~4.2~~10.14 ~~Form of Common Purchase Warrant (Incorporated~~Contribution Agreement by ~~reference to~~ ~~the Company’s Registration Statement on Form S-1/A filed with the SEC on April 12, 2021~~).
~~4.3~~ ~~Form of Underwriters’ Warrant (Incorporated by reference to~~ ~~the Company’s Registration Statement on Form S-1/A filed with the SEC on April 12, 2021~~).
~~4.4~~ ~~Form of Pre-Funded Warrant (Incorporated by reference to~~ ~~the Company’s Registration Statement on Form S-1/A filed with the SEC on April 12, 2021~~).
~~4.5~~ ~~Form of Warrant Agent Agreement~~and between ~~Mechanical Technology, Incorporated~~Soluna Holdings, Inc., Soluna SLC Fund I Projects Holdco, LLC, Soluna DV Devco, LLC, and ~~American Stock Transfer & Trust Company,~~Soluna DVSL ComputeCo, LLC, ~~(Incorporated by reference to~~ ~~the Company’s Current Report on Form 8-K filed with the SEC on April 29, 2021~~).
~~10.1~~ ~~Form of Purchase Agreement dated April 11, 2021~~ ~~(Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC~~ ~~on April 12, 2021).~~
~~10.2~~ ~~Form of Ground Lease Agreement,~~ dated as of ~~May 3, 2021~~ ~~(Incorporated~~August 5, 2022 (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on ~~May 4, 2021)~~August 11, 2022).
~~10.3~~ ~~Form of Land Lease Agreement (Vacant Land)~~ ~~(Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on May 4, 2021).~~
27
~~10.4~~ ~~Form of Power Supply Agreement dated as of May 3, 2021~~ ~~(Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on May 4, 2021).~~
~~10.5~~ ~~Form of Transition Services Agreement, dated as of May 3, 2021~~ ~~(Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on May 4, 2021)~~.
~~10.6~~ ~~Form of Guaranty of Rent dated as of May 3, 2021~~ ~~(Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC May 4, 2021).~~
31.1
~~31.1~~ Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~2002
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~2002
32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002
32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002
101.INS* XBRL Instance Document
101.SCH* XBRL Taxonomy Extension Schema Document
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* XBRL Taxonomy Definition Linkbase Document
101.LAB* XBRL Taxonomy Extension Label Linkbase Document
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document
All other exhibits for which no other filing information is given are filed herewith.

~~# Certain portions~~* Submitted electronically herewith. Attached as Exhibit 101 are the following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in eXtensible Business Reporting Language (XBRL) and tagged as blocks of ~~this exhibit have been omitted pursuant to Item 601(b)(10)~~text and including detailed tags: (i) Condensed Consolidated Balance Sheets at June 30, 2022 and December 31, 2021; (ii) Condensed Consolidated Statements of ~~Regulation S-K. Such information is both not material~~Operations for the Three and isSix Months Ended June 30, 2022 and 2021; (iii) Condensed Consolidated Statements of Cash Flows for the ~~information that the registrant customarily~~Six Months Ended June 30, 2022 and ~~actually treats as private or confidential. The omitted information is identified in the exhibit with brackets~~2021; and ~~"**".~~(iv) related notes.
2842

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Soluna Holdings, Inc.
      ~~Mechanical Technology, Incorporated~~

Date: August ~~10, 2021~~ 15, 2022 By:
/s/ Michael Toporek
Michael Toporek
Chief Executive Officer

By:
/s/ Jessica L. Thomas
Jessica L. Thomas
Chief Financial Officer
29

(Dollars in thousands)	June 30, 2021		December 31, 2020

U.S. and State Government	$	53	$	2
Commercial		638		909
Other		89		64
Total	$	780	$	975

(Dollars in thousands)	June 30, 2022		December 31, 2021
Data Hosting	$	72		450
Other receivable		616		81
Total	$	688	$	531

(Dollars in thousands)	Intangible Assets		Accumulated Amortization		Total

Strategic pipeline contract	$	46,885	$	6,251	$	40,634
Assembled workforce		500		67		433
Patents		112		1		111
Total	$	47,497	$	6,319	$	41,178

(Dollars in thousands)
Year ending December 31,
2022 (remainder of the year)	$	4,741
2023		9,482
2024		9,482
2025		9,482
2026		7,903
Thereafter		88
Total	$	41,178

	Maturity Date	Interest Rate			June 30, 2022		December 31, 2021
Convertible Note	October 25, 2022		8	%	$	13,585	$	14,927
Less: debt discount						349		967
Less: discount from issuance of warrants						2,408		5,747
Less: debt issuance costs						424		1,092
Total convertible notes, net of discount and issuance costs					$	10,404	$	7,121

	Maturity Dates	Interest Rate	June 30, 2022
NYDIG Loans #1-11	April 25, 2023 thru January 25, 2027	12% thru 15%	$	14,387
Less: principal payments				2,590
Less: debt issuance costs				289
Total outstanding debt				11,508
Less: current portion of debt				7,526
Total Long term debt			$	3,982


Stock options outstanding			~~1,010,050~~898,600
Restricted stock units outstanding			~~15,000~~773,861
Warrants outstanding			3,217,315
Common stock available for future equity awards or issuance of options			~~692.616~~524,449
Number of common shares reserved			~~1,717,666~~5,414,225


(Dollars in thousands)	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020

Operating lease cost	$	93	$	66	$	187	$	121
Short-term lease cost		—		2		—		2
Total net lease cost	$	93	$	68	$	187	$	123

(Dollars in thousands, except lease term and discount rate) (Dollars in thousands)	Six Months Ended June 30, ~~2021~~2022

Weighted Average Remaining Lease Term (in years):
Operating leases		~~3.64~~1.88

Weighted Average Discount Rate:
Operating leases		~~5.51~~3.83	%

(Dollars in thousands)	Six Months Ended June 30, 2021		Six Months Ended June 30, 2020

Supplemental Cash Flows Information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	187	$	121

Non-Cash Activity Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	—	$	387

(Dollars in thousands, except lease term and discount rate) (Dollars in thousands)	Six Months Ended June 30, 2022		Six Months Ended June 30, 2021


Supplemental Cash Flows Information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	98	$	73

Non-Cash Activity Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	13	$	—


(Dollars in thousands)	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021 ^(*)			2022		2021 ^(*)

Product revenue	$	160		$	1,647		$	1,799	$	2,984
Cost of sales		166			502			728		954
Research and development		30			406			398		792
General and administrative expenses		89			526			573		1,066
Other income		-			(4	)		-		(5	)
(Loss) income from discontinued operations before gain on disposal and income taxes		(125	)		217			100		177
Pretax gain on sale of MTI Instruments		7,602			-			7,602		-
Deferred tax benefit		70			-			70		-
Net income from discontinued operations	$	7,547		$	217		$	7,772	$	177

(Dollars in thousands)
	As of April 11,
	2022
Consideration received	$	10,750
Plus: closing cash		1
Less: transaction costs		(998	)
Less: closing indebtedness		(483	)
Plus: new working capital adjustments		(40	)
Adjusted consideration received		9,230

Cash		1
Accounts receivable, net		1,119
Inventories		888
Prepaid expense and other current assets		42
Operating lease right-of-use assets		579
Deferred tax assets		171
Property, plant and equipment, net		76
Total assets		2,876

Accounts payable		122
Accrued liabilities		547
Operating lease liability		579
Total liabilities		1,248

Net assets transferred		1,628

Gain on sale	$	7,602

(Dollars in thousands)	Test and Measurement Instrumentation			Cryptocurrency			Other			Condensed Consolidated Totals
Three months ended June 30, 2021
Product revenue	$	1,647		$	—		$	—		$	1,647
Cryptocurrency revenue		—			1,657			—			1,657
Research and product development expenses		406			—			—			406
Selling, general and administrative expenses		526			292			2,212			3,030
Segment profit / (loss) from operations before income taxes		(270	)		710			(1,611	)		(1,171	)
Segment profit / (loss)		(270	)		710			(1,614	)		(1,174	)
Total assets		2,636			3,883			19,040			25,559
Capital expenditures		13			1,229			—			1,242
Depreciation and amortization		17			149			—			166

Three months ended June 30, 2020
Product revenue	$	2,390		$	—		$	—		$	2,390
Cryptocurrency revenue		—			50			—			50
Research and product development expenses		362			—			—			362
Selling, general and administrative expenses		437			109			301			847
Segment profit / (loss) from operations before income taxes		831			(73	)		(156	)		602
Segment profit / (loss)		831			(73	)		(156	)		602
Total assets		3,687			1,090			2,480			7,257
Capital expenditures		5			335			—			340
Depreciation and amortization		21			9			—			30

Six months ended June 30, 2021
Product revenue	$	2,984		$	—		$	—		$	2,984
Cryptocurrency revenue		—			2,652			—			2,652
Research and product development expenses		792			—			—			792
Selling, general and administrative expenses		1,066			855			2,946			4,867
Segment profit / (loss) from operations before income taxes		(672	)		771			(1,936	)		(1,837	)
Segment profit / (loss)		(672	)		771			(1,939	)		(1,840	)
Total assets		2,636			3,883			19,040			25,559
Capital expenditures		18			1,525			—			1,543
Depreciation and amortization		34			224			—			258

Six months ended June 30, 2020
Product revenue	$	3,973		$	—		$	—		$	3,973
Cryptocurrency revenue		—			50			—			50
Research and product development expenses		764			—			—			764
Selling, general and administrative expenses		853			180			609			1,642
Segment profit / (loss) from operations before income taxes		959			(144	)		(353	)		462
Segment profit / (loss)		959			(144	)		(350	)		465
Total assets		3,687			1,090			2,480			7,257
Capital expenditures		13			335			—			348
Depreciation and amortization		44			9			—			53

	Number of Miners
Miners deployed as of January 1, 2022		13,240
Miners received and deployed during the six months ended June 30, 2022		9,684
Miners received through June 30, 2022, but not deployed		2,311
Miners sold during the first six months of June 30, 2022		(3,098	)
Total Miners as of June 30, 2022		22,137

(Dollars in thousands)	Three Months Ended June 30, 2021			Three Months Ended June 30, 2020		$ Change			% Change

Product revenue	$	1,647		$	2,390	$	(743	)		(31.1	%)
Cryptocurrency revenue	$	1,657		$	50	$	1,607			3,214.0	%
Operating costs and expenses:
Cost of product revenue	$	502		$	631	$	(129	)		(20.4	%)
Cost of cryptocurrency revenue	$	545		$	—	$	545			100.0	%
Research and product development expenses	$	406		$	362	$	44			12.2	%
Selling, general and administrative expenses	$	3,030		$	847	$	2,183			257.7	%
Operating (loss) income	$	(1,179	)	$	600	$	(1,779	)		(296.5	%)
Other income, net	$	8		$	2	$	6			300.0	%
(Loss) income before income taxes	$	(1,171	)	$	602	$	(1,773	)		(294.5	%)
Income tax expense	$	(3	)	$	—	$	(3	)		(100.0	%)
Net (loss) income	$	(1,174	)	$	602	$	(1,776	)		(295.0	%)

(Dollars in thousands)	Three Months Ended June 30, 2022			Three Months Ended June 30, 2021			$ Change			% Change
Cryptocurrency mining revenue	$	7,497			1,657			5,840			352	%
Data hosting revenue	$	1,179			-			1,179			100	%
Operating costs and expenses:
Cost of cryptocurrency mining revenue, exclusive of depreciation	$	3,596			396			3,200			808	%
Cost of data hosting revenue	$	975			-			975			100	%
General and administrative expenses, exclusive of depreciation and amortization	$	4,873			2,503			2,370			95	%
Depreciation and amortization expense	$	7,914			149			7,765			5,211	%
Impairment on fixed assets	$	750			-			750			100	%
Operating loss	$	(9,432	)		(1,391	)		(8,041	)		578	%
Other income, net	$	-			3			(3	)		(100	%)
Interest expense	$	(3,305	)		-			(3,305	)		100	%
Loss on sale of fixed assets	$	(1,618	)		-			(1,618	)		100	%
Loss before income taxes from continuing operations	$	(14,355	)		(1,388	)		(12,967	)		934	%
Income tax benefit (expense) from continuing operations	$	251			(3	)		254			(8,467	)%
Net loss from continuing operations	$	(14,104	)		(1,391	)		(12,713	)		914	%
Income before income taxes from discontinued operations (including gain on sale of MTI Instruments of $7,602 for the three and six months ended June 30, 2022)	$	7,477			217			7,260			3,346	%
Income tax benefit from discontinued operations	$	70			-			70			100	%
Net income from discontinued operations	$	7,547			217			7,330			3,378	%
Net loss	$	(6,557	)		(1,174	)		(5,383	)		459	%

(Dollars in thousands)	Six Months Ended June 30, 2021			Six Months Ended June 30, 2020		$ Change			% Change

Product revenue	$	2,984		$	3,973	$	(989	)		(24.9	%)
Cryptocurrency revenue	$	2,652		$	50	$	2,602			5,204.0	%
Operating costs and expenses:
Cost of product revenue	$	954		$	1,159	$	(205	)		(17.7	%)
Cost of cryptocurrency revenue	$	873		$	—	$	873			100.0	%
Research and product development expenses	$	792		$	764	$	28			3.7	%
Selling, general and administrative expenses	$	4,867		$	1,642	$	3,225			196.4	%
Operating (loss) income	$	(1,850	)	$	458	$	(2,308	)		(503.9	%)
Other income, net	$	13		$	4	$	9			225.0	%
(Loss) income before income taxes	$	(1,837	)	$	462	$	(2,299	)		(497.6	%)
Income tax (expense) benefit	$	(3	)	$	3	$	(6	)		(200.0	%)
Net (loss) income	$	(1,840	)	$	465	$	(2,305	)		(495.7	%)

(Dollars in thousands)				Revenues for the Three Months Ended
				June 30,
Contract⁽¹⁾	Expiration			2021		2020

$9.35 million U.S. Air Force Systems, Accessories and Maintenance		06/30/2021	⁽²⁾	$	584	$	1,764

(Dollars in thousands)					Revenues for the Six Months Ended				Contract Revenues to Date Date		Total Contract Orders Received To Date
					June 30,				June 30,		June 30,
Contract⁽¹⁾	Expiration				2021		2020		2021		2021

$9.35 million U.S. Air Force Systems, Accessories and Maintenance		06/30/2021	⁽²	⁾	$	814	$	1,828	$	9,474	$	9,870

~~(1)~~	~~Contract values represent maximum potential values at time of contract placement and may not be representative of actual results.~~
~~(2)~~	~~Date represents expiration of contract, including the exercise of option extensions.~~

(Dollars in thousands)	Six Months Ended or As of			Six Months Ended or As of			Year Ended or As of
	June 30,			June 31,			December 31,
	2021			2020			2020
Cash	$	12,096		$	1,351		$	2,630
Working capital		16,849			3,092			3,142
Net (loss) income		(1,840	)		602			1,946
Net cash provided by (used in) operating activities		(5,037	)		(61	)		1,622
Purchase of property, plant and equipment		(1,543	)		(348	)		(835	)

	2021		2020		Change
Inventory turnover		2.3		2.1		0.2
Average accounts receivable days outstanding		40		40		—

Exhibit No.	Description
3.1	Articles of Incorporation (Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2021).
3.2	Articles of Merger filed with the Secretary of State of Nevada on March 29, 2021 (Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2021).
3.3	Certificate of Merger filed with the Department of State of New York on March 29, 2021 (Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2021).
3.4	Certificate of Amendment filed with the Secretary of State of Nevada dated June 9, 2021 (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on June 15, 2021).
3.5	Certificate of Amendment to Articles of Incorporation filed with the Secretary of State of Nevada on November 2, 2021 (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on November 4, 2021).
4.1	Certificate of Designations, Preferences and Rights of 9.0% Series A Cumulative Perpetual Preferred Stock filed with the Secretary of State of the State of Nevada on August 18, 2021 (Incorporated by reference to the Company’s Form 8-A, filed with the SEC on August 19, 2021).
4.2	Form of 9.0% Series A Cumulative Perpetual Preferred Stock Certificate (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on August 23, 2021).
4.3	Certificate of Amendment ~~No. 2~~ to ~~Registration~~Certificate of Designations, Preferences and Rights of 9.0% Series A Cumulative Perpetual Preferred Stock, filed with the Secretary of State of the State of Nevada on December 22, 2021 (Incorporated by reference to the Company’s Form 8-K Report filed with the SEC on December 29, 2021).
4.4	Certificate of Amendment to Certificate of Designations, Preferences and Rights of 9.0% Series A Cumulative Perpetual Preferred Stock, filed with the Secretary of State of the State of Nevada on April 21, 2022 (Incorporated by reference to the Company’s Form 8-K Report filed with the SEC on April 27, 2022).
4.5	Form of Underwriter’s Warrant (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on April 29, 2022).
4.6	Form of Class D Common Stock Purchase Warrants (Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2022).
4.7	Certificate of Designation of Series B Convertible Preferred Stock, filed with the Secretary of State of the State of Nevada on December 22, 2021 (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on July 20, 2022).
4.8	Form of Common Stock Purchase Warrant (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on July 20, 2022).
10.1	Stock Purchase Agreement, dated as of ~~June 24, 2021,~~April 11, 2022, by and between ~~Mechanical Technology,~~ Soluna Holdings, Inc. and NKX Acquiror, Inc. (Incorporated by reference to the Company’s Current Report on Form 8-K Report filed with the SEC on April 15, 2022).
10.2	Form of Subscription Agreement (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on April 29, 2022).
10.3	Consent and Waiver Agreement, dated January 13, 2022, by and among the Company and the purchasers signatory to the Securities Purchase Agreement, dated as of October 20, 2021(Incorporated by reference to the Company’s Current Report on Form 8-K Report filed with the SEC on Janurary 18, 2022).
10.4	Form of Note by and ~~American~~between Soluna Holdings, Inc. and certain institutional lenders (Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2022).

10.5	Employment Agreement, by and between Soluna Holdings, Inc. and Philip F. Patman, Jr, dated as of July 29, 2022 (Incorporated by reference to the Company’s Current Report on Form 8-K Report filed with the SEC on August 3, 2022).
10.6	Second Amended And Restated 2021 Stock ~~Transfer & Trust~~Incentive Plan (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on June 1, 2022).
10.7	Form of Option Agreement for the Second Amended And Restated 2021 Stock Incentive Plan.
10.8	Form of Restricted Stock Agreement for the Second Amended And Restated 2021 Stock Incentive Plan.
10.9	Form of Restricted Stock Unit Agreement for the Second Amended And Restated 2021 Stock Incentive Plan.
10.10	Form of Addendum by and between the Company, Collateral Agent, and each purchaser identified on Schedule A hereto (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on July 20, 2022).
10.11	Form of Securities Purchase Agreement by and among the Company and the purchasers signatory thereto (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on July 20, 2022).
10.12	Form of Leak-Out Agreement by and between the Company and the signatory thereto (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on July 20, 2022).
10.13	At-the-Market Issuance Sales Agreement, dated June 9, 2022, by and between the Company and the Univest Securities, LLC (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on June ~~24, 2021)~~9, 2022).
~~4.2~~10.14	~~Form of Common Purchase Warrant (Incorporated~~Contribution Agreement by ~~reference to~~ ~~the Company’s Registration Statement on Form S-1/A filed with the SEC on April 12, 2021~~).
~~4.3~~	~~Form of Underwriters’ Warrant (Incorporated by reference to~~ ~~the Company’s Registration Statement on Form S-1/A filed with the SEC on April 12, 2021~~).
~~4.4~~	~~Form of Pre-Funded Warrant (Incorporated by reference to~~ ~~the Company’s Registration Statement on Form S-1/A filed with the SEC on April 12, 2021~~).
~~4.5~~	~~Form of Warrant Agent Agreement~~and between ~~Mechanical Technology, Incorporated~~Soluna Holdings, Inc., Soluna SLC Fund I Projects Holdco, LLC, Soluna DV Devco, LLC, and ~~American Stock Transfer & Trust Company,~~Soluna DVSL ComputeCo, LLC, ~~(Incorporated by reference to~~ ~~the Company’s Current Report on Form 8-K filed with the SEC on April 29, 2021~~).
~~10.1~~	~~Form of Purchase Agreement dated April 11, 2021~~ ~~(Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC~~ ~~on April 12, 2021).~~
~~10.2~~	~~Form of Ground Lease Agreement,~~ dated as of ~~May 3, 2021~~ ~~(Incorporated~~August 5, 2022 (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on ~~May 4, 2021)~~August 11, 2022).
~~10.3~~	~~Form of Land Lease Agreement (Vacant Land)~~ ~~(Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on May 4, 2021).~~

~~10.4~~	~~Form of Power Supply Agreement dated as of May 3, 2021~~ ~~(Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on May 4, 2021).~~
~~10.5~~	~~Form of Transition Services Agreement, dated as of May 3, 2021~~ ~~(Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on May 4, 2021)~~.
~~10.6~~	~~Form of Guaranty of Rent dated as of May 3, 2021~~ ~~(Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC May 4, 2021).~~
31.1
~~31.1~~	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~2002
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~2002
32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002
32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

	Soluna Holdings, Inc.
~~Mechanical Technology, Incorporated~~
Date: August ~~10, 2021~~	15, 2022	By:	/s/ Michael Toporek
			Michael Toporek Chief Executive Officer

		By:	/s/ Jessica L. Thomas
			Jessica L. Thomas Chief Financial Officer