# Soluna Holdings, Inc: Form 10-Q for the period ended Sep 30, 2024

- Company: [Soluna Holdings, Inc](/companies/slnh.md) (CIK 64463)
- Form: 10-Q
- Filed: 2024-11-14
- Accepted by EDGAR: Nov 14, 2024, 15:07 ET
- Period: 2024-09-30
- Accession: 0001493152-24-045722
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/64463/000149315224045722/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/64463/000149315224045722/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $8.9m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $20.1m | us-gaap:CostOfRevenue |
| Selling, general and administrative | 3 months, 2024-07-01 to 2024-09-30 | $7.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2024-01-01 to 2024-09-30 | $21.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | −$9.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | −$12.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-07-01 to 2024-09-30 | $821.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2024-01-01 to 2024-09-30 | $1.7m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | −$547.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | −$1.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | −$7.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | −$23.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | −$1.29 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | −$6.00 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | −$1.29 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | −$6.00 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 7,738,664 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 5,147,602 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | −$3.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $3.8m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-09-30 | $8.8m | us-gaap:Cash |
| Current assets | at 2024-09-30 | $18.5m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $97.3m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $31.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $45.8m | us-gaap:Liabilities |
| Long-term debt | at 2024-09-30 | $8.1m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2024-09-30 | $20.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 98,446 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, hydroelectric and other renewable power plants and support compute intensive applications including Bitcoin Mining, Generative AI, Scientific Computing and other forms of High-Performance Computing (HPC). 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 lines:

- **Bitcoin Hosting –** we host Bitcoin Mining customers at our data centers.
- **Proprietary Bitcoin Mining –** we mine Bitcoin through joint ventures at our data centers.
- **AI Cloud and Hosting Services –** we provide GPU-as-a-Service and provide colocation services at our data centers for companies seeking to train large language models, tune existing AI models, and deploy advanced AI-powered applications or other HPC workloads.
- **Demand Responses Services –** we utilize our data centers to deliver demand response services to grid operators.

#### Operations and Project Pipeline

We currently operate 75 MW of facilities at two locations. We have another 405 MW of facilities in development or near shovel ready in the United States. In addition, we have a 2 GW+ pipeline of renewable-energy powered projects. A summary of our pipeline, current and anticipated operating locations are as follows (as of September 30, 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 |
| **Ada** | Cloud | – | Operating 512 GPU Cluster | AI | Grid / Hydro |
| **Dorothy 2** | Silverton, TX | 50 | In Construction | Bitcoin Hosting | Wind |
| **Grace** | Silverton, TX | 2 | Development | AI | Wind |
| **Kati** | Harlington, TX | 166 | Development | Bitcoin Hosting / AI | Wind |
| **Rosa** | Snyder, TX | 187 | Development | Bitcoin Hosting / AI | Wind |

### 2024 overview and developments

In 2024, our execution has been focused on four key initiatives, namely:

(1) Optimize Projects – improve the profitability, operational efficiency, customer satisfaction and customer mix at our operating data centers;

(2) Grow Pipeline – increase the number of curtailment assessments completed, sign more term sheets for projects and mature more projects to shovel readiness;.

(3) Launch AI – form, capitalize, and begin operations of our AI Cloud services business in partnership with a leading Original Equipment Manufacturer (“OEM”) partner and kick off customer development activities; and

(4) Financing Opportunities – Raise capital to support our growth initiatives, including Project Dorothy 2, Project Ada, and Project Kati. to support.

A summary of our overview and developments in these areas follows below.

### Energize Project Dorothy

We transitioned our flagship data center Project Dorothy from construction to operations during 2023 between spring and fall. 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.

#### Dorothy 1A

D1A is focused on Bitcoin Hosting of two large customers. There are approximately 7,700 Bitcoin miners installed between the two customers, resulting in an installed hashrate of approximately 950 PH/s. From May 2023 through December 31, 2023, D1A consumed over 11,900 MWh of Curtailed Energy and achieved a power usage effectiveness (“PUE”) of 1.03. For the three and nine months ended September 30, 2024, D1A consumed over 2,900 MWh and 31,000 MWh of Curtailed Energy and achieved a PUE of 0.99.

D1A was constructed in partnership with Spring Lane Capital (“SLC”), a leading venture capital firm focused on sustainability solutions. SLC owns approximately 85% of the Class B Membership Units, while we own 15% and own 100% of the Class A Membership Units. After SLC achieves an 18% Internal Rate of Return hurdle, Soluna retains 50% of the profits on D1A.

#### Dorothy 1B

D1B is focused on proprietary Bitcoin Mining. There are approximately 7,900 Bitmain Antminer S19s, S19j Pro and S19j Pro+ machines installed, resulting in an installed hashrate of 817 PH/s From July 2023 through December 31, 2023, D1B consumed over 10,600 MWh of Curtailed Energy and achieved a PUE of 1.03. For the three and nine months ended September 30 2024, D1B consumed over 2,650 and 30,800 MWh of Curtailed Energy and achieved a PUE of 0.99.

#### Demand Response Services at Dorothy

In November 2023, we completed registration of Project Dorothy for one of ERCOT’s Demand Response Services (“DRS”) programs establishing the project as a 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. The Company is able to generate additional revenue for Project Dorothy by providing this grid resilience support which reduces its power costs, making it one of the lowest cost players in the industry. Since November 2023, Project Dorothy has successfully participated in and completed the Winter, Spring and Summer DRS periods in ERCOT, and is currently in the fall standby period.

### 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. We own 100% of the facility which was completed in 2021.

Sophie is focused on Bitcoin Hosting of multiple large customers such as Bit Digital and Compass. The data center generates revenue via a combination of fixed services fees and profit share, while energy cost is passed through. There are approximately 9,000 Bitcoin miners installed, resulting in an installed hashrate of approximately 801 PH/s. For 2023, the facility achieved a PUE of 1.03. For the three and nine months ended September 30, 2024, the facility achieved a PUE of 1.02.

#### 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 improvement initiatives and 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. In 2024, our Maestro control system has continued to respond well to increases in grid demand throughout the summer.

In 2024, our objective is to achieve operational excellence across all data centers, targeting a budgeted EBITDA and maintaining high customer satisfaction. Our infrastructure optimization efforts have been completed to protect equipment against the severe summer heat to include miner heat shielding, building insulation upgrades, and transformer fan kit installations.

### Flagship Expansion

#### Dorothy 2

We began planning for the 50 MW expansion of Project Dorothy in 2023. We partnered with SLC who will finance up to $30 million of the project cost. We closed the initial financing contribution and operation agreement with SLC in July 2024 and broke ground in the third quarter of 2024. Initial energization and ramp-up is expected by the end of the first quarter of 2025. Dorothy 2 will feature a stronger waterfall structure and enhanced management and development fees compared to Dorothy 1A, allowing Soluna to benefit from substantial income once the facility is operational.

In addition, we have 2 MW of our Project Dorothy 2 site slated for our Helix Pilot, focused on next generation data centers for AI.

### Pipeline Growth

#### Kati

Project Kati is planned to be a 166 MW data center integrated with a 300 MW wind farm in South Texas. It is expected to host a mix of Bitcoin Mining and AI/HPC customers in separate data center facilities located onsite and sharing certain infrastructure. The project has progressed rapidly from term sheet signing in 2023 through the ERCOT planning process and signing of a PPA with EDF Renewables and Masdar - Abu Dhabi Future Energy Company.

#### Rosa

Project Rosa is planned to be a 187 MW data center integrated with a 240 MW wind farm in North Texas. It is, like Kati, expected to host a mix of Bitcoin Mining and AI/HPC customers in separate data center facilities located onsite and sharing certain infrastructure. Term sheets for power and land were signed in September 2024 and the project will soon move into and through the ERCOT planning process as well as securing a PPA.

We are on track to nearly double our assets under management by the end of 2024 or early 2025 and thereafter which is our goal.

### Launch AI

#### Ada

Project Ada launched when a subsidiary of Soluna Cloud entered into a $12.5 million credit facility with GreenCloud Partners in June 2024 and a $1.25 million credit facility on the same terms with a syndicated group of lenders related to Alpha Capital in July. These funds enabled us to fund ongoing working capital needs and to secure an agreement with Hewlett Packard Enterprise Company (“HPE”) to acquire access to datacenter and cloud services for AI and HPC processes for 36 months at a cost of $34 million, with $10.3 million pre-paid in June at contract execution.

Soluna Cloud began offering its services by leveraging HPE’s renewable-powered high performance data centers. Their cutting-edge facilities, known for their energy efficiency and sustainability, support the environmental sustainability of Soluna Cloud’s operations. Additionally, this collaboration expands Soluna Cloud’s offering beyond just bare-metal infrastructure, making available HPE’s comprehensive software solutions for AI pipelines. As an HPE Partner Ready Service Provider partner, Soluna Cloud will offer its advanced cloud solutions to HPE’s global customer base demonstrating AI expertise and delivery capabilities. This partnership can be expanded in the future.

#### Grace

Project Grace will leverage Soluna’s new Helix data center model to be built at 2 MW capacity adjacent to Project Dorothy. The Helix model will serve as the growth pathway for customers, addressing the growing demand for more sustainable data centers for AI powered by renewable energy and will demonstrate Soluna’s proprietary data center design and its substantial expected benefits.

### Financing Opportunities

#### Yorkville Standby Equity Purchase Agreement (“SEPA”)

We secured a $25 million SEPA in August 2024 with a subsidiary fund of Yorkville Advisors. This facility provides cash to us by way of draws against it which can be made once the S-1 registration statement that was filed in September 2024 is effective and can be fully used once shareholder approval to remove the exchange cap is obtained which is expected to be in November 2024. Funds from this facility will fund critical Soluna Cloud AI operations and data center development, capital for deployment into projects to improve equity ownership and cash flows, to strengthen the balance sheet and to retire existing convertible loan notes.

In order to secure necessary consents for the SEPA, agreements were reached with existing convertible loan noteholders and the Preferred Series B stockholder. The agreements with convertible loan note holders resulted in prepayment of convertible loan note prepayment fees, payment of a waiver fee of $750 thousand and an obligation to purchase the $1.25 million Soluna Cloud notes and pay unconverted convertible loan note balances from cash raised from the SEPA. The agreements with the Preferred Series B stockholder resulted in limitations of future rights of first refusal, participation, consent and warrant or stock conversion and repricing of the conversion price and existing warrants and issuance of new warrants.

#### Convertible Noteholders

In 2023 and early 2024, the Company negotiated four amendments to the Convertible Notes. 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. Additionally on May 17, 2024, certain warrants were further repriced to assist in raising additional capital.

#### Future Financing

We plan to raise funds, via the SEPA and other means, to support accretive opportunities related to our growth initiatives and projects.

### 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 presented unprecedented challenges for the Bitcoin mining industry. In 2022, a sharp drop in Bitcoin prices, compounded by geopolitical tensions such as the war in Ukraine and surging global energy costs, drove several mining companies into bankruptcy proceedings, resulting in market oversaturation with used mining equipment at steep discounts. This destabilization persisted well into 2023, further complicated by high-profile industry setbacks, including the collapse of FTX and regulatory scrutiny on Binance, the largest global cryptocurrency exchange. These events collectively dampened investor confidence and weighed on Bitcoin prices.

In late 2023, a critical turning point emerged as major asset managers, including BlackRock, Grayscale, and Bitwise, submitted applications for Bitcoin Spot Exchange-Traded Funds (ETFs). The anticipation surrounding potential ETF approvals reignited interest in Bitcoin, creating a bullish shift in market sentiment. Bitcoin prices have since seen upward momentum, providing substantial revenue opportunities across the ecosystem. The approval and adoption of Bitcoin ETFs in mainstream financial markets could seem poised to have marked a milestone for broader institutional support, having facilitated greater liquidity, price stability, and increased investment in the sector.

As we progress through 2024, the Bitcoin mining sector seems positioned for both recovery and transformation. The trend of institutionalization appears to be shaping the industry’s landscape, with consolidation likely reducing network competition, thus potentially increasing our share of Bitcoin rewards. Our company’s access to low-cost and renewable energy sources places us in a strategic position to maximize uptime and efficiency as hash rates and mining difficulty continue to climb.

Key factors shaping industry dynamics include ETF approvals, which have bolstered Bitcoin prices, increased institutional participation that may provide stability, and the possibility of a more defined regulatory framework as the digital asset landscape matures. However, as the sector gains mainstream acceptance, miners must also prepare for regulatory and ESG scrutiny, fluctuating energy costs, and market consolidation. Our emphasis on low-cost, renewable energy sources and strategic risk management supports our ability to navigate these challenges while maximizing profitability and operational longevity.

Looking forward, we are cautiously optimistic about industry trends, with a strong focus on agility, cost-efficiency, and compliance as we adapt to an evolving Bitcoin mining landscape.

#### 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 was 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 ETFs may lessen the volatility in the long run. A projected rise in Bitcoin price in the months after the halving would increase revenues and increase demand for our low-cost data centers.

Recent events, including the Mt. Gox settlements have significantly impacted Bitcoin’s price and supply due to the reintroduction of approximately 141,000 bitcoins into the market, raising concerns about increased selling pressure and market volatility. Despite these concerns, experts believe the market has sufficient liquidity to absorb the selling pressure, and the impact on Bitcoin’s value is expected to be temporary. The announcement of repayments led to a notable decline in cryptocurrency prices, with Bitcoin experiencing a 6% drop in a single day and the overall market capitalization decreasing by over $170 billion. However, the long-term investment prospects for Bitcoin remain positive, influenced by broader economic factors such as potential Federal Reserve rate cuts.

#### Inflation Reduction 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. In 2024, new guidance was issued allowing eligible taxpayers to sell their energy tax credits to unrelated parties, further incentivizing clean energy investments and potentially increasing 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 digitizing 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 has substantially increased energy consumption across various applications and services. *(In 2023, Google reported a 17% increase in data center energy consumption, driven by AI. Microsoft consumed 24 TWh of energy in a single year—more than some developed nations.)* 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 Colocation services to new companies and enterprises investing in AI initiatives.

Since March 2024, developments in Generative AI have included advancements in multimodal models that integrate text, image, and audio generation, as well as improvements in model efficiency and scalability. Major tech companies have launched new Generative AI tools tailored for specific industries, enhancing productivity and innovation across sectors such as healthcare, finance, and entertainment. These advancements underscore the need for robust, energy-efficient infrastructure to support the growing capabilities and applications of Generative AI.

AI Infrastructure is now in increased demand. For example, Core Scientific and CoreWeave forged a partnership in June 2024 worth billions of dollars. This trend bodes well for Soluna’s prospects as it expands into the AI Infrastructure space through its subsidiary Soluna Cloud, in collaboration with Hewlett Packard Enterprise.

#### Hosting Agreement Termination

Recently we have entered into substantive discussions with a customer, representing over 50% of our data hosting revenue, to mutually terminate a hosting agreement early. This is most likely to take place during the fourth quarter of 2024. We are also in significant and advanced discussions with multiple potential customers who are expected to fully replace the lost hosting capacity with minimal interruptions, also likely to take place during the fourth quarter of 2024.

### Consolidated Results of Operations

***Consolidated Results of Operations for the Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023.***

The following table summarizes changes in the various components of our net loss during the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

*(Dollars in thousands)*

|  | Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Cryptocurrency mining revenue | $2,811 | 1,786 | 1,025 | 57% |
| Data hosting revenue | 4,271 | 4,011 | 260 | 6% |
| High-performance computing service revenue | - | - | - | -% |
| Demand response service revenue | 443 | - | 443 | 100% |
| Operating costs and expenses: |  |  |  |  |
| Cost of cryptocurrency mining revenue, exclusive of depreciation | 1,963 | 1,040 | 923 | 89% |
| Cost of data hosting revenue, exclusive of depreciation | 2,555 | 2,150 | 405 | 19% |
| Costs of high performance computing services | 2,859 | - | 2,859 | 100% |
| Costs of revenue- depreciation | 1,512 | 1,200 | 312 | 26% |
| General and administrative expenses, exclusive of depreciation and amortization | 5,248 | 2,723 | 2,525 | 93% |
| Depreciation and amortization associated with general and administrative expenses | 2,404 | 2,379 | 25 | 1% |
| Impairment on fixed assets | - | 41 | (41) | (100)% |
| Operating loss | (9,016) | (3,736) | (5,280) | 141% |
| Other expense, net | (6) | (74) | 68 | (92)% |
| Interest expense | (821) | (495) | (326) | 66% |
| Loss on sale of fixed assets | - | (373) | 373 | (100)% |
| Gain (loss) on debt extinguishment and revaluation, net | 1,203 | (769) | 1,972 | (256)% |
| Loss before income taxes | (8,640) | (5,447) | (3,193) | 59% |
| Income tax benefit (expense) | 547 | (569) | 1,116 | (196)% |
| Net loss | (8,093) | (6,016) | (2,077) | 35% |
| Net loss (income) attributable to non-controlling interest | 903 | (646) | 1,549 | (240)% |
| Net loss attributable to Soluna Holdings, Inc. | $(7,190) | (6,662) | (528) | 8% |

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 September 30, 2024:

*(Dollars in thousands)*

|  | Project Dorothy 1B | Project Dorothy 1A | Project Sophie | Project Ada | Other | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Cryptocurrency mining revenue | $2,811 | $- | $- | $- | $- | $2,811 |
| Data hosting revenue | - | 3,515 | 756 | - | - | 4,271 |
| Demand response services | - | - | - | - | 443 | 443 |
| **Total revenue** | $2,811 | $3,515 | $756 | $- | $443 | $7,525 |
| Cost of cryptocurrency mining, exclusive of depreciation | $1,963 | $- | - | - | - | 1,963 |
| Cost of data hosting revenue, exclusive of depreciation | - | 2,025 | 521 | - | 9 | 2,555 |
| Cost of high-performance computing services | - | - | - | 2,859 | - | 2,859 |
| Cost of revenue- depreciation | 1,076 | 284 | 152 | - | - | 1,512 |
| **Total cost of revenue** | $3,039 | $2,309 | $673 | $2,859 | $9 | $8,889 |

41

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 September 30, 2023:

*(Dollars in thousands)*

|  | Project Dorothy 1B | Project Dorothy 1A | Project Sophie | Project Marie | Other Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Cryptocurrency mining revenue | $1,739 | $- | $47 | $- | $$ 1,786 |
| Data hosting revenue | - | 3,016 | 991 | - | 4 4,011 |
| Demand response services | - | - | - | - | - - |
| **Total revenue** | $1,739 | $3,016 | $1,038 | $- | $4 $5,797 |
| Cost of cryptocurrency mining, exclusive of depreciation | $1,023 | $- | 17 | - | - 1,040 |
| Cost of data hosting revenue, exclusive of depreciation | - | 1,766 | 384 | - | - 2,150 |
| Cost of revenue- depreciation | 739 | 284 | 171 | 6 | - 1,200 |
| **Total cost of revenue** | $1,762 | $2,050 | $572 | $6 | $- $4,390 |

***Cryptocurrency Mining Revenue***: Cryptocurrency revenue consists of revenue recognized from Soluna’s cryptocurrency mining operations. Cryptocurrency revenue was approximately $2.8 million for the three months ended September 30, 2024 compared to $1.8 million for the three months ended September 30, 2023. For the three months ended September 30, 2024, all cryptocurrency mining revenue related to Project Dorothy 1B, which began energization in the third 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 creating only $47 thousand in cryptocurrency revenue for the three months ended September 30, 2023, as such no revenue was recognized for either Project Marie or Sophie for the three months ended September 30, 2024. As noted above, Project Dorothy 1B began operations in the third quarter of 2023 as such was not running at 100% in the third quarter of 2023 and generated approximately $1.7 million of revenue. In addition to the above, the average price of Bitcoin increased by 118% from the three months ended September 30, 2023 compared to the same period for September 2024.

***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 $4.3 million for the three months ended September 30, 2024 compared to $4.0 million for the three months ended September 30, 2023. The increase was primarily related to continued energization and the deployment of hosting customers at Project Dorothy 1A which began in the second quarter of 2023 creating approximately $3.5 million in data hosting revenue for the third quarter of 2024 compared to approximately $3.0 million for the third quarter of 2023, approximately a $500 thousand increase, in which was offset by a slight decrease in revenue of $235 thousand at Project Sophie who switched their business model from proprietary mining to data hosting in the second quarter of 2023.

***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 period when and if called upon by ERCOT. We note that based on the time of the year, certain months and weather create more lucrative rewards. No such services were performed for the three ended September 30, 2023.

***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. 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 $2.0 million and $1.0 million for the three months ended September 30, 2024 and 2023, respectively, approximately $923 thousand increase. The higher costs during the three months ended September 30, 2024 compared to 2023 were due to the full Project Dorothy 1B site being active the entire quarter of 2024, versus as a startup in 2023. Also noted was that Project Sophie was dropping from being a proprietary mining site in the second quarter of 2023.

***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 $2.6 million for the three months ended September 30, 2024 compared to $2.2 million 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 $2.0 million for the three months ended September 30, 2024, compared to $1,8 million for the three months ended September 30, 2023. Also, the Company began data hosting operations at Project Sophie in mid-April 2023, which created an increase in costs of approximately $137 thousand between the comparable periods.

***Cost of High-Performance Computing Services:*** Cost of high-performance computing services include production costs related to high performance computing services which for the three months ended September 30, 2024 was approximately $2.9 million and related to an agreement with HPE effective July 1, 2024 to acquire access to datacenter and cloud services for AI and HPC processes. As of September 30, 2024, no revenue has been generated for these services. There were no such costs associated for the three months ended September 30, 2023.

***Cost of revenue- depreciation:*** Depreciation costs associated with cryptocurrency and data hosting revenue was approximately $1.5 million for the three months ended September 30, 2024 compared to approximately $1.2 million for the three months ended September 30, 2023. The increase related to the capital additions to fixed assets between the second quarter of fiscal year 2023 through the third quarter of 2024. It was noted that Project Marie was discontinued in February of 2023, Project Sophie had sold a majority of its miners in the second quarter of 2023, and the significant additions of capital expenditures at Project Dorothy, causing an increase in depreciation costs period over period. 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, 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.

- General and administrative expenses, exclusive of depreciation and amortization increased approximately $2.5 million or 93% for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. General and administrative expenses, exclusive of depreciation and amortization were approximately $5.2 million, including approximately $1.2 million of stock compensation expense for the three months ended September 30, 2024, compared to approximately $2.7 million, including $590 thousand of stock compensation for the three months ended September 30, 2023. The increase in general and administrative expenses, exclusive of depreciation and amortization was mainly due to employee related expenses, legal fees, professional fees, related credit loss provision expense, and stock compensation expenses.
- The Company had an increase of approximately $838 thousand in employee related expense for the three months ended September 30, 2024 compared to three months ended September 30, 2023 due to an increase in resources and salaries of approximately $435 thousand, and in anticipation of hitting performance-based targets of approximately $403 thousand.
- Legal fees increased by approximately $391 thousand for the three months ended September 30, 2024 compared to the three months ended September 30, 2023; the increase is due to the legal work related to Project Dorothy 2, equity plan amendments, and other development projects.
- The Company took a provision for expected credit loss for approximately $346 thousand for the three months ended September 30, 2024 in relation an unresolved pricing dispute with a Bitcoin hosting customer, compared to no provision for the three months ended September 30, 2023.
- Professional fees associated to audit and tax increased by approximately $77 thousand for the three months ended September 30, 2024 compared to September 30, 2023 due to additional costs review of complex transactions and additional tax work related to subsidiary entities.
- Stock compensation increased approximately $659 thousand due multiple grants in April, June and September of 2024 causing an increasing in expense for the three months ended September 30, 2024 compared to the prior comparable period.

***Depreciation and Amortization associated with general and administrative expenses:*** Depreciation and amortization expense was comparable for the three months ended September 30, 2024 and the three months ended September 30, 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.

***Interest expense:*** Interest expense for the three months ended September 30, 2024 was approximately $821 thousand related to approximately $369 thousand to the NYDIG loan, $431 thousand to compounded interest and deferred financing amortization expense for the equipment financing loan and June and July 2024 secured note financing, and $22 thousand to the Navitas loan. Interest expense for the three months ended September 30, 2023, was $495 thousand which primarily related to mainly related to interest accrued on the Navitas loan of $85 thousand and interest on the NYDIG Financing Loan of approximately $405 thousand.

***Gain (Loss) on Debt Extinguishment and Revaluation, net***: For the three months ended September 30, 2024, the Company had a gain on revaluation of approximately $1.2 million. The gain was in relation to the convertible notes of $2.3 million due to factors including conversion assumptions and payouts, annual volatility and stock price conditions on the dates of valuations compared to what the noteholders could convert at as of September 30, 2024, in addition to a gain on warrant revaluation of the Soluna Cloud warrants for $327 thousand. The gain for the three months ended September 30, 2024 was offset with a loss on debt of approximately $1.4 million due to the satisfaction and redemption of the Dorothy 2 equipment loan through issuance of Class B Membership interests in the Dorothy 2 project valued at three times the borrowing amount (i.e., $2.16 million), in which created approximately a $1.4 million loss. For the three months ended September 30, 2023, the Company had a loss on debt revaluation of approximately $769 thousand due to additional assumptions and assessments on the valuation of the debt at quarter end. See Note 7 for further details.

***Loss (Gain) on Sale of Fixed Assets:*** The Company did not have a loss or gain on sale of fixed assets for the three months ended September 30, 2024. For the three months ended September 30, 2023, the Company incurred a loss on sale of fixed assets of approximately $373 thousand in relation to the sale of miners for Project Sophie and sale of the remaining Project Marie fixed assets including the Tesseracks.

***Income Tax Benefit (expense):*** Income tax benefit for the three months ended September 30, 2024 was $547 thousand compared to an income tax expense of approximately $569 thousand for the three months ended September 30, 2023. The balance for the three months ended September 30, 2024 and 2023 was 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 September 30, 2024 and September 30, 2023, the Company amortized $547 thousand, respectively. In addition, for the three months ended September 30, 2023, there were timing difference due to significant increase for in-service capital assets for the three months ended September 30, 2023 which created an offset of approximately $1.1 million in deferred income tax expense.

***Net (loss) income attributable to non-controlling interest:*** Net loss attributable to non-controlling interest for the three months ended September 30, 2024 was $903 thousand compared to net income attributable to non-controlling interest of $646 thousand for the three months ended September 30, 2023 This amount relates to Spring Lane’s 85% noncontrolling interest of the net profit in Soluna DVSL and Navitas 45% - 49% noncontrolling interest of the net loss in Soluna DV ComputeCo for the three months ended September 30, 2024 and 2023. The change in non-controlling interest relates to a net loss in noncontrolling interest at Dorothy 1B of approximately $177 thousand, in which was driven by price of Bitcoin and site curtailments, and new for third quarter of 2024 was a noncontrolling interest loss of approximately $1.4 million associated to Dorothy 2 in which Spring Lane had noncontrolling interest of 58% - 72% for the three months ended September 30, 2024 in which the site is in development stage and would expect losses, offset with continued profitability at Dorothy 1A having a noncontrolling interest profit of $648 thousand in which is largely due to strong margins, creating a total net loss attributable to non-controlling interest of $68 thousand. The three-month net income for September 2023 balance in relation to non-controlling interest relates to Spring Lane’s 85% noncontrolling interest of the Net Profit in Soluna DVSL for approximately $759 thousand offset with Navitas 49% noncontrolling interest of the Net Loss of in Soluna DV ComputeCo of $111 thousand for the 3 months ended September 30, 2023.

***Consolidated Results of Operations for the Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023.***

The following table summarizes changes in the various components of our net loss during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

*(Dollars in thousands)*

|  | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Cryptocurrency mining revenue | $13,691 | 5,497 | 8,194 | 149% |
| Data hosting revenue | 14,446 | 5,451 | 8,995 | 165% |
| High-performance computing service revenue | - | - | - | -% |
| Demand response service revenue | 1,612 | - | 1,612 | 100% |
| Operating costs and expenses: |  |  |  |  |
| Cost of cryptocurrency mining revenue, exclusive of depreciation | 5,687 | 4,451 | 1,236 | 28% |
| Cost of data hosting revenue, exclusive of depreciation | 6,982 | 3,181 | 3,801 | 119% |
| Cost of high-performance computing services | 2,859 | - | 2,859 | 100% |
| Costs of revenue- depreciation | 4,540 | 2,364 | 2,176 | 92% |
| General and administrative expenses, exclusive of depreciation and amortization | 14,625 | 11,219 | 3,406 | 30% |
| Depreciation and amortization associated with general and administrative expenses | 7,209 | 7,134 | 75 | 1% |
| Impairment on fixed assets | 130 | 418 | (288) | (69)% |
| Operating loss | (12,283) | (17,819) | 5,536 | (31)% |
| Other expense, net | (32) | (301) | 269 | (89)% |
| Interest expense | (1,694) | (2,355) | 661 | (28)% |
| Loss on sale of fixed assets | (21) | (404) | 383 | (95)% |
| Loss on debt extinguishment and revaluation, net | (7,495) | (2,350) | (5,145) | 219% |
| Loss before income taxes | (21,525) | (23,229) | 1,704 | (7)% |
| Income tax benefit | 1,743 | 524 | 1,219 | 233% |
| Net loss | (19,782) | (22,705) | 2,923 | (13)% |
| Net (income) loss attributable to non-controlling interest | (3,535) | 206 | (3,741) | (1,816)% |
| Net loss attributable to Soluna Holdings, Inc. | $(23,317) | (22,499) | (818) | 4% |

44

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 nine months ended September 30, 2024:

*(Dollars in thousands)*

|  | Project Dorothy 1B | Project Dorothy 1A | Project Sophie | Project Ada | Other | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Cryptocurrency mining revenue | $13,691 | $- | $- | $- | $- | $13,691 |
| Data hosting revenue | - | 10,623 | 3,823 | - | - | 14,446 |
| Demand response services | - | - | - | - | 1,612 | 1,612 |
| **Total revenue** | $13,691 | $10,623 | $3,823 | $- | $1,612 | $29,749 |
| Cost of cryptocurrency mining, exclusive of depreciation | $5,687 | $- | - | - | - | 5,687 |
| Cost of data hosting revenue, exclusive of depreciation | - | 5,520 | 1,452 | - | 10 | 6,982 |
| Cost of high-performance computing services | - | - | - | 2,859 | - | 2,859 |
| Cost of revenue- depreciation | 3,243 | 844 | 453 | - | - | 4,540 |
| **Total cost of revenue** | $8,930 | $6,364 | $1,905 | $2,859 | $10 | $20,068 |

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 nine months ended September 30, 2023:

*(Dollars in thousands)*

|  | Project Dorothy 1B | Project Dorothy 1A | Project Sophie | Project Marie | Other Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Cryptocurrency mining revenue | $1,739 | $- | $2,989 | $769 | $$ 5,497 |
| Data hosting revenue | - | 3,472 | 1,684 | 276 | 19 5,451 |
| Demand response services | - | - | - | - | - - |
| **Total revenue** | $1,739 | $3,472 | $4,673 | $1,045 | $19 $10,948 |
| Cost of cryptocurrency mining, exclusive of depreciation | $1,426 | $- | 2,203 | 801 | 21 4,451 |
| Cost of data hosting revenue, exclusive of depreciation | - | 2,332 | 645 | 204 | - 3,181 |
| Cost of revenue- depreciation | 753 | 470 | 1,005 | 136 | - 2,364 |
| **Total cost of revenue** | $2,179 | $2,802 | $3,853 | $1,141 | $21 $9,996 |

45

***Cryptocurrency Mining Revenue***: Cryptocurrency revenue consists of revenue recognized from Soluna’s cryptocurrency mining operations. Cryptocurrency revenue was approximately $13.7 million for the nine months ended September 30, 2024 compared to $5.5 million for the nine months ended September 30, 2023. For the nine months ended September 30, 2024, all cryptocurrency mining revenue related to Project Dorothy 1B, which began energization in the third 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, as such no revenue was recognized for either Project Marie or Sophie for the nine months ended September 30, 2024. The Company also noted for the nine months ended September 30, 2024, that Project Marie shut down when only 8 MW was running for Proprietary Mining and Project Sophie was beginning to struggle and was not able to maintain running at 25 MW, therefore we started our transition to a hosting model and was fully switched by June 2023. In addition to the above, the average price of Bitcoin increased by 128% in the nine months ended September 30, 2023 compared to the same period for September 2024.

***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 $14.4 million for the nine months ended September 30, 2024 compared to $5.5 million for the nine months ended September 30, 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 $10.6 million in data hosting revenue for the nine months ended September 30, 2024 compared to approximately $3.5 million for the same period in 2023, approximately a $7.1 million increase. 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 $2.1 million from approximately $1.7 million for the nine months ended September 30, 2023 to approximately $3.8 million for the nine months ended September 30, 2024. 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 nine months ended September 30, 2024 compared to September 30, 2023. For the first quarter of 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, and we began services in December 2023. On a monthly basis we stand ready to deliver a set amount of committed capacity per period when and if called upon by ERCOT. We note that based on the time of the year, certain months and weather create more lucrative rewards. No such services were performed for the nine months ended September 30, 2023.

***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. 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 mining revenue, exclusive of depreciation costs was approximately $5.7 million and $4.5 million for the nine months ended September 30, 2024 and 2023, respectively, approximately a $1.2 million increase. The higher costs during the nine months ended September 30, 2024 compared to 2023 were due to the full Project Dorothy 1B site being active the entire nine months ended September 30, 2024, versus as a startup beginning in the second quarter of 2023. Also noted, Project Sophie was no longer a proprietary mining site by the second quarter of 2023. The increase was slightly offset with the Company operating only one facility for the nine months ended September 30, 2024, compared to three facilities for the nine months ended September 30, 2023. Also, the electricity costs at Project Dorothy 1B are comparatively lower 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 $7.0 million for the nine months ended September 30, 2024 compared to $3.2 million for the nine months ended September 30, 2023. This increase was due to Project Dorothy 1A which began operations and hosting services in May 2023, creating costs of approximately $5.5 million for the nine months ended September 30, 2024, compared to $2.3 million for the nine months ended September 30, 2023. Also, the Company began data hosting operations at Project Sophie in mid-April 2023, which created an increase in costs of approximately $807 thousand between the comparable periods. 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 $204 thousand.

***Cost of High-Performance Computing Services:*** Cost of high-performance computing services include production costs related to high performance computing services which for the nine months ended September 30, 2024 was approximately $2.9 million and related to an agreement with HPE effective July 1, 2024 to acquire access to datacenter and cloud services for AI and HPC processes. As of September 30, 2024, no revenue has been generated for these services. There were no such costs associated for the nine months ended September 30, 2023.

***Cost of revenue- depreciation:*** Depreciation costs associated with cryptocurrency and data hosting revenue was approximately $4.5 million for the nine months ended September 30, 2024 compared to approximately $2.4 million for the nine months ended September 30, 2023. The increase related to the capital additions to fixed assets between the second quarter of fiscal year 2023 through the third quarter of 2024. It was noted that Project Marie was discontinued in February of 2023, Project Sophie had sold a majority of its miners in the second quarter of 2023, and the significant additions of capital expenditures and energization at Project Dorothy, causing an increase in depreciation costs period over period. 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, 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.

- General and administrative expenses, exclusive of depreciation and amortization increased approximately $3.4 million or 30% for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. General and administrative expenses, exclusive of depreciation and amortization were approximately $14.6 million, including approximately $3.3 million of stock compensation expense for the nine months ended September 30, 2024, compared to approximately $11.2 million, including $3.1 million of stock compensation for the nine months ended September 30, 2023. This increase was mainly related to employee related expenses, professional fees and services, investor relations, expected credit loss provision expense, legal fees, and stock compensation expenses.
- The Company had an increase of approximately $1.9 million in wage related expense for the nine months ended September 30, 2024 compared to nine months ended September 30, 2023 due to an increase in resources and salaries of approximately $710 thousand and in anticipation of hitting performance-based targets of approximately $1.1 million.
- Professional fees associated to audit and tax increased by approximately $256 thousand for the nine months ended September 30, 2024 compared to September 30, 2023 due to additional costs related to subsidiary audits and tax preparation, as well as additional review of complex transactions and year-end planning work performed earlier in the year.
- The Company took a provision for expected credit loss for approximately $611 thousand for the nine months ended September 30, 2024 due to a dispute over a contract rate with a customer and an outstanding note receivable that deemed uncollectible, compared to no provision for the nine months ended September 30, 2023.
- Investor relations increased by approximately $151 thousand for the nine months ended September 30, 2024 compared to September 30, 2023 due to the Company implementing a series of investor acquisition and influencer marketing programs to attract new investors to Soluna Holdings.
- Stock based compensation expense increased by $123 thousand due to in the prior year there was an acceleration of grants and awards that occurred in May of 2023, compared to the current year, the Company had grants issued in April, June, and September of 2024 therefore further increasing the expense compared to prior comparable period.
- Legal fees increased by $170 thousand for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was mainly attributable to project associated legal expenses and compensation plan projects.

***Depreciation and Amortization associated with general and administrative expenses:*** Depreciation and amortization expense was comparable for the nine months ended September 30, 2024 and the nine months ended June, 2023 in which the balances totaled approximately $7.2 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 nine months ended September 30, 2024, the Company had impairment charges of approximately $130 thousand. This charge related to the sale of S19 miners that occurred in April 2024, whereas the Company wrote down the net book value of the miners to the subsequent sales price. During the nine months ended September 30, 2023, the Company had impairment charges of approximately $418 thousand relating to impairment of approximately $166 thousand in power supply units (PSUs) at their Sophie location, $43 thousand for M31 miners in which were subsequently sold in April 2023, in which the Company wrote down the net book value to the subsequent sale price, $169 thousand of S19 miners to adjust to market value and $41 thousand related to miners held for sale.

***Interest expense:*** Interest expense for the nine months ended September 30, 2024 was approximately $1.7 million related to approximately $1.1 million to the NYDIG loan, $480 thousand to compounded interest and deferred financing amortization expense of equipment financing loan and June and July 2024 secured note financing, and $122 thousand to the Navitas loan. Interest expense for the nine months ended September 30, 2023 was $2.4 million and related to default and continuing interest expense of the NYDIG loan of approximately $1.1 million, 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 $475 thousand, as well as default interest charged through March 10, 2023 for the convertible holders of approximately $420 thousand.

***Loss on Debt Extinguishment and Revaluation, net***: For the nine months ended September 30, 2024, the Company had a loss on debt extinguishment and revaluation of approximately $6.1 million. This was due to 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 June 30, 2024, in which created a loss on revaluation of approximately $4.0 million due to factors including assumptions on conversions and payouts, annual volatility and stock price conditions on the dates of valuations compared to what the noteholders could convert at as of June 30, 2024. The convertible notes were revalued again on September 30, 2024, in which a gain was recorded of approximately $2.3 million due mainly to change in Company stock price offsetting the previous quarter assessments. In addition, in the second quarter of fiscal year 2024, the Company did a revaluation of the warrants through May 30, 2024 in which was the date of Annual Shareholder approval, in which created a loss on revaluation of approximately $1.6 million. In addition to the revaluation of the notes and warrants the loss on debt extinguishment had an additional loss on debt of approximately $1.4 million due to the satisfaction and redemption of the Dorothy 2 equipment loan through issuance of Class B Membership interests in the Dorothy 2 project valued at three times the borrowing amount (i.e., $2.16 million), in which created approximately a $1.4 million loss for the nine months ended September 30, 2024. The Company notes for the nine months ended September 30, 2023, the Company had a net loss on debt extinguishment and revaluation of $2.4 million due to the extinguishment and revaluation of the convertible debt agreement in the second quarter of 2023, as well as quarter end revaluations effected by changes in annual volatility, offset with a gain of $473 thousand in the first quarter of 2023. See Note 7 for further details.

***Loss on Sale of Fixed Assets:*** The Company had an immaterial loss on sale of equipment of approximately $21 thousand for the nine months ended September 30, 2024, in which related to equipment held for sale and in storage. The Company received proceeds on the sale of equipment of approximately $215 thousand for the nine months ended September 30, 2024, in which the net book value was approximately $236 thousand.

For the nine months ended September 30, 2023, the Company had a loss on sale of equipment of approximately $404 thousand in which the majority of the loss related to the sale of miners for Project Sophie and sale of the remaining Project Marie fixed assets including the Tesseracks. For Project Sophie, the Company incurred a loss on sale of approximately $29 thousand in which was due to the shift at the site data hosting services compared to proprietary mining beginning in the second quarter of fiscal 2023, the Company was looking to sell all the miners at the site. The miners sold at the Sophie site were sold for proceeds of approximately $891 thousand in which had a net book value of $921 thousand. For Project Marie, the Company sold the Tesseracks and remaining assets for proceeds of $320 thousand in which included a note receivable of $240 thousand. In addition, the Company incurred a $251 thousand loss on sale of assets in relation to NYDIG collateral finalization in which the Company had to pay for expenses and legal fees in related to the disposition. thousand. There was an additional loss of approximately $31 thousand due to sale of M20 and M21 miners.

***Other expense, net:*** For the nine months ended September 30, 2024, other expense, net was approximately $32 thousand, respectively, compared to $301 thousand for the nine months ended September 30, 2023. The main reason for the decrease in other expense, net, was that for the nine months ended September 30, 2023 , 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, whereas for the nine months ended September 30, 2024, there was an extension fee expense of approximately $325 thousand, offset with a gain on settlement of litigation with Atlas of approximately $254 thousand, in addition to some small additional other income items.

***Income Tax Benefit:*** Income tax benefit for the nine months ended September 30, 2024 was approximately $1.7 million, compared to approximately $524 thousand for the nine months ended September 30, 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, 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 nine months ended September 30, 2024 and September 30, 2023, the Company amortized approximately $1.6 million. In addition, for the nine months ended September 30, 2023, there were timing difference due to significant increase for in-service capital assets for the nine months ended September 30, 2023 which created an offset of approximately $1.1 million in deferred income tax expense.

***Net income / (loss) attributable to non-controlling interest:*** Net income attributable to non-controlling interest for the nine months ended September 30, 2024 was $3.5 million compared to a net loss of approximately $206 thousand for the nine months ended September 30, 2023. This amount relates to Spring Lane’s 85% noncontrolling interest of the net profit in Soluna DVSL and Navitas 45% through 49% noncontrolling interest of the net profit in Soluna DV ComputeCo for the nine months ended September 30, 2024 and 2023. The change in non-controlling interest relates to continued profitability at Dorothy 1A and Dorothy 1B, creating a total net profit of approximately $4.9 million attributable to non-controlling interest for the nine months ended September 30, 2024, which started to grow in the third quarter of fiscal year 2023. The total net profit was offset by noncontrolling interest loss of $1.4 million associated to Dorothy 2 in which Spring Lane had noncontrolling interest of 58% - 72% for the nine months ended September 30, 2024 in which the site is in development stage and would expect losses. The $206 thousand net loss attributable to non-controlling interest for the nine months ended September 30, 2023 was attributable to a net loss in relation to the Company’s DVSL entity for $6 thousand and $200 thousand net loss in relation to the Company’s DV entity. 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 DV was generating a net loss for the first four months of operations, but with energization beginning in the third quarter of fiscal 2023, the DV entity began to generate a net profit in 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, 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)*

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Net loss | $(8,093) | $(6,016) | $(19,782) | $(22,705) |
| Interest expense | 821 | 495 | 1,694 | 2,355 |
| Income tax (benefit) expense | (547) | 569 | (1,743) | (524) |
| Depreciation and amortization | 3,916 | 3,579 | 11,749 | 9,498 |
| **EBITDA** | (3,903) | (1,373) | (8,082) | (11,376) |
| **Adjustments: Non-cash items** |  |  |  |  |
| Stock-based compensation costs | 1,257 | 595 | 3,286 | 3,709 |
| (Gain) loss on sale of fixed assets | - | 373 | 21 | 404 |
| Provision for credit losses | 367 | - | 611 | - |
| Impairment on fixed assets | - | 41 | 130 | 418 |
| (Gain) loss on debt extinguishment and revaluation, net | (1,203) | 769 | 7,495 | 2,350 |
| **Adjusted EBITDA** | $(3,482) | $405 | $3,461 | $(4,495) |

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The following table represents the Adjusted EBITDA activity between each three-month period from January 1, 2024 through September 30, 2024.

*(Dollars in thousands)*

|  | Three months ended March 31, 2024 | Three months ended June 30, 2024 | Three months ended September 30, 2024 |
| --- | ---: | ---: | ---: |
| Net loss | $(2,544) | $(9,145) | $(8,093) |
| Interest expense, net | 424 | 449 | 821 |
| Income tax (benefit) expense | (548) | (649) | (547) |
| Depreciation and amortization | 3,926 | 3,909 | 3,916 |
| **EBITDA** | 1,258 | (5,436) | (3,903) |
| **Adjustments: Non-cash items** |  |  |  |
| Stock-based compensation costs | 661 | 1,368 | 1,257 |
| Loss (gain) on sale of fixed assets | 1 | 21 | - |
| Provision for credit losses | - | 244 | 367 |
| Impairment on fixed assets | 130 | - | - |
| Loss (gain) on debt extinguishment and revaluation, net | 3,097 | 5,600 | (1,203) |
| **Adjusted EBITDA** | $5,147 | $1,797 | $(3,482) |

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

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

### Liquidity and Capital Resources

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

*(Dollars in thousands)*

|  | Nine Months Ended or as of September 30, 2024 | Nine Months Ended or as of September 30, 2023 | Year Ended or as of December 31, 2023 |
| --- | ---: | ---: | ---: |
| Cash | $8,766 | $5,625 | $6,368 |
| Restricted cash | 3,441 | 4,428 | 3,999 |
| Working capital deficit | (12,820) | (13,177) | (13,891) |
| Net loss | (19,782) | (22,705) | (27,703) |
| Net cash used in operating activities | (3,412) | (4,404) | (2,987) |
| Purchase of property, plant and equipment | (3,820) | (12,534) | (12,705) |

50

The Company had a consolidated accumulated deficit of approximately $274.3 million as September 30, 2024. As of September 30, 2024, the Company had negative working capital of approximately $12.8 million, $3.1 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, a 3-year secured loan financing of approximately $13.75 million, , and a 2-year $2.05 million principal loan commitment to Navitas, in which as of September 30, 2024 has an outstanding principal balance of approximately $290 thousand. The Company had outstanding commitments as of September 30, 2024, related to SDI of $13.0 million in capital expenditures related to Project Dorothy 2 and $21.3 million related to CloudCo with HPE, and approximately $8.8 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 buildouts 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. On August 12, 2024, the Company entered into a SEPA with in which YA has agreed to purchase up to $25 million in aggregate gross purchase price of newly issued fully paid shares of the Company’s common stock from time to time subject to the limits and the conditions of the SEPA. On October 1, 2024, the Company obtained the necessary consents from other parties to access the SEPA. The Company expects to draw down partially on the $25 million during fourth quarter of 2024.

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 September 30, 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 September 30, 2024, or November 14, 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 used by operations was approximately $3.4 million during the nine months ended September 30, 2024. The Company had a net loss for the nine months ended September 30, 2024 of approximately $19.8 million. Non-cash items included approximately $4.6 million of depreciation expense and $7.1 million of amortization expenses, $3.3 million of stock compensation expenses, $7.1 million of loss on debt extinguishment and revaluation, $611 thousand in provision for credit losses, and $179 thousand amortized deferred financing costs. These non-cash items were offset with a deferred tax benefit of $1.8 million. The change in asset and liabilities is mainly due to an increase in prepaid expenses and other long term assets by $9.2 million due to a prepayment of an arrangement with HPE of $10.3 million that is being amortized over the life of the agreement, an increase in accrued expenses and accounts payable of $4.2 million in relation to bonus accruals, NYDIG interest, and Project Dorothy 2 and Kati related bills. The other changes in assets and liabilities were not material.

Net cash used in operations for continuing operations was approximately $4.4 million during the nine months ended September 30, 2023. The Company had a net loss for the nine months ended September 30, 2023 of $22.7 million. Non-cash items included $2.4 million of depreciation expense and approximately $7.1 million of amortization expenses, as well as amortization of deferred financing costs and discount on notes of approximately $748 thousand, $3.7 million of stock-based compensation expenses, and $2.4 million loss on debt extinguishment and revaluation, net. These non-cash items were offset with a deferred tax benefit of $524 thousand. The change in asset and liabilities of approximately $1.5 million related to increase in accrued expenses of $2.6 million in which related to increases in NYDIG loan, utility accruals, and security deposits, in addition to an increase of $1.3 million in other long term liabilities related to electricity deposits to Western Kentucky and Washington state, offset with an increase in accounts receivable of $1.6 million in relation to performing further hosting services as of September 30, 2023. The other changes in assets and liabilities were not material.

### Investing Activities

Net cash used in investing activities during the nine months ended September 30, 2024 was approximately $7.7 million consisting mainly of capital expenditures of $3.8 million and increase in deposits on equipment of $4.0 million. Net cash used in investing activities during the nine months ended September 30, 2023 was approximately $10.1 million consisting mainly of capital expenditures of $12.5 million, less cash proceeds from sale of equipment of $2.3 million.

### Financing Activities

Net cash provided by financing activities was approximately $12.9 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 $5.1 million in contributions of non-controlling membership interest. Offsetting the net cash provided by financing activities was $6.7 million in cash distributions to non-controlling interest members, and payments of $2.3 million relation to Navitas loan and deferred financing charges. Net cash provided by financing activities was approximately $22.8 million during the nine months ended September 30, 2023, which consisted of cash contributions for non-controlling interest of approximately $19.7 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 $510 thousand and $350 thousand for payment on the Company’s line of credit.

### 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 September 30, 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 $5.9 million between January 1, 2024 through September 30, 2024, reducing the outstanding principal balance to approximately $3.1 million as of September 30, 2024, which included an extension fee of approximately $325 thousand.

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 September 30, 2024, the Company still has an outstanding loan principal of approximately $9.2 million and outstanding interest and penalty balance of approximately $1.9 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 September 30, 2024, the Company has an outstanding principal balance of approximately $290 thousand.

On June 20, 2024, pursuant to the terms and subject to the conditions of a June SPA by and among (i) CloudCo, (ii) Soluna Cloud, (iii) the Company and (iv) Investor, CloudCo issued to the Investor a secured promissory note in a principal amount equal to $12.5 million (the “June 2024 Note”). The June 2024 Note accrues interest at a rate 9.0% per annum, subject to adjustment upon an event of default. The June 2024 Note matures on June 20, 2027. On July 12, 2024, the Company, CloudCo, Soluna Cloud, and the Existing Investor entered into a First Amendment to the Note Purchase Agreement. This amendment allows CloudCo to issue additional secured promissory notes totaling $1,250,000 to new accredited investors. These Additional Notes are subject to the same terms and conditions as the June SPA financing.

### 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;
- 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;

53

- 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 entered 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 and nine months ended September 30, 2024, the price of Bitcoin had reached a high of $69,349 and $73,083, and the average price of Bitcoin for the three and nine months ended September 30, 2024 was $61,032 and $60,100.

#### 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. For fiscal year 2023 and through April 19, 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, 2,588 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 SHI’s disclosure controls and procedures as of September 30, 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 U.S. Securities and Exchange Commission’s (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 its 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 the evaluation of our disclosure controls and procedures as of September 30, 2024, our Chief Executive Officer and our Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

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

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 September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 5,132 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.

### Risks Related to the Standby Equity Purchase Agreement and Market Driven Evaluation

***Substantial blocks of our Common Stock may be sold into the market as a result of our being party to the SEPA.***

On August 12, 2024, we entered into a Standby Equity Purchase Agreement (the “SEPA”) with YA II PN, LTD (“YA”)., whereas we agreed to issue and sell to YA, from time to time, and YA agreed to purchase from us, up to $25 million of our shares of Common Stock. For more information regarding the terms and potential impacts of the SEPA, please refer to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on October 9, 2024 (File No. 333-282559).

Pursuant to the SEPA, the price of our Common Stock could decline if there are substantial sales of shares of our Common Stock, if there is a large number of shares of our Common Stock available for sale, or if there is the perception that these sales could occur. Any issuances of shares of our Common Stock in any issuance will dilute the percentage ownership of stockholders and may dilute the per share projected earnings (if any) or book value of our Common Stock. Sales of a substantial number of shares of our Common Stock in the public market or other issuances of shares of our Common Stock to decline and may make it more difficult for you to sell your shares at a time and price that you deem appropriate.

***You may experience immediate and substantial dilution (or improvement) in the net tangible book value per share of our Common Stock.***

The offering price per share of our Common Stock in connection with the SEPA may or may not exceed the net tangible book value per share of our Common Stock outstanding prior to the SEPA. For example, assuming that an aggregate of between 5,000,000 and 10,000,000 shares of our Common Stock are sold pursuant to the SEPA at an assumed price of between $5.00 and $2.50 per share, respectively, for net proceeds of $25,000,000, you would experience accretion of $0.67/share or dilution of $0.37/share, respectively (calculated based on current share count) per share, representing the difference between our adjusted net tangible book value per share after giving effect to the SEPA and the assumed offering price.

***Under the SEPA, we do not have the right to control the timing and amount sales of our shares of Common Stock by YA.***

Sales of our Common Stock, if any, to YA under the SEPA will depend upon market conditions and other factors, and the discretion of YA. We may ultimately issue to YA all, some, or none of the shares of our Common Stock.

Because the price for the shares will fluctuate based on the market prices of our Common Stock, it is not possible for us to predict, as of the date of this report and prior to any issuance of shares under the SEPA, the number of shares that we will issue to YA under the SEPA, and it is possible that the number of shares could be higher than the number of shares registered for resale by YA. In addition, unless we obtain stockholder approval, we will not be able to issue shares in excess of the Exchange Cap under the SEPA (or any other transaction that is integrated with the SEPA) in accordance with applicable Nasdaq rules. Further, the resale by YA of a significant amount of shares registered in this offering at any given time, or the perception that these sales may occur, could cause the market price of our Common Stock to decline and to be highly volatile.

Filed Nov 14, 2024.
Source: SEC EDGAR, the filing index for accession 0001493152-24-045722. Last ingested by Listed: Nov 9, 2026, 17:37 ET. No prices; not investment advice.