Soluna Holdings, Inc

Previous wording

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:

Current wording

The following table summarizes the balances for the Project sites for cryptocurrency mining revenue, data hosting revenue, high-performance computing service revenue, demand response revenue, cost of cryptocurrency mining revenue, exclusive of depreciation, cost of data hosting revenue, exclusive of depreciation, cost of high-performance computing services, and cost of depreciation during the year ended December 31, 2024:

Previous wording

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:

Current wording

The following table summarizes the balances for the Project sites for cryptocurrency mining revenue, data hosting revenue, high-performance computing service revenue, demand response revenue, cost of cryptocurrency mining revenue, exclusive of depreciation, cost of data hosting revenue, exclusive of depreciation, cost of high-performance computing services, and cost of depreciation during the year ended December 31, 2023:

Previous wording

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. Going forward, cost of cryptocurrency revenue will include any additional cryptocurrency mining facilities that are part of the Company’s future pipeline.

Current wording

Cost of Cryptocurrency Mining 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 Kentucky and Texas.

Previous wording

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. The increase was offset as a direct result by Project Marie’s operations ceasing in February 2023, where the main hosting contract was also simultaneously terminated, creating a decline in costs of approximately $3.3 million. While the Company began data hosting operations at Project Sophie in mid April 2023, which created an increase in costs of approximately $1.0 million, the energy costs associated with the hosting contract arrangements contained pass-through costs for electricity charges. In contrast, a large portion of the fiscal year 2022, the electricity costs werenot pass-through costs, thus reducing the cost of revenue recorded for fiscal year 2023 for Project Sophie and Marie.

Current wording

Cost of data hosting revenue increase was due to Project Dorothy 1A which began operations and hosting services in May 2023 with full year hosting expense in 2024. Also, we transitioned to data hosting at Project Sophie in April 2023, which created an increase in costs.

Previous wording

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.

Current wording

General and Administrative Expenses, exclusive of depreciation and amortization: General and administrative expenses, exclusive of depreciation and amortization 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.

Previous wording

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. The amortization expense related to the strategic pipeline contract that was acquired in October 2021.

Current wording

Depreciation and Amortization associated with general and administrative expenses: Depreciation and amortization expense was comparable for the year ended December 31, 2024 and the year ended December 31, 2023 in which the balances totaled approximately $9.6 million and $9.5 million, respectively. The balances mainly related to amortization expense related to the strategic pipeline contract that was acquired in October 2021.

Previous wording

Interest Expense: Interest expense for the year ended December 31, 2023 was approximately $2.7 million and related to default and continuing interest expense of the NYDIG loan of approximately $1.4 million*(see legal proceedings)*, a financing loan with Navitas of approximately $228 thousand, interest and other charges of approximately $212 thousand for the promissory notes issued in January and February of 2023 to certain investors, and interest on amortization of warrants for the convertible debt of approximately $475 thousand, as well as default interest charged through March 10, 2023 for the convertible holders of approximately $420 thousand. 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 amortization of warrants and debt discounts was at a higher value in the year ended December 31, 2022 by approximately $6.2 million, due to the value associated with the warrants from when the Company entered into the October Secured Note agreement in 2021, in which was subsequently amended in July and September of 2022, in which the Company needed to extinguish the original debt and establish a new fair value of debt, in which less amortization was associated. 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.

Current wording

Interest expense: Interest expense for the year ended December 31, 2024 was approximately $2.5 million related to approximately $1.5 million to the NYDIG loan, $900 thousand to compounded interest and deferred financing amortization expense of equipment financing loan and June and July 2024 secured note financing, and $138 thousand to the Navitas loan. Interest expense for the year ended December 31, 2023 was $2.7 million and related to default and continuing interest expense of the NYDIG loan of approximately $1.4 million, a financing loan with Navitas of approximately $228 thousand, interest and other charges of approximately $212 thousand for the promissory notes issued in January and February of 2023, and interest on amortization of warrants for the convertible debt of approximately $475 thousand, as well as default interest charged through March 10, 2023 for the convertible holders of approximately $420 thousand.

Previous wording

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. The Company incurred a loss on the fair value valuation of approximately of approximately $12.9 million for the debt extinguishment and revaluation of debt through September 31, 2022. 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. The Company incurred a loss on debt extinguishment and revaluation of approximately $3.9 million for the year ended December 31, 2023. On May 11, 2023, the Company entered into a new debt amendment agreement (“Second Amendment”) with the convertible noteholders and issued new warrants, creating a debt extinguishment and loss of $1.8 million. The main factor for the loss was the valuation of the new warrants. On November 20, 2023, the Company completed another new amendment (the “Third Amendment”) of the convertible notes and incurred an additional loss on extinguishment and revaluation of approximately $911 thousand. With quarterly fair value assessments and conversions of debt throughout the year ending December 31, 2023, Company incurred an additional loss on revaluation of approximately $1.2 million with changes in annual volatility of the debt at each quarter end, in addition to note conversions that occurred throughout the year. See Note 9 for further details.

Current wording

We incurred a loss on debt extinguishment and revaluation of approximately $3.9 million for the year ended December 31, 2023. On May 11, 2023, we entered into a new debt amendment agreement (the “Second Amendment”) with the Noteholders and issued new warrants, creating a loss on debt extinguishment of approximately $1.8 million. The main factor for the loss was the valuation of the new warrants. On November 20, 2023, we entered into another amendment with the convertible noteholders (the “Third Amendment”) and incurred an additional loss on extinguishment and revaluation of approximately $911 thousand. With quarterly fair value assessments and conversions of debt throughout the year ending December 31, 2023, we incurred an additional loss on revaluation of approximately $1.2 million with changes in annual volatility of the debt at each quarter end, in addition to note conversions that occurred throughout the year. See Note 8 to our consolidated financial statements included in this Annual Reportfor further details.

Previous wording

***Other expense, net:***For the year ended December 31, 2023, there was approximately $1.5 million other expense, net. The main reason for the balance was due to an approximately $1.0 million penalty charge in relation to moving further in the settlement litigation with NYDIG. In addition, there was a $250 thousand expense in relation to an extension fee for the noteholders of the convertible debt when the 2nd Amendment was signed on May 11, 2023, in addition to the prepayment penalty for the notes payable in the third quarter of fiscal 2023. There were no material other expenses for the year ended December 31, 2022.

Current wording

***Other expense, net:***For the year ended December 31, 2024, other expense, net was approximately $3.4 million respectively, compared to $1.5 million for the year ended December 31, 2023. The increase in other expense, net, for the year ended December 31, 2024 was primarily as a result of $1.0 million general release agreement with our former placement agent; approximately $1.9 million in consent fees, waiver fees, and other financing expenses in relation to the SEPA and related consents for the SEPA on October 1, 2024; a conversion debt inducement expense of approximately $388 thousand; and an extension fee expense of approximately $325 thousand, partially offset by a gain on settlement of litigation with Atlas of approximately $254 thousand. For the year ended December 31, 2023, other expense, net was approximately $1.5 million, consisting of primarily an approximate $1.0 million penalty charge in relation to moving further in the settlement litigation with NYDIG and a $250 thousand expense in relation to an extension fee for the Noteholders when the Second Amendment was signed on May 11, 2023, in addition to the prepayment penalty for the notes payable in the third quarter of fiscal 2023.

Previous wording

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. 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. 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. For the years ended December 31, 2023 and 2022 the Company amortized approximately $2.2 million. For the year ended December 31, 2023, these amounts were offset with a timing difference due to significant increase for in-service capital assets at the Dorothy entities which created an offset of approximately $1.1 million in deferred income tax expense. 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.

Current wording

Income Tax Benefit: Income tax benefit for the year ended December 31, 2024 was approximately $2.5 million, compared to approximately $1.1 million thousand for the year ended December 321, 2023. The balances were 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. As such, we are 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. For the year ended December 31, 2024 and 2023, we amortized approximately $2.2 million in each year, respectively. In addition, for the year ended December 31, 2023, there were timing differences due to significant increase for in-service capital assets for the year ended December 31, 2023 which created an offset of approximately $1.1 million in deferred income tax expense.

Previous wording

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. This amount relates to Springlane’s 85% noncontrolling interest of the net profit in Soluna DVSL and Navitas 49% noncontrolling interest of the net profit in Soluna DV ComputeCo for the year ended December 31, 2023, compared to the Springlane’s 32.2% noncontrolling interest of Net loss in Soluna DVSL for the year ended December 31, 2022. Note, there was no noncontrolling interest of DV ComputeCo for the year ended December 31, 2022. The change in non-controlling interest relates to continued profitability at Dorothy 1A and Dorothy 1B, creating a total net profit which started to grow in the third quarter of fiscal year 2023. There was no minority interest for Dorothy 1B (DV ComputeCo), until the 2nd quarter of 2023, when Navitas obtained interest in DV ComputeCo. Dorothy 1A had a net profit of approximately $896 thousand for year ended December 31, 2023 compared to a $1.2 million net loss in year-ended 2022. It should also be noted that the non-controlling interest for DVSL with Springlane was 32.2% for fiscal year 2022, compared to 85% beginning January 1, 2023. As such, DVSL (Dorothy 1A) had a net profit for minority interest of $765 thousand for the year ended December 31, 2023 compared to $380 thousand net loss in minority interest for year ended December 31, 2022, a $1.1 million increase. In addition, the increase also related to Dorothy 1B, which had a zero balance in year-ended December 31, 2022 for non-controlling interest to a non-controlling interest profit of $733 thousand beginning in May 2023 through the year ended December 31, 2023. 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.

Current wording

Net income attributable to non-controlling interest: Net income attributable to non-controlling interest for the year ended December 31, 2024 was approximately $5.0 million compared to a net income of approximately $1.5 million for the year ended December 31, 2023. This amount relates to Spring Lane’s 85% noncontrolling interest of the net profit in Soluna DVSL ComputeCo, LLC (“DVSL”) and Navitas 49% noncontrolling interest of the net profit in Soluna DV ComputeCo, LLC (“DVCC”) for the year ended December 31, 2024. The change in non-controlling interest relates to continued profitability at Dorothy 1A and Dorothy 1B, creating a total net profit in noncontrolling interest of approximately $6.9 million attributable to non-controlling interest for the year ended December 31, 2024, which started to grow in the third quarter of fiscal year 2023. The total net income was offset by noncontrolling interest loss of approximately $1.9 million associated with Dorothy 2, which site is in development stage and would expect losses, where Spring Lane had noncontrolling interest of 58% - 85% for the year ended December 31, 2024. The $1.5 million net income attributable to non-controlling interest for the year ended December 31, 2023 related only to Dorothy 1A and Dorothy 1B. For the first six months of fiscal 2023, DVSL was generating a non-controlling interest net loss, but with the energization at Dorothy 1A in effect beginning in the second quarter of 2023, the DVSL entity began to generate net profits, while DVCC was generating a net loss for the first four months of operations, but with energization beginning in the third quarter of fiscal 2023, the DVCC entity began to generate a net profit in non-controlling interest

Previous wording

We believe Adjusted EBITDA can be an important financial measure because it allows management, investors, and the Board to evaluate and compare our operating results, including our return on capital and operating efficiencies, from period-to-period by making such adjustments. Non-GAAP financial measures are subject to material limitations as they are not in accordance with, or a substitute for, measurements prepared in accordance with U.S. GAAP. For example, we expect that stock-based compensation costs, which is excluded from the non-GAAP financial measures, will continue to be a significant recurring expense over the coming years and is an important part of the compensation provided to certain employees, officers, and directors. Similarly, we expect that depreciation and amortization of fixed assets will continue to be a recurring expense over the term of the useful life of the assets.

Current wording

We believe EBITDA and Adjusted EBITDA can be important financial measures because they allow management, investors, and the Board to evaluate and compare our operating results, including our return on capital and operating efficiencies, from period-to-period by making such adjustments. Non-GAAP financial measures are subject to material limitations as they are not in accordance with, or a substitute for, measurements prepared in accordance with GAAP. For example, we expect that stock-based compensation costs, which is excluded from the non-GAAP financial measures, will continue to be a significant recurring expense over the coming years and is an important part of the compensation provided to certain employees, officers, and directors. Similarly, we expect that depreciation and amortization of fixed assets will continue to be a recurring expense over the term of the useful life of the assets.

Previous wording

Adjusted EBITDA is provided in addition to and should not be considered to be a substitute for, or superior to net income, the comparable measure calculated in accordance with U.S. GAAP. Further, Adjusted EBITDA should not be considered as an alternative to revenue growth, net income, diluted earnings per share or any other performance measure calculated in accordance with U.S. GAAP, or as an alternative to cash flow from operating activities as a measure of our liquidity. Adjusted EBITDA has limitations as an analytical tool, and you should not consider such measures either in isolation or as substitutes for analyzing our results as reported under U.S. GAAP.

Current wording

EBITDA and Adjusted EBITDA are provided in addition to and should not be considered to be substitutes for, or superior to net income, the comparable measure calculated in accordance with GAAP. Further, EBITDA and Adjusted EBITDA should not be considered as alternatives to revenue growth, net income, or any other performance measure calculated in accordance with GAAP, or as alternatives to cash flow from operating activities as a measure of our liquidity. EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider such measures either in isolation or as substitutes for analyzing our results as reported under GAAP.

Previous wording

Reconciliations of Adjusted EBITDA to net income from continuing operations, the most comparable U.S. GAAP financial metric, for historical periods are presented in the table below:

Current wording

Reconciliations of EBITDA and Adjusted EBITDA to net loss, the most comparable GAAP financial metric, for historical periods are presented in the table below:

Previous wording

The following table represents the Adjusted EBITDA activity between each three-month period for the year ended December 31, 2023.

Current wording

The following table represents the EBITDA and Adjusted EBITDA activity between each three-month period from January 1, 2024 through December 31, 2024.

Previous wording

The following table represents the Adjusted EBITDA activity between each three-month period for the year ended December 31, 2022.

Current wording

The following table represents the EBITDA and Adjusted EBITDA activity between each three-month period from January 1, 2023 through December 31, 2023.

Previous wording

Based on business developments, including changes in production levels, staffing requirements, and network infrastructure improvements, we will require additional capital equipment in the foreseeable future. With 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.

Current wording

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. We are 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, and data centers to provide specialized AI Cloud and colocation services.

Previous wording

Net cash used in operating activities from continuing operations was approximately $3.0 million for the year ended December 31, 2023. 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. There was also approximately $4.3 million in stock-based compensation expenses, $3.9 million on loss on debt extinguishment and revaluation, and additional $1.2 million in relation to fixed asset impairments, loss on sale of fixed assets, and amortization of operating lease assets. The non-cash items were offset with a $1.1 million deferred income tax benefit. The change in assets and liabilities of approximately $2.4 million related to increases in accrued expenses of $3.9 million in which related to interest for the NYDIG loan, sales and real estate tax accruals, and bonus accrual, as well as increase in customer deposits of $2.8 million with data hosting customers for the facility sites, offset with an increase in accounts receivable related to performing further hosting services and demand response services as of December 31, 2023.

Current wording

Net cash used in operating activities from continuing operations was approximately $3.0 million for the year ended December 31, 2023. We had a net loss of approximately $27.7 million, 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. There was also approximately $4.3 million in stock-based compensation expenses, $3.9 million on loss on debt extinguishment and revaluation, and additional $1.2 million in relation to fixed asset impairments, loss on sale of fixed assets, and amortization of operating lease assets. The non-cash items were offset with a $1.1 million deferred income tax benefit. The change in assets and liabilities of approximately $2.4 million related to increases in accrued expenses of $3.9 million in which related to interest for the NYDIG loan, sales and real estate tax accruals, and bonus accrual, as well as increase in customer deposits of $2.8 million with data hosting customers for the facility sites, offset with an increase in accounts receivable related to performing further hosting services and demand response services as of December 31, 2023.

Previous wording

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.

Current wording

Net cash used in investing activities during the year ended December 31, 2024 was approximately $13.2 million consisting mainly of capital expenditures of $9.2 million and increase in deposits on equipment of $4.1 million, primarily related to the development build of Project Dorothy 2. 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, primarily related to the completion of the build of Project Dorothy 1A and 1B, less cash proceeds from sale of equipment of $2.3 million, primarily from the sale of miners located at Project Sophie in connection with the decision to convert to a hosting facility.

Previous wording

Net cash provided by financing activities was approximately $21.8 million during the year ended December 31, 2023, which consisted of cash contributions for noncontrolling interest of approximately $20.4 million, offset with distributions for non-controlling interest of $1.0 million. The Company also received net proceeds of approximately $817 thousand from the subsequent SPA offerings, in addition to proceeds from debt issuances of $3.1 million less debt payment costs of $1.1 million on promissory notes and the Navitas loan, and $350 thousand for payment on the Company’s line of credit.

Current wording

For fiscal year 2024, funds from financing activities were used to fund an initial deposit for the HPE Agreement, fund construction of D2, continued project pipeline development and general operating cash. Net cash provided by financing activities was approximately $18.3 million consisting mainly of proceeds from financing of approximately $14.5 million in which $13.75 million was from 2024 secured loan financing in June and July, and $720 thousand was drawn down for equipment financing. In addition, there was $2.3 million in warrants exercised, as well as $14.7 million in contributions of non-controlling membership interest. Offsetting the net cash provided by financing activities was $8.3 million in cash distributions to non-controlling interest members, and payments of $4.9 million relation to Navitas loan, the June and July 2024 note agreements, and payments in relation to the convertible holders. Net cash provided by financing activities was approximately $21.8 million during the year ended December 31, 2023, which consisted of cash contributions for noncontrolling interest of approximately $20.4 million, offset with distributions for non-controlling interest of $1.0 million. We also received net proceeds of approximately $817 thousand from the subsequent SPA offerings, in addition to proceeds from debt issuances of $3.1 million less debt payment costs of $1.1 million on promissory notes and the Navitas loan, and $350 thousand for payment on the Company’s line of credit.

Previous wording

On January 14, 2022, the Company effected an initial drawdown under the Master Equipment Finance Agreement with NYDIG in the aggregate principal amount ofapproximately $4.6 million that bore interest at 14%. On January 26, 2022, the Company had a subsequent drawdown of $9.6 million. On December 20, 2022, Soluna MC Borrowing 2021-1 LLC (“Borrower”) received a Notice of Acceleration and Repossession (the “NYDIG Notice”) from NYDIG with respect to the Master Agreement, by and between Borrower and NYDIG. The obligations of Borrower under the Master Agreement 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. As such, the principal balance of $10.5 million as of December 31, 2022 became due immediately and the Borrower shall bear interest, at a rate per annum equal to 2.0% plus the rate per annum otherwise applicable to such obligations set forth in the Master Agreement. 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. On September 5, 2023, NYDIG provided a letter finalizing the accounting for the repossessed collateralized assets totaling proceeds of approximately $3.4 million. 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. 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. 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. 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, in which a penalty fee was applied of approximately $1.0 million to the repossessed collateralized assets, and outstanding interest and penalty balance would be approximately $936 thousand as of December 31, 2023.

Current wording

On January 14, 2022, the Company effected an initial drawdown under the Master Equipment Finance Agreement (“MEFA”) with NYDIG in the aggregate principal amount of approximately $4.6 million that bore interest at 14%. On January 26, 2022, the Company had a subsequent drawdown of $9.6 million. On December 20, 2022, Soluna MC Borrowing 2021-1 LLC (“Borrower”) received a Notice of Acceleration and Repossession (the “NYDIG Notice”) from NYDIG with respect to the MEFA, by and between Borrower, a subsidiary of Soluna MC, LLC, a subsidiary of Soluna Digital, a subsidiary of the Company, and NYDIG. 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. As such, the principal balance of $10.5 million as of December 31, 2022 became due immediately and the Borrower shall bear interest, at a rate per annum equal to 2.0% plus the rate per annum otherwise applicable to such obligations set forth in the MEFA. 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. On September 5, 2023, NYDIG provided a letter finalizing the accounting for the repossessed collateralized assets totaling proceeds of approximately $3.4 million. 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, in which a penalty fee was applied of approximately $1.0 million to the repossessed collateralized assets, and outstanding interest and penalty balance would be approximately $936 thousand as of December 31, 2023. As of December 31, 2024, the Company still has an outstanding loan principal of approximately $9.2 million and outstanding interest and penalty balance of approximately $2.3 million.

Previous wording

On May 9, 2023, Soluna DV ComputeCo, LLC and Navitas West Texas Investments SPV, LLC entered into a 2-year Loan Agreement for $2,050,000. The unpaid principal balance of the Term Loan shall bear interest at per annum rate equal to 15%. As of December 31, 2023, the Company has an outstanding principal balance of approximately $1.7 million and incurred approximately $204 thousand in interest expense and $25 thousand in deferred amortization expense.

Current wording

On May 9, 2023, DVCC and Navitas West Texas Investments SPV, LLC entered into a 2-year Loan Agreement for $2,050,000. The unpaid principal balance of the Term Loan shall bear interest at per annum rate equal to 15%. As of December 31, 2024, the Company has an outstanding principal balance of approximately $137 thousand. As of the date of these consolidated financial statements, the Navitas loan has been fully paid off.

Previous wording

Critical Accounting Policies and Significant Judgments and Estimates

Current wording

Critical Accounting Policies and Use of Estimates

Previous wording

The prior discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. Note 2 of the Consolidated Financial Statements included in this Annual Report on Form 10-K includes a summary of our most significant accounting policies. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosure of assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, income taxes and share-based compensation. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Periodically, our management reviews our critical accounting estimates with the Audit Committee of our Board of Directors.

Current wording

The prior discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. Note 2 of the Consolidated Financial Statements included in this Annual Report includes a summary of our most significant accounting policies. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosure of assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, income taxes and share-based compensation. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Periodically, our management reviews our critical accounting estimates with the Audit Committee of our Board of Directors.

Previous wording

Cryptocurrency revenue consists of revenue recognized from the Company’s cryptocurrency mining facilities. 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. 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. The actual monthly amounts are calculated after the close of each month and billed to the customers.

Current wording

We have entered into customer hosting contracts whereby we provide hosting services which include, electrical power to cryptocurrency mining customers, other utilities, and management of hosting facilities. Customer contracts can be a combination of a stated fixed amount per megawatt-hour (“MWh”) (“Contract Capacity”), a percentage of the profit share of the daily net income from the customer’s mining operations, or a combination thereof. Some contracts also include pass-through expenses which are not recognized in revenue. The actual monthly amounts are calculated after the close of each month and billed to the customers.

Previous wording

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. “Fair value” is the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation methods, the Company is required to provide the following information according to the fair value accounting standards. These standards established a fair value hierarchy as specified that ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities are classified and disclosed in one of the following three categories:

Current wording

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. “Fair value” is the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation methods, we are required to provide the following information according to the fair value accounting standards. These standards established a fair value hierarchy as specified that ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities are classified and disclosed in one of the following three categories:

Previous wording

The Company had Warrants included within the SPA agreement as noted in Note 9. The Warrants are considered freestanding equity-classified instruments due to their detachable and separately exercisable features and meet the indexation criteria within derivative accounting. Accordingly, the Warrants are presented as a component of Stockholders’ Equity in accordance with derivative accounting.

Current wording

We had Warrants included within the SPA agreement as noted in Note 8. The Warrants are considered freestanding equity-classified instruments due to their detachable and separately exercisable features and meet the indexation criteria within derivative accounting. Accordingly, the Warrants are presented as a component of Stockholders’ Equity in accordance with derivative accounting.

Previous wording

Following the debt extinguishment on July 19, 2022 as noted further in Note 9, the Convertible Notes will be recorded at fair value upon issuance (e.g., upon execution of the Addendum) per guidance within ASC 480, and at each subsequent reporting period, with changes in fair value reported in earnings.

Current wording

Following the debt extinguishment on July 19, 2022 as noted further in Note 2 and 8, the Convertible Notes will be recorded at fair value upon issuance (e.g., upon execution of the Addendum) per guidance within ASC 480, and at each subsequent reporting period, with changes in fair value reported in earnings.

Previous wording

Consistent with the guidance in purchase accounting, the value of the Strategic Pipeline Contract as of the acquisition date was estimated using an expected value approach, which probability-weights various future outcomes and uses certain Level 3 inputs.

Current wording

Consistent with the guidance in purchase accounting, the value of the Strategic Pipeline Contract, see Note 5, as of the acquisition date of October 2021 was estimated using an expected value approach, which probability-weights various future outcomes and uses certain Level 3 inputs.

Previous wording

We grant options to purchase our common stock and award restricted stock to our employees and directors under our equity incentive plans. The benefits provided under these plans are share-based payments and we account for stock-based awards exchanged for employee service in accordance with the appropriate share-based payment accounting guidance. Stock-based compensation represents the cost related to stock-based awards granted to employees and directors. We measure stock-based compensation cost at grant date based on the estimated fair value of the award and recognize the cost as expense on a straight-line basis in accordance with the vesting of the options (net of estimated forfeitures) over the option’s requisite service period. We estimate the fair value of stock-based awards on the grant date using a Black-Scholes valuation model. We use the fair value method of accounting with the modified prospective application, which provides for certain changes to the method for valuing share-based compensation. The valuation provisions apply to new awards and to awards that are outstanding on the effective date and subsequently modified.

Current wording

We award restricted stock to our employees and directors under the 2021 Plan and the Soluna Holdings, Inc. Amended and Restated 2023 Stock Incentive Plan (the “2023 Plan,” together with the 2021 Plan, the “Plans”). The benefits provided under these plans are share-based payments and we account for stock-based awards exchanged for employee service in accordance with the appropriate share-based payment accounting guidance. Stock-based compensation represents the cost related to stock-based awards granted to employees and directors. We measure stock-based compensation cost at grant date based on the estimated fair value of the award and recognize the cost as expense on a straight-line basis in accordance with the vesting of the options (net of estimated forfeitures) over the option’s requisite service period. We estimate the fair value of stock-based awards on the grant date using a Black-Scholes valuation model. We use the fair value method of accounting with the modified prospective application, which provides for certain changes to the method for valuing share-based compensation. The valuation provisions apply to new awards and to awards that are outstanding on the effective date and subsequently modified.

Previous wording

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.

Current wording

A discussion of recently adopted and new accounting pronouncements is included in Note 2 of the Consolidated Financial Statements included in this Annual Report.