# Soluna Holdings, Inc: Form 10-Q for the period ended Mar 31, 2024

- Company: [Soluna Holdings, Inc](/companies/slnh.md) (CIK 64463)
- Form: 10-Q
- Filed: 2024-05-15
- Accepted by EDGAR: May 15, 2024, 17:29 ET
- Period: 2024-03-31
- Accession: 0001493152-24-020047
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/64463/000149315224020047/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/64463/000149315224020047/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $12.5m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2024-01-01 to 2024-03-31 | $5.6m | us-gaap:CostOfRevenue |
| Selling, general and administrative | 3 months, 2024-01-01 to 2024-03-31 | $6.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | $407.0k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $424.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | −$548.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | −$5.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | −$2.62 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | −$2.62 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 2,807,555 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | $3.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $524.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-03-31 | $8.4m | us-gaap:Cash |
| Current assets | at 2024-03-31 | $17.0m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $90.6m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $32.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $41.8m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-03-31 | $21.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 64,292 characters.

*Unless the context requires otherwise in these notes to the consolidated financial statements, the terms “SHI,” the “Company,” “we,” “us,” and “our” refer to Soluna Holdings, Inc. together with its consolidated subsidiaries, “SDI” refers to Soluna Digital, Inc. and previously “SCI” refers to Soluna Computing, Inc., formerly known as EcoChain, Inc.*

*The following discussion of our financial condition and results of operations should be read in conjunction with the Condensed Consolidated Financial Statements and the related notes thereto included in Item 1 of Part I of this Quarterly Report on Form 10-Q and the audited Consolidated Financial Statements and the related notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2023 contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the Securities and Exchange Commission (the “SEC”) on April 1, 2024.*

*In addition to historical information, the following discussion contains forward-looking statements, which involve risk and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements. Important factors that could cause actual results to differ include those set forth in Part I Item 1A-Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and elsewhere in this Quarterly Report on Form 10-Q. Readers should not place undue reliance on our forward-looking statements. These forward-looking statements speak only as of the date on which the statements were made and are not guarantees of future performance. Except as may be required by applicable law, we do not undertake or intend to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q. Please see “Statement Concerning Forward-Looking Statements” below.*

### Overview and Recent Developments

We are a digital infrastructure company specializing in transforming surplus renewable energy into computing resources. 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.*

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.
- **AI Cloud Services \[current\] –** we are utilizing 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.

#### 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. A summary of our pipeline, current and anticipated operating locations are as follows (as of March 31, 2024):

| 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 |

### 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. 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. The data center is co-located 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. On April 26, 2023 we signed a 5 MW 2-year hosting deal with Compass Mining at D1A. On April 24, 2023 we signed a 20 MW 2-year hosting agreement with another strategic hosting partner at Dorothy 1A. In the summer of 2023, we completed the construction of D1A and the installation of approximately 7,700 Bitcoin miners between the two customers, resulting in an installed hashrate of approximately 950 PH/s. From May 2023 through December 31, 2023, D1A has consumed over 11,900 MWh of Curtailed Energy from the co-located power plant and achieved a power usage effectiveness (“PUE”) of 1.03. For the three months ended March 31, 2024, D1A has consumed over 15,100 MWh of Curtailed Energy from the co-located power plant and has achieved a PUE of 1.03.

The construction of D1A was made possible by a partnership with Spring Lane Capital (“SLC”), a leading venture capital firm focused on sustainability solutions. On April 22, 2022, we finalized agreements with SLC for a $35 million capital pool to finance Soluna projects alongside renewable energy power plants. Approximately $12.5 million of this was designated for the Dorothy Project. 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. Due to limited liquidity, and access to the capital markets, we sold a portion of our ownership to SLC in 2023. The funds raised aided in the completion of the substation interconnection, and the final stages of project Dorothy. It also provided capital to fund Soluna’s corporate operations. SLC, increased its stake in D1A from approximately 32% to 85%, reducing Soluna’s ownership from 68% to 15%. After SLC achieves an 18% Internal Rate of Return hurdle, Soluna retains 50% of the profits on D1A.

D1B is focused on Bitcoin Mining through a strategic partnership with Navitas Global (“Navitas”). On May 9, 2023, we consummated a project-level financing with Navitas, which included a $2 million loan to D1B to complete the construction and a $12.1 million equity investment in the project. After consummating the financing, Navitas owned 49% of D1B and Soluna owned 51%. As of March 31, 2024, Navitas owns 46.7% of D1B, and Soluna owns 53.3%. In June 2023, D1B purchased 8,378 Bitmain Antminer S19s, S19j Pro and S19j Pro+ machines for the partnership. The purchase resulted in an estimated 868 PH/s of hashrate with an average efficiency of 29.9 J/TH and at a cost of $10.59 $/TH. As of December 31, 2023, over 7,900 of the miners had been deployed. D1B was fully energized and began ramping in late October 2023. D1B now has an installed hashrate of 817 PH/s. From July 2023 through December 31, 2023, D1B has consumed over 10,600 MWh of Curtailed Energy from the co-located power plant and achieved a power usage effectiveness (“PUE”) of 1.03. For the three months ended March 31, 2024, D1B has consumed over 15,400 MWh of Curtailed Energy from the co-located power plant and achieved a PUE of 1.03.

#### Demand Response Services at Dorothy

In November 2023, we completed our registration of Project Dorothy for one of ERCOT’s demand response programs establishing the project as key contributor to intelligent and flexible energy solutions, promoting environmental and economic advantages for the state of Texas. It also allowed us to diversify our revenue. Under the program, we have a single promise to stand ready, on a monthly basis, to deliver a set amount of curtailment (committed capacity) per month when and if called upon by ERCOT. Soluna will be able to make additional revenue for Project Dorothy by providing this grid resilience support and potentially reduce its power costs, making it among the lowest cost players in the industry.

### Cash Flow, Site and Process Optimization

In the second quarter of 2023, we shifted our business from primarily proprietary Bitcoin Mining to Bitcoin Hosting. We signed 50 MW of hosting agreements at Dorothy 1A and Sophie.

### Sophie

Project Sophie is a 25 MW data center, based in Murray, Kentucky connected to the grid, (“Sophie”). The project has a Power Purchase Agreement (“PPA”) that requires the curtailment of the site during certain hours of the day to help balance the Kentucky grid.

The Company owns 100% of the facility and completed its construction in 2021. In the second quarter of fiscal year 2023, we shifted Project Sophie to Data Hosting, signing contracts with leading Bitcoin miners. We sold older, less efficient Bitcoin mining equipment and used the cash to make operational improvements to the site and to fund corporate operations. Throughout 2023, Sophie progressively secured new more profitable hosting contracts. We have deployed over 8,000 mining machines for hosting in 2023 and 2024 at the site. The Data Hosting agreements are a combination of a fixed services fee and a profit share component. The cost of power is passed through to customers. Customers at the site now include leading public Bitcoin Miners such as Bit Digital, Compass Mining, and other leading sustainability focused customers.

### Marie

In February 2023, Project Marie, our 20 MW data center in Kentucky was decommissioned. The decision was sparked by following events:

- NYDIG our asset-backed-lender on mining and infrastructure equipment, accelerated their loan and repossessed their collateral.
- Our Bitcoin Hosting customer, Atlas Technology Group, LLC (“Atlas”), at the site failed to upgrade and invest in their mining equipment, decreasing the profitability of the site.
- Our landlord, CC Metals and Alloys, LLC, (“CCMA”) terminated our lease.

As a result, we disposed of all remaining assets at the site, terminated the Atlas hosting agreement, and decommissioned the site.

### Cost Cutting and Process Optimization

In 2023, we implemented a number of cost cutting measures including staff reductions, renegotiations or termination of key advisory agreements. We ramped up a new Financial Planning and Analysis (“FP&A”) function to provide our management and operations teams better insight into the financial performance of our data centers. This helped us find opportunities to improve profitability and proactively address critical issues with infrastructure equipment at all sites. Our MaestroOS software platform managed the efficient operations of projects Dorothy and Sophie through record setting temperatures (hot and cold) in both Texas and Kentucky in 2023.

### Expand Flagship, Dorothy 2

In 2023, we began the planning process for building out the second 50 MW phase of Project Dorothy – Dorothy 2. We completed the design, established new procurement partners, and submitted an updated approval to ERCOT.

### Grow Pipeline

We signed a term sheet for a new 166 MW data center called Kati that will be integrated with a 300 MW wind farm that has surplus energy due to increasing curtailment by the grid. We worked throughout 2023 to advance the project through grid operator’s, ERCOT planning process.

### Convertible Noteholders

In 2023, the Company negotiated three amendments to the October Convertible Notes. On February 28, 2024, a fourth amendment was executed. These amendments were focused on extending the maturity date of the notes, lowering the conversion price of the notes, adding features to the notes to allow early payoff with predetermined cost, and the repricing of certain warrants to assist the company in raising capital for operations.

### 2024

### Grow Pipeline

We aim to double our assets under management to 150 MW by the end of fiscal year 2024, focusing on constructing and energizing 48 MW of Project Dorothy 2, and breaking ground on Project Kati.

### Finance Opportunities

We plan to raise funds to support our growth initiatives, particularly in our AI business, which we believe is a great fit for our renewable computing data center model.

### Optimize

Our objective is to achieve operational excellence across all data centers, targeting a budgeted EBITDA and maintaining high customer satisfaction.

### Launch AI

We have 2 MW of our Project Dorothy 2 site slated for our Helix Pilot, focused on next generation data centers for AI. We will partner with industry leaders to bring this online and create a repeatable blueprint for our new AI business.

### Recent Developments and Trends

### Industry Trends

Soluna’s business is influenced by several industry trends, including: (1) challenges in the Bitcoin ecosystem, (2) the Bitcoin Halving, (3) the Inflation Reduction Act, (4) the global Supply Chain, (5) the growth of AI.

#### Bitcoin Ecosystem

Fiscal years 2022 and 2023 proved challenging for the Bitcoin Mining industry. In 2022, several companies in the ecosystem initiated bankruptcy proceedings due to the severe decline in the price of Bitcoin and, the impact on energy prices of the war in Ukraine. This turmoil continued into most of 2023 with many companies working their way through chapter 11 and flooding the market with equipment sales. The trial of Sam Backman Fried, founder and CEO of FTX, the industry’s largest digital asset exchange, dominated the news and continued to compress the value of Bitcoin. Later in the year Changpeng Zhao, the founder of Binance, the largest cryptocurrency exchange in the world, pleaded guilty to money laundering violations. By the end of 2023, tides began to turn for Bitcoin as major asset managers like Black Rock, Greyscale, and Bitwise filed for Bitcoin Spot ETFs. This caused a surge in Bitcoin price beginning in the tail end of 2023 that has benefited revenues in the ecosystem. Consolidation in the space will likely decrease competition on the Bitcoin network, increasing our pro rata share of profits. Our industry leading power prices will allow us to stay on the network longer. Increased regulation of the industry could increase our costs.

#### Bitcoin Halving

In April 2024, Bitcoin underwent its fourth halving event, occurring approximately every four years or after every 210,000 blocks are mined. During a halving, miners’ rewards for validating transactions and creating new blocks on the Bitcoin blockchain are cut in half, reducing the rate of new Bitcoin generation. This event typically triggers anticipation and speculation within the Bitcoin community and among investors, leading to increased market activity. Price volatility tends to rise before and after a halving as the market reacts to perceived supply scarcity. Mining profitability decreases post-halving, potentially prompting some miners to shut down operations. This often sparks consolidations in the space reducing the number of mining companies. However, the network automatically adjusts mining difficulty to ensure consistent block production. The halving also causes a supply shock, reducing Bitcoin’s inflation rate and potentially driving long-term price appreciation, although past performance does not guarantee future outcomes. The 2024 halving will be the first to happen during a high interest rate environment, and in the presence of strong institutional demand for Bitcoin driven by ETFs. Reduction in block-reward will represent a short-term reduction in revenue. But, the supply-shock effect and the growth of ETF may lessen the volatility. A projected rise in Bitcoin price after the halving would increase revenues and increase demand for our low-cost data centers.

#### Inflation Rate Act

The Inflation Reduction Act of 2022 (“IRA”), signed into law by President Biden, is a significant investment in climate and energy in the U.S. At the time of its passage, legislators estimated that the bill would allocate $370 billion, primarily in the form of tax credits, to a wide array of decarbonization efforts. Recent private estimates are much higher. In March, the Brookings Institute released a study estimating the spending at $1.2 trillion, which is three times the Congressional estimate. The Act aims to tackle the climate crisis, advance environmental justice, secure America’s position as a world leader in clean energy manufacturing, and work towards achieving a net-zero economy by 2050. Since its enactment, the Inflation Reduction Act has driven substantial investment in clean energy projects, with over $110 billion announced in new clean-energy manufacturing investments. This includes investments in electric vehicle supply chains and solar manufacturing. Overall, the IRA stimulates economic growth through renewable energy development and infrastructure reinvestment in the United States. The IRA is accelerating the development of new renewable power plants across the country and extending the tax incentives. This growth is likely to exacerbate the wasted energy problem as grid transmission will not keep pace. This would help to increase the company’s long-term project pipeline.

#### Supply Chain

The global supply chain is facing challenges, particularly in the electric power sector, due to the scarcity of power infrastructure components like transformers. The electric grid component market is experiencing a supply and demand mismatch, leading to an ongoing shortage of transformers and other grid components. Over 70% of transmission and power transformers in the U.S. are over 25 years old, and there is insufficient manufacturing capacity to meet the demand for grid transformers and component parts. Factors contributing to the scarcity include aging infrastructure, increasing demand for electricity, extreme weather events threatening reliability, insufficient domestic manufacturing capacity, and reliance on foreign suppliers. President Biden authorized the use of the Defense Production Act Title III to accelerate domestic production of electric grid transformers and components to address the shortage. Companies are using emergency stocks of components, reviewing scheduled work, substituting materials when possible, improving communication with suppliers, and digitalizing processes to enhance efficiency. The scarcity of power infrastructure components like transformers is a critical issue and efforts are being made to address these challenges through various strategies and actions. Difficult to source equipment could affect our growth. We have developed strategic relationships with key equipment providers with manufacturing facilities in the US and Abroad.

#### AI

Since the inception of ChatGPT by OpenAI, AI has experienced remarkable growth, transforming the field. Large language models (“LLM”s) have revolutionized AI, fueling interest in generative AI technologies. The introduction of ChatGPT alone has increased AI-related job listings significantly, indicating its impact beyond tech. In 2023, global venture capital investments in AI soared to $50 billion, reflecting confidence in AI’s future potential. Funding focus has shifted to mature companies with proven technologies, signaling market maturation. This growth has driven demand for computing resources and attracted enterprise interest. The generative AI market is projected to reach $1.3 trillion by 2032, with significant energy implications. By 2030, AI could comprise 3-4% of global power demand, with Google already attributing 10-15% of its power use to AI technologies. The widespread adoption of generative AI like ChatGPT may substantially increase energy consumption across various applications and services. The energy demands of AI will increase focus on the sustainability of the industry. We expect increasing demand for specialized AI data centers with access to renewable energy. This will likely open opportunities for Soluna to provide AI Cloud and Co-location services to new companies and enterprises investing in AI initiatives.

### Consolidated Results of Operations

***Consolidated Results of Operations for the Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023.***

The following table summarizes changes in the various components of our net loss during the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

*(Dollars in thousands)*

|  | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Cryptocurrency mining revenue | $6,396 | 2,796 | 3,600 | 129% |
| Data hosting revenue | 5,278 | 286 | 4,992 | 1,745% |
| Demand response service revenue | 875 | - | 875 | 100% |
| Operating costs and expenses: |  |  |  |  |
| Cost of cryptocurrency mining revenue, exclusive of depreciation | 1,841 | 2,251 | (410) | (18)% |
| Cost of data hosting revenue, exclusive of depreciation | 2,251 | 272 | 1,979 | 728% |
| Costs of revenue- depreciation | 1,523 | 625 | 898 | 144% |
| General and administrative expenses, exclusive of depreciation and amortization | 3,994 | 4,360 | (366) | (8)% |
| Depreciation and amortization associated with general and administrative expenses | 2,403 | 2,377 | 26 | 1% |
| Impairment on fixed assets | 130 | 209 | (79) | (38)% |
| Operating income (loss) | 407 | (7,012) | 7,419 | (106)% |
| Other income, net | 23 | 12 | 11 | 92% |
| Interest expense | (424) | (1,374) | 950 | (69)% |
| Loss on sale of fixed assets | (1) | (78) | 77 | (99)% |
| (Loss) gain on debt extinguishment and revaluation, net | (3,097) | 473 | (3,570) | (755)% |
| Loss before income taxes | (3,092) | (7,979) | 4,887 | (61)% |
| Income tax benefit | 548 | 547 | 1 | -% |
| Net loss | (2,544) | (7,432) | 4,888 | (66)% |
| Net income (loss) attributable to non-controlling interest | 2,710 | (370) | (3,080) | (832)% |
| Net loss attributable to Soluna Holdings, Inc. | $(5,254) | (7,062) | 1,808 | (26)% |

40

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 three months ended March 31, 2024:

*(Dollars in thousands)*

|  | Project Dorothy 1B | Project Dorothy 1A | Project Sophie | Project Marie | Other | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Cryptocurrency mining revenue | $6,396 | $- | $- | $- | $- | $6,396 |
| Data hosting revenue | - | 3,542 | 1,736 | - | - | 5,278 |
| Demand response services | - | - | - | - | 875 | 875 |
| **Total revenue** | $6,396 | $3,542 | $1,736 | $- | $- | $12,549 |
| Cost of cryptocurrency mining, exclusive of depreciation | $1,841 | $- | - | - | - | 1,841 |
| Cost of data hosting revenue, exclusive of depreciation | - | 1,737 | 514 | - | - | 2,251 |
| Cost of revenue- depreciation | 1,084 | 284 | 150 | - | 5 | 1,523 |
| **Total cost of revenue** | $2,925 | $2,021 | $664 | $- | $5 | $5,615 |

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 three months ended March 31, 2023:

*(Dollars in thousands)*

|  | Project Dorothy 1B | Project Dorothy 1A | Project Sophie | Project Marie | Other Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Cryptocurrency mining revenue | $- | $- | $2,027 | $769 | $$ 2,796 |
| Data hosting revenue | - | - | - | 276 | 10 286 |
| Demand response services | - | - | - | - | - - |
| **Total revenue** | $- | $- | $2,027 | $1,045 | $10 $3,082 |
| Cost of cryptocurrency mining, exclusive of depreciation | $61 | $- | 1,389 | 801 | - 2,251 |
| Cost of data hosting revenue, exclusive of depreciation | - | 58 | - | 214 | - 272 |
| Cost of revenue- depreciation | - | - | 503 | 122 | - 625 |
| **Total cost of revenue** | $61 | $58 | $1,892 | $1,137 | $- $3,148 |

***Cryptocurrency Mining Revenue***: Cryptocurrency revenue consists of revenue recognized from Soluna’s cryptocurrency mining operations. Cryptocurrency revenue was approximately $6.4 million for the three months ended March 31, 2024 compared to $2.8 million for the three months ended March 31, 2023. We noted the significant increase of approximately $3.6 million related to the average price of Bitcoin increasing by 134% from the first three months of March 2023 compared to the same period in 2024. We also noted that the dollar Petahash per day between the two periods is 26.6% higher for the three months ended March 31, 2024 compared to same period in 2023. For the three months ended March 31, 2024, all cryptocurrency mining revenue related to Project Dorothy 1B, which began energization in the fourth quarter of 2023, and has been running at a full 25 MWs. Operations were stopped for Project Marie in February 2023 with the CCMA termination and NYDIG repossession of collateralized assets, and Project Sophie switched to Data Hosting beginning in the second quarter of fiscal year 2023, as such no revenue was recognized for either Project Marie or Sophie for the three months ended March 31, 2024. The Company also noted for the three months ended March 31, 2023, that Project Marie shut down when only 8 MW was running for Proprietary Mining and Project Sophie was beginning to struggle and not being able to maintain running at 25 MW, therefore we started our transition to a hosting model.

***Data Hosting Revenue***: The Company’s cryptocurrency hosting services provide energized space and operating services to third-party mining companies who locate their mining hardware at one of our mining locations. Services include fees for hosting the miners which could be fixed fees or profit sharing, as well as potential additional fees for services provided such as installation charges or other services fees. Data hosting revenue was approximately $5.3 million for the three months ended March 31, 2024 compared to $286 thousand for the three months ended March 31, 2023. The significant increase was primarily related to energization and the deployment of hosting customers at Project Dorothy 1A in the second quarter of 2023 creating approximately $3.5 million in data hosting revenue. In addition, Project Sophie switched their business model from proprietary mining to data hosting in the second quarter of 2023, which created an additional increase of approximately $1.7 million. As such, the Company was performing hosting services utilizing approximately 50 MW between Project Dorothy 1A and Project Sophie. Offsetting the increase was the decommission of Project Marie operations in February 2023 causing a decline of approximately $276 thousand quarter over quarter. For the three months ended March 31, 2023, Project Marie was hosting at approximately 10 MW.

***Demand Response Service***: In November 2023, we completed our registration of Project Dorothy for one of ERCOT’s demand response programs, in which we began services in December 2023. On a monthly basis we stand ready to deliver a set amount of committed capacity per month when and if called upon by ERCOT. No such services were performed for the three months ended March 31, 2023.

***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 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.

Cost of cryptocurrency revenue, exclusive of depreciation costs was approximately $1.8 million and $2.3 million for the three months ended March 31, 2024 and 2023, respectively, approximately a $410 thousand decrease. The decline in costs related to the Company operating only one facility for the three months ended March 31, 2024, compared to two facilities for the three months ended March 31, 2023. Also, the electricity costs at Project Dorothy 1B are comparatively cheaper than the costs were at Project Sophie and Marie.

***Cost of Data Hosting Revenue, exclusive of depreciation:*** Cost of data hosting revenue includes utility charges, site overhead expenses, and other charges.

Cost of data hosting revenue was approximately $2.3 million for the three months ended March 31, 2024 compared to $272 thousand for the same period in 2023. This increase was due to Project Dorothy 1A which began operations and hosting services in May 2023, creating costs of approximately $1.7 million for the three months ended March 31, 2024. Also, the Company began data hosting operations at Project Sophie in mid-April 2023, which created an increase in costs of approximately $514 thousand. 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 $214 thousand.

***Cost of revenue- depreciation:*** Depreciation costs associated with cryptocurrency and data hosting revenue was approximately $1.5 million for the three months ended March 31, 2024 compared to approximately $625 thousand for the three months ended March 31, 2023. The increase related to the capital additions to fixed assets between the second quarter of fiscal year 2023 through the first quarter of 2024, totaling approximately $12.4 million. As the Company has begun to invest more in capital expenditures, we expect to see depreciation costs to significantly increase over the next several quarters.

***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 decreased approximately $366 thousand or 8% for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. Total general and administrative expenses were approximately $4.0 million, including approximately $656 thousand of stock compensation expense for the three months ended March 31, 2024, compared to approximately $4.4 million, including $847 thousand of stock compensation for the three months ended March 31, 2023, a. This decrease was mainly related to legal, stock compensation expenses, and investor relations offset with increases in wage and employee recruitment expenses.

Legal fees were reduced by approximately $469 thousand for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The decrease was mainly attributable to Project Dorothy 1A and 1B with Spring Lane and Navitas, in which legal fees associated with those projects were approximately $480 thousand for the three months ended March 31, 2023, compared to $50 thousand for the three months ended March 31, 2024.

Stock based compensation expense decreased by approximately $166 thousand for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, due to an acceleration of the Company’s grants and awards that occurred in May of 2023, as such, the outstanding grants and awards were higher in the previous year for the three months ended March 31, 2023, compared to the three months ended March 31, 2024.

Investor relations decreased by $92 thousand for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 due to expenses associated with higher reach out efforts, in addition to the Special Meeting held in March 2023, in which no Special Shareholder meeting was being held for the three months ended March 31, 2024.

The Company had an increase of approximately $374 thousand in wage related expense for the three months ended March 31, 2024 compared to three months ended March 31, 2023 due to anticipation of hitting performance based targets. The Company incurred approximately $90 thousand in recruitment expenses for the three months ended March 31, 2024 whereas there were no recruitment expenses for the three months ended March 31, 2023, related to the hiring additional key employees for 2024.

***Depreciation and Amortization associated with general and administrative expenses:*** Depreciation and amortization expense was comparable for the three months ended March 31, 2024 and the three months ended March 31, 2023 in which the balances totaled approximately $2.4 million, respectively. The balances mainly related to amortization expense related to the strategic pipeline contract that was acquired in October 2021.

***Impairment on Fixed Assets:*** During the three months ended March 31, 2024, the Company had impairment charges of approximately $130 thousand related to the sale S19 miners that occurred in April 2024, in which the Company wrote down the net book value of the miners to the subsequent sales price. During the three months ended March 31, 2023 the Company had impairment charges of approximately $209 thousand in which related to impairment of approximately $166 power supply units (PSUs) at their Sophie location and $43 thousand for M31 miners in which were subsequently sold in April 2023, in which the Company wrote down the net book value to subsequent sale price.

***Interest expense:*** Interest expense for the three months ended March 31, 2024 was approximately $424 thousand related to approximately $361 thousand to the NYDIG loan and approximately $63 thousand to the Navitas loan. Comparatively, interest expense for the three months ended March 31, 2023 was approximately $1.4 million and related to default and continuing interest expense relating to the NYDIG loan of approximately $377 thousand, interest and other charges of approximately $220 thousand for the promissory notes issued in January and February of 2023, and interest on amortization of warrants for the convertible debt of approximately $360 thousand, as well as default interest charged through March 10, 2023 for the convertible holders of approximately $420 thousand.

***Loss (Gain) on Debt Extinguishment and Revaluation***: For the three months ended March 31, 2024, the Company incurred a $3.1 million loss on debt extinguishment and revaluation. On February 28, 2024, the Company entered into the Fourth Amendment with the Noteholders and lowered the conversion price and issued new warrants and repriced additional warrants with certain exercise features. The issuance and reprice of warrants created a loss of extinguishment of debt of approximately $5.8 million, in which was offset by a gain on debt revaluation of the convertible debt of approximately $1.3 million as of February 28, 2024 (date of Fourth Amendment) and March 31, 2024 due to several factors including assumptions on conversions and payouts, annual volatility and stock price conditions on the dates of valuations. In addition, there was a revaluation of the warrant liability, in which created a gain on revaluation of approximately $1.5 million. The Company did a fair value assessment of the Notes as of March 31, 2023, in which a gain of $473 thousand was recognized for the three months ended March 31, 2023. See Note 8 for further details.

***Loss on Sale of Fixed Assets:*** The Company incurred an immaterial loss on sale of assets of approximately $1 thousand for in which they received proceeds of approximately $78 thousand compared to the net book value of the assets of approximately $79 thousand at the time of sale. The Company incurred a $78 thousand loss for the three months ended March 31, 2023 in connection with mainly the sale of their M20 and M21 miners in which contributed to a loss on sale of equipment of approximately $82 thousand in which they received proceeds of $213 thousand for their M20 and M21 miners, in which had a net book value of $295 thousand prior to the sale. There were additional proceeds of $36 thousand from sale on equipment in March 2023, in which resulted in a gain of approximately $3 thousand of scrap and other equipment.

***Income Tax Benefit:*** Income tax benefit for the three months ended March 31, 2024 and March 31, 2023 was $548 thousand and $547 thousand. The balance 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, 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 three months ended March 31, 2024 and March 31, 2023, the Company amortized $547 thousand. There was an additional state income tax benefit of approximately $1 thousand for the three months ended March 31, 2024.

***Net income / (loss) attributable to non-controlling interest:*** Net income attributable to non-controlling interest for the three months ended March 31, 2024 was $2.7 million compared to a net loss of approximately $370 thousand for the three months ended March 31, 2023. This amount relates to Spring Lane’s 85% noncontrolling interest of the net profit in Soluna DVSL and Navitas 46.7% through 49% noncontrolling interest of the net profit in Soluna DV ComputeCo for the three months ended March 31, 2024, compared to the Spring Lane’s 32.2% noncontrolling interest of Net loss in Soluna DVSL for the three months ended March 31, 2023. Note, there was no noncontrolling interest of DV ComputeCo for the three months ended March 31, 2023. 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 $1.4 million for three months ended March 31, 2024, creating a non-controlling interest profit of approximately $1.2 million, compared to a $433 thousand net loss for the three months ended March 31, 2023, creating a non-controlling interest loss of $370 thousand. In addition, the increase also related to Dorothy 1B, which had a zero balance for the three months ended March 31, 2023 for non-controlling interest to a non-controlling interest profit of $1.5 million for the three months ended March 31, 2024. 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. GAAP”), we also use “Adjusted EBITDA.” Adjusted EBITDA is a non-GAAP financial measure defined as net income (loss) from interest, taxes, depreciation and amortization (“EBITDA”) adjusted to eliminate the effects of certain non-cash, non-recurring items, that we believe do not reflect our ongoing strategic business operations. Management believes that Adjusted EBITDA results in a performance measurement that represents a key indicator of the Company’s business operations of cryptocurrency mining and hosting customers engaged in cryptocurrency mining.

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.

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 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 GAAP.

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

*(Dollars in thousands)*

|  | March 31, 2024 | March 31, 2023 |
| --- | ---: | ---: |
| Net loss | $(2,544) | $(7,432) |
| Interest expense, net | 424 | 1,374 |
| Income tax benefit | (548) | (547) |
| Depreciation and amortization | 3,926 | 3,002 |
| EBITDA | 1,258 | (3,603) |
| **Adjustments- Non-cash items** |  |  |
| Stock-based compensation costs | 661 | 879 |
| Impairment on fixed assets | 130 | 209 |
| Loss on sale of fixed assets | 1 | 78 |
| Loss (gain) on debt revaluation and extinguishment, net | 3,097 | (473) |
| Adjusted EBITDA | $5,147 | $(2,910) |

Stock based compensation costs represented $468 thousand non-cash restricted stock units and $193 thousand non-cash stock options for the three months ended March 31, 2024 to members of our Board of Directors and certain Company employees compared to $687 thousand non-cash restricted stock units and $192 thousand non-cash stock options for the three months ended March 31, 2023 to members of our Board of Directors and certain Company employees .

The following table represents the Adjusted EBITDA activity between each three-month period from January 1, 2023 through March 31, 2024.

*(Dollars in thousands)*

|  | Three months ended March 31, 2023 | Three months ended June 30, 2023 | Three months ended September 30, 2023 | Three months ended December 31, 2023 | Three months ended March 31, 2024 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net loss | $(7,432) | $(9,257) | $(6,016) | $(4,998) | $(2,544) |
| Interest expense, net | 1,374 | 486 | 495 | 393 | 424 |
| Income tax (benefit) expense | (547) | (547) | 569 | (542) | (548) |
| Depreciation and amortization | 3,002 | 2,918 | 3,579 | 3,877 | 3,926 |
| **EBITDA** | (3,603) | (6,400) | (1,373) | (1,270) | 1,258 |
| **Adjustments: Non-cash items** |  |  |  |  |  |
| Stock-based compensation costs | 879 | 2,232 | 595 | 606 | 661 |
| Loss (gain) on sale of fixed assets | 78 | (48) | 373 | (5) | 1 |
| Impairment on fixed assets | 209 | 169 | 41 | 156 | 130 |
| Loss (gain) on debt extinguishment and revaluation, net | (473) | 2,054 | 769 | 1,554 | 3,097 |
| **Adjusted EBITDA** | $(2,910) | $(1,993) | $405 | $1,041 | $5,147 |

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### Liquidity and Capital Resources

Several key indicators of our liquidity are summarized in the following table:

*(Dollars in thousands)*

|  | Three Months Ended or as of March 31, 2024 | Three Months Ended or as of March 31, 2023 | Year Ended or as of December 31, 2023 |
| --- | ---: | ---: | ---: |
| Cash | $8,438 | $4,553 | $6,368 |
| Restricted cash | 2,956 | 493 | 3,999 |
| Working capital (deficit) | (15,502) | (17,218) | (13,891) |
| Net loss | (2,544) | (7,432) | (27,703) |
| Net cash provided by (used in) operating activities | 3,850 | (3,053) | (2,987) |
| Purchase of property, plant and equipment | (524) | (860) | (12,705) |

The Company had a consolidated accumulated deficit of approximately $256.2 million as March 31, 2024. As of March 31, 2024, the Company had negative working capital of approximately $15.5 million, $7.7 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 March 31, 2024 has an outstanding principal balance of approximately $1.1 million. The Company had outstanding commitments as of March 31, 2024, related to SDI of 3.4 million in capital expenditures, in which 95% relate to Project Dorothy 2, and approximately $8.4 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. The Company 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, and data centers to provide specialized AI Cloud and colocation services.

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. We expect to fund growth, including additional development and build-outs of data centers and its AI initiative through project-level capital raising and equity sale activities, to the extent that we can successfully raise capital through sales of additional debt or equity securities, as well as a variety of project specific funding options. 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 March 31, 2024. 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 condensed financial statements as of March 31, 2024, or May 15, 2024.

Further, various macroeconomic factors could adversely affect our business and the results of our operations and financial condition, including changes in inflation, interest rates and overall economic conditions. For instance, inflation could negatively impact the Company by increasing our labor costs, through higher wages and higher interest rates. If inflation or other factors were to significantly increase our business costs, our ability to develop our current projects may be negatively affected. Interest rates, the liquidity of the credit markets and the volatility of the capital markets could also affect the operation of our business and our ability to raise capital in order to fund our operations. If our revenue estimates are off either in timing or amount, or if cash generated from operations is insufficient to satisfy the operational working capital and capital expenditure requirements, the Company plans to implement additional steps to ensure liquidity including, but not limited to, the deferral of planned capital spending and/or delaying existing or pending product development initiatives; alternatively, the Company may be required to obtain credit facilities or other loans, if available, to fund these initiatives. 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 provided by operations was approximately $3.9 million during the three months ended March 31, 2024. The Company had a net loss for the three months ended March 31, 2024 of approximately $2.5 million. Non-cash items included approximately $1.6 million of depreciation expense, and $2.4 million of amortization expenses, $661 thousand of stock compensation expenses, $3.1 million of loss on debt extinguishment and revaluation, and $130 thousand of impairment of fixed assets. These non-cash items were offset with a deferred tax benefit of $548 thousand. The change in asset and liabilities of $942 thousand related to increase in accounts receivable of $1.5 million attributable for demand service revenue and data hosting customer receivables significantly increasing, offset with increases in accrued expenses and accounts payable of $929 thousand. The other changes in assets and liabilities were not material.

Net cash used in operations was approximately $3.1 million during the three months ended March 31, 2023. The Company had a net loss for the three months ended March 31, 2023 of $7.4 million. Non-cash items included $632 thousand of depreciation expense and $2.4 million of amortization expenses, as well as amortization on discount on notes payable of approximately $500 thousand, $879 thousand of stock compensation expenses, and $209 thousand of impairment of fixed assets. These non-cash items were offset with a deferred tax benefit of $547 thousand and revaluation gain on debt of $473 thousand. The change in asset and liabilities of $675 thousand related to increase in accounts payable of $1.4 million in which Spring Lane made noncash contributions to pay off approximately $1.1 million that was outstanding as of December 31, 2022, offset by increases in other long term liabilities related to electricity deposits to Western Kentucky and Washington state, and a decrease in deferred revenue of $453 thousand in which the balance had been written off as of March 31,2023. The other changes in assets and liabilities were not material.

### Investing Activities

Net cash used in investing activities during the three months ended March 31, 2024 was approximately $827 thousand consisting mainly of capital expenditures of $524 thousand and increase in deposits on equipment of $343 thousand. Net cash used in investing activities during the three months ended March 31, 2023 was approximately $435 thousand consisting mainly of capital expenditures of $860 thousand less cash proceeds from sale of equipment and $200 thousand net change in deposits on equipment.

### Financing Activities

Net cash used in financing activities was approximately $2.0 million consisting mainly of $1.7 million of cash distributions to non-controlling interest members, $616 thousand in principal payments of the Navitas loan, offset with $300 thousand of warrant exercises. Net cash provided by financing activities was approximately $6.7 million during the three months ended March 31, 2023, which consisted of cash contributions for non-controlling interest of approximately $6.0 million. The Company also received net proceeds from debt issuances of $900 thousand less costs of $215 thousand.

### 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 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. 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 and March 31, 2024. 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.

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. On May 11, 2023, the Company entered into the Second Amendment with the Noteholders in which increased the principal outstanding balance to approximately $13.3 million and extending the maturity date to July 2024. On November 20, 2023 the Company and the Noteholders entered into a Third Amendment Agreement to amend the Notes, the October SPA and related agreements to facilitate future financings by the Company that may include funds for prepayment of the Notes by permitting the Company to force conversion of up to $1.5 million of the Notes under certain circumstances and reduce the prepayment penalty in return for reducing the conversion price of the $4.7 million of the Notes to $3.78 and reducing the exercise price of 150 thousand of the Warrants to $0.01.The Noteholders have converted approximately $4.6 million between May 11, 2023 to December 31, 2023, reducing the principal balance to approximately $8.7 million as of December 31, 2023. On February 28, 2024, the Company and the Noteholders have entered into a Fourth Amendment which allowed all the outstanding debt to be converted at a rate of $3.78. The Noteholders converted approximately $1.0 million between January 1, 2024 through March 31, 2024, reducing the outstanding principal balance to approximately $7.7 million as of March 31, 2024.

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 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. As of March 31, 2024, the Company still has an outstanding loan principal of approximately $9.2 million and outstanding interest and penalty balance of approximately $1.3 million.

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 March 31, 2024, the Company has an outstanding principal balance of approximately $1.1 million.

### Critical Accounting Policies and Significant Judgments and Estimates

The above 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 accounting principles generally accepted in the United States of America. Note 2, Accounting Policies, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2023 includes a summary of our most significant accounting policies. There have been no material changes to the critical accounting policies previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023. The preparation of these condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, 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, fair value measurements, and stock-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.

### Statement Concerning Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Exchange Act. Any statements contained in this Form 10-Q that are not statements of historical fact may be forward-looking statements. When we use the words “anticipate,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend,” “should,” “could,” “may,” “will” and similar words or phrases, we are identifying forward-looking statements. Such forward-looking statements include, but are not limited to, statements regarding:

- the availability of financing opportunities, risks associated with economic conditions, dependence on management and conflicts of interest;
- the ability to service debt obligations and maintain flexibility in respect of debt covenants;

47

- economic dependence on regulated terms of service and electricity rates;
- the speculative and competitive nature of the technology sector;
- ability of the Company to attract and retain hosted customers for its hosting operations;
- ability of the Company to successfully implement its business expansion strategy into cloud service for artificial intelligence;
- dependency in continued growth in blockchain and cryptocurrency usage;
- lawsuits and other legal proceedings and challenges;
- conflict of interests with directors and management;
- government regulations;
- The ability of the Company to construct and complete the anticipated expansion of our data centers; and
- other factors beyond the Company’s control;
- other factors discussed under the heading “Risk Factors” in this report and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Forward-looking statements speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

### Factors Expected to Affect Our Future Results

#### Revenue Sources:

Our revenue streams consist of several components:

1\. **Hosting Revenues:** We provide electrical power and network connectivity to cryptocurrency mining customers, who pay a specified amount and rate for these services. In the first quarter of 2024, we have engaged in a co-location agreement with a GPU startup delivering specialized GPU services for AI computing.

2\. **Block Rewards in Bitcoin**: These are fixed rewards programmed into the Bitcoin software and awarded to miners for solving cryptographic problems and creating new blocks on the blockchain.

3\. **Participation in Demand Response Programs:** We also generate revenue by participating in demand response programs.

#### Market Price of Bitcoin

Changes in the market value of Bitcoin directly impact our revenues. For example, in 2021 and 2022, the average Bitcoin price was $47,432 and $28,298, respectively. By December 31, 2023, the price of Bitcoin had reached a high of $44,146. For the three months ended March 31, 2024, the price of Bitcoin had reached a high of $73,083, and the average price of Bitcoin for the three months ended March 31, 2024 was $53,578.

#### Halving

Halving events occur periodically in the Bitcoin network, reducing block rewards. The reduction is designed to occur irrespective of ongoing demand. While halving can impact our revenues negatively by reducing the rewards for mining, it will continue until the total Bitcoin rewards issued reach approximately 21 million, expected around 2140. As of March 31, 2024, the block rewards were fixed at 6.25 Bitcoin per block, and on April 19, 2024 Bitcoin halved again to 3.125.

#### Network Hash Rate and Difficulty

A miner’s chance of earning Bitcoin rewards depends on their hash rate relative to the global network hash rate. As demand for Bitcoin increases, the global network hash rate rises rapidly, leading to higher network difficulty. This adjustment ensures a ten-minute block validation time, making the network more secure but requiring more computing power to earn rewards. Failure to keep pace with industry trends in deploying additional hash rate can decrease a miner’s share of the global network hash rate and, consequently, their chance of earning rewards.

## Controls and procedures

As filed, 4,975 characters.

The certifications of our Chief Executive Officer and Chief Financial Officers are attached as Exhibits 31.1 and 31.2 to this Quarterly Report on Form 10-Q include, in paragraph 4 of such certification, information concerning our disclosure controls and procedures and internal control over financial reporting. Such certification should be read in conjunction with the information contained in this Item 4 for a more complete understanding of the matters covered by such certification.

#### (a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2024. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. We recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and we necessarily apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our management concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of March 31, 2024, due to the following material weakness:

- During the quarter ended March 31, 2024 the Company incurred a debt amendment. The Company performed accounting analysis to record this transaction. However, due to its complexity, an additional material adjustment related to the classification of warrants was identified, recorded and reported in the condensed consolidated financial statements later during the quarterly review.

Notwithstanding the existence of this material weakness, management has concluded that the Company’s unaudited condensed consolidated financial statements in its Quarterly Report on Form 10-Q for the period ended March 31, 2024 are fairly stated in all material respects in accordance with generally accepted accounting principles in the United States of America.

*Remediation:*

Our Board of Directors and management take internal control over financial reporting and the integrity of our financial statements seriously. Management continues to work to improve its controls related to our material weaknesses. The remediation actions include: (i) enhancing design and documentation related to complex transactions and control activities, and (ii) developing robust review procedures to ensure the proper recording and reporting of the complex transactions. To achieve the timely implementation of the above, management has commenced the following actions and will continue to assess additional opportunities for remediation on an ongoing basis:

- Implementing more robust policies and procedures, relating to complex transactions and assessments, to ensure the reliability of controls and financial reporting
- Engaging consultants and third-party specialists to ensure that all entries recorded in regards to complex transactions align to accounting guidance and align to expectations on the condensed financial statements.

We cannot provide any assurance that these remediation efforts will be successful or that our internal control over financial reporting will be effective as a result of these efforts. In addition, we continue to evaluate and work to improve our internal control over financial reporting related to the identified material weakness, management may determine to take additional measures to address control deficiencies or determine to modify the remediation plan described above.

#### (b) Changes in Internal Control Over Financial Reporting

We are taking the remedial actions described above and expect to implement them prior to June 30, 2024. Other than the changes for our control procedures around complex transactions in which we plan to remediate above, there have been no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our fiscal quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 1,656 characters.

Part II, Item 1A (Risk Factors) of our most recently filed Annual Report on Form 10-K with the SEC, filed on April 1, 2024, sets forth information relating to important risks and uncertainties that could materially adversely affect our business, financial condition and operating results. Except as to the risk factors set forth below and to the extent that information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors (including, without limitation, the matters described in Part I, Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations – Statement Concerning Forward Looking Statements), there have been no material changes to our risk factors disclosed in our most recently filed Annual Report on Form 10-K. Those risk factors continue to be relevant to an understanding of our business, financial condition and operating results, however, and, accordingly, you should review and consider such risk factors in making any investment decision with respect to our securities.

#### We have a Limited History in the Cloud Service and Artificial Intelligence Business

We are implementing a strategy to move into the cloud service business to provide green energy to power-intensive artificial intelligence applications. This is a new business for the Company and no history of operations in this industry from which to evaluate our future operating performance in this segment. Our ability to implement this strategy is dependent upon successfully deploy new supercomputers in conjunction with our strategic partner and to attract and retain customers in a very competitive market.

Filed May 15, 2024.
Source: SEC EDGAR, the filing index for accession 0001493152-24-020047. Last ingested by Listed: Oct 27, 2026, 17:30 ET. No prices; not investment advice.