Soluna Holdings Stock

Soluna Holdings, Inc. (SHI), through its wholly-owned subsidiary, Soluna Computing, Inc. (SCI), engages in the mining of cryptocurrency through data centers.

SCI has built modular data centers that are used for cryptocurrency mining though proprietary mining and hosting business models. 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 intention of providing an alternative to battery storage or transmission lines. Headquartered in Albany, New York, the company uses technology and intentional design to solve complex, real-world challenges. The company’s data centers are operated through certain projects noted below: Project Edith, Project Sophie, Project Marie, and Project Dorothy.

Project Edith

The Edith project is a project permitted to consume up to 3.3 MegaWatts (MW) located in Wenatchee, Washington. The data center was acquired from the estate of the GigaWatt (GigaWatt, Inc.) bankruptcy in May 2020. The project operates in a district with increasing power rates. At the time of the company’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.

The company sold the graphics processing unit (GPU) mining assets and other mining equipment in September 2022. The company 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 the company’s 20 MW co-location facility based in Kentucky. This facility was the company’s first project in Kentucky, prior to building the Sophie greenfield project. The site is powered by the Tennessee Valley Authority (TVA) grid and is designed to operate 24/7 less mandatory TVA curtailment windows.

In January 2022, the company 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. In January, the company completed the roll out of legacy hosting customers at the facility to be replaced with proprietary mining equipment.

The company elected to shut down the Marie facility, and has impaired certain property, plant, and equipment assets that were at the Marie facility.

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. 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.

By April 8, 2022, older machines (Bitmain S9s) at Sophie were replaced with newer models growing the hashrate and a power usage effectiveness and consuming over 20 MW of energy. In May of 2022, the Project Sophie team moved into the completed offices, added a new asphalt road, and upgraded the network infrastructure on the site. In June and July of 2022, the site exceeded previous mining hashrates by installing new Bitmain S19s and replacing S9 machines. Project Sophie has also hosted a series of curtailment and MaestroOS control system, the company’s proprietary load monitoring management system, demonstrations with leading renewable energy companies and capital providers, further enhancing the site’s performance.

Project Dorothy

The Dorothy Project is a 100 MW Soluna modular data center co-located at the Briscoe Wind Farm in Silverton, Texas. 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. It incorporates learnings and enhancements from the Sophie project.

Permitting and Construction

In March 2022, the company began site level construction via an early access agreement with the landowner and Briscoe Wind Farm, LLC., to place the concrete pad and erection of the site’s main warehouse. In April of 2022, the procurement of internet service providers began. By May 2022, the company began erecting the prefabricated modular data center buildings and trenching for underground electrical conduits.

On June 15, 2022, the Electric Reliability Council of Texas (ERCOT), the Texas independent system operator, formed a new taskforce, Large Flexible Load Interconnection Taskforce (LTLTF of LFL) to deal with the overwhelming increase in new load interconnection requests related to Bitcoin Mining. The new task force’s charter focused on studying the systems impact of these data centers and to establish a new interim process for approval. The new process included the addition of new technical studies and modeling to ensure the reliability of the electrical system. Briscoe Wind Farm, LLC, a Delaware limited liability company (Briscoe), Oncor Electric Delivery, LLC (Oncor) and the company collaborated on completing the required technical studies throughout the summer and early fall of 2022.

On October 31, 2022, after the completion of required studies, the Briscoe Wind Farm submitted a revised Resource Asset Registration Forms (RARF) to ERCOT requesting the addition of the Dorothy Project as a 100 MW behind-the-meter load and to initiate the modeling process. On December 8, 2022, the Briscoe/the company’s project was approved by the ERCOT modeling team. On December 19, 2022, all required studies were approved and the Dorothy Project received a ‘Met Planning’ approval from ERCOT LFL.

While these ERCOT approvals were being obtained, through the summer and fall of 2022, the company continued the construction of Dorothy erecting more buildings, installing power infrastructure, completing the warehouse and office buildings, including ancillary HVAC and power. From September to December 2022, all mechanical and electrical construction was completed for Dorothy 1A. On October 15, 2022, Dorothy 1B’s construction was officially paused. In March 2023, the data center’s substation interconnection was completed, and Dorothy 1B’s construction was resumed and the site’s network and Supervisory Control and Data Acquisition systems were installed.

Operating Definitive Agreements with Counter Parties

Soluna DV Services, LLC, a Nevada limited liability company (ServeCo) and Briscoe also entered into a Cooperation Agreement (the Cooperation Agreement), pursuant to which Briscoe and ServeCo agreed to certain rights, obligations, and restrictions with respect to the real property of the Dorothy Facility and the construction, interconnection, permitting, operation, maintenance, removal, and decommissioning of the Dorothy Facility and applicable credit support. Soluna DV ComputeCo, LLC, a Delaware limited liability company and an indirect wholly-owned subsidiary of the company and Soluna DVSL ComputeCo, LLC, a Delaware limited liability company and an indirect wholly-owned subsidiary of the company became parties to the Cooperation Agreement by each entering into a Joinder Agreement on the Effective Date.

Segments

The company operates through two segments, Cryptocurrency Mining and Data Center Hosting.

Cryptocurrency Mining

SCI engages in cryptocurrency mining by which transactions between cryptocurrency users are verified and added to the blockchain public ledger. Cryptocurrency mining also introduces new cryptocurrency coins into the existing circulating supply, facilitating a peer-to-peer decentralized network without the need for a third-party central authority.

SCI recognizes revenue when the related cryptocurrencies are converted to the U.S. dollars through its accounts with Coinbase and Bittrex, cryptocurrency exchanges (i.e., a platform that facilitates the exchange of cryptocurrencies for other assets, such as conventional money or other digital currencies). SCI exchanges cryptocurrency to the U.S. dollars through the Coinbase and Bittrex account daily. SCI primarily mines Bitcoin and in prior years and to a lesser degree, in 2022, mined Ethereum, Ethereum Classic LiteCoin, RavenCoin, Zcash, and Sia. The type of cryptocurrency mined is based specifically on the installed cryptocurrency miner, in each of the company’s data centers, as each miner can mine only one type of cryptocurrency at a time. The miners perform complex computations at a speed referred to as the 'hash rate’.

SCI participates in mining pools where the company’s miners’ computations are combined with those of other miners owned by others to place blocks on the blockchain, which generates the relevant Proof of Work and related cryptocurrency reward. The mining pool operator uses software to track contributions to the pool made by all the miners and allocates the newly minted cryptocurrency to each participant in the pool based on their pro rata contributions. SCI monitors its contributions to each pool and the distribution of the relevant cryptocurrency to ensure that SCI receives the correct amount of cryptocurrency. The cryptocurrencies allocated to SCI are automatically issued to its Coinbase and Bittrex accounts either daily or based on reaching a threshold level of a mined coin as established by SCI with the pools. Certain coins, such as Sia and Zcash are converted to Bitcoin by the pool prior to being transferred to SCI’s Coinbase and Bittrex accounts. Coinbase and Bittrex conversions to the U.S. dollars are initiated daily by SCI. Coinbase and Bittrex converts the coins to the U.S. dollars based on the coin price at the time of the transfer.

Data Hosting Hosting

The company has entered into customer hosting contracts whereby it provides electrical power and network connectivity to cryptocurrency mining customers, in exchange for a fixed rate per megawatt-hour (MWh) (Contract Capacity), and a share of mining profits. The majority of the company’s hosting services were located at the Project Marie facility. The company allocated approximately 10 MWs to hosted customers. In August of 2022, the company executed a change in the hosting contract at Project Marie, in which the company moved to charging a flat fee per month, with the electricity charges then treated as a pass-through and in turn not recognized as revenue. The company elected to shut down the Marie facility. The company expects future hosting contracts to have an electricity pass-through impact, operations overhead fee component, and profit share elements.

The company engages in the design, development and building of site locations that are employed to host certain cryptocurrency assets, known as miners. The company constructs and builds these data centers employing certain know how. These site location facilities contain certain buildings called modular data centers, electrical equipment, including transformers, switch gear and busways, racking and other equipment.

Cryptocurrency assets, known as miners, consist of hardware and software that perform the computations needed to mine cryptocurrencies, as discussed under ‘Cryptocurrency Revenue’, and as such are the source of the associated revenues generated by a cryptocurrency mine, including SCI’s. SCI has several thousand miners in service, mostly Bitmains, that generate Bitcoin.

Strategy

The key elements of the company’s strategy are to focus on stranded renewable energy; establish operations in the United States, particularly in Texas and Kentucky; and diversification of revenue streams.

Dispositions

On April 11, 2022, the company sold MTI Instruments, Inc. (MTI Instruments).

Competition

The company’s primary competitors include Core Scientific, Inc.; Marathon Digital Holdings, Inc.; Riot Blockchain, Inc.; CleanSpark Inc; Cipher Mining, Inc.; Bitfarms Ltd; HIVE Blockchain Technologies, Ltd.; Argo Blockchain PLC; Hut 8 Mining Corp.; Iris Energy; Terawulf Inc; Bit Digital Inc; Digihost Technology Inc; DMG Blockchain Solutions; Applied Digital Corp.; Stronghold Digital Mining; Sphere 3dD Corp.; Mawson Infrastructure Group; and Greenidge Generation.

Intellectual Property

The company 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. There are also provisional patents regarding the variable power consumption of the data center and the local co-optimization of power generation supply with demand. Provisional patent applications must be converted into full patent applications within one year of filing.

The company also filed two full patent applications, both of which are utility patents. 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 the company’s efficiency.

The second full application is around the local co-optimization of power generation supply with demand generated using a data center. This patent outlines the methodology of having an independently metered load co-located with power generation. The company has a registered trademark for its name.

History

Soluna Holdings, Inc., a New York corporation, was founded in 1961. The company was incorporated in 1961.