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Subsequent Events

3 Months Ended

Mar. 31, 2023

Subsequent Events [Abstract]

Subsequent Events

18. Subsequent Events

Chief Financial Officer and Chief Executive Officer Resignation and Appointments

Philip Patman, Jr. has resigned from his position as Chief Financial Officer of the Company, effective April 21, 2023. The Company has appointed David C. Michaels, a current director of the Company, to serve as interim Chief Financial Officer of the Company, effective as of April 21, 2023. Mr. Michaels has served as a member of the Board since August 2013 and as the Lead Independent Director since June 2016 and served as our Chairman of the Board from January 2017 to January 2022. Mr. Michaels has more than 30 years of finance experience at public and private companies, including CFO roles at the American Institute for Economic Research, Inc. and Starfire Systems, Inc. and Vice President of Treasury, Tax and Chief Risk Officer at Albany International Corp. (NYSE: AIN).

Effective as of May 1, 2023, Michael Toporek resigned as Chief Executive Officer of Soluna Holdings, Inc. The Company has appointed John Belizaire, the Chief Executive Officer of SCI and a current director of the Company, to serve as the Chief Executive Officer of the Company, effective as of May 1, 2023. In connection with the succession plan, Mr. Toporek was elected as Executive Chairman of the Board of Directors.

The Company noted that the resignation of Philip Patman, Jr. and Michael Toporek were not a result of any disagreements with the Company on any matter relating to the Company’s operations, policies or practices.

Dorothy 1B Financing

On May 9, 2023, the Company’s indirect subsidiary Soluna DV ComputeCo, LLC (“DV”) completed a strategic partnership and financing with a special purpose vehicle, Navitas West Texas Investments SPV, LLC, (“Navitas”), organized by Navitas Global to complete the second phase of the Dorothy Project (“Dorothy 1B”).

The Dorothy Project is a 100MW Soluna modular data center co-located at the Briscoe Wind Farm in Silverton, Texas. It was acquired as part of the merger with Soluna Callisto in October 2021. The initial 50MW phase of the project includes 44 modular data center buildings in two sub-phases, Dorothy 1A and Dorothy 1B. Each of these phases is 25 MW each. Dorothy is the second modular data center built using Soluna’s proprietary design and software. The facility is designed to consume the wasted electricity from the wind farm and the grid.

Under a Contribution Agreement among the parties, the Company owned a substantially complete 25MW data center under construction, in which capital expenditures had been contributed by the Company to the data center. Navitas has initially contributed $4.5 million in cash for the primary purpose of purchasing proprietary cryptocurrency miners and equipment necessary to put the Dorothy 1B Project into service. As a result of the initial contribution from Navitas, the Company owns 73.5% of DV and Navitas owns 26.5% of DV. Per the Contribution Agreement among the parties, Navitas has a commitment of approximately $10.8 million in cash for the purchase of miners and equipment, in which the Company expects Navitas to contribute the remaining commitment funding in the next several months. At the completion of funding, Navitas will have a 49% membership interest in DV, and the Company will have a 51% membership interest in DV.

As a part of the transaction, Navitas provided a two-year loan of $2.0 million to DV which will be repaid from a portion of distributions from DV to the Company. With this loan, DV has financed the completion of the Dorothy 1B facility and sufficient funds to put the facility into service, which is expected in July 2023.

As a result of these transactions, the Dorothy 1B project is fully financed and will no longer require an outlay of capital resources from the Company.

Convertible Note Amendment and Extension

On May 11, 2023, the Company entered into a Second Amendment Agreement (the “Second Amendment”) with the holders of its October 2021 Convertible Notes (the “October Secured Notes”) to extend the maturity date of the October Secured Notes to July 25, 2024. The October Secured Notes were originally due April 25, 2023 which was subsequently extended to May 25, 2023 to provide additional time to negotiate the terms of the Second Amendment.

In connection with the Second Amendment, the Company paid an extension fee of $250,000 and increased the principal amount of the outstanding October Secured Notes by 14%. The Company also issued 6,000,000 new Class A warrants exercisable at $0.50 and 2,000,000 new Class B warrants exercisable at $0.80.

Subject to the Equity Conditions (as defined below), upon each trigger set forth below, the Company is allowed, once per trigger, require the Note holders to convert up to 20% percent of the outstanding amount of the October Secured Notes as:

	(i)	the Company’s Common Stock trades for 10 consecutive days at or above $0.50 per share and at least 1,000,000 shares trade on each day.

	(ii)	the Company’s Common Stock trades for 10 consecutive days at or above $0.70 per share and at least 1,000,000 shares trade on each day.

	(iii)	the Company’s Common Stock trades for 10 consecutive days at or above $0.90 per share and at least 1,000,000 shares trade on each day.

The Equity Condition is met if all of the following conditions have been met: (i) the shares of Common Stock issuable upon the conversion are either registered under the Securities Act of 1933 or resellable under Rule 144 thereunder without any volume restrictions, (ii) the number of shares issuable to each Note holder are below 4.99% of the outstanding shares, (iii) at least 20 trading days has elapsed since the previous mandatory conversion, (iv) the Company is current in all the SEC filings, and (v) the Company has obtained all required approvals from NASDAQ, or any successor trading market, to list the Common Stock to be issued upon such conversion.