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What changed in Soluna Holdings, Inc's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Soluna Holdings, Inc's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+417 added−439 removedSource: 10-K (2024-04-01) vs 10-K (2023-03-31)

Top changes in Soluna Holdings, Inc's 2023 10-K

417 paragraphs added · 439 removed · 189 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeSoluna has filed eight provisional patent applications with the U.S. Patent and Trade Market Office. These patents pertain to the technologies related to the Modular Data Center (MDC) concept employed by the Company such as their modular architecture, cooling technology, simulations technology and overall technologies related to the control of the data center.
Biggest changePatent and Trade Market Office for technologies related to their Modular Data Center (“MDC”) concept, covering modular architecture, cooling technology, simulations, and overall data center control. These patents also include aspects like variable power consumption and local co-optimization of power generation supply with demand. Additionally, Soluna has filed two utility patent applications.
Item 1: Business Unless the context requires otherwise in this Annual Report on Form 10-K (“Annual Report”), 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..
Item 1: Business Unless the context requires otherwise in this Annual Report on Form 10-K (“Annual Report”), the terms “SHI,”, “Soluna,” 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.
The Company supports its employees through a competitive compensation package, including company equity, generous health benefits and a flexible PTO policy. We have a combination of remote and on-site employees.
The Company supports its employees through a competitive compensation package, including company equity, generous health benefits and a flexible PTO policy. We have a combination of remote and on-site employees. None of our employees are subject to a collective bargaining agreement and we believe our relations with our employees is positive.
We have been successful in attracting and retaining qualified technical personnel for these positions. None of our employees are covered by any collective bargaining agreement. Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, engaging, incentivizing, and integrating our existing and additional employees.
Certain positions within our organization require industry-specific technical knowledge. We have been successful in attracting and retaining qualified technical personnel for these positions. Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, engaging, incentivizing, and integrating our existing and additional employees.
Other trademarks, trade names, and service marks used in this Annual Report on Form 10-K are the property of their respective owners. Overview and Recent Developments Soluna Holdings, Inc.
Other trademarks, trade names, and service marks used in this Annual Report on Form 10-K are the property of their respective owners. Overview and Recent Developments We are a digital infrastructure company specializing in transforming surplus renewable energy into computing resources.
Insurance The Company and its subsidiaries maintains insurance policies with reputable insurers against such risks and in such amounts as management has determined to be prudent for our operations and that we believe are similar in scope and coverage in all material respects to insurance policies maintained by other similarly situated businesses.
We provide a comprehensive range of health benefits options, including medical, behavioral, dental, and vision insurance for employees and family members, paid leaves, and life, disability, accident, and cancer care insurance coverage. 9 Insurance The Company and its subsidiaries maintain insurance policies with reputable insurers against such risks and in such amounts as management has determined to be prudent for our operations and that we believe are similar in scope and coverage in all material respects to insurance policies maintained by other similarly situated businesses.
(“SHI”, “Company”, “our”), 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.
Company History, Information and Organization History Soluna Holdings, Inc., formerly known as Mechanical Technology, Incorporated which was originally incorporated in the State of New York in 1961, reincorporated in the State of Nevada on March 24, 2021, and is headquartered in Albany, New York.
Of the SCI employees one was in finance, fourteen in operations, one in corporate development, four in technology and engineering, and two executives. The operations personnel include both individuals directly involved in the strategy of our data centers as well as data center maintenance and supervisory roles. Certain positions within our organization require industry-specific technical knowledge.
Of these employees, eleven were in finance, nineteen in operations, one in corporate development, six in information technology and engineering, one in human capital, one in power, and one executive. The operations personnel include both individuals directly involved in the strategy of our data centers as well as data center maintenance and supervisory roles.
Bipartisan leadership of the Senate Banking Committee announced that goal as well. As the regulatory and legal environment evolves, we may become subject to new laws, such as further regulation by the SEC and other agencies, which may affect our mining and other activities.
As the regulatory and legal environment evolves, we may become subject to new laws, such as further regulation by the SEC and other agencies, which may affect our mining and other activities. For additional discussion regarding our belief about the potential risks that existing and future regulation pose to our business, see Part I, Item 1A.
The first is related to the modular data center, specifically the layout of the buildings (modules) on a site. The layout as well as specific elements are critical elements which drive our efficiency. The second full application is around the local co-optimization of power generation supply with demand generated using a data center.
The first, granted (Patent # US20230013746A1) in 2023, focuses on the layout of modular data center buildings on a site, crucial for thermal efficiency. The second patent application is for local co-optimization of power generation supply with demand generated by a data center, detailing a method involving independently metered load co-location with power generation.
Effective November 2, 2021, the Company changed its name from “Mechanical Technology, Incorporated” (or “MTI”) to “Soluna Holdings, Inc.” SHI currently conducts our business through our wholly-owned subsidiary, Soluna Computing, Inc. (“SCI”). SCI is engaged in the mining of cryptocurrency through data centers that can be powered by renewable energy sources.
Effective November 2, 2021, the Company changed its name from “Mechanical Technology, Incorporated” (or “MTI”) to “Soluna Holdings, Inc.” On October 29, 2021, Soluna Callisto merged into Soluna Computing, Inc. (“SCI”), a private green data center development company. MTI Instruments, Inc., a subsidiary of Soluna Holdings, Inc., was sold on April 11, 2022.
Human Capital Resources As of March 20, 2023, we had 32 employees, including 30 full-time employees, 1 part-time employee, and 1 full-time consultant consisting of nine SHI employees (six are in finance and three executives), 23 SCI employees.
“Risk Factors” of this Annual Report. Human Capital Resources As of March 7, 2024, we had 40 employees, including 34 full-time employees, 2 part-time employees, 1 intern, 1 temporary employee and 2 full-time consultants.
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Recently, SCI has built modular data centers that are used for cryptocurrency mining though proprietary mining and hosting business models.
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Our modular data centers can co-locate with wind, solar, or hydroelectric power plants and support compute intensive applications including Bitcoin Mining, Generative AI, and Scientific Computing. This pioneering approach to data centers helps energize a greener grid while delivering cost-effective and sustainable computing solutions. Our mission is to make renewable energy a global superpower using computing as a catalyst.
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SCI intends to continue to develop and build modular data centers that use wasted renewable energy for cryptocurrency mining and in the in the future can be used for intensive, batchable computing applications, such as artificial intelligence and machine learning, with the goal of providing a cost-effective alternative to battery storage or transmission lines.
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SHI through its subsidiaries operates across several business divisions: ● Bitcoin Mining [current] – we collaborate with project-level financial partners to mine Bitcoin at our proprietary data centers. ● Bitcoin Hosting [current] – we offer data hosting services at our proprietary data centers to prominent Bitcoin Mining companies. ● Demand Response Services [current] – we utilize our data centers to deliver demand response services to grid operators.
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Headquartered in Albany, New York, the Company uses technology and intentional design to solve complex, real-world challenges. The Company’s data centers are operated through certain projects noted below: Project Edith, Project Sophie, Project Marie, and Project Dorothy.
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In addition to the services listed above, the Company plans to operate in the following business division: ● AI Cloud Services [future] – we plan to utilize our data centers to provide specialized AI Cloud and colocation services to companies seeking to train large language models, tune existing AI models, and deploy advanced AI-powered applications for the enterprise.
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Until the Sale (as defined below), we also operated though our wholly-owned subsidiary, MTI Instruments, 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. MTI Instruments was incorporated in New York on March 8, 2000.
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Operations and Project Pipeline We currently operate 75 MW of facilities across two locations. We have another 216 MW of facilities in development or near shovel ready in the United States. In addition, we have a 2 GW long term pipeline of renewable-energy powered projects.
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MTI Instruments’ products consisted 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.
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A summary of our pipeline, current and anticipated operating locations are as follows (as of December 31, 2023): Project Name Location MW Status Business Model Power Source Sophie Murray, KY 25 Operating Bitcoin Hosting Grid / Hydro Dorothy 1A Silverton, TX 25 Operating Bitcoin Hosting Wind Dorothy 1B Silverton, TX 25 Operating Bitcoin Mining Wind Dorothy 2 Silverton, TX 50 Shovel Ready Bitcoin Hosting Wind Kati Harlington, TX 166 Development Bitcoin Hosting Wind Capital Partners We finance our data center projects through a combination of the sale of public equity and project-level capital partners.
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These systems, tools and solutions were 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.
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As of December 31, 2023, the Company had two primary project-level partners: ● Spring Lane Capital (“SLC”) – A private venture fund with approximately $350 million of assets under management that focuses on sustainability solutions.
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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.
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On May 3, 2022 SLC committed a $35 million capital pool to finance Soluna data centers including Project Dorothy 1A. ● Navitas West Texas Investments SPV, LLC (“Navitas”), organized by Navitas Global – a private equity firm with less than $150 million of assets under management focused on sustainable Bitcoin Mining.
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As a result of the foregoing, the MTI Instruments business was reported as discontinued operations in the consolidated financial statements as of December 31, 2021 and prior periods within our Annual Report on Form 10-K for the year ended December 31, 2021, as was filed with the SEC on March 31, 2022, as well as in these consolidated financial statements for the year ended December 31, 2022 (the “Annual Report”).
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On May 9, 2023, we formed a strategic partnership with Navitas to mine Bitcoin at Project Dorothy 1B. 6 Distinctives We are a leading curtailment solutions provider. Our brand is now synonymous with curtailment solutions. We have relationships with the industry’s leading renewable energy developers and have a growing pipeline of projects with access to low-cost power resources.
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On April 11, 2022, we consummated the sale of MTI Instruments, (‘the Sale”)., MTI Instruments ceased to be our wholly-owned subsidiary, and, as a result, we have exited the instruments business. On April 11, 2022, SHI entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with NKX Acquiror, Inc.
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We have a repeatable way to grow our supply of sustainable, low-cost power from renewable energy generators. Our unique behind-the-meter structure allows us to draw power from the power plant or grid, and provide demand response services. This approach allows us to offer a lower cost of power for Bitcoin mining and, in the future AI and other HPC.
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(the “Purchaser”), pursuant to which the Company sold on such date all of the issued and outstanding shares of capital stock of its wholly-owned subsidiary, MTI Instruments, for approximately $9.4 million in cash, subject to certain adjustments as set forth in the Stock Purchase Agreement (the “Sale”).
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We are an infrastructure company. We build, own or jointly own, and operate our data centers and related power infrastructure. Our proprietary design is modular, scalable, and designed to run computing-intensive, batchable applications beyond Bitcoin Mining. We manage our data centers using MaestroOS(™), our proprietary data center operating system.
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The consideration paid by the Purchaser to the Company was based on an aggregate enterprise value of approximately $10.75 million. The Company recognized a gain on the sale of approximately $7.8 million. Project Edith The Edith project is a project permitted to consume up to 3.3 MegaWatts (“MW”) located in Wenatchee, Washington.
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MaestroOS reads a multitude of signals, including: local power costs, weather, Bitcoin metrics, and grid signals to optimize the operations of our facilities around the country. This allows us to monetize these facilities over a long period of time with a high return on invested capital. Strategic Focus In 2023, we executed on the following four-pronged strategy; 1.
Removed
The data center was acquired from the estate of the GigaWatt bankruptcy in May 2020. The project operates in a district with increasing power rates. At the time of Soluna’s acquisition (May 2020), the peak power rate, which does not include all charges to the facility was at 2.68 cents kWh, forecasting to increase 3.62 cents kWh by January 2025.
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Energize Project Dorothy – We shifted our flagship data center from construction to operations. We energized and optimized 50MW (Dorothy 1A and Dorothy 1B). We partnered with Navitas to establish a new proprietary Bitcoin mining operation. We sold an 85% membership interest in Dorothy 1A to SLC to raise capital.
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In the first quarter of 2022, the ETH (“Ethereum”) foundation made it clear that the merge to proof-of-stake was happening and graphics processing unit (“GPU”) mining was going to be challenged going forward. In the early summer of 2022, Soluna began to seek a buyer for the assets.
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We filled Dorothy 1A with 25 MW of strategic hosting partners. 2. Cash Flow and Process Optimization – We shifted our business from primarily proprietary Bitcoin mining to mostly Bitcoin hosting. We signed 50 MW of hosting at Dorothy and Sophie. Toward the end of 2023 we replaced under-performing deals at Sophie with more profitable contracts.
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Soluna ultimately sold the GPU mining assets and other mining equipment in September 2022 for $790 thousand. Soluna has committed to providing certain facilities contracts at cost plus a markup to facilitate the continued operations for the mining assets for the new ownership. Project Marie The Marie Project is Soluna’s 20 MW co-location facility based in Kentucky.
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We implemented cost cutting measures to achieve positive cash flow from operations in the second half of 2023. We implemented a new ERP system to improve efficiency and help scale our financial operations. We grew our operating cash position by approximately $5.2 million from $1.2 million as of December 31, 2022 to $6.4 million as of December 31, 2023. 3.
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This facility was Soluna’s first project in Kentucky, prior to building the Sophie greenfield project.
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Expand Flagship – We advanced the process of getting the next 50 MW of our Dorothy data center - Dorothy 2 - developed in 2024 through project-level partnerships. Dorothy 2 cleared the ERCOT modeling process early in the first quarter of 2024. 4.
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The site is powered by the Tennessee Valley Authority (“TVA”) grid and is designed to operate 24/7 less mandatory TVA curtailment windows. 4 On December 30, 2021, Soluna MC Borrowing 2021-1 LLC (the “Borrower”), an indirect wholly owned subsidiary of the Company entered into a Master Equipment Finance Agreement (the “MEFA”) with NYDIG ABL LLC (“NYDIG”) as lender, servicer and collateral agent (the “NYDIG facility”).
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Grow Pipeline – We signed a term sheet for a new 166 MW data center called Project Kati that will be integrated with a 300 MW wind farm that has surplus energy from increased curtailments. We worked throughout 2023 to advance the project through the ERCOT planning process.
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The Master Agreement outlined the framework for a financing up to approximately $14.4 million in aggregate equipment financing. In January 2022, Soluna began investing capital into Project Marie to upgrade the facility to support 20 MW of power consumption and create power efficiencies in the main leased building. These upgrades were completed in February of 2022.
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Competition The Company competes with Bitcoin mining companies, Bitcoin hosting companies, and in the future specialized AI cloud or hosting companies. Bitcoin miners compete globally, ranging from individuals to large data centers. This competition drives innovation in hardware, software, and power strategies. Miners often join pools for stability. The mining industry is decentralized and highly competitive.
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In January, Soluna completed the roll out of legacy hosting customers at the facility to be replaced with proprietary mining equipment. In March and April, the facility experienced several unplanned outages due to issues with electrical infrastructure owned by CC Metals and Alloys, LLC (“CCMA”).
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Bitcoin Hosting is also competitive, with customers seeking reliable, low-cost electricity and capable operating teams.
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Despite these setbacks, the facility was able to recover and continue to run at a steady hashrate throughout the course of the year. When the Bitcoin downturn hit, the Marie facility took initiative to ensure maximum efficiency of the miner inventory and also took action to reduce site-level expenses.
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We compete with the following publicly-traded Bitcoin mining companies: ● Riot Platforms, Inc. ● Core Scientific, Inc. ● Cipher Mining Inc. ● Hut 8 Mining Corp ● Hive Blockchain Technologies Ltd. ● Bitfarms, Ltd. ● Cleanspark, Inc. ● Iris Energy Limited ● Bit Digital, Inc. ● TeraWulf Inc. ● Greenidge Generation Holdings Inc.
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Project Marie power was impacted by increased Financial Conduit Authority (“FCA”) changes in late summer which were at levels not seen in many years. To further reduce risk to contribution margin, the company began contract negotiations with the 10 MW hosting customer at the site whose renewal was due in September.
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Note: some of these mining companies may be customers of our Bitcoin Hosting division. Our differentiation is our power pipeline and our Distinctives as noted above.
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These negotiations resulted in a more favorable fee structure that positioned the company to better navigate the FCA volatility and the broader Bitcoin economics. With the decline in the price of Bitcoin that occurred during 2022, by September 2022, the cashflows from Marie became inadequate to fully service the NYDIG loan.
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As we further develop our data center business, we will compete for HPC applications that large traditional data centers (such as Amazon Web Services, Google Cloud Platform, and Microsoft Azure), are not suited to compete for due to their higher power and other infrastructure costs. 7 Intellectual Property Soluna has filed eight provisional patent applications with the U.S.
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After discussions with NYDIG, two separate monthly waivers of payments for September and October 2022 were agreed. By November 2022, however, the Borrower failed to make its payment, and subsequently, on December 20, 2022, the Borrower received a Notice of Acceleration and Repossession (the “NYDIG Notice”) from NYDIG with respect to the MEFA, by and between Borrower and NYDIG.
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While there is no guarantee of patent approval or competitive advantage, enforcing patents can be resource intensive. Soluna also holds a registered trademark for its Company name, Soluna. Soluna will continue to rely on its rapid innovation and relentless implementation to compete well, leveraging its strategic relationships, operating experience and technical know-how.
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The obligations of Borrower under the MEFA and reflected in the NYDIG Notice are ring-fenced to Borrower and its direct parent company, Soluna MC LLC. The Company is not a party to any guaranty, collateral agreement or other support agreement with or for the benefit of NYDIG.
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The Company has developed a proprietary software system called MaestroOS(™) to enable the automation, management, and operations of critical elements of its data centers. We have a dedicated team that engages in activities to continue to enhance the MaestroOS to drive innovation and growth in its business.
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Borrower had entered into a dialogue with NYDIG to resolve the matters set forth in the NYDIG Notice.
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Environmental There are increasing concerns about the quantity of non-renewable energy used by data centers, especially those used for Bitcoin Mining and increasingly Generative AI. We believe the integration of computing and renewable energy is the future of the modern grid.
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The NYDIG Notice states that (a) Borrower failed to observe or perform certain covenants, conditions or agreements contained in the MEFA and such failure continued unremedied for a period of ten days after Borrower’s knowledge of such breach, which resulted in an event of default under the MEFA, and (b) Borrower defaulted under the guaranty, collateral agreement, or other support agreement, which resulted in an event of default under the MEFA.
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By colocating our data centers with underutilized renewable resources, Soluna aims to reduce the carbon footprint of our data centers and encourage renewable power plant development. An independent study done by REsurety found that Soluna’s data centers are 18% greener than traditional data centers.
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In addition, the NYDIG Notice states that Borrower failed to pay certain payments of principal and interest under the MEFA when due, which failure also constituted an event of default under the MEFA.
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This is driven by our flexible design, our MaestroOS software platform, and our location on the grid close to renewable resources.
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As a result of the foregoing events of default, and pursuant to the MEFA, NYDIG (x) declared the principal amount of all loans due and owing under the MEFA and all accompanying Loan Documents (as defined in the MEFA) to be due and immediately payable, (y) imposed a default rate of interest on any outstanding principal amount of each loan (together with all then unpaid interest accruing thereon) and all other obligations under the MEFA and the Loan Documents, and (z) demanded the return of all equipment subject to the MEFA and the Loan Documents.
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REsurety used Local Marginal Emissions data and analysis for the report. 1 Beginning in December 2023, we began participating in an ERCOT emergency demand response program which allows the grid to redirect our power allotment back into the market during extreme weather events when needed.
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On February 23, 2023, NYDIG proceeded to foreclose on all of the collateral securing the MEFA, which resulted in a reportable disposition of all of the Company’s mining assets at the site and certain of the operating assets of Project Marie.
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By taking such actions, we immediately help to stabilize the grid by allowing our power allotment to be delivered to the areas of greatest need, such as heating homes and powering hospitals. Overall, our operations incentivize the development of new renewable power generation, and they help to reduce the frequency and impact of power failures and electricity price surges.
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Additionally, NDYIG has stated its intention to pursue SCI, the parent company of Guarantor, under a piercing of the corporate veil claim relating to Defendants’ debts and liabilities under the loan documents.
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Our MaestroOS technology makes this flexible behavior possible and has already performed well during ERCOT testing of the demand response system. 1 The Carbon Footprint of Project Dorothy: An LME Analysis - Soluna (solunacomputing.com) 8 Existing or Probable Governmental Regulations Regulatory Cryptocurrency mining is largely an unregulated activity at both the state and federal level.
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SCI denies any such liability and has filed a complaint for a declaratory judgment against NYDIG in the Eighth Judicial District Court in Clark County, Nevada on March 16, 2023 seeking a declaratory judgment as to such matter.
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The effect of any regulatory change by the federal, state, local or foreign governments or any self-regulatory agencies on the Company is impossible to predict, but such change could be substantial and may have a material adverse effect on the Company’s business, financial condition, and results of operations.
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In a related development, also on February 23, 2023, the Borrower received a notice of termination of the Management and Hosting Services Agreement with CC Metals and Alloys, LLC.
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For example, in November 2022, the State of New York enacted a law prohibiting new proof-of-work mining activities that use power generated from carbon inputs.
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As a result of this action and certain other characteristics of the facility, the Company elected to shut down the Marie facility, and has impaired certain property, plant, and equipment assets that were at the Marie facility. The Company believes it will maximize its profits and return on assets by concentrating its personnel and capital on its Dorothy Facility.
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While the Company does not currently operate in New York, there is no guarantee that future regulation or adverse action will not take place and interpretation of existing regulations in a manner adverse to our business is possible.
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Project Sophie The Sophie Project is Soluna’s 25 MW modular data center based in Kentucky. This facility is the first site based on Soluna’s modular design, electrical design, and powered by its proprietary software Maestro OS (™).
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In January 2024, a decade after initial applications were filed, the SEC approved a series of spot Bitcoin exchange-traded funds, which have received billions of dollars of in-flows. In February 2024, the U.S.
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The site is powered by the TVA grid and is designed to operate during off-peak hours to help Western Kentucky Rural Electric Cooperative (“WKRECC”) manage its excess energy consumption. During 2022, power prices at the site, after the full ramp-up of activities, were approximately 4.0 cents per kWh.
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Energy Information Administration (the “EIA”) commenced a six-month survey among participants in the U.S. cryptocurrency mining industry to collect data to track and analyze the electricity consumption by such industry participants.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeCertain environmental laws may impose strict, joint and several liability for costs required to clean up and restore sites where hazardous substances have been disposed or otherwise released into the environment, even under circumstances where the hazardous substances were released by prior owners or operators, or the activities conducted and from which a release emanated complied with applicable law. 25 Further, existing regulations, particularly in the environmental area, could be revised or reinterpreted, or new laws and regulations could be adopted or become applicable to us or our facilities and future changes in environmental laws and regulations could occur, including potential regulatory and enforcement developments related to air emissions, any of which could result in significant additional costs.
Biggest changeCertain environmental laws may impose strict, joint and several liability for costs required to clean up and restore sites where hazardous substances have been disposed or otherwise released into the environment, even under circumstances where the hazardous substances were released by prior owners or operators, or the activities conducted and from which a release emanated complied with applicable law.
Acquisitions, alliances and investments involve numerous risks, including: ● the potential failure to achieve the expected benefits of the combination, acquisition or alliance; ● difficulties in and the cost of integrating operations, technologies, services and personnel; ● difficulty of assimilating geographically dispersed operations and personnel of the companies we acquire or ally with; ● impairment of relationships with employees, customers, vendors, distributors or business partners of either an acquired business or our own; ● unanticipated difficulties in conforming business practices, policies, procedures, internal controls and financial records of acquisitions with our own; ● the potential inability to successfully integrate acquired operations and products or to realize cost savings or other anticipated benefits from integration; ● diversion of financial and managerial resources from existing operations; ● risk of entering new markets in which we have little or no experience or where competitors may have stronger market positions; ● potential write-offs of acquired assets or investments and potential financial and credit risks associated with acquired customers; ● inability to generate sufficient revenue to offset acquisition or investment costs; ● the risk of cancellation or early termination of an alliance by either party; ● potential unknown liabilities associated with the acquired businesses; ● unanticipated expenses related to acquired technology and its integration into the existing businesses; ● negative impact to our results of operations because of the depreciation and amortization of amounts related to acquired intangible assets, fixed assets and deferred compensation, and the loss of acquired deferred revenue and unbilled deferred revenue; ● loss of key employees or customers of acquired companies; ● potential disruption of our business or the acquired business; ● inability to accurately forecast the performance of recently acquired businesses, resulting in unforeseen adverse effects on our operating results; ● the tax effects of any acquisitions; and ● Adverse accounting impact to our results of operations.
Acquisitions, alliances and investments involve numerous risks, including: ● the potential failure to achieve the expected benefits of the combination, acquisition or alliance; ● difficulties in and the cost of integrating operations, technologies, services and personnel; ● difficulty of assimilating geographically dispersed operations and personnel of the companies we acquire or ally with; ● impairment of relationships with employees, customers, vendors, distributors or business partners of either an acquired business or our own; ● unanticipated difficulties in conforming business practices, policies, procedures, internal controls and financial records of acquisitions with our own; ● the potential inability to successfully integrate acquired operations and products or to realize cost savings or other anticipated benefits from integration; ● diversion of financial and managerial resources from existing operations; ● risk of entering new markets in which we have little or no experience or where competitors may have stronger market positions; ● potential write-offs of acquired assets or investments and potential financial and credit risks associated with acquired customers; ● inability to generate sufficient revenue to offset acquisition or investment costs; ● the risk of cancellation or early termination of an alliance by either party; ● potential unknown liabilities associated with the acquired businesses; ● unanticipated expenses related to acquired technology and its integration into the existing businesses; ● negative impact to our results of operations because of the depreciation and amortization of amounts related to acquired intangible assets, fixed assets and deferred compensation, and the loss of acquired deferred revenue and unbilled deferred revenue; 14 ● loss of key employees or customers of acquired companies; ● potential disruption of our business or the acquired business; ● inability to accurately forecast the performance of recently acquired businesses, resulting in unforeseen adverse effects on our operating results; ● the tax effects of any acquisitions; and ● Adverse accounting impact to our results of operations.
A variety of factors, known and unknown, may affect price and valuation, including, but not limited to (i) the supply of such cryptocurrencies; (ii) global blockchain asset demand, which can be influenced by the growth of retail merchants’ and commercial businesses’ acceptance of blockchain assets like cryptocurrencies as payment for goods and services, the security of online cryptocurrency exchanges and networks and digital wallets that hold blockchain assets, the perception that the use and holding of blockchain assets is safe and secure, and the regulatory restrictions on their use; (iii) investors’ expectations with respect to the rate of inflation; (iv) changes in the software, software requirements or hardware requirements underlying a blockchain network; (v) changes in the rights, obligations, incentives or rewards for the various participants in a blockchain network; (vi) currency exchange rates; (vii) fiat currency withdrawal and deposit policies of cryptocurrency exchanges and networks and liquidity on such exchanges and networks; (viii) interruptions in service from or failures of major cryptocurrency exchanges and networks; (ix) investment and trading activities of large subscribers, including private and registered investment funds, that may directly or indirectly invest in blockchain assets; (x) monetary policies of governments, trade restrictions, currency devaluations and revaluations; (xi) regulatory measures, if any, that affect the use of blockchain assets; (xii) the maintenance and development of the open-source software protocol of the cryptocurrency networks; (xiii) global or regional political, economic or financial events and situations; (xiv) expectations among blockchain participants that the value of blockchain assets will soon change; and (xv) a decrease in the price of blockchain assets that may have a material adverse effect on SCI’s financial condition and operating results.
A variety of factors, known and unknown, may affect price and valuation, including, but not limited to (i) the supply of such cryptocurrencies; (ii) global blockchain asset demand, which can be influenced by the growth of retail merchants’ and commercial businesses’ acceptance of blockchain assets like cryptocurrencies as payment for goods and services, the security of online cryptocurrency exchanges and networks and digital wallets that hold blockchain assets, the perception that the use and holding of blockchain assets is safe and secure, and the regulatory restrictions on their use; (iii) investors’ expectations with respect to the rate of inflation; (iv) changes in the software, software requirements or hardware requirements underlying a blockchain network; (v) changes in the rights, obligations, incentives or rewards for the various participants in a blockchain network; (vi) currency exchange rates; (vii) fiat currency withdrawal and deposit policies of cryptocurrency exchanges and networks and liquidity on such exchanges and networks; (viii) interruptions in service from or failures of major cryptocurrency exchanges and networks; (ix) investment and trading activities of large subscribers, including private and registered investment funds, that may directly or indirectly invest in blockchain assets; (x) monetary policies of governments, trade restrictions, currency devaluations and revaluations; (xi) regulatory measures, if any, that affect the use of blockchain assets; (xii) the maintenance and development of the open-source software protocol of the cryptocurrency networks; (xiii) global or regional political, economic or financial events and situations; (xiv) expectations among blockchain participants that the value of blockchain assets will soon change; and (xv) a decrease in the price of blockchain assets that may have a material adverse effect on our financial condition and operating results.
Long- and short-term power prices may fluctuate substantially due to a variety of factors outside of our control, including, but not limited to: ● increases and decreases in generation capacity; ● changes in power transmission or fuel transportation capacity constraints or inefficiencies; ● volatile weather conditions, particularly unusually hot or mild summers or unusually cold or warm winters; 23 ● technological shifts resulting in changes in the demand for power or in patterns of power usage, including the potential development of demand-side management tools, expansion and technological advancements in power storage capability and the development of new fuels or new technologies for the production or storage of power; ● federal and state power, market and environmental regulation and legislation; and ● changes in capacity prices and capacity markets.
Long- and short-term power prices may fluctuate substantially due to a variety of factors outside of our control, including, but not limited to: ● increases and decreases in generation capacity; ● changes in power transmission or fuel transportation capacity constraints or inefficiencies; ● volatile weather conditions, particularly unusually hot or mild summers or unusually cold or warm winters; ● technological shifts resulting in changes in the demand for power or in patterns of power usage, including the potential development of demand-side management tools, expansion and technological advancements in power storage capability and the development of new fuels or new technologies for the production or storage of power; ● federal and state power, market and environmental regulation and legislation; and ● changes in capacity prices and capacity markets.
The most recent halving for Bitcoin occurred on May 11, 2020 at block 630,000 and the reward was reduced to 6.25. It is expected that the next halving will likely occur in 2024. This process will reoccur until the total amount of Bitcoin currency rewards issued reaches 21 million, which is expected around the year 2140.
The most recent halving for Bitcoin occurred on May 11, 2020 at block 630,000 and the reward was reduced to 6.25. It is expected that the next halving will likely occur in April 2024. This process will reoccur until the total amount of Bitcoin currency rewards issued reaches 21 million, which is expected around the year 2140.
Should such measures prove ineffective at achieving the Administration’s environmental goals, the report calls for the Administration to explore executive actions and legislation to limit or eliminate the use of high energy intensity consensus mechanisms for crypto-asset mining in the United States. We may be affected by price fluctuations in the wholesale and retail power markets.
Should such measures prove ineffective at achieving the Administration’s environmental goals, the report calls for the Administration to explore executive actions and legislation to limit or eliminate the use of high energy intensity consensus mechanisms for crypto-asset mining in the United States. 22 We may be affected by price fluctuations in the wholesale and retail power markets.
For example, extreme weather events may result in adverse physical effects on portions of our infrastructure, which could disrupt our supply chain and ultimately our business operations. In addition, a number of governments or governmental bodies have introduced or are contemplating legislative and regulatory changes in response to the potential impact of climate change.
For example, extreme weather events may result in adverse physical effects on portions of our infrastructure, which could disrupt our supply chain and ultimately our business operations. 21 In addition, a number of governments or governmental bodies have introduced or are contemplating legislative and regulatory changes in response to the potential impact of climate change.
If our mined cryptocurrencies are converted into dollars when their values are low, we may not recognize the income from the conversion of the mined cryptocurrencies that we were expecting. Further, the extreme swings in value can make it difficult for us to develop reasonable financial plans and projections with respect to SCI’s business.
If our mined cryptocurrencies are converted into dollars when their values are low, we may not recognize the income from the conversion of the mined cryptocurrencies that we were expecting. Further, the extreme swings in value can make it difficult for us to develop reasonable financial plans and projections with respect to our business.
While we are currently in the process of applying for patents with respect to SCI’s business, presently we rely on trade secrets to protect our proprietary technology and processes. Despite such protection, however, it is possible that a third party may copy or otherwise obtain and use our U.S.
While we are currently in the process of applying for patents with respect to our business, presently we rely on trade secrets to protect our proprietary technology and processes. Despite such protection, however, it is possible that a third party may copy or otherwise obtain and use our U.S.
We may be required to accept terms that restrict our ability to incur additional indebtedness or take other actions including terms that require us to maintain specified liquidity or other ratios that could otherwise not be in the interests of our stockholders. We rely upon strategic partners to finance certain of our facilities.
We may be required to accept terms that restrict our ability to incur additional indebtedness or take other actions including terms that require us to maintain specified liquidity or other ratios that could otherwise not be in the interests of our stockholders. 13 We rely upon strategic partners to finance certain of our facilities.
Further, we may be subject to investigation, administrative or court proceedings, and civil or criminal monetary fines and penalties as a result of any regulatory enforcement actions, all of which could harm our reputation and affect the value of our securities. 18 Security breaches could result in a loss of our cryptocurrencies.
Further, we may be subject to investigation, administrative or court proceedings, and civil or criminal monetary fines and penalties as a result of any regulatory enforcement actions, all of which could harm our reputation and affect the value of our securities. Security breaches could result in a loss of our cryptocurrencies.
If we fail to maintain the lease or renew it once its initial term expires and the landlord us to vacate the premises, we will likely incur significant costs in relocating our operations, if we could do so at all, and our operations would be interrupted during such relocation.
If we fail to maintain the lease or renew it once its initial term expires and the landlord requires us to vacate the premises, we will likely incur significant costs in relocating our operations, if we could do so at all, and our operations would be interrupted during such relocation.
Such reduction would adversely impact our results of operations and financial condition. The Bitcoin reward for successfully uncovering a block will halve several times in the future, and Bitcoin’s value may not adjust to compensate us for the reduction in the rewards we receive from our Bitcoin mining efforts.
Such reduction would adversely impact our results of operations and financial condition. 20 The Bitcoin reward for successfully uncovering a block will halve several times in the future, and Bitcoin’s value may not adjust to compensate us for the reduction in the rewards we receive from our Bitcoin mining efforts.
As a result of the potential conflicts inherent in his serving in both roles, it is possible that Mr. Toporek could make decisions that benefit Brookstone XXIV at the expense of the Company. Insiders continue to have substantial control over the Company.
As a result of the potential conflicts inherent in his serving in both roles, it is possible that Mr. Toporek could make decisions that benefit Brookstone XXIV at the expense of the Company. 24 Insiders continue to have substantial control over the Company.
As a result, we may have to spend significant resources indemnifying our officers and directors or paying for damages caused by their conduct. The requirements of being a public company may strain our resources and divert management’s attention.
As a result, we may have to spend significant resources indemnifying our officers and directors or paying for damages caused by their conduct. 26 The requirements of being a public company may strain our resources and divert management’s attention.
Given the very significant amount of electrical power required to operate cryptocurrency miners, as well as the environmental impact of mining for the rare earth metals used in the production of mining servers, the cryptocurrency mining industry may become a target for future environmental and energy regulation, and any such regulation may not distinguish between cryptocurrency mining powered partially by renewable energy, as is much of SCI’s business, and cryptocurrency mining using traditional (i.e. fossil fuel) sources of energy.
Given the very significant amount of electrical power required to operate cryptocurrency miners, as well as the environmental impact of mining for the rare earth metals used in the production of mining servers, the cryptocurrency mining industry may become a target for future environmental and energy regulation, and any such regulation may not distinguish between cryptocurrency mining powered partially by renewable energy, as is much of the Company’s business, and cryptocurrency mining using traditional (i.e. fossil fuel) sources of energy.
We intend to continue constructing modular data centers in addition to our Dorothy Facility, which potentially exposes us to significant risks we may otherwise not be exposed to, including risks related to, among other sources: construction delays; lack of availability of parts and/or labor, increased prices as a result, in part to inflation, and delays for data center equipment; labor disputes and work stoppages, including interruptions in work due to pandemics, epidemics, and other health risks; unanticipated environmental issues and geological problems; delays related to permitting and approvals to open from public agencies and utility companies; and delays in site readiness leading to our failure to meet commitments made in connection with such expansion.
We intend to continue constructing modular data centers in addition to our Dorothy Facility, which potentially exposes us to significant risks we may otherwise not be exposed to, including risks related to, among other sources: construction delays; lack of availability of parts and/or labor, increased prices as a result, in part to inflation, and delays for data center equipment; labor disputes and work stoppages, including interruptions in work due to unanticipated environmental issues and geological problems; delays related to permitting and approvals to open from public agencies and utility companies; and delays in site readiness leading to our failure to meet commitments made in connection with such expansion.
If we do not effectively manage SCI’s growth, it may not be able to execute on its business plan, respond to competitive pressures or take advantage of market opportunities, and our business, financial condition and results of operations could be materially harmed. 16 Given SCI’s early-stage status, without positive operating income, there is a substantial risk regarding SCI’s ability to succeed.
If we do not effectively manage our growth, it may not be able to execute on its business plan, respond to competitive pressures or take advantage of market opportunities, and our business, financial condition and results of operations could be materially harmed. Given our early-stage status, without positive operating income, there is a substantial risk regarding our ability to succeed.
In addition, we expect additional growth in this business, which could place significant demands on SCI’s and the Company’s management and other resources and require us to continue developing and improving our operational, financial and other internal controls. SCI may not be able to address these challenges in a cost-effective manner or at all.
In addition, we expect additional growth in this business, which could place significant demands on the Company’s management and other resources and require us to continue developing and improving our operational, financial and other internal controls. We may not be able to address these challenges in a cost-effective manner or at all.
There are continued risks arising from new pandemics, epidemics or outbreaks of disease, and ongoing COVID-19 related issues which have exacerbated port congestion and intermittent supplier shutdowns and delays, resulting in additional expenses to expedite delivery of new miners, as well as critical materials needed for our expansion plans.
There are continued risks arising from new pandemics, epidemics or outbreaks of disease, and ongoing COVID-19 related issues which have exacerbated port congestion and intermittent supplier shutdowns and delays, resulting in additional expenses to expedite delivery of new critical equipment, as well as critical materials needed for our expansion plans.
Failure to generate adequate cash from our operations or find sources of funding would require us to scale back or curtail our operations or expansion efforts, including limiting our ability to expand the SCI hosting and cryptocurrency business to a larger-scale operation, and would have an adverse impact on our business and financial condition.
Failure to generate adequate cash from our operations or find sources of funding would require us to scale back or curtail our operations or expansion efforts, including limiting our ability to expand our hosting and cryptocurrency business to a larger-scale operation, and would have an adverse impact on our business and financial condition.
The potential impact on our business is currently magnified because we are currently operating only a single mine. SCI’s reliance on a third-party mining pool service provider for our mining revenue payouts may have a negative impact on SCI’s operations. The same may be true in the case of SCI’s likely hosted customers.
The potential impact on our business is currently magnified because we are currently operating only a single mine. Our reliance on a third-party mining pool service provider for our mining revenue payouts may have a negative impact on our operations. The same may be true in the case of our hosted customers.
These breaches may occur due to an action by an outside party or by the error and negligence of an employee. We primarily rely on the Luxor mining pool and SCI’s cryptocurrencies are stored with exchanges such as Coinbase prior to selling them.
These breaches may occur due to an action by an outside party or by the error and negligence of an employee. We primarily rely on the Luxor mining pool and our cryptocurrencies are stored with exchanges such as Coinbase prior to selling them.
As part of our sale of 3,750,000 shares of our Common Stock to Brookstone XXIV in October 2016 and as required by Brookstone XXIV as a condition to purchasing the shares, our Board renounced, to the extent permitted by applicable law, the Company’s expectancy with respect to being offered an opportunity to participate in any business opportunity that is discovered by or presented to a director designee (a “Business Opportunity”), whether in such director designee’s capacity as a director of the Company or otherwise.
As part of our sale of 150,000 shares of our Common Stock to Brookstone XXIV in October 2016 and as required by Brookstone XXIV as a condition to purchasing the shares, our Board renounced, to the extent permitted by applicable law, the Company’s expectancy with respect to being offered an opportunity to participate in any business opportunity that is discovered by or presented to a director designee (a “Business Opportunity”), whether in such director designee’s capacity as a director of the Company or otherwise.
As cryptocurrencies have grown in both popularity and market size, governments around the world have reacted differently to cryptocurrencies; certain governments have deemed them illegal, and others have allowed their use and trade without restriction, while in some jurisdictions, such as in the United States, subject the mining, ownership and exchange of cryptocurrencies to extensive, and in some cases overlapping, unclear and evolving regulatory requirements.
As cryptocurrencies have grown in both popularity and market size, governments around the world have reacted differently to cryptocurrencies; certain governments have deemed them illegal, and others have allowed their use and trade without restriction, while some jurisdictions subject the mining, ownership and exchange of cryptocurrencies to extensive, and in some cases overlapping, unclear and evolving regulatory requirements.
Such actions on the part of Brookstone XXIV or its director designees could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, Michael Toporek, the Company’s Chief Executive Officer, serves as the Managing General Partner of Brookstone XXIV.
Such actions on the part of Brookstone XXIV or its director designees could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, Michael Toporek, the Company’s Executive Chairman, serves as the Managing General Partner of Brookstone XXIV.
Accordingly, we have had, and may have in the future have, difficulty in opening bank accounts, obtaining letters of credit and generally access to the banking system. We may be unable to obtain additional funding to scale the SCI hosting and proprietary cryptocurrency mining business to a larger-scale business.
Accordingly, we have had, and may have in the future have, difficulty in opening bank accounts, obtaining letters of credit and generally access to the banking system. We may be unable to obtain additional funding to scale the AI hosting and its hosting and proprietary cryptocurrency mining business to a larger-scale business.
Our primary focus is on the hosting and proprietary cryptocurrency mining business, and we have recorded historical losses and negative cash flow from our operations when the value of Bitcoin we and our hosted customers mine does not exceed associated costs.
Our primary focus has been on the hosting and proprietary cryptocurrency mining business, and we have recorded historical losses and negative cash flow from our operations when the value of Bitcoin we and our hosted customers mine does not exceed associated costs.
In order to complete construction of the first phase of our Dorothy Facility we have partnered with Spring Lane Capital, which provided $14.0 in funding to complete construction and fund corporate expenses, and we may seek similar funding completion of subsequent phases of the Dorothy Facility and our other projects in development.
In order to complete construction of the first phase of our Dorothy Facility we have partnered with Spring Lane Capital and Navitas Global, which provided funding to complete construction and fund corporate expenses, and we may seek similar funding completion of subsequent phases of the Dorothy Facility and our other projects in development.
We may not be able to refinance, extend or repay our substantial indebtedness owed to our convertible note debt holders, which would have a material adverse effect on our financial condition and ability to continue as a going concern.
We may not be able to refinance, extend or repay our substantial indebtedness owed to our convertible note debt holders, which would have a material adverse effect on our financial condition, compliance with our negative covenants, and ability to continue as a going concern.
Item 1A. Risk Factors Our business, financial condition and operating results are subject to a number of risk factors, both those that are known to us and identified below and others that may arise from time to time.
Item 1A. Risk Factors Our business, financial condition and operating results are subject to several risk factors, both those that are known to us and identified below and others that may arise from time to time.
Further, if due to technological developments we need to replace our miners entirely to remain competitive in the market, there can be no assurance that we will be able to do so on a cost-effective basis or in a timely manner, particularly in light of the long production period to manufacture and assemble cryptocurrency miners, potential large-scale purchases of miners from existing competitors and new entrants into the industry.
Further, if due to technological developments we need to replace our equipment entirely to remain competitive in the market, there can be no assurance that we will be able to do so on a cost-effective basis or in a timely manner, particularly in light of the long production period to manufacture and assemble cryptocurrency miners, potential large-scale purchases of miners from existing competitors and new entrants into the industry, and the difficulty in obtaining the advanced semiconductors needed for artificial intelligence applications.
Any disruptions or changes our present relationship with the landlord for the Dorothy Facility could disrupt our business and our results of operations negatively. The properties included in our mining and hosting facility network may experience damages, including damages that are not covered by insurance.
Any disruptions or changes our present relationship with the landlord for the Dorothy Facility could disrupt our business and our results of operations negatively. 19 Our properties may experience damages, including damages that are not covered by insurance.
If we lose the services of Michael Toporek, our Chief Executive Officer and a member of our board of directors, John Belizaire, SCI’s Chief Executive Officer and member of our board of directors, Philip Patman, Jr., our Chief Financial Officer, and/or certain key employees, we may not be able to find appropriate replacements on a timely basis, and our business could be adversely affected.
If we lose the services of John Belizaire, our Chief Executive Officer and member of our board of directors, David Michaels., our Chief Financial Officer, and/or certain key employees, we may not be able to find appropriate replacements on a timely basis, and our business could be adversely affected.
If we are unable to continue to obtain sufficient electrical power on a cost-effective basis, we may not realize the anticipated benefits of our significant capital investments. Additionally, our operations could be materially adversely affected by prolonged power outages.
The fluctuating price of electricity we require for our operations, and to power our expansion, may inhibit our profitability. If we are unable to continue to obtain sufficient electrical power on a cost-effective basis, we may not realize the anticipated benefits of our significant capital investments. Additionally, our operations could be materially adversely affected by prolonged power outages.
If we are unable to protect our information systems against service interruption or failure, misappropriation of data or breaches of security, our operations could be disrupted, we could be subject to costly government enforcement actions and private litigation and our reputation may be damaged.
Any such payments could materially and adversely affect our business and financial condition. 25 If we are unable to protect our information systems against service interruption or failure, misappropriation of data or breaches of security, our operations could be disrupted, we could be subject to costly government enforcement actions and private litigation and our reputation may be damaged.
We do not have the resources to compete with larger cryptocurrency mining entities at this time and may not be able to compete successfully against present or future competitors. The cryptocurrency industry has attracted various high-profile and well-established operators, some of which have substantially greater liquidity and financial resources than we do.
We do not have the resources to compete with larger cryptocurrency mining and other entities in the advanced data processing space at this time and may not be able to compete successfully against present or future competitors. These markets have attracted various high-profile and well-established operators, many of which have substantially greater liquidity and financial resources than we do.
Further, a court could order us to pay compensatory damages for any such infringement, plus prejudgment interest, and could in addition treble the compensatory damages and award attorneys’ fees. Any such payments could materially and adversely affect our business and financial condition.
Further, a court could order us to pay compensatory damages for any such infringement, plus prejudgment interest, and could in addition treble the compensatory damages and award attorneys’ fees.
We are considering further increasing the size of our business as we seek to leverage our experience and expertise in area of hosting and proprietary cryptocurrency mining operations. To do so, however, we will need to raise additional debt and/or equity financing, which may not be available to us on acceptable terms or at all.
We are considering further increasing the size of our business as we seek to leverage our experience and expertise in operating data centers for advanced data processing, including artificial intelligence and cryptocurrency. To do so, however, we will need to raise additional debt and/or equity financing, which may not be available to us on acceptable terms or at all.
SCI may not be able to continue to develop its technology and keep pace with technological developments, expand its mining operations or otherwise compete with other companies, some of whom have greater resources and experience.
We may not be able to continue to develop our technology and keep pace with technological developments, or otherwise compete with other companies, many of whom have greater resources and experience.
These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s consolidated financial statements do not give effect to any adjustments required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the accompanying Consolidated Financial Statements.
The Company’s consolidated financial statements do not give effect to any adjustments required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the accompanying Consolidated Financial Statements.
Our employees, consultants and other advisors, however, may not honor these agreements and enforcing a claim that a party illegally obtained and is using our trade secrets is difficult, expensive and time-consuming and the outcome is unpredictable. Our failure to obtain and maintain trade secret protection could adversely affect our competitive position.
Our employees, consultants and other advisors, however, may not honor these agreements and enforcing a claim that a party illegally obtained and is using our trade secrets is difficult, expensive and time-consuming and the outcome is unpredictable.
Such events could have a material adverse effect on our ability to continue as a going concern or to pursue our strategy at all, which could have a material adverse effect on our business, prospects or operations and potentially the value of any cryptocurrencies that we or our hosted customers mine.
Such events could have a material adverse effect on our ability to continue as a going concern or to pursue our strategy at all, which could have a material adverse effect on our business, prospects or operations and potentially the value of any cryptocurrencies that we or our hosted customers mine. 17 The failure of cryptocurrencies to become widely accepted and/or used as a medium of exchange and method of payment could adversely affect our business, prospects and financial condition.
Given the political significance and uncertainty around the impact of climate change and how it should be addressed, we cannot predict how legislation and regulation will affect our financial condition, operating performance and ability to compete.
Given the political significance and uncertainty around the impact of climate change and how it should be addressed, we cannot predict how legislation and regulation will affect our financial condition, operating performance and ability to compete. Any of the foregoing could result in a material adverse effect on our business, prospects and financial condition.
SCI has a limited operating history, and we may not recognize operating income from the SCI line of business in the future. SCI began operations in January 2020 and therefore is subject to all the risks inherent in a newly established business venture in a rapidly developing and changing industry.
Our data center business has a limited operating history, and we may not recognize operating income in the future. We began our cryptocurrency and computer hosting operations in January 2020 and therefore is subject to all the risks inherent in a relatively recently established business venture in a rapidly developing and changing industry.
If our common stock is subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our common stock.
If our common stock is subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our common stock. If the common stock is subject to the penny stock rules, investors will find it more difficult to dispose of their shares of our common stock.
As of March 28, 2023 , the Company’s directors and executive officers held the current right to vote approximately 18.7% of the Company’s outstanding voting stock. Of this total, 15.2% was owned or controlled by Brookstone XXIV, for which Michael Toporek, the Company’s Chief Executive Officer, also serves as Managing General Partner.
As of March 19, 2024 , the Company’s directors and executive officers held the current right to vote approximately 6.8% of the Company’s outstanding voting stock. Of this total, 5.35% was owned or controlled by Brookstone XXIV, for which Michael Toporek, the Company’s Executive Chairman, also serves as Managing General Partner.
If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert resources of our management and harm our business and operating results. 27 Risks Related to our Securities The market price of our securities are likely be volatile, which may cause investment losses for our shareholders.
If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert resources of our management and harm our business and operating results.
The demand for skilled workers is high and the supply is limited, and a shortage in the labor pool of skilled workers or other general inflationary pressures or changes in applicable laws and regulations could make it more difficult for us to attract and retain personnel and could require us to enhance our wage and benefits packages, which could increase our operating costs. 24 Brookstone XXIV currently has a controlling interest in the Company due to the number of shares of common stock that it beneficially owns and its designation of two of our directors.
The demand for skilled workers is high and the supply is limited, and a shortage in the labor pool of skilled workers or other general inflationary pressures or changes in applicable laws and regulations could make it more difficult for us to attract and retain personnel and could require us to enhance our wage and benefits packages, which could increase our operating costs.
If a corresponding and proportionate increase in the trading prices of Bitcoin or a proportionate decrease in mining difficulty does not follow these anticipated halving events, the revenue we and our hosted customers earn from our Bitcoin mining operations could see a corresponding decrease, which could have a material adverse effect on our business and operations. 21 We may not be able to realize the benefits of forks, and forks in a digital asset network may occur in the future, which may affect the value of the cryptocurrencies that we mine.
If a corresponding and proportionate increase in the trading prices of Bitcoin or a proportionate decrease in mining difficulty does not follow these anticipated halving events, the revenue we and our hosted customers earn from our Bitcoin mining operations could see a corresponding decrease, which could have a material adverse effect on our business and operations.
In 2022, a number of digital asset exchanges filed for bankruptcy proceedings and/or became the subjects of investigation by various governmental agencies for, among other things, fraud, causing a loss of confidence and an increase in negative publicity for the digital asset ecosystem. As a result, many digital asset markets, including the market for Bitcoin, have experienced increased price volatility.
In recent years, a number of digital asset exchanges filed for bankruptcy proceedings and/or became the subjects of investigation by various governmental agencies for, among other things, fraud, causing a loss of confidence and an increase in negative publicity for the digital asset ecosystem.
The Bitcoin ecosystem may continue to be negatively impacted and experience long term volatility if public confidence decreases. 14 These events are continuing to develop, and it is not possible to predict, at this time, every risk that they may pose to us, our service providers, or the digital asset industry as a whole.
These events are continuing to develop, and it is not possible to predict, at this time, every risk that they may pose to us, our service providers, or the digital asset industry as a whole.
Such lack of acceptance or a decline in acceptance could have a material adverse effect on the value of the cryptocurrencies that we or our hosted customers mine, the viability of cryptocurrency mining as a business, and our ability to continue as a going concern or to pursue our business strategy, which could have a material adverse effect on our business, prospects, operations and financial condition, as well as on the market value of our securities. 19 Proposed development of a cryptocurrency, as well as the eventual likely development of government-backed digital currencies and the development of cryptocurrencies by other tech companies, may adversely affect the value of Bitcoin and other existing, or even future, cryptocurrencies.
Such lack of acceptance or a decline in acceptance could have a material adverse effect on the value of the cryptocurrencies that we or our hosted customers mine, the viability of cryptocurrency mining as a business, and our ability to continue as a going concern or to pursue our business strategy, which could have a material adverse effect on our business, prospects, operations and financial condition, as well as on the market value of our securities.
Companies that we acquire may operate with different cost and margin structures, which could further cause fluctuations in our operating results and adversely affect our business, financial condition and results of operations. Risks Related to our SCI Business and Cryptocurrency We have a history of operating losses, and we may report additional operating losses in the future.
Companies that we acquire may operate with different cost and margin structures, which could further cause fluctuations in our operating results and adversely affect our business, financial condition and results of operations.
Thus, until the global supply chain crisis is resolved, and these extraordinary pressures are alleviated, we expect to continue to incur higher than usual costs to obtain and deploy new miners and we may face difficulties obtaining the new miners we need at prices or in quantities we find acceptable, if at all, and our business and results of operations may suffer as a result.
Thus, until the global supply chain crisis is resolved, and these extraordinary pressures are alleviated, we expect to continue to incur higher than usual costs to obtain such equipment and we may face difficulties obtaining equipment we need at prices or in quantities we find acceptable, if at all, and our business and results of operations may suffer as a result. 12 In addition, labor shortages may lead to increased difficulty and labor costs in hiring and retaining the highly qualified and motivated people we need to conduct our business and execute on our strategic growth initiatives.
Our business plan is heavily dependent upon acquisitions and strategic alliances and our ability to identify, acquire or ally on appropriate terms, and successfully integrate and manage any acquired companies or alliances will impact our financial condition and operating results.
These potential consequences of a digital asset exchange’s failure could adversely affect an investment in us. Our business plan is heavily dependent upon acquisitions and strategic alliances and our ability to identify, acquire or ally on appropriate terms, and successfully integrate and manage any acquired companies or alliances will impact our financial condition and operating results.
We may need to make business decisions that could adversely affect SCI’s operating results, such as modifications to its business structure or operations.
Our operating results will likely fluctuate moving forward as we focus on growing our operations. We may need to make business decisions that could adversely affect our operating results, such as modifications to its business structure or operations.
A significant portion of cryptocurrency demand is generated by investors seeking a long-term store of value or speculators seeking to profit from the short- or long-term holding of the asset.
The use of cryptocurrencies in the retail and commercial marketplace, despite sporadic adoption, is currently limited. A significant portion of cryptocurrency demand is generated by investors seeking a long-term store of value or speculators seeking to profit from the short- or long-term holding of the asset.
The Dorothy Facility is subject to a five-year ground lease, and if we are unable to renew its term, we may be unable to fully realize the anticipated benefits of the ongoing development of the site.
To the extent we incur increased utility costs, such increased costs could materially impact our financial condition, results of operations and cash flows. The Dorothy Facility is subject to a five-year ground lease, and if we are unable to renew its term, we may be unable to fully realize the anticipated benefits of the ongoing development of the site.
Furthermore, the emergence of new cryptocurrencies employing alternative, more scalable technologies could lead to a shift in market preferences, diminishing the value of the cryptocurrencies we mine and potentially affecting our business prospects and profitability Because our most of our and our hosted customers’ miners are designed specifically to mine Bitcoin and may not be readily adaptable to mining other cryptocurrencies, a sustained decline in Bitcoin’s value could adversely affect our business and results of operations .
Because most of our and our hosted customers’ miners are designed specifically to mine Bitcoin and may not be readily adaptable to mining other cryptocurrencies, a sustained decline in Bitcoin’s value could adversely affect our business and results of operations .
Our operations have required significant amounts of electrical power, and, as we continue to expand our mining fleet and begin to operate our Dorothy Facility, we anticipate our demand for electrical power will continue to grow. The fluctuating price of electricity we require for our operations, and to power our expansion, may inhibit our profitability.
We are subject to risks associated with our need for significant electrical power. Our operations have required significant amounts of electrical power, and, as we continue to expand our mining fleet and begin to operate our Dorothy Facility, we anticipate our demand for electrical power will continue to grow.
Global trade conditions and consumer trends that originated during the COVID-19 pandemic continue to persist and may also have long-lasting adverse impact on us and our industry.
We may be impacted by macroeconomic conditions due to global pandemics, epidemics or outbreaks of disease and the resulting global supply chain crisis. Global trade conditions and consumer trends that originated during the COVID-19 pandemic continue to persist and may also have long-lasting adverse impact on us and our industry.
In addition, if any of our executives or key personnel joins a competitor or forms a competing company, we may lose customers. In addition, we compete with other businesses in our industries and other similar employers to attract and retain qualified personnel with the technical skills and experience required to successfully operate our businesses.
In addition, we compete with other businesses in our industries and other similar employers to attract and retain qualified personnel with the technical skills and experience required to successfully operate our businesses.
If these third parties fail to adopt or adhere to adequate information security practices or fail to comply with our policies in this regard, or in the event of a breach of their networks, our customers’ or employees’ information may be improperly accessed, used or disclosed. 26 If our systems are harmed or fail to function properly, we may need to expend significant financial resources to repair or replace systems or to otherwise protect against security breaches or to address problems caused by breaches.
If these third parties fail to adopt or adhere to adequate information security practices or fail to comply with our policies in this regard, or in the event of a breach of their networks, our customers’ or employees’ information may be improperly accessed, used or disclosed.
We may not be able to address these risks and difficulties successfully, which would materially harm our business and operating results, and we could be forced to terminate our business, liquidate our assets and dissolve, and you could lose part or all of your investment.
We may not be able to address these risks and difficulties successfully, which would materially harm our business and operating results, and we could be forced to terminate our business, liquidate our assets and dissolve, and you could lose part or all of your investment. 15 Prices of cryptocurrencies are extremely volatile, and if our mined cryptocurrencies are converted into dollars when such values are low, we may not recognize the income from the conversion of the mined cryptocurrencies that we were expecting.
This could have a material adverse effect on our business, prospects, operations and financial condition, as well as on the market value of our securities .
This could have a material adverse effect on our business, prospects, operations and financial condition, as well as on the market value of our securities . Our business model depends upon the demand for data centers. We intend to be in the business of owning, leasing and operating data centers.
As of December 31, 2022, we had approximately 14,195,402 shares of our common stock outstanding held by non-affiliates and 3,055,190 shares of our Series A Preferred Stock outstanding held by non-affiliates. Our daily trading volume for the year ended December 31, 2022, averaged approximately 119,105 shares of common stock and 18,645 shares of Series A Preferred Stock.
As of December 31, 2023, we had approximately 2,318,989 shares of our common stock outstanding held by non-affiliates and 3,049,521 shares of our Series A Preferred Stock outstanding held by non-affiliates. Our daily trading volume for the year ended December 31, 2023, averaged approximately 62,652 shares of common stock and 4,149 shares of Series A Preferred Stock.
With the limited resources we have available, we may experience great difficulties in expanding and improving our network of miners to remain competitive, and we may not be in a position to construct additional operational cryptocurrency mines. 17 Rapid technological change is a current feature of the cryptocurrency industry, including hosting and proprietary cryptocurrency mining, and we cannot provide assurance that we will be able to achieve the technological advances, in a timely manner or at all, that may be necessary for us to remain competitive or that certain of our equipment will not become obsolete.
Rapid technological change is a current feature of the markets in which we operate, and we cannot provide assurance that we will be able to achieve the technological advances, in a timely manner or at all, that may be necessary for us to remain competitive or that certain of our equipment will not become obsolete.
If one or more of our executive officers or other key personnel are unable or unwilling to continue in their present positions, we may not be able to replace them readily, if at all. In such case, our business may be severely disrupted, and we may incur additional expenses to recruit and retain new officers or other key personnel.
Our continued ability to compete effectively depends on our ability to attract, among others, new technology developers and to retain and motivate our existing contractors. If one or more of our executive officers or other key personnel are unable or unwilling to continue in their present positions, we may not be able to replace them readily, if at all.
Such circumstances would have a material adverse effect on our ability to continue as a going concern or to pursue our new strategy at all, which would have a material adverse effect on our business, prospects or operations as well as and potentially the value of any cryptocurrencies we hold or expect to acquire for our own account and harm our investors.
Such circumstances would have a material adverse effect on our ability to continue as a going concern or to pursue our new strategy at all, which would have a material adverse effect on our business, prospects or operations as well as and potentially the value of any cryptocurrencies we hold or expect to acquire for our own account and harm our investors. 27 If we are not able to comply with the applicable continued listing requirements or standards of Nasdaq, Nasdaq could delist our common stock or Series A Preferred Stock or broker-dealers may be discouraged from effecting transactions in shares of our securities.
Given the difficulty of predicting the outcomes of ongoing and future regulatory actions and legislative developments, it is possible that they could have a material adverse effect on our business, prospects or operations.
Given the difficulty of predicting the outcomes of ongoing and future regulatory actions and legislative developments, it is possible that they could have a material adverse effect on our business, prospects or operations. 16 Bitcoin and Bitcoin mining, as well as cryptocurrencies generally, may be made illegal in certain jurisdictions, including the ones we operate in, which could adversely affect our business prospects and operations.
Our current mining operation for Project Sophie is, and any future mines or hosting facility we establish will be, subject to a variety of risks relating to physical condition and operation, including: ● the presence of construction or repair defects or other structural or building damage; ● any noncompliance with or liabilities under applicable environmental, health or safety regulations or requirements or building permit requirements; and ● any damage resulting from natural disasters, such as hurricanes, earthquakes, fires, floods and windstorms. 20 For example, the currently operating Sophie facility, or the future Dorothy facility could be rendered inoperable, temporarily or permanently, as a result of a fire or other natural disaster or by a terrorist or other attack on the mine.
Our properties are subject to a variety of risks relating to physical condition and operation, including: ● the presence of construction or repair defects or other structural or building damage; ● any noncompliance with or liabilities under applicable environmental, health or safety regulations or requirements or building permit requirements; and ● any damage resulting from natural disasters, such as hurricanes, earthquakes, fires, floods and windstorms.
SCI’s limited operating history also makes it difficult to evaluate SCI’s current business and its future prospects. SCI has not yet been able to confirm that its business model can or will be successful over the long term, and we may not ever continue to recognize operating income from this business.
We have not yet been able to confirm that our business model can or will be successful over the long term, and we may not ever continue to recognize operating income from this business. Our projections have been developed internally and may not prove to be accurate.
On October 25, 2021, the Company issued to certain institutional investors secured convertible notes in the aggregate principal amount of approximately $16.3 million for an aggregate purchase price of $15.0 million. Through original issuance until March 23, 2023, the noteholders have converted approximately $5.2 million of debt.
On October 25, 2021, the Company issued to certain institutional investors secured convertible notes in the aggregate principal amount of approximately $16.3 million for an aggregate purchase price of $15.0 million. As of March 15, 2024, we owed our convertible debt holders approximately $7.8 million of principal which is currently due on July 25, 2024.
We still may need to raise additional funding which may not be available on acceptable terms, or at all. Failure to obtain additional capital may force us to delay, limit or terminate our product development efforts or other operations.
Failure to obtain additional capital may force us to delay, limit or terminate our product development efforts or other operations.
We rely on highly skilled personnel and the continuing efforts of our executive officers and, if we are unable to retain, motivate or hire qualified personnel, our business may be severely disrupted. In addition, increased labor costs and the unavailability of skilled workers could hurt our business, financial condition and results of operations.
Our failure to obtain and maintain trade secret protection could adversely affect our competitive position. 23 We rely on highly skilled personnel and the continuing efforts of our executive officers and, if we are unable to retain, motivate or hire qualified personnel, our business may be severely disrupted.
The Company has incurred losses resulting in an accumulated deficit of $221.8 million as of December 31, 2022, and further losses are anticipated in the development of its business. 12 The accompanying Consolidated Financial Statements has shown that the Company did not generate sufficient revenue to generate net income and has negative working capital as of December 31, 2022.
The accompanying Consolidated Financial Statements show that the Company did not generate sufficient revenue to generate net income and has negative working capital as of December 31, 2023.
As of March 28, 2023 , Brookstone XXIV owned approximately 15.2% of the Company’s outstanding shares of Common Stock and has designated two directors that sit on our nine-member Board.
Brookstone XXIV currently has a controlling interest in the Company due to the number of shares of common stock that it beneficially owns and its designation of two of our directors. As of March 19, 2024, Brookstone XXIV owned approximately 5.35% of the Company’s outstanding shares of Common Stock and has designated two directors that sit on our nine-member Board.
Given the power requirement, it would not be feasible to run miners on back-up power generators in the event of a power outage.
Additionally, our processing equipment could be materially adversely affected by a power outage, loss of access to the electrical grid, or loss by the grid of cost-effective sources of electrical power generating capacity. Given the power requirement, it would not be feasible to run miners on back-up power generators in the event of a power outage.
As of March 23, 2023, we owed our convertible debt holders approximately $11.6 million of principal which is currently due on April 25, 2023. If we are unable to raise sufficient capital to repay these obligations at maturity and we are otherwise unable to extend the maturity dates or refinance these obligations, we would be in default.
If we are unable to raise sufficient capital to repay these obligations at maturity and we are otherwise unable to extend the maturity dates or refinance these obligations, we would be in default.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOn March 4, 2021, Soluna SW, LLC acquired a 3.2-acre tract of real property located in Murray, Kentucky on which it has built an energy-efficient cryptocurrency mining facility that includes 22 buildings for the Company’s miners. On February 24, 2023, Soluna DV Services, LLC entered into a lease agreement for a 33.19-acre tract of land in Briscoe County, Texas.
Biggest changeOn March 4, 2021, SSW acquired a 3.2-acre tract of real property located in Murray, Kentucky on which it has built an energy-efficient cryptocurrency mining facility, Project Sophie, that includes 22 buildings for data facility hosting or mining. On February 24, 2023, DVSV entered into a lease agreement for a 33.19-acre tract of land in Silverton, Texas.
The current lease agreements expire for one building on June 30, 2024, for another on November 30, 2024, and for the remaining two buildings on July 31, 2023.
The current lease agreements expire for one building on June 30, 2025, another on November 30, 2025, and for the remaining two buildings on January 31, 2025.
Added
Our business growth, however, is dependent on developing additional properties, and we believe our project pipeline is strong enough to support our current business plan. See Part I, Item 1A. “Risk Factors” of this Annual Report. 29

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeSCI denies any such liability and has filed a complaint for a declaratory judgment against NYDIG in the Eighth Judicial District Court in Clark County, Nevada on March 16, 2023, seeking a declaratory judgment as to such matter. Item 4: Mine Safety Disclosures Not applicable. 29 PART II
Biggest changeSCI denies any such liability and has filed a complaint for a declaratory judgment against NYDIG in the Eighth Judicial District Court in Clark County, Nevada on March 16, 2023, seeking a declaratory judgment as to such matter. NYDIG filed a motion to dismiss in response to SCI’s declaratory judgment complaint on April 13, 2023.
The Court issued on February 15, 2023, an agreed order granting NYDIG’s motion for writ of possession which, among other things, ordered parties to provide NYDIG access to the collateral described therein and preserved the rights of NYDIG to pursue a deficiency judgment against the Defendants.
The Court issued on February 15, 2023, an agreed order granting NYDIG’s motion for writ of possession which, among other things, ordered parties to provide NYDIG access to the collateral described therein and preserved the rights of NYDIG to pursue a deficiency judgment against the NYDIG Defendants.
Also on February 15, 2023, the Defendants filed their answer and affirmative defenses in this proceeding. The Defendants believe that NYDIG has liquidated some of the collateral securing the loans and anticipate that NYDIG will complete the liquidation of collateral and continue to prosecute the complaint to obtain a judgment against the Defendants.
Also on February 15, 2023, the NYDIG Defendants filed their answer and affirmative defenses in this proceeding. The NYDIG Defendants believe that NYDIG has liquidated some of the collateral securing the loans and anticipate that NYDIG will complete the liquidation of collateral and continue to prosecute the complaint to obtain a judgment against the NYDIG Defendants.
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.
EPA 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.
Additionally, NDYIG has stated its intention to pursue SCI, the parent company of Guarantor, under a piercing of the corporate veil claim relating to Defendants’ debts and liabilities under the loan documents.
Additionally, NYDIG has stated its intention to pursue SCI, the parent company of Guarantor, under a piercing of the corporate veil claim relating to NYDIG Defendants’ debts and liabilities under the loan documents.
NYDIG filed a complaint against Soluna MC Borrowing 2021-1 LLC (“Borrower”) and Soluna MC LLC (“Guarantor”, and together with Borrower, “Defendants”) in Marshall Circuit Court of the Commonwealth of Kentucky on December 29, 2022 regarding a series of loans made by NYDIG to Borrower pursuant to a master equipment finance agreement that were secured by certain assets of Borrower and guaranteed by Guarantor pursuant to a written guaranty agreement executed by Guarantor.
NYDIG NYDIG ABL LLC, (“ NYDIG”) filed a complaint against SMCB1(“Borrower”) and SMC (“Guarantor”, and together with Borrower, “NYDIG Defendants”) in Marshall Circuit Court of the Commonwealth of Kentucky on December 29, 2022 regarding a series of loans made by NYDIG to Borrower pursuant to a master equipment finance agreement that were secured by certain assets of Borrower and guaranteed by Guarantor pursuant to a written guaranty agreement executed by Guarantor.
Removed
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.
Added
SCI filed a response in opposition to NYDIG’s motion to dismiss on April 27, 2023. The court heard oral arguments on May 16, 2023. On June 22, 2023, the court issued an order granting NYDIG’s motion to dismiss, on the basis that the case was not ripe for decision, without prejudice.
Added
SCI intends to continue to vigorously defend any allegations regarding liability on account of NYDIG Defendants’ debts and liabilities to NYDIG under their loan documents and intends to refile a declaratory judgment complaint against NYDIG.
Added
On February 23, 2023, NYDIG proceeded to foreclose on all of the collateral securing the MEFA, and repossessed the collateralized assets that totaled approximately $3.4 million, in which approximately $560 thousand was first used to pay off accrued interest and penalty to date.
Added
On September 5, 2023, NYDIG provided a letter finalizing the accounting for the repossessed collateralized assets totaling proceeds of approximately $3.4 million.
Added
This included legal and other expenses associated with the sale of the assets net a modest gain on the estimated net book value of the assets totaling $251 thousand that was expensed as a loss on disposition of assets for the year ended December 31, 2023.
Added
On December 7, 2023, NYDIG filed its Motion for Summary Judgment seeking entry of a judgment against Soluna in the approximate amount of $10.3 million for principal and interest and penalties.
Added
On January 12, 2024, Soluna filed its objection to NYDIG’s motion for summary judgment on the grounds that NYDIG failed to explain what collateral of which loan was sold and how the sale proceeds were allocated to each loan.
Added
A summary judgment motion was performed on February 13, 2024, and was agreed upon by both NYDIG and the Borrower, that the total outstanding loan principal balance would be approximately $9.2 million. This settlement did not result in the admission of any liability on the part of SHI, whose declaratory judgment remains the subject of litigation.
Added
On March 13, 2024, NYDIG served the Company with a post-judgment discovery seeking information regarding the Company’s assets and liabilities. The deadline for response to the discovery is April 12, 2024. The Company intends to vigorously defend itself from NYDIG’s parent company claims.
Added
Atlas In September 2023, Atlas Technology Group LLC (“Atlas”) filed a complaint against SMC (formerly EcoChain Block LLC) (“Soluna MC”), SCI, and SHI (collectively, the “Atlas Defendants”) in the Supreme Court of the State of New York, County of New York regarding a co-location services agreement between Soluna MC and Atlas.
Added
Atlas alleges that the termination of such agreement by SMC was a breach and asserts various claims, including breach of contract and the return of pre-paid fees.
Added
The claim requests a judgement against the Atlas Defendants for the return of pre-paid fees of approximately $464 thousand and additional damages to be determined at trial of not less than $7.9 million, and reimbursement of costs including legal fees and other costs. The complaint also contains references to alter ego liability and piercing the corporate veil.
Added
The Atlas Defendants believes they have substantial factual and legal defenses to these claims and intend to defend the claims vigorously. The referenced to pre-paid fees of approximately $464 thousand have been reported in previous filings on SMC’s balance sheet. No reserves have been established for any other claims asserted in such complaint.
Added
Item 4: Mine Safety Disclosures Not applicable. 30 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe Company’s Series B Preferred Stock includes a 10% accruing dividend compounded daily for 12 months from the original issue date of July 20, 2022, that may be paid in cash or stock at the Company’s option at the earlier of (i) the date the Series B Preferred Stock is converted, or (ii) the Series B Dividend Termination Date.
Biggest changeThe Company’s Series B Preferred Stock included a 10% accruing dividend and could be paid in cash or stock before the shares are converted or a set date comes around.
Any future determination as to the payment of dividends will depend upon critical requirements and limitations imposed by our credit agreements, if any, and such other factors as our Board of Directors may consider. 30 Item 6: Selected Financial Data Not applicable.
Any future determination as to the payment of dividends will depend upon critical requirements and limitations imposed by our credit agreements, if any, and such other factors as our Board of Directors may consider. 31 Item 6: Selected Financial Data Not applicable.
During the year ended December 31, 2022 and 2021, the Board declared and paid the Company aggregate dividends on the shares of Series A Preferred Stock of approximately $3.9 million and $630 thousand, respectively.
During the year ended December 31, 2022, the Board of Directors declared, and the Company paid aggregate dividends on the shares of Series A Preferred Stock of approximately $3.9 million, respectively.
The Board of Directors had not declared any Series A Preferred Stock dividends beginning October 2022 through the date of this report, as such the Company has accumulated approximately $1.7 million of dividends in arrears on the Series A Preferred Stock through December 31, 2022.
The Board of Directors had not declared any Series A Preferred Stock dividends beginning October 2022 through the date of this report, as such the Company has accumulated approximately $8.6 million of dividends in arrears on the Series A Preferred Stock through December 31, 2023.
Each share of the Company’s common stock is entitled to one vote on all matters submitted to shareholders. As of December 31, 2022, there were 18,694,206 shares of common stock issued and outstanding . As of March 28, 2023, there were approximately 162 shareholders of record of the Company’s common stock.
Each share of the Company’s common stock is entitled to one vote on all matters submitted to shareholders. As of December 31, 2023, there were 2,505,620 shares of common stock issued and outstanding. As of March 19, 2024, there were approximately 100 shareholders of record of the Company’s common stock.
Dividends As of December 31, 2022, we had 3,061,245 shares of our of 9.0% Series A Cumulative Perpetual Preferred Stock outstanding, which pursuant to the Certificate of Designations, Preferences and Rights of 9.0% Series A Cumulative Perpetual Preferred Stock (“Series A Preferred Stock”), of the Company entitle such holders to dividends, when, as and if declared by the board of directors of the Company (the “Board of Directors”) (or a duly authorized committee of the Board of Directors), payable monthly in arrears on the final day of each month, beginning August 31, 2021.
Dividends As of December 31, 2023, we had 3,061,245 shares of our of 9.0% Series A Cumulative Perpetual Preferred Stock outstanding, which pursuant to the Certificate of Designations, Preferences and Rights of 9.0% Series A Cumulative Perpetual Preferred Stock (“Series A Preferred Stock”), of the Company entitle such holders to monthly dividends, when, as and if declared by the Company’s Board of Directors.
Removed
As of December 31, 2022, the Company has accrued $236 thousand for dividend payable for the Series B preferred stock. In addition, under the Securities Purchase Agreement relating the Series B Preferred Stock the holder has certain consent rights to future equity offerings and rights of first refusal for three years from the original issue date.
Added
On August 11, 2023, SHI paid a mandatory dividend on its outstanding Series B Convertible Preferred Stock in the amount of approximately $656 thousand through the issuance of common stock and warrants.
Removed
The Company can obtain a waiver of such rights if it pays to the holder an amount equal to 10% of the capital raised in such offerings (payable in cash or at the option of the Company in the same securities issued in such offering), until the holder has received, an aggregate of $10,000,000 less any profit the holder has received from ownership of the shares, whether through dividends or other distributions, payments of fees, or gains on the sale of the preferred stock.
Added
These warrants are fully paid except for a tiny fraction of a cent and can be used to buy SHI common stock unless doing so results in the holder owning more than 4.99% of the outstanding shares of the Company.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest change(Dollars in thousands) Year Ended December 31, 2022 Year Ended December 31, 2021 $ Change % Change Cryptocurrency mining revenue $ 24,409 10,932 13,477 123 % Data hosting revenue $ 4,138 3,413 725 21 % Operating costs and expenses: Cost of cryptocurrency mining revenue, exclusive of depreciation $ 14,281 3,504 10,777 308 % Depreciation costs associated with cryptocurrency mining $ 18,708 2,122 16,586 782 % Cost of data hosting revenue $ 3,517 2,444 1,073 44 % General and administrative expenses, exclusive of depreciation and amortization $ 19,203 9,170 10,033 109 % Depreciation and amortization associated with general and administrative expenses $ 9,506 1,581 7,925 501 % Impairment on equity investment $ 750 - 750 100 % Impairment on fixed assets $ 47,372 - 47,372 100 % Operating loss $ (84,790 ) (4,476 ) (80,314 ) 1,794 % Other income, net $ 22 11 11 100 % Interest expense $ (8,375 ) (1,879 ) (6,496 ) 346 % Loss on sale of fixed assets $ (4,089 ) - (4,089 ) (100 )% Loss on debt extinguishment and revaluation, net $ (11,130 ) - (11,130 ) (100 )% Loss before income taxes from continuing operations $ (108,362 ) (6,344 ) (102,018 ) 1,608 % Income tax benefit (expense) from continuing operations $ 1,346 (44 ) 1,390 (3,159 )% Net loss from continuing operations $ (107,016 ) (6,388 ) (100,628 ) 1,575 % Income before income taxes from discontinued operations (including gain on sale of MTI Instruments of $7,751 for the year ended December 31, 2022) $ 7,921 1,087 6,834 629 % Income tax benefit from discontinued operations $ - 40 (40 ) (100 )% Net income from discontinued operations $ 7,921 1,127 6,794 603 % Net loss $ (99,095 ) (5,261 ) (93,834 ) 1,784 % Net loss attributable to non-controlling interest $ (380 ) - (380 ) (100 )% Net loss attributable to Soluna Holdings, Inc. $ (98,715 ) (5,261 ) (93,454 ) 1,776 % Cryptocurrency Mining Revenue : Cryptocurrency revenue consists of revenue recognized from SCI’s cryptocurrency mining operations.
Biggest change(Dollars in thousands) Year Ended December 31, 2023 Year Ended December 31, 2022 $ Change % Change Cryptocurrency mining revenue $ 10,602 24,409 (13,807 ) (57 )% Data hosting revenue 10,196 4,138 6,058 146 % Demand response service revenue 268 - 268 100 % Operating costs and expenses: Cost of cryptocurrency mining revenue, exclusive of depreciation 6,365 14,226 (7,861 ) (55 )% Cost of data hosting revenue, exclusive of depreciation 5,601 3,572 2,029 57 % Costs of revenue- depreciation 3,863 18,708 (14,845 ) (79 )% General and administrative expenses, exclusive of depreciation and amortization 15,390 19,203 (3,813 ) (20 )% Depreciation and amortization associated with general and administrative expenses 9,513 9,506 7 - % Impairment on equity investment - 750 (750 ) (100 )% Impairment on fixed assets 575 47,372 (46,797 ) (99 )% Operating loss (20,241 ) (84,790 ) 64,549 (76 )% Other (expense) income, net (1,479 ) 22 (1,501 ) (6,823 )% Interest expense (2,748 ) (8,375 ) 5,627 (67 )% Loss on sale of fixed assets (398 ) (4,089 ) 3,691 (90 )% Loss on debt extinguishment and revaluation, net (3,904 ) (11,130 ) 7,226 (65 )% Loss before income taxes from continuing operations (28,770 ) (108,362 ) 79,592 (73 )% Income tax benefit (expense) from continuing operations 1,067 1,346 (279 ) (21 )% Net loss from continuing operations (27,703 ) (107,016 ) 79,313 (74 )% Net income from discontinued operations - 7,921 (7,921 ) (100 )% Net loss (27,703 ) (99,095 ) 71,392 (72 )% Net income (loss) attributable to non-controlling interest 1,498 (380 ) 1,878 (494 )% Net loss attributable to Soluna Holdings, Inc. $ (29,201 ) (98,715 ) 69,514 (70 )% 36 The following table summarizes the balances for the Project sites for cryptocurrency mining revenue, data hosting revenue, cost of cryptocurrency mining revenue, exclusive of depreciation, cost of data hosting revenue, exclusive of depreciation, and cost of depreciation during the year ended December 31, 2023: (Dollars in thousands) Project Dorothy 1B Project Dorothy 1A Project Sophie Project Marie Other Total Cryptocurrency mining revenue $ 6,849 $ - $ 2,984 $ 769 $ - $ 10,602 Data hosting revenue - 6,876 3,021 276 23 10,196 Demand response services - - 268 268 Total revenue $ 6,849 $ 6,876 $ 6,005 $ 1,045 $ 291 $ 21,066 Cost of cryptocurrency mining, exclusive of depreciation $ 3,358 $ - 2,206 801 - 6,365 Cost of data hosting revenue, exclusive of depreciation - 4,366 1,030 205 - 5,601 Cost of revenue- depreciation 1,816 755 1,154 136 2 3,863 Total cost of revenue $ 5,174 $ 5,121 $ 4,390 $ 1,142 $ 2 $ 15,829 The following table summarizes the balances for the Project sites for cryptocurrency mining revenue, data hosting revenue, cost of cryptocurrency mining revenue, exclusive of depreciation, cost of data hosting revenue, exclusive of depreciation, and cost of depreciation during the year ended December 31, 2022: (Dollars in thousands) Project Dorothy 1B Project Dorothy 1A Project Sophie Project Marie Other Total Cryptocurrency mining revenue $ - $ - $ 13,221 $ 10,028 $ 1,160 $ 24,409 Data hosting revenue - - - 4,131 7 4,138 Demand response services - - - - - - Total revenue $ - $ - $ 13,221 $ 14,159 $ 1,167 $ 28,547 Cost of cryptocurrency mining, exclusive of depreciation $ 54 $ - 7,471 6,048 653 14,226 Cost of data hosting revenue, exclusive of depreciation - 54 - 3,518 - 3,572 Cost of revenue- depreciation - - 10,597 7,813 298 18,708 Total cost of revenue $ 54 $ 54 $ 18,068 $ 17,379 $ 951 $ 36,506 37 Cryptocurrency Mining Revenue : Cryptocurrency revenue consists of revenue recognized from Soluna’s cryptocurrency mining operations.
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.
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. 41 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.
The valuation provisions apply to new awards and to awards that are outstanding on the effective date and subsequently modified. The determination of the fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables.
The valuation provisions apply to new awards and to awards that are outstanding on the effective date and subsequently modified. 47 The determination of the fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables.
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. 36 Reconciliations of Adjusted EBITDA to net income from continuing operations, the most comparable U.S.
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.
The risk-free interest rate is based on the risk-free zero-coupon rate for a period consistent with the expected option term at the time of grant. The expected option term is calculated based on our historical forfeitures and cancellation rates. 42 Income Taxes. We are subject to income taxes in the U.S. (federal and state).
The risk-free interest rate is based on the risk-free zero-coupon rate for a period consistent with the expected option term at the time of grant. The expected option term is calculated based on our historical forfeitures and cancellation rates. Income Taxes. We are subject to income taxes in the U.S. (federal and state).
On September 13, 2022, the Company entered into the Addendum Amendment with the Noteholders to amend the terms to extend the maturity date to April 15, 2023, and increase the principal amount of the October Secured Notes by approximately $520 thousand for a total outstanding principal amount of approximately $13 million.
On September 13, 2022, the Company entered into the Addendum Amendment with the Noteholders to amend the terms to extend the maturity date to April 25, 2023, and increase the principal amount of the October Secured Notes by approximately $520 thousand for a total outstanding principal amount of approximately $13 million.
As of December 31, 2022, and 2021, the fair values of cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable, and accrued expenses approximated their carrying values because of the short-term nature of these instruments. Share-Based Payments .
As of December 31, 2023, and 2022, the fair values of cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable, and accrued expenses approximated their carrying values because of the short-term nature of these instruments. Share-Based Payments .
Interest Expense: Interest expense for the year ended December 31, 2022 was $8.4 million primarily related to $6.7 million of interest expense in relation to the October Secured Notes issued on October 25, 2021 and certain promissory notes issued in each of February, March, and April 2022 and repaid as part of the offering of Series A preferred stock in June 2022.
Interest expense for the year ended December 31, 2022 was $8.4 million primarily related to $6.7 million of interest expense in relation to the October Secured Notes issued on October 25, 2021 (“Convertible Note agreement”) and certain promissory notes issued in each of February, March, and April 2022 and repaid as part of the offering of Series A preferred stock in June 2022.
The following table summarizes changes in the various components of our net loss during the year ended December 31, 2022 compared to the year ended December 31, 2021.
The following table summarizes changes in the various components of our net loss during the year ended December 31, 2023 compared to the year ended December 31, 2022.
Net Income from Discontinued Operations: As of December 31, 2022, the Company’s MTI Instruments business was reported as discontinued operations up to the date of the sale on April 11, 2022. For the year ended December 31, 2022, the Company’s net income from discontinued operations was $7.9 million compared to $1.1 million for the year ended December 31, 2021.
Net Income from Discontinued Operations: As of December 31, 2022, the Company’s MTI Instruments business was reported as discontinued operations up to the date of the sale on April 11, 2022. For the year ended December 31, 2022, the Company’s net income from discontinued operations was $7.9 million.
Loss on Debt Extinguishment and Revaluation : During the fiscal year ended December 31, 2022, the Company entered into the Addendum and Addendum Amendment in which per guidance in ASC 470 the October Secured Notes were treated as a debt extinguishment in our consolidated financial statements.
Loss on Debt Extinguishment and Revaluation, net : During the fiscal year ended December 31, 2022, the Company entered into the Convertible Debt Addendum and Convertible Debt Addendum Amendment, in which per guidance in ASC 470, the Convertible Notes were treated as a debt extinguishment in our consolidated financial statements.
Debt On September 15, 2021, the Company entered into a $1.0 million unsecured line of credit with KeyBank, 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.
Debt On September 15, 2021, the Company entered into a $1.0 million unsecured line of credit with KeyBank National Association (“KeyBank”), 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 “KeyBank facility”).
The change represented the net cash proceeds from the sale of MTI Instruments of $9.4 million for the year ended December 31, 2022. 38 Financing Activities Net cash provided by financing activities was approximately $42.9 million during year ended December 31, 2022, which consisted primarily of $14.7 million in net proceeds from the sale of Series A and Series B Preferred Stock, $23.9 million in net proceeds from notes and short-term debt issuances, and $2.3 million in net proceeds from a common offering and securities purchase offering.
Net cash provided by financing activities was approximately $42.9 million during year ended December 31, 2022, which consisted primarily of $14.7 million in net proceeds from the sale of Series A and Series B Preferred Stock, $23.9 million in net proceeds from notes and short-term debt issuances, and $2.3 million in net proceeds from a common offering and securities purchase offering.
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 the financial statements as of December 31, 2022, or March 31, 2023.
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 December 31, 2023, or April 1, 2024.
The increase in income tax benefit for the year ended December 31, 2022 was mainly 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.
The income tax benefit for the fiscal year ended December 31, 2023 and 2022 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.
However, the Company is actively monitoring this situation and the possible effects on our financial condition, liquidity, operations, suppliers, and the industry. Operating Activities Net cash used in operating activities from continuing operations was approximately $6.1 million for the year ended December 31, 2022.
However, the Company is actively monitoring this situation and the possible effects on our financial condition, liquidity, operations, suppliers, and the industry. Operating Activities Net cash used in operating activities from continuing operations was approximately $3.0 million for the year ended December 31, 2023.
Any additional financing, if required, may not be available to us on acceptable terms or not at all. 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 December 31, 2022.
Any additional financing, if required, may not be available to us on acceptable terms or not at all. As shown in the accompanying financial statements, the Company did not generate sufficient revenue to generate net income, a negative working capital, and has a cash used in operations position as of December 31, 2023.
The Company did a fair value assessment of the Notes as of December 31, 2022 and recognized a gain from previous valuation of $1.8 million; therefore, the net loss for extinguishment and revaluation for the year ended December 31, 2022 was approximately $11.1 million. The Company did not incur a loss on debt for the year ended December 31, 2021.
The Company did a fair value assessment of the Convertible Notes as of December 31, 2022 and recognized a gain from previous valuation of $1.8 million; therefore, the net loss for extinguishment and revaluation for the year ended December 31, 2022 was approximately $11.1 million.
Going forward, cost of cryptocurrency revenue will include any additional SCI cryptocurrency mining facilities that are part of the Company’s future pipeline. Cost of cryptocurrency mining revenue, exclusive of depreciation costs, was approximately $14.2 million for the year ended December 31, 2022, respectively, compared to approximately $3.5 million for the year ended December 31, 2021, respectively.
Going forward, cost of cryptocurrency revenue will include any additional cryptocurrency mining facilities that are part of the Company’s future pipeline. Cost of cryptocurrency mining revenue, exclusive of depreciation costs, was approximately $6.4 million for the year ended December 31, 2023, respectively, compared to approximately $14.2 million for the year ended December 31, 2022, respectively.
The Company had outstanding commitments as of December 31, 2022, related to SCI for $0.9 million in capital expenditures, and approximately $1.1 million of cash available to fund its 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.
The Company had outstanding commitments as of December 31, 2023, related to SCI for $100 thousand in capital expenditures, and approximately $6.4 million of cash available to fund its 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.
Quantitative and Qualitative Disclosures About Market Risk Not applicable.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not applicable.
The line of credit bears interest at a rate of Prime + 0.75% per annum (6.25% interest rate as of September 30, 2022). Accrued interest is due monthly and principal is due in full following KeyBank’s demand. As of December 31, 2021, the entire line of credit of $1.0 million was drawn and outstanding.
The line of credit bears interest at a rate of Prime + 0.75% per annum. Accrued interest is due monthly and principal is due in full following KeyBank’s demand. As of January 1, 2022, the entire line of credit of $1.0 million was drawn and outstanding.
Due to the defaults noted, the Company did not enter into the second and third tranche of conversions. As such, beginning on November 30, 2022, the Company has been accruing interest of 18% per annum on the outstanding principal amount due to the default which amounted to $202 thousand as of December 31, 2022.
Due to the defaults noted, the Company did not enter into the second and third tranche of conversions. As such, beginning on November 30, 2022, the Company had been accruing interest of 18% per annum on the outstanding principal amount due to the default.
As such, the Company reassessed its estimates and forecasts throughout the fiscal year of December 31, 2022, to determine the undiscounted cash flows to determine whether the miners would be recoverable.
As a result, the Company reassessed its estimates and forecasts as of December 31, 2022, to determine the undiscounted cash flows and whether the miners would be recoverable.
As a result of the fair value analysis as of December 31, 2022, the Company concluded the carrying amount of the property, plant and equipment associated with the M20 and M21 miners exceeded its fair value of $295 thousand, which resulted in impairment charges of approximately $1.8 million on the consolidated statements of operations for the year ended December 31, 2022.
As a result of the fair value analysis as of December 31, 2022, the Company concluded the carrying amount of the property, plant and equipment associated with the M20 and M21 miners of approximately $2.1 million exceeded its fair value of $295 thousand, which resulted in impairment charges of approximately $1.8 million on the consolidated statements of operations for the year ended December 31, 2022. 39 As of December 31, 2022, the Company had equipment held at vendors including switchgears, transformers, busways and bus plugs.
As such, the Company is required to adjust the value of the strategic contract pipeline by approximately $10.9 million at inception date on (October 29, 2021), which was recorded as a deferred tax liability. This amount will be amortized over the life of the asset. For the year ended December 31, 2022, the Company amortized $2.2 million, respectively.
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 and this amount will be amortized over the life of the asset.
Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors, including those discussed in Item 1A: “Risk Factors” and elsewhere in this Annual Report. SHI currently conducts our business through our wholly-owned subsidiary, SCI.
Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors, including those discussed in Item 1A: “Risk Factors” and elsewhere in this Annual Report.
For the year ended December 31, 2022, we had $63.7 million worth of capital expenditures, less a net change in deposits on equipment of $6.4 million, and $2.6 million in proceeds from the sale of equipment.
Net cash used in investing activities from continuing operations during the year ended December 31, 2022 was approximately $54.7 million. For the year ended December 31, 2022, we had $63.7 million worth of capital expenditures, less a net change in deposits on equipment of $6.4 million, and $2.6 million in proceeds from the sale of equipment.
Loss on Sale of Fixed Assets: The Company incurred a $4.1 million loss for the year ended December 31, 2022, in connection with the disposal of miners and equipment with a net book value of approximately $6.9 million for the year ended December 31, 2022 in which the Company received proceeds of $2.8 million for year ended December 31, 2022.
The Company incurred a $4.1 million loss for the year ended December 31, 2022, in connection with the disposal of miners and equipment with a net book value of approximately $6.9 million for the year ended December 31, 2022 in which the Company received proceeds of $2.8 million for year ended December 31, 2022. 40 Other expense, net: For the year ended December 31, 2023, there was approximately $1.5 million other expense, net.
Cryptocurrency revenue consists of revenue recognized from SCI’s cryptocurrency mining facility. Revenue is recognized at the cryptocurrency’s realized cash value based upon the rates at cryptocurrency exchanges where we are registered. Cryptocurrencies are earned when the miners solve complex computations and cryptocurrency is issued as a result. The mined cryptocurrency is immediately paid to the Coinbase wallet.
Revenue is recognized at the cryptocurrency’s realized cash value based upon the rates at cryptocurrency exchanges where we are registered. Cryptocurrencies are earned when the miners solve complex computations and cryptocurrency is issued as a result. The mined cryptocurrency is immediately paid to the Coinbase wallet. Cryptocurrency is converted to U.S. dollars on a daily basis.
In addition, the Company assessed the active miners in operations and determined that based on Bitcoin pricing and other market factors, there has been a decline in the market value of the active miners in the Company’s operations. As a result, a quantitative impairment analysis was required throughout the fiscal year of December 31, 2022.
In addition, the Company assessed the active miners in operations and determined there had been a decline in the market value of the active miners in the Company’s operations for fiscal year 2022. As a result, a quantitative impairment analysis was required as of December 31, 2022.
Periodically, our management reviews our critical accounting estimates with the Audit Committee of our Board of Directors. The significant accounting policies that we believe are most critical to aid in fully understanding and evaluating our consolidated financial statements include the following: 40 Revenue Recognition, Accounts Receivable, and Allowance for Doubtful Accounts .
Periodically, our management reviews our critical accounting estimates with the Audit Committee of our Board of Directors. The significant accounting policies that we believe are most critical to aid in fully understanding and evaluating our consolidated financial statements include the following: 46 Revenue Recognition Cryptocurrency revenue consists of revenue recognized from the Company’s cryptocurrency mining facilities.
Because the sale of the equipment held at vendor would mean the equipment is not being used for its intended purpose, the Company performed a fair value analysis as of December 31, 2022, and concluded the carrying amount of the equipment held at vendor exceeded its fair value of $916 thousand, which resulted in an impairment charge of $1.9 million on the consolidated statements of operations for the year ended December 31, 2022.
As a result of the fair value analysis as of December 31, 2022, the Company concluded the carrying amount of the equipment held at vendor of approximately $2.8 million exceeded its fair value of $916 thousand, which resulted in an impairment charge of $1.9 million on the consolidated statements of operations for the year ended December 31, 2022.
Impairment on Equity Investment : During the year ended December 31, 2022, the Company fully impaired the equity method investment of $750 thousand due to current projections with the equity investment in HEL.
The amortization expense related to the strategic pipeline contract that was acquired in October 2021. Impairment on Equity Investment : During the year ended December 31, 2022, the Company fully impaired the equity method investment of $750 thousand due to current projections with the equity investment in HEL.
Income tax benefit from continuing operations 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, as well as a $503 thousand deferred tax state adjustment.
Income tax benefit from continuing operations for the year ended December 31, 2022 was $1.3 million, which mainly related to the amortization of deferred tax liability for the strategic pipeline discussed above, 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, as well as a $503 thousand deferred tax state adjustment.
With the Company’s shift in focus of the business, and the sale of the MTI Instruments business that occurred in April 2022, the Company has now exited the instrumentation business and is focused on developing and monetizing green, zero-carbon computing and cryptocurrency mining facilities, as well as facilities capable of hosting customers engaged in cryptocurrency mining. 37 We plan to continue funding operations from our current cash position and our projected 2023 cash flows pursuant to management’s plans.
With the Company’s shift in focus of the business, and the sale of the MTI Instruments business that occurred in April 2022, the Company has now exited the instrumentation business and is focused on developing and monetizing green, zero-carbon computing and cryptocurrency mining facilities, as well as facilities capable of hosting customers engaged in cryptocurrency mining.
Interest expense of $1.7 million for the year ended December 31, 2022, respectively was also incurred under the NYDIG facility and due to its December 2022 default. Interest expense for the year ended December 31, 2021 was $1.9 million and mainly related to the interest expense in relation to the Notes that were issued at the end of October 2021.
Interest expense of $1.7 million for the year ended December 31, 2022, respectively was also incurred under the NYDIG facility and due to its December 2022 default.
There were no such disposals on equipment for the year ended December 31, 2021. 35 Income Tax Benefit (Expense) from Continuing Operations: Income tax benefit from continuing operations for the year ended December 31, 2022 was $1.3 million, compared to an income tax expense from continuing operations of $44 thousand for the year ended December 31, 2021.
There were no material other expenses for the year ended December 31, 2022. Income Tax Benefit from Continuing Operations: Income tax benefit from continuing operations for the year ended December 31, 2023 was $1.1 million compared to an income tax benefit of $1.3 million for the year ended December 31, 2022.
Cost of data hosting revenue was approximately $3.5 million for the year ended December 31, 2022, compared to $2.4 million for the year ended December 31, 2021.
Data hosting revenue was approximately $10.2 million for the year ended December 31, 2023 compared to $4.1 million for year ended December 31, 2022, an increase of approximately $6.1 million.
As of December 31, 2022, the Company had negative working capital of approximately $24.9 million, a line of credit outstanding of $350 thousand, $13.0 million outstanding principal in notes payable that may be converted to common stock, and a subsidiary of the Company that defaulted on equipment financing and has a current outstanding loan of $10.5 million.
As of December 31, 2023, the Company had negative working capital of approximately $13.9 million, $8.7 million outstanding principal in notes payable that may be converted to common stock, a subsidiary of the Company that defaulted on equipment financing and has a current outstanding loan of $9.2 million, and a 2-year $2.05 million principal loan commitment to Navitas, in which as of December 31, 2023 has an outstanding principal balance of approximately $1.7 million.
On March 10, 2023, the Company entered into a Second Addendum Amendment with the Noteholders, in which the Company paid approximately $617 thousand through the Company’s restricted escrow accounts and contemporaneously with the payment, the Noteholders waived all existing events of default arising under the convertible notes. 39 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%.
On March 10, 2023, the Company entered into a Second Addendum Amendment with the Noteholders, in which the Company paid approximately $617 thousand through the Company’s restricted escrow accounts and contemporaneously with the payment, the Noteholders waived all existing events of default arising under the convertible notes.
Net cash provided by operating activities from continuing operations was approximately $4.6 million during the year ended December 31, 2021.
Net cash used in operating activities from continuing operations was approximately $6.1 million for the year ended December 31, 2022.
Cryptocurrency is converted to U.S. dollars on a daily basis. Also, the Company has entered into customer hosting contracts whereby the Company provides electrical power to cryptocurrency mining customers, and the customers pay a stated amount per megawatt-hour (“MWh”) (“Contract Capacity”) as well as a share of the coins mined. The fee is paid monthly in advance.
Also, the Company has entered into customer hosting contracts whereby the Company provides electrical power to cryptocurrency mining customers, and the customers pay a stated amount per megawatt-hour (“MWh”) (“Contract Capacity”) as well as a percentage of the profit share of the daily net income from the customer’s mining operations.
If necessary, we may also seek to supplement our resources by increasing credit facilities to fund operational working capital and capital expenditure requirements.
We plan to continue funding operations from our current cash position and our projected 2024 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.
Net cash provided by investing activities from discontinued operations during the year ended December 31, 2022 was approximately $9.1 million compared to net cash used in investing activities from discontinued operations of $37 thousand during the year ended December 31, 2021.
Net cash provided by investing activities from discontinued operations during the year ended December 31, 2022 was approximately $9.1 million which mainly represented the net cash proceeds from the sale of MTI Instruments of $9.4 million for the year ended December 31, 2022.
This growth in capacity and expected hashrate contributed to the growth in the business for the year-ended December 31, 2022. 32 Data Hosting Revenue : In August 2021, SCI began cryptocurrency hosting services in which SCI provided energized space and operating services to third-party mining companies who located their mining hardware at one of SCI’s mining locations, in which SCI would receive a fee per miner installed, revenue share and if additional services were rendered, an additional service fee was charged to the outside parties.
Data Hosting Revenue : In August 2021, the Company began cryptocurrency hosting services in which we provide energized space and operating services to third-party mining companies who locate their mining hardware at one of our mining locations, in which they may receive a fee per miner installed, revenue share and if additional services are rendered, an additional service fee is charged to the hosted parties.
Cost of Cryptocurrency Revenue : Cost of cryptocurrency revenue includes direct utility costs, site overhead expenses, depreciation expenses, as well as operations management overhead costs that relate to the operations of SCI’s cryptocurrency mining facilities in Washington and facilities in Kentucky.
No such services were performed for the year ended December 31, 2022. Cost of Cryptocurrency Revenue, exclusive of depreciation : Cost of cryptocurrency mining revenue includes direct utility costs, site overhead expenses, and overhead costs that relate to the operations of our cryptocurrency mining facilities in Washington, Kentucky, and Texas.
In addition, future drawdown may require pre-approval by KeyBank. On October 25, 2021, the Company issued to certain institutional investors secured convertible notes in the aggregate principal amount of approximately $16.3 million for an aggregate purchase price of $15.0 million.
On October 25, 2021, the Company issued to certain institutional 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 any time at the option of the investors, into an aggregate of 71,043 shares of the Company’s common stock.
This was primarily due to the $7.7 million gain on the sale of MTI Instruments offset with MTI Instruments only having approximately three months of operations prior to the sale on April 11, 2022, compared to a full year of operations in 2021.
This was primarily due to the $7.7 million gain on the sale of MTI Instruments and only having approximately three months of operations prior to the sale on April 11, 2022. The Company did not incur any gains or costs for the year ended December 31, 2023.
Net cash provided by operating activities from discontinued operations was $369 thousand for the year ended December 31, 2022 compared to $917 thousand for net cash provided by operating activities for the year ended December 31, 2021, respectively. The relative changes in assets and liabilities were comparable between the two periods.
Net cash provided by operating activities from discontinued operations was $369 thousand for the year ended December 31, 2022.
Also, the Company will have equipment held for sale for the first quarter of 2023, in which based on a fair value analysis compared to the Company’s net book value of the equipment still held, would cause an impairment of approximately $700 thousand, therefore total impairment for the Project Marie assets not attached with the collateralized NYDIG assets was approximately $2.4 million for year-ended December 31, 2022.
As such, the Company had equipment held for sale due to the closure in the first quarter of 2023. Based on a fair value analysis compared to the Company’s net book value of the equipment still held resulted in an impairment of approximately $700 thousand was recorded on the consolidated statements of operations for the year ended December 31, 2022.
Due to the close of operations for Project Marie that occurred subsequent to year-end, the Company will dispose of approximately $1.7 million worth of leasehold improvements and general electrical upgrades and equipment which were attached to the facility which could not be salvaged for any value with the operations ceasing.
Due to the decommissioning of Project Marie in February 2023, the Company disposed of approximately $1.7 million worth of leasehold improvements and general electrical upgrades and equipment which were attached to the facility which could not be salvaged for any value, and therefore the Company impaired those assets for the full amount as of December 31, 2022.
As of December 31, 2022, the Company has equipment held at vendor including switchgears, transformers, busways and bus plugs. The Company had discussions with a potential buyer and approval of its Board of Directors for sale of the switchgears held at vendor.
The Company had discussions with a potential buyer and our board of directors regarding the approval for sale of the switchgears held at vendor. The company had a purchase order received for the switchgear, subject to inspection of the equipment and final sale.
Of these miners a portion of the miners was planned to be sold in the near future. The remaining M20 and M21 miners were to be disposed of as they had no value and were not being used.
As of December 31, 2022, the Company had M20 miners and M21 miners in service at the Sophie location. Of these miners a portion were planned to be sold in the near future in fiscal year 2023.
SHI includes Soluna Callisto’s results of operations in our results of operations beginning on the effective date of the of the acquisition, October 29, 2021. 41 Fair Value Measurement. The estimated fair value of certain financial instruments, including cash, accounts receivable and short-term debt approximates their carrying value due to their short maturities and varying interest rates.
The actual monthly amounts are calculated after the close of each month and billed to the customers. Fair Value Measurement. The estimated fair value of certain financial instruments, including cash, accounts receivable and short-term debt approximates their carrying value due to their short maturities and varying interest rates.
Based on the fair value of the active miners compared to the net book value, the Company decided to recognize an impairment of approximately $39.3 million for the year ended December 31, 2022. 34 As of December 31, 2022, the Company had M20 miners and M21 miners in service at the Sophie location.
Based on a comparison of the fair value of the active miners to the net book value, the Company recorded an impairment charge of approximately $39.4 million to be recognized on the consolidated statements of operations for the year ended December 31, 2022.
Also, in the year ended December 31, 2022, the Company had a contribution of $4.8 million from its non-controlling interest in DVSL. In the year ended December 31, 2021, net cash provided by financing activities was approximately $59.3 million, which consisted of the common stock capital raise and preferred stock raises that totaled approximately $40.7 in net proceeds.
Also, in the year ended December 31, 2022, the Company had a contribution of $4.8 million from its non-controlling interest in DVSL.
GAAP financial metric, for historical periods are presented in the table below: (Dollars in thousands) Years Ended December 31, 2022 2021 Net loss from continuing operations $ (107,016 ) $ (6,388 ) Interest expense 8,375 1,879 Income tax (benefit) expense (1,346 ) 44 Depreciation and amortization 28,214 3,703 EBITDA (71,773 ) (762 ) Adjustments: Non-cash items Stock-based compensation costs 3,852 1,941 Loss on sale of fixed assets 4,089 — Loss on debt extinguishment and revaluation, net 11,130 — Impairment of equity investment 750 — Impairment on fixed assets 47,372 — Adjustments: Non-recurring items Exchange registration expenses — 293 Adjusted EBITDA $ (4,580 ) $ 1,472 Liquidity and Capital Resources Several key indicators of our liquidity are summarized in the following table: Years Ended December 31, (Dollars in thousands) 2022 2021 Cash $ 1,136 $ 10,258 Restricted cash 685 - Working capital (deficit) (24,874 ) 9,299 Net loss from continuing operations (107,016 ) (6,388 ) Net income from discontinued operations 7,921 1,127 Net cash provided by (used in) operating activities (6,118 ) 4,635 Net cash provided by operating activities for discontinued operations 369 917 Purchase of property, plant and equipment (63,684 ) (45,792 ) Cash dividends paid on preferred stock (3,852 ) (630 ) The significant losses generated by the Company’s cryptocurrency mining and hosting operations were due to ERCOT delays, power price spikes in Kentucky and decline in market price of miners due to the substantial decline in the U.S. dollar value of Bitcoin.
(Dollars in thousands) Three months ended March 31, 2022 Three months ended June 30, 2022 Three months ended September 30, 2022 Three months ended December 31, 2022 Year ended December 31, 2022 Net loss from continuing operations $ (9,132 ) $ (14,104 ) $ (56,143 ) $ (27,637 ) $ (107,016 ) Interest expense, net 2,880 3,305 1,671 519 8,375 Income tax benefit from continuing operations (547 ) (251 ) (547 ) (1 ) (1,346 ) Depreciation and amortization 6,697 7,914 8,388 5,215 28,214 EBITDA (102 ) (3,136 ) (46,631 ) (21,904 ) (71,773 ) Adjustments: Non-cash items Stock-based compensation costs 955 1,064 890 943 3,852 Loss on sale of fixed assets - 1,618 988 1,483 4,089 Impairment on fixed assets - 750 28,086 18,536 47,372 Loss (gain) on debt extinguishment and revaluation, net - - 12,317 (1,187 ) 11,130 Impairment on equity investment - - 750 - 750 Adjusted EBITDA $ 853 $ 296 $ (3,600 ) $ (2,129 ) $ (4,580 ) Liquidity and Capital Resources Several key indicators of our liquidity are summarized in the following table: Years Ended December 31, (Dollars in thousands) 2023 2022 Cash $ 6,368 $ 1,136 Restricted cash 3,999 685 Working capital (deficit) (13,891 ) (26,049 ) Net loss from continuing operations (27,703 ) (107,016 ) Net income from discontinued operations - 7,921 Net cash used in operating activities (2,987 ) (6,118 ) Net cash provided by operating activities for discontinued operations - 369 Purchase of property, plant and equipment (12,705 ) (63,684 ) Cash dividends paid on preferred stock - (3,852 ) 43 The Company had a consolidated accumulated deficit of approximately $251 million as of December 31, 2023.
The notes are convertible, subject to certain conditions, at any time at the option of the investors, into an aggregate of 1,776,073 shares of the Company’s common stock. On July 19, 2022, the Company entered into the Addendum with the Noteholders to amend the terms the October Secured Notes.
On July 19, 2022, the Company entered into the Addendum with the Noteholders to amend the terms the October Secured Notes.
These changes could have an indirect effect on our revenues from hosted customers engaging in cryptocurrency mining. 43 Recent Accounting Pronouncements A discussion of recently adopted and new accounting pronouncements is included in Note 2 of the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K. Item 7A.
If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. 48 Recent Accounting Pronouncements A discussion of recently adopted and new accounting pronouncements is included in Note 2 of the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
Cryptocurrency mining revenue was approximately $24.4 million for the year ended December 31, 2022, respectively, compared to $10.9 million for the year ended December 31, 2021, respectively.
Cryptocurrency mining revenue was approximately $10.6 million for the year ended December 31, 2023, respectively, compared to $24.4 million for the year ended December 31, 2022, respectively, a $13.8 million decrease. We noted the significant decrease mainly related to volume variances due to Project Marie operations being decommissioned in February 2023 creating a decrease of approximately $9.3 million.
Investing Activities Net cash used in investing activities from continuing operations during the year ended December 31, 2022 was approximately $54.7 million compared to $57.3 million for the year ended December 31, 2021.
There were no discontinued operations for the year ended December 31, 2023. 44 Investing Activities Net cash used in investing activities during the year ended December 31, 2023 was approximately $10.3 million consisting mainly of capital expenditures of $12.7 million, less cash proceeds from sale of equipment of $2.3 million.
Depreciation and Amortization associated with general and administrative expenses: Depreciation and amortization expense for the year ended December 31, 2022, totaled approximately $9.5 million, respectively, compared to $1.6 million for the year ended December 31, 2021.
Investor relations increased by approximately $980 thousand due to the Company implementing a series of investor acquisition and influencer marketing programs to attract new investors to Soluna Holdings. Depreciation and Amortization associated with general and administrative expenses: Depreciation and amortization expense for the year ended December 31, 2023 totaled approximately $9.5 million, consistent with year ended December 31, 2022.
General and Administrative Expenses: General and administrative expenses 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, marketing, information technology, corporate development, and legal services.
Beginning in the third quarter of fiscal year 2023, the Company has begun to invest more in capital expenditures in which has more than tripled purchases compared to the first six months of fiscal year 2023, as such the Company expects to see depreciation costs to significantly increase over the next several months. 38 General and Administrative Expenses: General and administrative expenses include cash and non-cash compensation, benefits and related costs in support of our general corporate operations, including general management, finance and accounting, human resources, marketing, information technology, corporate development, and legal services.
General and administrative expenses, exclusive of depreciation and amortization for the year ended December 31, 2022, increased by $10.0 million or 109%, to $19.2 million from $9.2 million for the year ended December 31, 2021.
General and administrative expenses for the year ended December 31, 2023 was approximately $15.4 million compared to $19.2 million for the year ended December 31, 2022, a decrease of approximately $3.8 million or 20%.
“Risk Factors” of this Annual Report for additional discussion regarding potential impacts our competitive and evolving industry may have on our business. 31 Miner Purchases and Deployments As of December 31, 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 in the year ended December 31, 2022 12,289 Miners in storage as of December 31, 2022, not deployed (7,876 ) Miners collateralized as of December 31, 2022, for repossession (3,416 ) Miners held for sale as of December 31, 2022 (1,835 ) Miners disposed or sold in the year ended December 31, 2022 (7,331 ) Total Active and Unencumbered Miners as of December 31, 2022 5,071 Results of Operations Results of Operations for the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021.
“Risk Factors” of this Annual Report for additional discussion regarding potential impacts our competitive and evolving industry trends may have on our business. Consolidated Results of Operations Results of Operations for the Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022.
Net Loss from Continuing Operations: Net loss from continuing operations for the year ended December 31, 2022 was $107.0 million, compared to net loss from continuing operations of $6.3 million for the year ended December 31, 2021.
Net Income (loss) attributable to non-controlling interest: Net income attributable to non-controlling interest for the year ended December 31, 2023 was approximately $1.5 million compared to a net loss attributable to non-controlling interest for the year ended December 31, 2022 of approximately $380 thousand.
Net Loss attributable to non-controlling interest: Net loss attributable to non-controlling interest for the year ended December 31, 2022 was $380 thousand in relation to the Company’s DVSL entity. There was no comparable balance for the year ended December 31, 2021. Non-GAAP Measures In addition to financial measures calculated in accordance with U.S. generally accepted accounting principles (“U.S.
As the Company was generating revenue from energization at Project Dorothy, the Company began to see a shift from a net loss to profit within non-controlling interest. Non-GAAP Measures In addition to financial measures calculated in accordance with U.S. generally accepted accounting principles (“U.S.
As of December 31, 2022, $650 thousand of the line has been paid down; therefore $350 thousand of the line of credit remains outstanding. The Company has been repaying weekly principal on the KeyBank facility each week since the beginning of September 2022. The Company does not plan to draw down on the line of credit in the foreseeable future.
As of December 31, 2023, the entire original $1.0 million outstanding balance has been paid down, and the Company did not have an outstanding balance as of December 31, 2023. The Company does not plan to draw down on the line of credit in the foreseeable future. In addition, future drawdowns may require pre-approval by KeyBank.
The Company’s data hosting revenue was approximately $4.2 million for the year ended December 31, 2022, respectively, compared to $3.4 million in data hosting revenue for the year ended December 31, 2021.
Cost of data hosting revenue was approximately $5.6 million for the year ended December 31, 2023, compared to $3.5 million for the year ended December 31, 2022. This increase was due to Project Dorothy 1A which began operations and hosting services in May 2023, creating costs of approximately $4.4 million and had minimal costs in fiscal year 2022.
As a result of the analysis, as of year ended December 31, 2022, the Company concluded the carrying amount of the property, plant and equipment associated with the S-9 and L3 miners exceeded their fair value, which resulted in impairment charges of $2.0 million on the consolidated statements of operations for the year ended December 31, 2022.
During the year ended, December 31, 2022, the Company had impairment charges of approximately $47.4 million, relating to a multiple of factors including, S-9 and L3 miners in storage in which the carrying balance exceeded its fair value by approximately $1.9 million.
SCI completed a final tranche of a series of project-level agreements for $7.5 million on March 10, 2023 of capital to fund the first 25 MW of Project Dorothy and corporate expenses from funds managed by Spring Lane Capital.
In July 2022, Soluna began tapping into the SLC managed funds to finance Dorothy construction and repay prior funding provided by the Company. In return, SLC received approximately 32% of Class B Membership Interests of D1A. On March 10, 2023, we completed a new series of project-level agreements for $7.5 million from SLC-managed funds.
As such, the Company reassessed its estimates and forecasts throughout the fiscal year of 2022, to determine the fair values of the S-9 and L3 miners held in storage.
The sale of the equipment held at one of our vendors would mean the equipment was not being used for its intended purpose. As such, the Company reassessed its estimates and forecasts as of December 31, 2022, to determine the fair values of the equipment held at vendor.
Cash was provided from operations by a net loss of $6.4 million, less non-cash items of $7.8 million, consisting primarily of $3.7 million of amortization and depreciation expense for the year for the intangible asset acquired and significant additions in fixed assets, approximately $2.0 million in stock-based compensation expense, and $1.9 million for amortization of deferred financing costs and discount on notes payables issued during the year.
The Company had a net loss of approximately $27.7 million, in which was offset by non-cash items of approximately $22.5 million. The non-cash items consisted primarily of approximately $13.4 million of amortization and depreciation expenses for the intangible assets acquired in 2021 and the fixed assets still in service and capital additions in 2023.
Removed
SCI is engaged in the mining of cryptocurrency through data centers that can be powered by renewable energy sources.
Added
Recent Developments and Trends 2023 In 2023, we executed on the following four-pronged strategy: (1) Energize Project Dorothy; (2) Cash Flow, Site and Process Optimization; (3) Flagship Expansion; (4) Pipeline growth. A summary of our developments in these areas follows below. Energize Project Dorothy We transitioned our flagship data center Project Dorothy from construction to operations.
Removed
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.
Added
ERCOT approved the energizing of the first 50 MW of our new data center on April 20, 2023. We completed the construction and ramping of the facility starting in the spring of fiscal year 2023, and completed the full ramp by the end of October 2023.
Removed
Headquartered in Albany, New York, the Company uses technology and intentional design to solve complex, real-world challenges. We operate in an environment which is consistently evolving based on the increase of Bitcoin and cryptocurrencies.
Added
The data center is colocated with Briscoe Wind Farm (“Briscoe”), a 150 MW wind power generation facility in Silverton, Texas. The project is comprised of two elements, Project Dorothy 1A (“D1A”), and Project Dorothy 1B (“D1B”), each 25 MW facilities. D1A is focused on Bitcoin Hosting.

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