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Debt
 3 Months Ended
Mar. 31, 2022
Debt Disclosure [Abstract]  
Debt

 

  8. Debt

 

Convertible Notes

 

Debt consists of the following
(dollar in thousands):

 

   Maturity
Date		  Interest Rate   March 31,
2022		   December
31, 2021		 
Convertible Note  October 25, 2022   8%  $13,586   $14,927 
Less: debt discount           610    967 
Less:  discount from issuance of warrants           3,988    5,747 
Less: debt issuance costs           758    1,092 
Total convertible notes, net of discount and issuance costs          $8,230   $7,121 

 

 

 

On October 25, 2021, pursuant to the SPA, the Company issued to certain accredited investors (i) secured convertible notes in an aggregate principal amount of $16.3 million for an aggregate purchase price of $15 million (collectively, the “Notes”), which are, subject to certain conditions, convertible at any time by the investors, into an aggregate of 1,776,073 shares (the “Conversion Shares”) of the Company’s common stock, at a price per share of $9.18 (the “Fixed Conversion Price”) and (ii) Class A, Class B and Class C common stock purchase warrants (collectively, the “Warrants”) to purchase up to an aggregate of 1,776,073 shares of common stock, at an exercise price $12.50, $15 and $18 per share, respectively. The Warrants are legally detachable and can be separately exercised immediately for five years upon issuance, subject to applicable Nasdaq rules.

 

The Notes, subject to an original issue discount of 8%, have a maturity date of October 25, 2022 (the “Maturity Date”), upon which the Notes shall be payable in full. Commencing on the Maturity Date and also five (5) days after the occurrence of any Event of Default (as defined in the Notes), interest on the Notes will accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law. If any Event of Default or a Fundamental Transaction (as defined in the Notes) or a Change of Control (as defined in the Notes) occurs, the outstanding principal amount of the Notes, liquidated damages and other amounts owing in respect thereof through the date of acceleration, will become, at the Investor’s election, immediately due and payable in cash at the Mandatory Default Amount (as defined in the Notes). The Notes may not be prepaid, redeemed or mandatory converted without the consent of the Investors. The obligations of the Company pursuant to the Notes are (i) secured to the extent and as provided in the Security Agreement, dated as of October 25, 2021, by and among the Company, MTI Instruments and SCI, Soluna MC, LLC and Soluna SW, LLC (both of which are wholly owned subsidiaries of SCI, and together with MTI Instruments and SCI, the “Subsidiary Guarantors”), and Collateral Services LLC, as collateral agent for and the holders of the Notes (the “Security Agreement”); and (ii) guaranteed jointly and severally by the Subsidiary Guarantors pursuant to each Subsidiary Guaranty, dated as of October 25, 2021, by and among each Subsidiary Guarantor and the purchasers signatory to the SPA (each, a “Subsidiary Guaranty”).

 

The fair value of the Warrants, as of the issuance date, was $7.0 million and is recorded as equity with the offset recorded as debt discount against the net proceeds. The proceeds of $15.0 million were allocated between the Notes and the Warrants, in which the discount related to the warrants are being amortized based on the straight-line method over the twelve months term of the Notes. For the three months ended March 31, 2022, the Company has recorded amortized debt discount related to the warrants, the amount of $1.8 million which is included in interest expense. The Company has also recorded a debt discount on the Notes as the difference between the face amount of the notes payable of $16.3 million and purchase price of $15.0 million of $1.3 million in which approximately $700 thousand has been amortized over the life of the notes. There was also debt issuance costs of approximately $1.3 million and approximately $550 thousand has been amortized over the life of the Notes. All amortized costs are included in interest expense.

 

During the three months ended March 31, 2022 and year ended December 31, 2021, $13.6 million and $14.9 million, respectively, was remaining in the principal balance of the Notes. For the three months ended March 31, 2022, approximately $1.3 million was converted into 146,145 shares of our common stock. Through March 31, 2022, a total of approximately $2.7 million was converted into 296,145 shares of our common stock.

 

Promissory Notes

 

   Maturity Date    Interest Rate   March 31, 2022 
1st tranche promissory note  February 22, 2027     2%  $7,600 
2nd tranche promissory note   March 10, 2027     2%   2,400 
Less:  debt discount             (2,220)
Plus: interest expense accrued             20 
Less: debt issuance costs             (39)
Total promissory notes, net of issuance costs            $7,761 

 

On February 22, 2022, the Company issued to certain institutional lenders (the “Lenders”) promissory notes in an aggregate principal amount of $7.6 million for an aggregate purchase price of $7.6 million (collectively, the “First Tranche Notes”). The Notes were issued as the first tranche of an aggregate financing of $20.0 million. On March 10, 2022, the Company has issued to the lenders a second tranche of an aggregate principal amount of $2.4 million (the “Second Tranche Notes”). The Company issued to the Lenders a third tranche of promissory notes in an aggregate principal amount of $10.0 million for an aggregate purchase price of $10.0 million (the “Third Tranche Notes” and, together with the First Tranche Notes and Second Tranche Notes, the “Notes”) along with Class D common stock purchase warrants (collectively, the “Warrants”) to purchase up to an aggregate of 1,000,000 shares of common stock of the Company, at an exercise price of $11.50 per share on April 13, 2022. The Warrants are immediately exercisable for two years upon issuance, subject to applicable Nasdaq Stock Market LLC rules. See Note 16, Subsequent Events, for further information regarding the Third Tranche note and the issuance of the Warrants.

 

 

The First Tranche Notes have a maturity date of February 22, 2027, the Second Tranche Notes have a maturity date of March 10, 2027 and Third Tranche will have a maturity date five years from the date of issuance (each a “Maturity Date”), upon which dates the Notes shall be payable in full, and accrue interest at a rate of two percent (2%) per annum. The Notes may be repaid, at such Lender’s sole election, either (a) at the applicable Maturity Date or (b) upon the first business day of each month that the Company keeps open a private offering of our Series A Preferred Stock by presenting its Note in whole or in part as legal tender to purchase such shares of Series A Preferred Stock at price per share of Series A Preferred Stock on the date immediately preceding the closing of such subscription, provided that if the Notes are not repaid by May 2, 2022, the Notes shall automatically be subscribed for shares of the Series A Preferred Stock. If any Event of Default occurs, the outstanding principal amount of the Notes, liquidated damages and other amounts owing in respect thereof through the date of acceleration, will become, at the Lender’s election, immediately due and payable in cash. The Notes may be prepaid or redeemed upon written notice to the other party.

 

The exercise of the Warrants is subject to beneficial ownership limitations such that the Lenders may not exercise the Warrants to the extent that such exercise would result in each of the Lenders being the beneficial owner in excess of 4.99% (or, upon election of such Lender, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon such exercise, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not be effective until 61 days following notice to the Company. 

 

The fair value of the Warrants for the first and second tranche, as of the issuance date, was $2.26 million and is recorded as equity with the offset recorded as debt discount against the net proceeds. The proceeds of $10.00 million were allocated between the Promissory Notes and the Warrants, in which the discount related to the Warrants are being amortized based on the straight-line method through the date of Maturity. For the three months ended March 31, 2022, the Company has recorded amortized debt discount, related to the Warrants, the amount of $40 thousand, which is included in interest expense. There were also debt issuance costs of approximately $40 thousand as of March 31, 2022 and approximately $1 thousand has been amortized. All amortized costs are included in interest expense. During the three months ended March 31, 2022, $10.0 million is remaining in the principal balance of the Notes.

 

On April 29, 2022, the Company issued in a registered direct offering 1,142,857 shares of Series A Preferred Stock to the Lenders, at an offering price of $17.50 per share, the same price as the public offering price of the shares of Series A Preferred Stock in the concurrent underwritten public offering, in full satisfaction of the Company’s obligations under the outstanding Notes in an aggregate amount of $20 million. See Note 16 for, Subsequent Events, for further information regarding this offering.

  

NYDIG Financing

 

   Maturity Dates  Interest Rate    March  31, 2021 
NYDIG Loans #1-11  April 25, 2023 thru January 25, 2027  12% thru 15%%   $14,387 
Less: principal payments           1,074 
Less: debt issuance costs           316 
Total outstanding debt           12,997 
Less current portion of debt           7,195 
Total Long-term debt          $5,802 

 

On December 30, 2021, Soluna MC Borrowing 2021-1 LLC (“Borrower”), an indirect wholly owned subsidiary of the Company entered into a Master Equipment Finance Agreement (the “Master Agreement”) with NYDIG ABL LLC (“NYDIG”) as lender, servicer and collateral agent. The Master Agreement outlined the framework for a financing up to approximately $14.4 million in aggregate equipment financing. Subsequently, the parties negotiated the specific terms of each equipment financing transaction as well as the terms upon which the investors in our October 2021 Senior Secured Convertible Notes (the “Convertible Investors”) would consent to the transactions contemplated by the Master Agreement.

 

On January 14, 2022, the Borrower effected an initial drawdown under the Master Agreement in the aggregate principal amount of approximately $4.6 million that bore interest at 14% and will be repaid over 24 months. On January 26, 2022, the Borrower had a subsequent drawdown of $9.6 million. As part of the transactions contemplated under the Master Agreement, (i) the Company’s indirect wholly owned subsidiary, Soluna MC LLC, formerly EcoChain Block LLC (“Guarantor”), which is the owner of 100% of the equity interests of Borrower, executed a Guaranty Agreement in favor of NYDIG, as lender, dated as of December 30, 2021 (the “Guaranty Agreement”), (ii) Borrower has granted a lien on, and security interest in, all of its assets to NYDIG, as collateral agent, (iii) Guarantor entered into a sale/leaseback structure on assets purchased with the borrowed funds, (iv) Borrower will borrow from NYDIG the loans as forth in certain loan schedules (the “Specified Loans”), and (v) Borrower has executed a Digital Asset Account Control Agreement (the “ACA Wallet Agreement”) with NYDIG, as collateral agent and secured party, and NYDIG Trust Company LLC, as custodian, dated as of December 30, 2021, as well as such other agreements related to the foregoing as mutually agreed (collectively, the “NYDIG Transactions”).

 

In connection with the NYDIG Transactions, on January 13, 2022, the Company entered into a Consent and Waiver Agreement, dated as of January 13, 2022 (the “Consent”), with the Convertible Investors, in connection with the SPA, pursuant to which the Convertible Investors agreed to waive any lien on, and security interest in, certain assets, provided various contingencies are fulfilled, and each Investor who acquired on the Closing Date Notes having a principal amount of not less than $3,000,000 agreed to waive its rights under Section 4.17 of the SPA to participate in Subsequent Financings with respect to the NYDIG Transactions and any additional loans under the MEFA that only finance the purchase of equipment from NYDIG, in order to consent to the NYDIG Transactions. Pursuant to the Consent, the Investors also waived the current requirement of the SPA and the other Transaction Documents (collectively, the “SPA Documents”) that the Borrower become an Additional Debtor (as defined in the Security Agreement) and execute an Additional Debtor Joinder (as defined in the Security Agreement) for so long as the Specified Loans are outstanding, and NYDIG not entering into a subordination or intercreditor agreement with respect to the Guaranty. Further, pursuant to the Consent, the Purchasers waived the right to accelerate the Maturity Date of the Notes and the right to charge a default rate of interest on such Notes, in each case, with respect to certain changes in names of, and jurisdiction of incorporation, of the Debtors (as defined in the SPA Documents), which waiver does not waive any other Event of Default (as defined in any of the SPA Documents), known or unknown, as of the date of Consent.

 

 

Promptly after the date of the Consent, the Company issued warrants to purchase up to 85,000 shares of common stock to the Convertible Investor holding the largest outstanding principal amount of Notes as of the date of the Consent. Such warrants are substantially in form similar to the other Warrants held by the Convertible Investors. Such warrants are exercisable for three years from the date of the Consent at an exercise price per share of the Company’s common stock, equal to 130% of the closing price per share of the common stock as of the date of the Consent.

 

Line of Credit

 

On September 13, 2021, the Company entered into a $1.0 million unsecured line of credit with KeyBank National Association, that will, among other things, allow the Company to request loans and to use the proceeds of such loans for working capital and other general corporate purposes. The line of credit may be drawn at the discretion of the Company, and bears interest at a rate of Prime + 0.75% per annum (4.25% interest rate as of March 31, 2022). Accrued interest is due monthly and principal is due in full following lender’s demand. As of March 31, 2022, the entire line of credit of $1.0 million was drawn and outstanding. MTI Instruments previously held a secured line of credit with Pioneer Bank in the amount of $300 thousand. The secured line of credit was closed on September 10, 2021 with no outstanding amounts.