# Soluna Holdings, Inc. (SLNH) 10-Q SEC filing - Q2 FY2024
- Filed: Aug 14, 2024
- Fiscal quarter: Q2 FY2024
- Calendar quarter: Q2 2024
- Accession: 0001493152-24-032123
- OpenCapital page: https://www.opencapital.sh/filings/0001493152-24-032123
- Markdown URL: https://www.opencapital.sh/filings/0001493152-24-032123.md
- Official SEC filing index: https://www.sec.gov/Archives/edgar/data/64463/0001493152-24-032123-index.htm
## Filing documents
- [10-Q (form10-q.htm)](https://www.sec.gov/Archives/edgar/data/64463/000149315224032123/form10-q.htm)
- [EX-10.101 (ex10-101.htm)](https://www.sec.gov/Archives/edgar/data/64463/000149315224032123/ex10-101.htm)
- [EX-10.102 (ex10-102.htm)](https://www.sec.gov/Archives/edgar/data/64463/000149315224032123/ex10-102.htm)
- [EX-10.103 (ex10-103.htm)](https://www.sec.gov/Archives/edgar/data/64463/000149315224032123/ex10-103.htm)
- [EX-10.104 (ex10-104.htm)](https://www.sec.gov/Archives/edgar/data/64463/000149315224032123/ex10-104.htm)
- [EX-10.105 (ex10-105.htm)](https://www.sec.gov/Archives/edgar/data/64463/000149315224032123/ex10-105.htm)
- [EX-10.106 (ex10-106.htm)](https://www.sec.gov/Archives/edgar/data/64463/000149315224032123/ex10-106.htm)
- [EX-10.107 (ex10-107.htm)](https://www.sec.gov/Archives/edgar/data/64463/000149315224032123/ex10-107.htm)
- [EX-10.108 (ex10-108.htm)](https://www.sec.gov/Archives/edgar/data/64463/000149315224032123/ex10-108.htm)
- [EX-31.1 (ex31-1.htm)](https://www.sec.gov/Archives/edgar/data/64463/000149315224032123/ex31-1.htm)
- [EX-31.2 (ex31-2.htm)](https://www.sec.gov/Archives/edgar/data/64463/000149315224032123/ex31-2.htm)
- [EX-32.1 (ex32-1.htm)](https://www.sec.gov/Archives/edgar/data/64463/000149315224032123/ex32-1.htm)
- [EX-32.2 (ex32-2.htm)](https://www.sec.gov/Archives/edgar/data/64463/000149315224032123/ex32-2.htm)
---
## 10-Q
SEC source: [form10-q.htm](https://www.sec.gov/Archives/edgar/data/64463/000149315224032123/form10-q.htm)
**UNITED
STATES**
**SECURITIES
AND EXCHANGE COMMISSION**
**Washington,
D.C. 20549**
**FORM10-Q**
☒ **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**
**For the quarterly period ended June 30, 2024**
**OR**
☐ **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**
**For the transition period from** to
**Commission
File Number: 001-40261**
**Soluna
Holdings, Inc.**
**(Exact
name of registrant as specified in its charter)**
**Nevada** **14-1462255**
**State or other jurisdiction** **(I.R.S. Employer**
**of incorporation or organization** **Identification No.)**
**325
Washington Avenue Extension, Albany, New York 12205**
**(Address
of principal executive offices) (Zip Code)**
**(516) 216-9257**
**(Registrant’s
telephone number, including area code)**
Securities
registered pursuant to Section 12(b) of the Act:
**Title of each class** **Trading symbol(s)** **Name of each exchange on which registered**
Common Stock, par value $0.001 per share SLNH The Nasdaq Stock Market LLC
9.0% Series A Cumulative Perpetual Preferred Stock, par value $0.001 per share SLNHP The Nasdaq Stock Market LLC
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☒
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As
of August 9, 2024, the Registrant had 5,755,187 shares of common stock outstanding.
**SOLUNA
HOLDINGS, INC. AND SUBSIDIARIES**
**INDEX**
| **[Glossary of Abbreviations and Acronyms](#mi_001)** | | | |
| --- | --- | --- | --- |
| **[PART I. FINANCIAL INFORMATION](#mi_002)** | | | **4** |
| | Item 1. | [Financial Statements](#mi_003) | 4 |
| | [Condensed Consolidated Balance Sheets As of June 30, 2024 (Unaudited) and December 31, 2023](#mi_004) | | 4 |
| | [Condensed Consolidated Statements of Operations (Unaudited) For the Three and Six Months Ended June 30, 2024 and 2023](#mi_005) | | 5 |
| | [Condensed Consolidated Statements of Changes in Equity For the Year Ended December 31, 2023 and the Three and Six Months Ended June 30, 2024 (Unaudited)](#mi_006) | | 6 |
| | [Condensed Consolidated Statements of Cash Flows (Unaudited) For the Six Months Ended June 30, 2024 and 2023](#mi_007) | | 7 |
| | [Notes to Condensed Consolidated Financial Statements (Unaudited)](#mi_008) | | 8 |
| | Item 2. | [Management’s Discussion and Analysis of Financial Condition and Results of Operations](#mi_009) | 40 |
| | Item 3. | [Quantitative and Qualitative Disclosures About Market Risk](#mi_010) | 58 |
| | Item 4. | [Controls and Procedures](#mi_011) | 58 |
| **[PART II. OTHER INFORMATION](#mi_012)** | | | **60** |
| | Item 1. | [Legal Proceedings](#mi_013) | 60 |
| | Item 1A. | [Risk Factors](#mi_014) | 61 |
| | Item 2. | [Unregistered Sales of Equity Securities and Use of Proceeds](#mi_015) | 61 |
| | Item 3. | [Defaults Upon Senior Securities](#mi_016) | 61 |
| | Item 4. | [Mine Safety Disclosures](#mi_017) | 61 |
| | Item 5. | [Other Information](#mi_018) | 61 |
| | Item 6. | [Exhibits](#mi_019) | 62 |
| | [SIGNATURES](#mi_020) | | 63 |
1
**Glossary
of Abbreviations and Acronyms for Selected References**
The
following list defines various abbreviations and acronyms used throughout this report, including Management’s Discussion and Analysis
of Financial Condition and Results of Operations, the Condensed Consolidated Financial Statements, the Condensed Notes to Consolidated
Financial Statements and the Condensed Financial Statement Schedules.
This
glossary covers essential terms related to Bitcoin mining, high-performance computing, Artificial Intelligence (“AI”) and
related fields, providing valuable context for readers of the Form10-Q. A number of cross-references to additional information included
throughout this Quarterly Report on Form 10-Q are also utilized throughout this report, to assist readers seeking additional information
related to a particular subject.
**1.
Artificial Intelligence (“AI”**): The simulation of human intelligence processes by machines, especially computer systems.
These processes include learning (the acquisition of information and rules for using the information), reasoning (using rules to reach
approximate or definite conclusions), and self-correction. AI applications include expert systems, natural language processing, speech
recognition, and machine vision.
**2.
Bitcoin**: A decentralized digital currency created in 2009 by an unknown person or group of people using the name Satoshi Nakamoto.
It operates on a peer-to-peer network, allowing direct transactions without intermediaries. Transactions are verified by network nodes
through cryptography and recorded on a publicly distributed ledger called a blockchain.
**3.
Bitcoin Halving**: An event occurring approximately every four years where the reward for mining new Bitcoin blocks is halved. This
reduces the number of new Bitcoins generated by miners, impacting their profitability and potentially affecting Bitcoin’s value.
It’s part of Bitcoin’s deflationary monetary policy, designed to control supply.
**4.
Bitcoin Mining**: The process of adding new transactions to the Bitcoin blockchain. It involves solving complex cryptographic puzzles
to discover a new block, rewarding miners with transaction fees and newly created Bitcoins. This process secures and verifies transactions
on the network.
**5.
Curtailment (“Curtailed” or “Curtailments”):** In energy management, the reduction in electrical power supply
by power plants to balance the grid or avoid excess generation. In Bitcoin mining or other computing activities, curtailment —
pausing computing activities and related energy usage — can occur during peak demand periods or insufficient energy supply.
**6.
Data Center Colocation**: A service where businesses can be provided with services and infrastructure such as electrical power and
network connectivity for servers and other computing hardware at a third-party provider’s data center. This arrangement allows
for cost savings, better infrastructure, and enhanced security compared to private data centers.
**7.
Electric Reliability Council of Texas (“ERCOT”):** An independent system operator that manages the flow of electric power
to more than 26 million Texas customers, representing about 90 percent of the state’s electric load. ERCOT schedules power on an
electric grid that connects more than 46,500 miles of transmission lines and over 680 generation units.
**8.
Exahash (“EH/s”):** A unit of computational power equal to one quintillion (10^18) hashes per second. It is used to measure
the hashrate of the most powerful cryptocurrency mining equipment and the overall computational power of the Bitcoin network.
**9.
Generative AI**: Artificial intelligence that can generate new content, such as text, images, or music, based on its training data.
It learns from vast amounts of data to create outputs that mimic original human-generated content, often used in creative and analytical
applications.
**10.
Gigawatt (“GW”):** A unit of power equal to one billion watts. Often used to measure the capacity of large power plants
or the power usage of large operations like data centers and industrial complexes.
**11.
Grid Demand Response Services**: Services provided to support the basic services of generating and delivering electricity to the grid.
They help maintain power quality, reliability, and efficiency. In the context of Bitcoin mining, the use of mining facilities to provide
grid stabilization services is an emerging concept.
**12.
Hashprice**: The revenue a miner earns for each unit of computational power (hash) over a specific period. It is influenced by factors
such as the price of Bitcoin, network difficulty, and transaction fees. A higher hashprice means more profitability for miners.
**13.
Hashrate:** The measure of computational power per second used in cryptocurrency mining. It indicates the number of hash function computations
per second by a miner’s hardware, with higher hashrates implying greater efficiency and network security.
2
**14.
High Performance Computing (“HPC”):** The use of supercomputers and parallel processing techniques for solving complex
computational problems. HPC is used in fields such as scientific research, simulation, and large-scale data analysis.
**15.
Joules**: A unit of energy in the International System of Units (SI). One joule is the energy transferred when one watt of power is
exerted for one second. In Bitcoin mining, energy efficiency is often measured in joules per hash.
**16.
Large Language Models (LLMs):** Advanced AI models designed to understand, generate, and respond to human language in a way that mimics
human-like understanding. They are trained on vast datasets and can perform a variety of language-based tasks, such as translation, summarization,
and question-answering.
**17.
Machine Learning**: A subset of artificial intelligence involving the creation of algorithms that can learn and make decisions or predictions
based on data. It enables computers to improve their performance on a specific task with experience and data, without being explicitly
programmed.
**18.
Megawatts (“MW”):** A unit of power measurement equivalent to one million watts. Used to measure the electrical power consumption
of large operations like data centers and Bitcoin mining rigs.
**19.
Mining Pool**: A group of cryptocurrency miners who combine their computational resources over a network to increase their chances
of finding a block and receiving rewards. The rewards are then divided among the pool participants, proportional to the amount of hashing
power each contributed.
**20.
Petahash (“PH/s”):** A unit of computational power equal to one quadrillion (10^15) hashes per second. It is used to measure
the hashrate of extremely powerful cryptocurrency mining equipment.
**21.
Power Usage Effectiveness (“PUE”):** A ratio that describes how efficiently a computer data center uses energy; specifically,
how much energy is used by the computing equipment (in contrast to cooling and other overhead that supports the equipment).
**22.
Terahash (“TH/s”):** A unit of computational power equal to one trillion (10^12) hashes per second. It’s a common
measure of the performance of cryptocurrency mining hardware, with higher terahash rates indicating more powerful equipment.
3
**PART
I. FINANCIAL INFORMATION**
**Item
1. Financial Statements**
**Soluna
Holdings, Inc. and Subsidiaries**
**Condensed
Consolidated Balance Sheets**
**As
of June 30, 2024 (Unaudited) and December 31, 2023**
| (Dollars in thousands, except per share) | June 30, 2024 | December 31, 2023 |
| --- | --- | --- |
| Assets | | |
| Current Assets: | | |
| Cash | $9,558 | $6,368 |
| Restricted cash | 1,951 | 2,999 |
| Accounts receivable, net (allowance for expected credit losses $244 and $0 as of June 30, 2024 and December 31, 2023) | 3,434 | 2,948 |
| Notes receivable | 48 | 446 |
| Prepaid expenses and other current assets | 12,461 | 1,416 |
| Equipment held for sale | 28 | 107 |
| Total Current Assets | 27,480 | 14,284 |
| Restricted cash, noncurrent | 1,000 | 1,000 |
| Other assets | 2,946 | 2,954 |
| Deposits and credits on equipment | 3,124 | 1,028 |
| Property, plant and equipment, net | 41,472 | 44,572 |
| Intangible assets, net | 22,328 | 27,007 |
| Operating lease right-of-use assets | 325 | 431 |
| Total Assets | $98,675 | $91,276 |
| Liabilities and Stockholders’ Equity | | |
| Current Liabilities: | | |
| Accounts payable | $2,452 | $2,099 |
| Accrued liabilities | 6,286 | 4,906 |
| Convertible notes payable | 7,851 | 8,474 |
| Current portion of debt | 13,008 | 10,864 |
| Income tax payable | 65 | 24 |
| Warrant liability | 314 | - |
| Customer deposits-current | 2,391 | 1,588 |
| Operating lease liability | 159 | 220 |
| Total Current Liabilities | 32,526 | 28,175 |
| Other liabilities | 499 | 499 |
| Customer deposits- long-term | - | 1,248 |
| Long-term debt | 9,028 | - |
| Operating lease liability | 169 | 216 |
| Deferred tax liability, net | 6,520 | 7,779 |
| Total Liabilities | 48,742 | 37,917 |
| Commitments and Contingencies (Note 10) | - | - |
| Stockholders’ Equity: | | |
| 9.0% Series A Cumulative Perpetual Preferred Stock, par value $0.001 per share, $25.00 liquidation preference; authorized 6,040,000; 4,953,545 and 3,061,245 shares issued and outstanding as of June 30, 2024 and December 31, 2023 | 5 | 3 |
| Series B Preferred Stock, par value $0.0001 per share, authorized 187,500; 62,500 shares issued and outstanding as of June 30, 2024 and December 31, 2023 | — | — |
| Preferred stock, value | - | - |
| Common stock, par value $0.001 per share, authorized 75,000,000; 5,272,845 shares issued and 5,232,104 shares outstanding as of June 30, 2024 and 2,546,361 shares issued and 2,505,620 shares outstanding as of December 31, 2023 | 5 | 3 |
| Additional paid-in capital | 305,250 | 291,276 |
| Accumulated deficit | (267,097) | (250,970) |
| Common stock in treasury, at cost, 40,741 shares at June 30, 2024 and December 31, 2023 | (13,798) | (13,798) |
| Total Soluna Holdings, Inc. Stockholders’ Equity | 24,365 | 26,514 |
| Non-Controlling Interest | 25,568 | 26,845 |
| Total Stockholders’ Equity | 49,933 | 53,359 |
| Total Liabilities and Stockholders’ Equity | $98,675 | $91,276 |
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
**Soluna
Holdings, Inc. and Subsidiaries**
**Condensed
Consolidated Statements of Operations (Unaudited)**
**For
the Three and Six Months Ended June 30, 2024 and 2023**
| (Dollars in thousands, except per share) | 2024 / Three Months Ended / June 30, | 2023 / Three Months Ended / June 30, | 2024 / Six Months Ended / June 30, | 2023 / Six Months Ended / June 30, |
| --- | --- | --- | --- | --- |
| Cryptocurrency mining revenue | $4,484 | $915 | $10,880 | $3,711 |
| Data hosting revenue | 4,898 | 1,153 | 10,176 | 1,439 |
| Demand response service revenue | 293 | - | 1,168 | - |
| Total revenue | 9,675 | 2,068 | 22,224 | 5,150 |
| Operating costs: | | | | |
| Cost of cryptocurrency mining revenue, exclusive of depreciation | 1,883 | 1,160 | 3,724 | 3,410 |
| Cost of data hosting revenue, exclusive of depreciation | 2,176 | 759 | 4,427 | 1,031 |
| Costs of revenue- depreciation | 1,506 | 539 | 3,029 | 1,164 |
| Total costs of revenue | 1,506 | 539 | 3,029 | 1,164 |
| Total costs of revenue | 5,565 | 2,458 | 11,180 | 5,605 |
| Operating expenses: | | | | |
| General and administrative expenses, exclusive of depreciation and amortization | 5,382 | 4,136 | 9,378 | 8,496 |
| Depreciation and amortization associated with general and administrative expenses | 2,403 | 2,379 | 4,805 | 4,756 |
| Total general and administrative expenses | 7,785 | 6,515 | 14,183 | 13,252 |
| Impairment on fixed assets | - | 169 | 130 | 377 |
| Operating loss | (3,675) | (7,074) | (3,269) | (14,084) |
| Interest expense | (449) | (486) | (873) | (1,861) |
| Loss on debt extinguishment and revaluation, net | (5,600) | (2,054) | (8,698) | (1,581) |
| (Loss) gain on sale of fixed assets | (21) | 48 | (21) | (30) |
| Other expense, net | (49) | (238) | (25) | (226) |
| Loss before income taxes | (9,794) | (9,804) | (12,886) | (17,782) |
| Income tax benefit | 649 | 547 | 1,197 | 1,093 |
| Net loss | (9,145) | (9,257) | (11,689) | (16,689) |
| (Less) Net income (loss) attributable to non-controlling interest | 1,728 | (482) | 4,438 | (852) |
| Net loss attributable to Soluna Holdings, Inc. | $(10,873) | $(8,775) | $(16,127) | $(15,837) |
| Basic and Diluted loss per common share (1): | | | | |
| Basic & Diluted loss per share | $(2.97) | $(9.54) | $(5.68) | $(19.74) |
| Weighted average shares outstanding (Basic and Diluted) | 4,563,696 | 1,126,091 | 3,683,558 | 996,228 |
(1) Prior period results have been adjusted to reflect the Reverse Stock Split of the Common Stock at a ratio of 1-for-25 that became effective October 13, 2023. See Note 2, “Basis of Presentation,” for details.
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
**Soluna
Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Equity
For the Year Ended December 31, 2023**
**And
the Three and Six Months Ended June 30, 2024 (Unaudited)**
(Dollars
in thousands, except per share)
| Line item | Series A Shares / Preferred Stock | Amount / Preferred Stock | Series B Shares / Preferred Stock | Amount / Preferred Stock | Shares (1) / Common Stock | Amount (1) / Common Stock | Paid-in Capital (1) / Additional | Accumulated Deficit | Shares (1) / Treasury Stock | Amount / Treasury Stock | Controlling Interest / Non- | Stockholders’ Equity / Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| January 1, 2023 | 3,061,245 | $3 | 62,500 | — | 788,578 | $1 | $277,429 | $(221,769) | 40,741 | $(13,798) | 4,406 | $46,272 |
| Net loss | — | — | — | — | — | — | — | (7,062) | — | — | (370) | (7,432) |
| Preferred dividends- Series B | — | — | — | — | — | — | (131 | — | — | — | — | (131) |
| Stock-based compensation | — | — | — | — | — | — | 865 | — | — | — | — | 865 |
| Issuance of shares – securities purchase offering | — | — | — | — | 87,144 | — | 439 | — | — | — | — | 439 |
| Restricted stock units vested | — | — | — | — | 5,769 | — | — | — | — | — | — | — |
| Issuance of shares – restricted stock | — | — | — | — | 1,400 | — | 14 | — | — | — | — | 14 |
| Issuance of shares- Notes conversion | — | — | — | — | 174,505 | — | 1,394 | — | — | — | — | 1,394 |
| Contribution from Non-Controlling interest | — | — | — | — | — | — | — | — | — | — | 8,758 | 8,758 |
| March 31, 2023 | 3,061,245 | $3 | 62,500 | — | 1,057,396 | $1 | $280,010 | $(228,831) | 40,741 | $(13,798) | $12,794 | $50,179 |
| Net loss | — | — | — | — | — | — | — | (8,775) | — | — | (482) | (9,257) |
| Preferred dividends – Series B | — | — | — | — | — | — | (252) | — | — | — | — | (252) |
| Stock-based compensation | — | — | — | — | — | — | 2,232 | — | — | — | — | 2,232 |
| Issuance of shares – securities purchase offering | — | — | — | — | 63,978 | — | 446 | — | — | — | — | 446 |
| Restricted stock units vested | — | — | — | — | 25,125 | — | — | — | — | — | — | — |
| Issuance of shares-merger shares | — | — | — | — | 19,800 | — | — | — | — | — | — | — |
| Issuance of shares- Notes conversion | — | — | — | — | 64,351 | — | 400 | — | — | — | — | 400 |
| Warrants and valuation issued in relation to debt amendment | — | — | — | — | — | — | 1,330 | — | — | — | — | 1,330 |
| Contribution from Non-Controlling interest | — | — | — | — | — | — | — | — | — | — | 13,543 | 13,543 |
| June 30, 2023 | 3,061,245 | $3 | 62,500 | — | 1,230,650 | $1 | $284,166 | $(237,606) | 40,741 | $(13,798) | $25,855 | $58,621 |
| Net (loss) income | — | — | — | — | — | — | — | (6,662) | — | — | 646 | (6,016) |
| Preferred dividends-Series B | — | — | — | — | — | — | (38) | — | — | — | — | (38) |
| Stock-based compensation | — | — | — | — | — | — | 595 | — | — | — | — | 595 |
| Issuance of shares – securities purchase offering | — | — | — | — | 113,502 | — | 770 | — | — | — | — | 770 |
| Common Shares and Warrants for Series B dividend payment | — | — | — | — | 44,000 | — | 656 | — | — | — | — | 656 |
| Issuance of shares- notes conversion | — | — | — | — | 104,577 | — | 650 | — | — | — | — | 650 |
| Contribution from Non-Controlling interest | — | — | — | — | — | — | — | — | — | — | 151 | 151 |
| September 30, 2023 | 3,061,245 | $3 | 62,500 | — | 1,492,729 | $1 | $286,799 | $(244,268) | 40,741 | $(13,798) | $26,652 | $55,389 |
| Net (loss) income | — | — | — | — | — | — | — | (6,702) | — | — | 1,705 | (4,997) |
| Stock-based compensation | — | — | — | — | — | — | 602 | — | — | — | — | 602 |
| Issuance of shares-merger shares | — | — | — | — | 39,600 | — | — | — | — | — | — | — |
| Issuance of shares –warrants exercise | — | — | — | — | 81,726 | — | — | — | — | — | — | — |
| True up shares for reverse split | — | — | — | — | 37,762 | — | — | — | — | — | — | — |
| Restricted stock units vested | — | — | — | — | 2,299 | — | — | — | — | — | — | — |
| Warrant revaluation | — | — | — | — | — | — | 307 | — | — | — | — | 307 |
| Issuance of shares- notes conversion | — | — | — | — | 892,245 | 2 | 3,568 | — | — | — | — | 3,570 |
| Distribution to non-controlling interest | — | — | — | — | — | — | — | — | — | — | (1,520) | (1,520) |
| Contribution from Non-Controlling interest | — | — | — | — | — | — | — | — | — | — | 8 | 8 |
| December 31, 2023 | 3,061,245 | $3 | 62,500 | — | 2,546,361 | $3 | $291,276 | $(250,970) | 40,741 | $(13,798) | $26,845 | $53,359 |
(1) Prior period results have been adjusted to reflect the Reverse Stock Split of the Common Stock at a ratio of 1-for-25 that became effective October 13, 2023. See Note 2, “Basis of Presentation,” for details.
| Line item | Series A Shares / Preferred Stock | Amount / Preferred Stock | Series B Shares / Preferred Stock | Amount / Preferred Stock | Shares (1) / Common Stock / Shares | Amount (1) / Common Stock / Amount | Paid-in Capital (1) / Additional / Paid-in Capital | Accumulated Deficit | Shares (1) / Treasury Stock / Shares | Amount / Treasury Stock | Controlling Interest / Non- | Stockholders’ Equity / Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| January 1, 2024 | 3,061,245 | $3 | 62,500 | — | 2,546,361 | $3 | $291,276 | $(250,970) | 40,741 | $(13,798) | $26,845 | $53,359 |
| Net (loss) income | — | — | — | — | — | — | — | (5,254) | — | — | 2,710 | (2,544) |
| Reverse split adjustment | — | — | — | — | 17 | — | — | — | — | — | — | — |
| Stock-based compensation | — | — | — | — | — | — | 661 | — | — | — | — | 661 |
| Issuance of shares – warrant exercise | — | — | — | — | 61,501 | — | 300 | — | — | — | — | 300 |
| Restricted stock units vested | — | — | — | — | 3,780 | — | — | — | — | — | — | — |
| Issuance of shares- Notes conversion | — | — | — | — | 270,572 | — | 1,023 | — | — | — | — | 1,023 |
| Warrant revaluation | — | — | — | — | — | — | (1,715) | — | — | — | — | (1,715) |
| Distribution to Non-Controlling interest | — | — | — | — | — | — | — | — | — | — | (2,233) | (2,233) |
| March 31, 2024 | 3,061,245 | $3 | 62,500 | — | 2,882,231 | $3 | $291,545 | $(256,224) | 40,741 | $(13,798) | $27,322 | $48,851 |
| Balance | 3,061,245 | $3 | 62,500 | — | 2,882,231 | $3 | $291,545 | $(256,224) | 40,741 | $(13,798) | $27,322 | $48,851 |
| Net (loss) income | — | — | — | — | — | — | — | (10,873) | — | — | 1,728 | (9,145) |
| Series A Preferred Stock issuance | 1,892,300 | 2 | — | — | — | — | (2) | — | — | — | — | — |
| Stock-based compensation | — | — | — | — | — | — | 1,368 | — | — | — | — | 1,368 |
| Issuance of shares – warrant exercise | — | — | — | — | 529,354 | — | 2,004 | — | — | — | — | 2,004 |
| Issuance of shares- Restricted stock awards | — | — | — | — | 1,149,767 | 1 | (1) | — | — | — | — | — |
| Restricted stock units vested | — | — | — | — | 100 | — | — | — | — | — | — | — |
| Issuance of shares- Notes conversion | — | — | — | — | 711,393 | 1 | 2,688 | — | — | — | — | 2,689 |
| Warrant revaluation | — | — | — | — | — | — | 7,648 | — | — | — | — | 7,648 |
| Distribution to Non-Controlling interest | — | — | — | — | — | — | — | — | — | — | (3,482) | (3,482) |
| June 30, 2024 | 4,953,545 | $5 | 62,500 | — | 5,272,845 | $5 | $305,250 | $(267,097) | 40,741 | $(13,798) | $25,568 | $49,933 |
| Balance | 4,953,545 | $5 | 62,500 | — | 5,272,845 | $5 | $305,250 | $(267,097) | 40,741 | $(13,798) | $25,568 | $49,933 |
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
**Soluna
Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)**
**For
the Six Months Ended June 30, 2024 and 2023**
| (Dollars in thousands) | 2024 / Six Months Ended June 30, | 2023 / Six Months Ended June 30, |
| --- | --- | --- |
| Operating Activities | | |
| Net loss | $(11,689) | $(16,689) |
| Adjustments to reconcile net loss to net cash provided by (used in) by operating activities: | | |
| Depreciation expense | 3,091 | 1,179 |
| Amortization expense | 4,743 | 4,741 |
| Stock-based compensation | 2,029 | 3,111 |
| Deferred income taxes | (1,259) | (1,094) |
| Impairment on fixed assets | 130 | 377 |
| Provision for credit losses | 244 | - |
| Amortization of operating lease asset | 122 | 116 |
| Loss (gain) on debt extinguishment and revaluation, net | 8,698 | 1,581 |
| Amortization on deferred financing costs and discount on notes | 59 | 739 |
| Loss on sale of fixed assets | 21 | 30 |
| Changes in operating assets and liabilities: | | |
| Accounts receivable | (486) | (924) |
| Prepaid expenses and other current assets | (10,767) | (101) |
| Other long-term assets | 1 | (308) |
| Accounts payable | 353 | 696 |
| Deferred revenue | - | 532 |
| Operating lease liabilities | (123) | (111) |
| Other liabilities and customer deposits | (404) | 1,294 |
| Accrued liabilities | 1,764 | 995 |
| Net cash used in operating activities | (3,473) | (3,836) |
| Investing Activities | | |
| Purchases of property, plant, and equipment | (278) | (2,895) |
| Purchases of intangible assets | (64) | (44) |
| Proceeds from disposal on property, plant, and equipment | 215 | 1,286 |
| Deposits of equipment, net | (2,096) | (7,916) |
| Net cash used in investing activities | (2,223) | (9,569) |
| Financing Activities | | |
| Proceeds from common stock warrant exercises | 2,304 | - |
| Proceeds from common stock securities purchase agreement offering | - | 43 |
| Proceeds from notes and debt issuance | 13,220 | 2,900 |
| Payments on Navitas loan and notes payable | (1,910) | (175) |
| Costs of common stock securities purchase agreement offering | - | (4) |
| Payments on NYDIG loans and line of credit | - | (350) |
| Contributions from non-controlling interest | - | 19,414 |
| Distributions to non-controlling interest | (5,776) | - |
| Net cash provided by financing activities | 7,838 | 21,828 |
| Increase in cash & restricted cash | 2,142 | 8,423 |
| Cash & restricted cash – beginning of period | 10,367 | 1,821 |
| Cash & restricted cash – end of period | $12,509 | $10,244 |
| Supplemental Disclosure of Cash Flow Information | | |
| Interest paid on NYDIG loans and line of credit | 115 | 6 |
| Interest paid on Navitas loan | 88 | - |
| Warrant consideration in relation to convertible notes and revaluation of warrant liability | 7,648 | 1,330 |
| Notes converted to common stock | 3,712 | 1,794 |
| Noncash membership distribution accrual | 456 | - |
| Warrant consideration in relation to Soluna Cloud | 314 | - |
| Noncash disposal of NYDIG collateralized equipment | - | 3,388 |
| Promissory note and interest conversion to common shares | - | 845 |
| Noncash non-controlling interest contributions | - | 2,887 |
| Noncash activity right-of-use assets obtained in exchange for lease obligations | - | 397 |
| Series B preferred dividend in accrued expense | - | 383 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
### **Notes to Condensed Consolidated Financial Statements (Unaudited)**
**1.** **Nature of Operations**
Description
of Business
*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.*
Soluna
Holdings, Inc., formerly known as Mechanical Technology, Incorporated which was originally incorporated in the State of New York in 1961,
reincorporated in the State of Nevada on March 24, 2021, and is headquartered in Albany, New York. Effective November 2, 2021, the Company
changed its name from “Mechanical Technology, Incorporated” (or “MTI”) to “Soluna Holdings, Inc.”
On October 29, 2021, Soluna Callisto merged into Soluna Computing, Inc. (“SCI”), a private green data center development
company. The Company formed a wholly owned subsidiary of SHI on December 31, 2023, Soluna Digital, Inc. (“Soluna Digital”,
or “SDI”). Effective December 31, 2023, SHI’s previously wholly-owned subsidiary, SCI transferred substantially all
of its assets to SHI or its subsidiaries. SHI currently conducts its business through its wholly-owned subsidiary, SDI.
The
Company formed a wholly owned subsidiary of SHI on March 24, 2024, Soluna Cloud, Inc. (“Soluna Cloud”) an operator of cloud,
and co-location or data hosting services related to HPC and AI. Soluna Clou delivers a portion of its services through the website SolunaCloud.com.
The Company formed a wholly owned subsidiary of SHI on April 2, 2024, Soluna Energy, Inc. (“Soluna Energy”, or “SEI”)
to own and hold its renewable energy power purchase agreements and certain related land leases for data center projects through a series
of services subsidiaries.
The
Company is a digital infrastructure company specializing in transforming surplus renewable energy into computing resources. Our modular
data centers can co-locate with wind, solar, or hydroelectric power plants and support compute intensive applications including Bitcoin
Mining, Generative AI, and Scientific Computing. This pioneering approach to data centers helps energize a greener grid while delivering
cost-effective and sustainable computing solutions.
In
fiscal year 2021, the Company began mining operations in Murray, Kentucky, (“Project Sophie”) and Calvert City,
Kentucky, (“Project Marie”). Project Marie had performed hosting services and proprietary mining in which 10 megawatts
were used for hosting services and 10 megawatts was used for proprietary mining through the end of February 2023, at which time the
facility had been decommissioned. In the second quarter of fiscal year 2023, Project Sophie entered into hosting contracts with
Bitcoin miners, which marked a shift in the Company’s business model at the Company’s modular data centers at Project
Sophie from proprietary mining to hosting Bitcoin miners for the customers at the 25 MW facility. Currently, all of Project Sophie
is performing data hosting, including an AI customer pilot during the first half of 2024. The Company has sold all of its existing
Bitcoin miners at the Project Sophie site and redeployed capital. On September 17, 2022, the Company sold specified assets
consisting mainly of mining equipment and other general equipment items to a buyer at its Wenatchee, Washington location,
(“Project Edith”). Soluna has committed to providing certain facilities contracts at cost plus a markup to facilitate
the continued operations for the sold mining assets, on behalf of the new ownership. Our Texas site (“Project Dorothy”)
is located at a wind farm and has a potential for up to 100 MWs, of which the Company obtained approval from the ERCOT and energized
25 MW in May 2023 and energized another 25 MW in October 2023. The Company as of June 30, 2024, has a 14.6%
ownership interest in Soluna DVSL ComputeCo, LLC (“DVSL”), owner of Project Dorothy 1A, and 55%
ownership interest in Soluna DV ComputeCo, LLC (“DVCC”), owner of Project Dorothy 1B, which are included within the Project Dorothy site, as
discussed further in Note 15.
On
June 18, 2024, Soluna AL CloudCo, LLC, a Delaware limited liability company (“CloudCo”), a subsidiary of Soluna Cloud
and indirect wholly owned subsidiary of the Company entered into an HPE Support and Professional Services – Data Privacy and
Security Agreement, an HPE & AI Cloud Services Agreement, a related Statement of Work, and related ancillary agreements
(collectively, the “HPE Agreement”) with Hewlett Packard Enterprise Company (“HPE”). Pursuant to the HPE
Agreement, HPE agreed to provide datacenter and cloud services for artificial intelligence and supercomputing processes via Nvidia
H100 Graphic Processing Units (“HPE GPUs”) to CloudCo in exchange for an aggregate of $34.0 million, including an initial pre-payment of $10.3 million, included within Prepaid expenses and other current assets on the consolidated condensed balance sheet to be made on or
before June 24, 2024. The
HPE Agreement has a term of 36 months, during which monthly payments will be made for approximately $667 thousand, and the services thereunder are expandable upon agreement of the parties.
***Going
Concern and Liquidity***
The
Company’s consolidated condensed financial statements as of June 30, 2024 have been prepared using generally accepted
accounting principles in the United States of America (“U.S. GAAP”) applicable to a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal course of business. As shown in the accompanying condensed
financial statements, the Company was in a net loss, has negative working capital, and has significant outstanding debt as of June
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 these condensed financial statements as of June 30, 2024, or August 14,
2024.
Soluna
MC Borrowing 2021-1 (the “Borrower”), received a Notice of Acceleration and Repossession (the “NYDIG Notice”)
from NYDIG ABL LLC (“NYDIG”) with respect to the Master Equipment Finance Agreement, dated as of December 30, 2021 (the “MEFA”),
by and between Borrower and NYDIG. The NYDIG Notice states that (a) Borrower failed to observe or perform certain covenants, conditions
or agreements contained in the MEFA and such failure continued unremedied for a period of ten days after Borrower’s knowledge of
such breach, which resulted in an event of default under the MEFA, and (b) Borrower defaulted under the guaranty, collateral agreement,
or other support agreement, which resulted in an event of default under the MEFA. In addition, the NYDIG Notice states that Borrower
failed to pay certain payments of principal and interest under the MEFA when due, which failure also constituted an event of default
under the MEFA. As a result of the foregoing events of default, and pursuant to the MEFA, NYDIG (x) declared the principal amount of
all loans due and owing under the MEFA and all accompanying Loan Documents (as defined in the MEFA) to be due and immediately payable,
(y) imposed a default rate of interest on any outstanding principal amount of each loan (together with all then unpaid interest accruing
thereon) and all other obligations under the MEFA and the Loan Documents, and (z) demanded the return of all equipment subject to the
MEFA and the Loan Documents. The obligations of Borrower under the MEFA and reflected in the NYDIG Notice were ring-fenced to Borrower
and its direct parent company, Soluna MC LLC.
8
On
February 23, 2023, NYDIG proceeded to foreclose on all of the collateral securing the MEFA, which resulted in a reportable disposition
of all of the Company’s mining assets at the site and certain of the operating assets of Project Marie. The total net book value
of the collateralized assets that were repossessed totaled approximately $3.4 million. Additionally, NYDIG has stated its intention to
pursue SCI, the parent company of Soluna MC, LLC (“Guarantor”), under a piercing of the corporate veil claim relating to
the Guarantor together with Borrower, (“NYDIG Defendants”) debts and liabilities under the loan documents. SCI denies any
such liability and has filed a complaint for a declaratory judgment against NYDIG in the Eighth Judicial District Court in Clark County,
Nevada on March 16, 2023, seeking a declaratory judgment as to such matter. NYDIG filed a motion to dismiss in response to SCI’s
declaratory judgment complaint on April 13, 2023. SCI filed a response in opposition to NYDIG’s motion to dismiss on April 27,
2023. The court heard oral arguments on May 16, 2023. On June 22, 2023, the court issued an order granting NYDIG’s motion to dismiss,
on the basis that the case was not ripe for decision, without prejudice. SCI intends to continue to vigorously defend any allegations
regarding liability on account of NYDIG Defendants’ debts and liabilities to NYDIG under their loan documents and intends to refile
a declaratory judgment complaint against NYDIG. As of June 30, 2024, the Borrower has an outstanding principal balance of approximately
$9.2 million and accrued interest and penalties of approximately $1.5 million. See Note 10 for further information in relation to the
NYDIG litigation matter.
The
ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining
the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due.
In the near term, management is evaluating and implementing different strategies to obtain financing to fund the Company’s expenses
and growth to achieve a level of revenue adequate to support the Company’s current cost structure. Financing strategies may include,
but are not limited to, stock issuances, project level equity, debt borrowings, partnerships and/or collaborations. If the Company is
unable to meet its financial obligations, it could be forced to restructure or refinance, seek additional equity capital or sell its
assets. The Company might then be unable to obtain such financing or capital or sell its assets on satisfactory terms. There can be no
assurance that additional financing will be available to the Company when needed or, if available, that it can be obtained on commercially
reasonable terms. If the Company is not able to obtain the additional financing on a timely basis, if and when it is needed, it will
be forced to delay or scale down some or all of its development activities or perhaps even cease the operation of its business.
In
addition to the Company’s cash on hand for available use of approximately $9.6 million as of June 30, 2024, the Company will need
additional capital raising activities, to meet its capital expenditure needs for its current pipeline and other operational needs. The
Company in fiscal year 2024 will continue to look to evaluate different strategies to obtain financing to fund operations. However, management
cannot provide any assurances that the Company will be successful in accomplishing additional financing or any of its other plans. These
financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification
of liabilities that might be necessary should the Company be unable to continue as a going concern.
**2.** **Basis of Presentation**
In
the opinion of management, the Company’s condensed consolidated financial statements reflect all adjustments, which are of a normal
recurring nature, necessary for a fair statement of the results for the periods presented in accordance with United States of America’s
Generally Accepted Accounting Principles (“U.S. GAAP”). The results of operations for the interim periods presented are not
necessarily indicative of results for the full year.
Certain
information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S.
GAAP have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the
Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2023 (“the Annual Report”).
The
information presented in the accompanying condensed consolidated balance sheet as of December 31, 2023 has been derived from the Company’s
audited consolidated financial statements. All other information has been derived from the Company’s unaudited condensed consolidated
financial statements for the three and six months ended June 30, 2024 and June 30, 2023.
***Principles
of Consolidation***
The
condensed consolidated financial statements include the accounts of the Company and its subsidiaries, including the Company’s variable
interest entities disclosed in Note 15. All intercompany balances and transactions are eliminated in consolidation.
9
***Reverse
Stock Split***
On
October 11, 2023, the Company filed a Certificate of Change (the “Certificate of Change”) effecting a reverse stock split
as of 5:00 p.m. Eastern Standard Time on October 13, 2023 with a ratio of 1-for-25 (the “Reverse Split”). The Company’s
common stock began trading on a post-split basis under the Company’s existing trading symbol, “SLNH,” when the market
opened on October 16, 2023. The reverse stock split was approved by the Board of Directors and by shareholders at the annual meeting
of the stockholders on June 29, 2023. At the effective time, every 25 issued and outstanding shares of the Company common stock was converted
automatically into one share of the Company’s common stock without any change in the par value per share. The Reverse Split did
not change the number of shares of common stock authorized for issuance. No fractional shares were outstanding following the Reverse
Split. Any holder who would have received a fractional share of common stock was automatically entitled to receive an additional fraction
of a share of common stock to round up to the next whole share.
The
primary goal of the Reverse Stock Split was to increase the per share price of the Common Stock in order to meet the minimum per share
price requirement of $1.00 for continued listing on the Nasdaq. On October 30, 2023, the Company received a notice of compliance from
NASDAQ.
In
addition, effective as of the same time as the Reverse Split, proportionate adjustments were made to all then-outstanding equity awards,
warrants and convertible securities with respect to the number of shares of common stock subject to such award or security and the exercise
or conversion price thereof. Furthermore, the number of shares of common stock available for issuance under the Company’s equity
incentive plans has been proportionately adjusted for the Reverse Split ratio, such that fewer shares will be subject to such plans.
Furthermore, proportionate adjustments were made to the conversion factor at which the Company’s Series B Preferred Stock, par
value $0.0001 per share (the “Series B Preferred Stock”), may be converted to Common Stock. The total number of shares of
Series B Preferred Stock of the Company authorized for issuance remained at 187,500.
The
effects of the Reverse Stock Split have been reflected in these financial statements and the accompanying footnotes for all periods presented,
which includes adjusting the description of any activity that may have been transacted on a pre-Reverse Stock Split basis.
***Cash
and Cash Equivalents***
Cash
and cash equivalents consist of cash and highly liquid short-term investments with original maturities of less than three months.
***Restricted
Cash***
Restricted
cash relates to cash that is legally restricted as to withdrawal and usage or is being held for a specific purpose and thus not available
to the Company for immediate or general business use. As of June 30, 2024, the Company had restricted cash of approximately $3.0 million,
in which $2.0 million was classified as current and $1.0 million was classified as non-current. As of December 31, 2023, the Company
had restricted cash of approximately $4.0 million, in which $3.0 million was classified as current and $1.0 million was classified as
non-current. The balance in restricted cash relates to funds held in escrow accounts due to sales of equipment that were executed, in
which the Company can release to the convertible noteholders only if they request their share of funds. If no funds are distributed to
the convertible noteholders from the escrow account by January 24, 2025, the funds may be used for general purposes for the Company.
In addition, there was a restricted deposit held with a customer that was for less than 12 months. The Company has a long-term restricted
cash balance in relation to a collateralized deposit.
***Deposits
and Credits on equipment***
As
of June 30, 2024 and December 31, 2023, the Company had approximately $3.1 million and $1.0 million, respectively, in deposits and credits
on equipment that had not yet been received by the Company. Once the Company receives such equipment in the subsequent period, the Company
will reclassify such balance into Property, Plant, and Equipment. Included in these balances is a credit on equipment of $975 thousand
which is restricted to be used on future purchases by September 1, 2024 (“expiration date”). The Company notes that if an
order is not executed by the expiration date, the credit would be forfeited. The Company intends to utilize the full credit balance for
future orders prior to the expiration date.
***Warrant
Liability***
Under
the guidance in ASC 815, *Derivatives and Hedging* (ASC 815), certain Company warrants associated with the Fourth Amendment on February
28, 2024 did not meet the criteria for equity treatment, due to being subject to shareholder approval. As such, the warrants were recorded
on the balance sheet at fair value. This valuation was subject to re-measurement at each balance sheet date. With each re-measurement,
the warrant valuation was adjusted to fair value, with the change in fair value recognized in the Company’s condensed consolidated
statement of operations. On May 30, 2024, shareholder approval was obtained removing the cap containment provision, and as such, the
liability accounting treatment was no longer required. Since all other criteria were met to be treated as an equity, the Company adjusted
the warrant liability as of the date of shareholder approval and reclassified balance to equity. As such, the Company accounted for the
change in the fair value of the warrant liability as of the date of the shareholder approval (May 30, 2024).
10
As
discussed in Footnote 8, on June 20, 2024, Soluna AL Cloudco, LLC (the “Company”), a subsidiary of Soluna Cloud, Inc (“Cloud”),
entered into a Promissory Note Agreement of $12.5 million with an accredited investor. In consideration of entering into the promissory
note, Cloud provided warrants to the accredited investor. Since the warrants were determined to not be indexed to the Company’s
own stock under ASC 815-40-15, and since the warrants to be delivered upon exercise are not readily convertible to cash, they do not
meet the net settlement criteria within ASC 815-10-15-83. While Soluna Holdings, Inc is publicly traded, the shares provided are specific
to Soluna Cloud, Inc, which is a subsidiary of Soluna Holdings, Inc. The shares of Soluna Cloud, Inc are not publicly traded and therefore
the common stock underlying the warrant is not readily convertible to cash. Further evaluation of the Warrants under ASC 815-10 was required
to determine if the Warrants meet the definition of a derivative. Since the warrants do not meet the definition of a derivative instrument,
the warrants are classified as a liability that are required to be adjusted to fair market value.
***Reclassification***
Certain
prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on
the reported results of operations or net assets.
***Correction
of an Error***
While
preparing the Company’s Form 10-K for the year ended December 31, 2023, the Company identified the following errors related to
the presentation of basic and diluted Earnings Per Share (“EPS”) in its historical filing for the year ended December 31,
2022, and for the quarters ended March 31, 2023, June 30, 2023, and September 30, 2023:
- Inclusion of the net income/loss from noncontrolling interest in the numerator;
- Inclusion of the cumulative undeclared preferred dividends in the numerator;
- Exclusion of shares issued for little or no cash consideration (ie: penny warrants) in the denominator.
In
accordance with SEC Staff Accounting Bulletin No. 99, “Materiality,” and SEC Staff Accounting Bulletin No. 108, “Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements;” the Company evaluated
the errors and has determined that the related impacts were not material to any prior annual or 10-Q report, but that correcting the
cumulative impact of such errors would be significant to our EPS for the year ended December 31, 2023. Accordingly, the Company has corrected
such immaterial errors by adjusting its December 31, 2022 consolidated statement of operations related to the calculation of earnings
per share. The Company also corrected previously reported interim financial information for such immaterial errors in future filings,
as applicable. The following summarizes the effect of the revision on each financial statement line item.
The
following analysis provides a comparison amongst the basic and diluted EPS as reported on the Form 10-Q for the quarters ended June 30,
2023, and September 30, 2023, and the final revised basic and diluted EPS calculation to correct all identified errors:
Schedule
of Error Corrections of Basic and Diluted EPS
| Line item | For the three months ended June 30, 2023 | For the six months ended June 30, 2023 |
| --- | --- | --- |
| | Change | Change |
| Basic and Diluted net loss per share | $$$(1.10))) | $$$(2.60))) |
(1) Prior period results have been adjusted to reflect the Reverse Stock Split of the Common Stock at a ratio of 1-for- 25 that became effective October 13, 2023. See Note 2, “Basis of Presentation,” for details.
| Line item | For the three months ended September 30, 2023 / As Reported | For the three months ended September 30, 2023 / As Revised | For the three months ended September 30, 2023 / Change | For the nine months ended September 30, 2023 / As Reported | For the nine months ended September 30, 2023 / As Revised | For the nine months ended September 30, 2023 / Change |
| --- | --- | --- | --- | --- | --- | --- |
| Basic and Diluted net loss per share | $(4.40) | $(5.96) | $(1.56) | $(20.11) | $(24.16) | $(4.05) |
11
**3.Accounts Receivable, net**
Accounts
receivables consist of the following at:
Schedule of Accounts Receivable
| (Dollars in thousands) | June 30, 2024 | December 31, 2023 |
| --- | --- | --- |
| Data hosting | $1,892 | $2,456 |
| Related party receivable | 8 | 8 |
| Demand response service receivable | 1,436 | 268 |
| Proprietary mining Coinbase receivable | 98 | 216 |
| Other | 244 | - |
| Accounts receivables, gross | 244 | - |
| Allowance for expected credit losses | (244) | - |
| Total | $3,434 | $2,948 |
| Accounts receivables, net | $3,434 | $2,948 |
The
Company’s allowance for expected credit loss was $244 as of June 30, 2024 and $0 as of December 31, 2023. In the three months ended
June 30, 2024, one of the Company’s borrower from a note receivable was having financial difficulty and securing financing, as
such the Company fully reserved the note balance and incurred a provision on credit loss of approximately $244 thousand.
**4.Property, Plant and Equipment**
Property,
plant and equipment consist of the following at:
Schedule of Plant And Equipment
| (Dollars in thousands) | June 30, 2024 | December 31, 2023 |
| --- | --- | --- |
| Land and land improvements | $1,553 | $1,538 |
| Buildings and leasehold improvements | 25,361 | 25,369 |
| Computers and related software | 11,456 | 11,764 |
| Machinery and equipment | 9,104 | 9,054 |
| Office furniture and fixtures | 35 | 28 |
| Construction in progress | 817 | 1,111 |
| Property, plant and equipment, gross | 48,326 | 48,864 |
| Less: Accumulated depreciation | (6,854) | (4,292) |
| Property, plant and equipment, net | $41,472 | $44,572 |
Depreciation
expense was approximately $1.5 million and $547 thousand for the three months ended June 30, 2024 and 2023, respectively. Depreciation
expense was approximately $3.1 million and $1.2 million for the six months ended June 30, 2024 and 2023, respectively
The
Company had a loss on sale of equipment of approximately $21 thousand for both the three and six months ended June 30, 2024, in which
related to equipment held for sale and in storage. The Company received proceeds on the sale of equipment $145 thousand for the three
months ended June 30, 2024, in which the net book value was approximately $166 thousand. The Company received proceeds on the sale of
equipment of approximately $215 thousand for the six months ended June 30, 2024, in which the net book value was approximately $236 thousand.
The
Company has a gain on sale of equipment of approximately $48 thousand for the three months ended June 30, 2023 and a loss on sale of
equipment of approximately $31 thousand for the six months ended June 30, 2023. In January 2023, the Company sold M20 and M21 miners
for a loss on sale of equipment of approximately $82 thousand in which the Company received proceeds of $213 thousand for our M20 and
M21 miners which were previously reported as held for sale as of December 31, 2022, in which had a net book value of $295 thousand. There
were additional proceeds of $36 thousand in March 2023, in which resulted in a gain of approximately $3 thousand of scrap and other equipment.
This was offset with a gain on sale of approximately $48 thousand in relation to the sale of M30 miners in May and June of 2023, which
the Company sold the miners for a higher value than the current net book value. The Company received proceeds of approximately $561 thousand
in which the miners had a net book value of approximately $513 thousand. In addition, the Company sold Switchgear and M31 miners for
cash proceeds of approximately $476 thousand in which no gain or loss was recognized as the switchgear and miners were sold at net book
value.
There
were no impairment charges for the three months ended June 30, 2024. During the six months ended June 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. The Company had impairment charges of approximately $169 thousand
for the three months ended June 30, 2023 due to revaluing the S19 miners to the current market conditions. During the six months ended
June 30, 2023, the Company had impairment charges of approximately $377 thousand in which related to impairment of approximately $165 thousand for power supply units (PSUs) at the Sophie location and $43 thousand for M31 miners in which were subsequently sold in April
2023, in which the Company wrote down the net book value to subsequent sale price.
12
*Equipment
held for sale*
In
April 2023, Project Sophie entered into a 25 MW hosting contract with a sustainability-focused Bitcoin miner, which shifted the
Company’s business model at Project Sophie from proprietary mining to hosting Bitcoin miners for the customer. The Company
sold all but approximately $107 thousand of the Project Sophie miners during 2023 and, for the six months ended, June 30, 2024, the
Company has sold all remaining Sophie assets held for sale for approximately $82 thousand. In March 2024, Project Dorothy 1B began to look to sell certain miners due to interest from third parties and sold $133 thousand of miners that were included as equipment held for sale as of March 31, 2024, therefore there is no remaining balance
related to Dorothy 1B as of June 30, 2024. A balance of approximately $28 thousand in remaining outstanding as of June 30, 2024 related to Marie assets.
**5.Asset Acquisition**
As
discussed above, on October 29, 2021, we completed the Soluna Callisto acquisition pursuant to an Agreement and Plan of Merger dated
as of August 11, 2021, by and among the Company, SCI and Soluna Callisto (the “Merger Agreement”). The purpose of the transaction
was for SCI to acquire substantially all of the assets (other than those assets physically located in Morocco) formerly held by HEL,
which assets consisted of Soluna Callisto’s existing pipeline of certain cryptocurrency mining projects that HEL previously transferred
to Soluna Callisto and to provide SCI with the opportunity to directly employ or retain the services of four individuals whose services
it had retained through HEL prior to the merger. As a result of the merger, each share of common stock of Soluna Callisto issued and
outstanding immediately prior to the effective time of the merger, other than shares owned by the Company or any of our subsidiaries,
was canceled and converted into the right to receive a proportionate share of up to 118,800 shares (the “Merger Shares”)
of the Company’s common stock payable upon the achievement of certain milestones within five years after the effective date in
the merger, as set forth in the merger agreement and the schedules thereto (the “Merger Consideration”). See Note 11 for
further information regarding our relationship with HEL.
The
acquisition was accounted for, for purposes of U.S. GAAP, using the asset acquisition method of accounting under the ASC 805-50. We determined
that we acquired in the acquisition a group of similar identifiable assets (primarily, the “strategic pipeline contract”
of certain cryptocurrency mining projects), which it classified as an intangible asset for accounting purposes. As a result, our acquisition
of the set of assets and activities constituted an asset acquisition, as opposed to a business acquisition, under ASC 805. ASC 805-50
provides that assets acquired in an asset acquisition are measured based on the costs of the acquisition, which is the consideration
that the acquirer transfers to the seller and includes direct transaction costs related to the acquisition. We include Soluna Callisto’s
results of operations in our results of operations beginning on the effective date of the acquisition.
*Merger
Consideration*
The
fair value of the Merger Consideration includes various assumptions, including those related to the allocation of the estimated value
of the maximum number of Merger Shares (118,800) issuable as Merger Consideration, which issuance is contingent on the achievement of
certain milestones of generating active Megawatts from Qualified Projects in which the Cost Requirement is satisfied within five years
after the effective date of the merger, as set forth in the Merger Agreement and the schedules thereto, as set forth below. The Merger
Consideration and the timing of the payment thereof is subject to the following qualifications and limitations:
1a) Upon the Company achieving each one active MegaWatts (“Active MWs”) from the projects in which the cost requirement is satisfied, this will cause SHI to issue to HEL 792 shares for each one MW up to a maximum 150 Active MW.
i. If, on or before June 30, 2022, SCI or Soluna Callisto directly or indirectly achieves at least 50 active MWs from one or more of three current projects as set forth in the Merger Agreement that satisfy the Cost Requirement as defined within the Merger Agreement, then the Merger Shares will be issued at an accelerated rate of 1,188 Merger Shares for each of such first 50 Active MW, such that the Merger Shares in respect of the remaining 100 Active MWs (if any) will be issued at a reduced rate of 594 Merger Shares per Active MW (see below for extension and issuance of a proportion of shares);
ii. If, by June 30, 2023, SCI or Soluna Calisto fail to achieve directly or indirectly (other than pursuant to a Portfolio Acquisition) at least 50 Active MW from Projects that satisfy the Cost Requirement, then the maximum aggregate number of Merger Shares shall be reduced from 118,800 to 59,400 (see below for extension and issuance of a proportion of shares);
iii. No Merger Shares will be issued to HEL without the Company’s prior written consent;
iv. Issuance of the Merger Shares will also be subject to the continued employment with or engagement by SCI or the surviving corporation of (A) John Belizaire and (B) at least two of Dipul Patel, Mohammed Larbi Loudiyi, (through ML&K Contractor), and Phillip Ng at the time that such Merger Shares are earned. If both (A) and (B) cease to be satisfied on or prior to the date that all Merger Shares are earned (such date, a “Trigger Date”), then “Qualified Projects” for purposes of determining Merger Shares shall only apply to those Qualified Projects that are in the pipeline as of the Trigger Date. For these purposes, if any such individual’s employment or service relationship with SCI is terminated without cause, as a result of his death or disability, or with good reason (as such terms are defined in the employment and consulting agreements), such individual shall be deemed to continue to be employed or engaged by SCI for these purposes;
13
v. If SHI or SCI consummates a Change of Control before the fifth anniversary of the date of the closing of the merger, then we will be obligated to issue all of the unissued Merger Shares (subject to (ii) and (iii) above). The Merger Agreement defines “Change of Control” as (A) the sale, exchange, transfer, or other disposition of all or substantially all of the assets of us or SCI, (B) our failure to continue to own (directly or indirectly) 100% of the outstanding equity securities of SCI and/or the surviving corporation, or (C) a merger, consolidation, or other transaction in which the holders of SHI’s, SCI’s, or the surviving corporation’s outstanding voting securities immediately prior to such transaction own, immediately after such transaction, securities representing less than 50% of the voting power of the corporation or other entity surviving such transaction (excluding any such transaction principally for bona fide equity financing purposes, so long as, in the case of SHI or SCI (but not the surviving corporation) such transactions, individually and in the aggregate, do not result in a change in membership of such entity’s board of directors so that the persons who were members of the board of directors immediately prior to the first such transaction constitute less than 50% of the board membership at any time after such transaction(s) are consummated). Notwithstanding the foregoing, a transaction shall not constitute a Change of Control if its sole purpose is to change the state of SHI’s or SCI’s incorporation or to create a holding company that will be owned in the same proportions by the persons who held SHI’s or SCI’s securities immediately prior to such transaction; and
vi. if on any of the fifth anniversary of the effective time of the merger, a facility has not become a Qualified Facility and therefore is not taken into consideration in the calculation of Active MW because any of the elements set forth in the definition of “Qualified Facility” as defined in the Merger Agreement have not been met for reasons beyond the reasonable control of SCI’s management team, but SCI’s management team is then actively engaged in the process of completing and is diligently pursuing the completion of the missing elements, then (A) the target dates set forth above shall be extended for an additional 90 days, and (B) additional extensions of time may be granted by the Board of Directors in its commercially reasonable discretion, in each case for the purpose of enabling SCI’s management team to complete the steps needed to qualify the facility as a Qualified Facility.
On
April 11, 2023, the Board reviewed and approved the progress of SCI’s management team in qualifying facilities as Qualified
Facilities and discussed an extension of the date in Section 2.7(a)(ii)(A) of the Merger Agreement to December 31, 2023 (previously was
June 30, 2022), and an extension of the date in Section 2.7(a)(ii)(B) of the Merger Agreement to June 30, 2024 (previously was June 30,
2023). As of June 30, 2024, the Company has met the active 50 MW criteria.
Due
to conditions being met within the Merger Agreement in relation to energization and retention of employees, the Company has advised SCI
US Holdings LLC, a Delaware limited liability company, who is the sole Effective Time Holder (as defined in the Merger Agreement) of
the right to receive the Merger Shares and that 19,800 and 39,600 Merger Shares were issued on May 26, 2023 and October 10, 2023. SCI
US Holdings LLC has consented to the issuance of such Merger Shares as required under the Merger Agreement and has directed the Company
to issue such Merger Shares to its affiliate, HEL. Following the issuance of the 59,400 Merger Shares, a total of 59,400 Merger Shares
remains available for possible issuance pursuant to the terms of the Merger Agreement.
The
number of Merger Shares is also subject to customary anti-dilution adjustments in the event of any stock split, stock consolidation,
stock dividend, or similar event involving the shares of our common stock. Based on the assessment performed, the fair value of the merger
consideration as of October 29, 2021 was approximately $33.0 million.
**6.** **Intangible Assets**
Intangible
assets consist of the following as of June 30, 2024:
Schedule of Intangible Assets
| (Dollars in thousands) | Intangible Assets | Accumulated Amortization | Total |
| --- | --- | --- | --- |
| Strategic pipeline contract | $46,885 | $25,005 | $21,880 |
| Assembled workforce | 500 | 267 | 233 |
| Patents | 229 | 14 | 215 |
| Total | $47,614 | $25,286 | $22,328 |
14
Intangible
assets consist of the following as of December 31, 2023:
| (Dollars in thousands) | Intangible Assets | Accumulated Amortization | Total |
| --- | --- | --- | --- |
| Strategic pipeline contract | $46,885 | $20,317 | $26,568 |
| Assembled workforce | 500 | 216 | 284 |
| Patents | 165 | 10 | 155 |
| Total | $47,550 | $20,543 | $27,007 |
Amortization
expense for the three and six months ended June 30, 2024 and 2023 was approximately $2.4 million and $4.7 million.
The
strategic pipeline contract relates to supply of a critical input to our digital mining and hosting business. The Company has
analyzed this strategic pipeline contract similar to a permit for future benefit. The strategic pipeline contract relates to
potential renewable energy data centers that fit in the alignment of the Company structure to expand operations of the
Company’s new focus in their business.
The
Company expects to record amortization expense of intangible assets over the next five years and thereafter as follows:
Schedule of Amortization Expense of Intangible Assets
| (Dollars in thousands) / Year | 2024 |
| --- | --- |
| 2024 (remainder of the year) | $4,744 |
| 2025 | 9,488 |
| 2026 | 7,908 |
| 2027 | 11 |
| 2028 | 11 |
| Thereafter | 166 |
| Total | $22,328 |
**7.** **Income Taxes**
During
the three and six months ended June 30, 2024, the Company’s effective income tax rate was 7.1% and 7.6%, and for the three and
six months ended June 30, 2023, the Company’s effective tax rate was 4.5% and 6.1%. The projected annual effective tax rate is
less than the Federal statutory rate of 21%, primarily due to the change in the valuation allowance, as well as changes to estimated
taxable income for 2024 and permanent differences. There was $714 thousand and $544 thousand deferred income tax benefit for the three
months ended June 30, 2024 and 2023, offset with a $65 thousand and $0 current tax expense for the three months ended June 30, 2024 and
2023. There was $1.3 million and $1.1 million deferred income tax benefit for the six months ended June 30, 2024 and 2023, offset with
a $65 thousand and $0 current tax expense for six months ended June 30, 2024 and 2023.
In
connection with the strategic contract pipeline acquired in the acquisition as further discussed in Note 5, ASC 740-10-25-51 requires
the recognition of a deferred tax 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, in which was recorded as a deferred tax liability and this amount will be amortized
over the life of the asset. For the three and six months ended June 30, 2024 and 2023, the Company amortized $547 thousand and $1.1 million.
The
Company provides for recognition of deferred tax assets if the realization of such assets is more likely than not to occur in accordance
with accounting standards that address income taxes. Significant management judgment is required in determining the period in which the
reversal of a valuation allowance should occur. The Company has considered all available evidence, both positive and negative, such as
historical levels of income and future forecasts of taxable income amongst other items, in determining its valuation allowance. In addition,
the Company’s assessment requires us to schedule future taxable income in accordance with accounting standards that address income
taxes to assess the appropriateness of a valuation allowance which further requires the exercise of significant management judgment.
The
Company believes that the accounting estimate for the valuation of deferred tax assets is a critical accounting estimate because judgment
is required in assessing the likely future tax consequences of events that have been recognized in our financial statements or tax returns.
The Company based the estimate of deferred tax assets and liabilities on current tax laws and rates and, in certain cases, business plans
and other expectations about future outcomes. In the event that actual results differ from these estimates, or the Company adjusts these
estimates in future periods, the Company may need to adjust the recorded valuation allowance, which could materially impact our financial
position and results of operations. The Company has a full valuation allowance for the deferred tax asset of $37.2 million and $36.8 million on June 30, 2024 and December 31, 2023, respectively. We will continue to evaluate the ability to realize our deferred tax assets
and related valuation allowance on a quarterly basis.
15
**8.** **Debt**
***Convertible
Notes Payable***
Debt
consists of the following
Schedule of Debt
| (Dollars in thousands): | Maturity Date | Interest Rate | June 30, 2024 | December 31, 2023 |
| --- | --- | --- | --- | --- |
| Convertible Note | January 24, 2025 | *18 | $7,851 | $8,474 |
\* Default interest was waived on March 10, 2023, and no further default interest applied on the Convertible Note for the remainder of the year.
On
October 25, 2021, pursuant to a Securities Purchase Agreement (the “October SPA”), the Company issued to certain accredited
investors (the “Noteholders”) (i) secured convertible notes in an aggregate principal amount of $16.3 million for an aggregate
purchase price of $15 million (collectively, the “October Secured Notes”), which were, subject to certain conditions, convertible
at any time by the investors, into an aggregate of 1,776,073 shares of the Company’s common stock, at a price per share of $9.18 and (ii) Class A, Class B and Class C common stock purchase warrants (collectively, the “October Warrants”) to purchase up
to an aggregate of 1,776,073 shares of common stock, at an initial exercise price of $12.50, $15 and $18 per share, respectively. The
October Warrants are legally detachable and can be separately exercised immediately for five years upon issuance, subject to applicable
Nasdaq rules.
The
October Secured Notes, subject to an original issue discount of 8%, had a maturity date (the “Maturity Date”) of October
25, 2022, which was extended to April 25, 2023 pursuant to the Addendum Amendment (as defined below), upon which date the October Secured
Notes shall be payable in full. Commencing on the Maturity Date and also five (5) days after the occurrence of any Event of Default (as
defined in the October Secured Notes), interest on the October Secured Notes will accrue at an interest rate equal to the lesser of 18%
per annum or the maximum rate permitted under applicable law. If any Event of Default or a Fundamental Transaction (as defined in the
October Secured Notes) or a Change of Control (as defined in the October Secured Notes) occurs, the outstanding principal amount of the
October Secured Notes, liquidated damages and other amounts owing in respect thereof through the date of acceleration, will become, at
the Noteholder’s election, immediately due and payable in cash at the Mandatory Default Amount (as defined in the October Secured
Notes). Under the original terms, the October Secured Notes could not be prepaid, redeemed or mandatorily converted without the consent
of the Noteholders. The obligations of the Company pursuant to the October Secured Notes are (i) secured to the extent and as provided
in the Security Agreement, dated as of October 25, 2021, by and among the Company, MTI Instruments (a former subsidiary of SHI in which
was sold in April 2022), and SCI, Soluna MC, LLC and Soluna SW, LLC (both of which are wholly owned subsidiaries of SCI, and together
with MTI Instruments and SCI, the “Subsidiary Guarantors”), and Collateral Services LLC (the “Collateral Agent”),
as collateral agent for the Noteholders; and (ii) guaranteed, jointly and severally, by the Subsidiary Guarantors pursuant to each Subsidiary
Guaranty, dated as of October 25, 2021, by and among each Subsidiary Guarantor and the Noteholders signatory to the October SPA, subject
to subsequent modifications pursuant to the Addendum, the Addendum Amendment and the NYDIG Transactions.
On
July 19, 2022 and on September 13, 2022, the Company entered into an Addendum and Addendum Amendment in which adjusted the terms such
as maturity date, conversion prices, and the issuance of new warrants to the Noteholders. Pursuant to the Addendum and Addendum Amendment,
the Company evaluated whether the new addendums qualified as debt modification or debt extinguishment, and based on ASC 470, Debt, the
Company determined the Addendum and Addendum Amendment to fall under Debt Extinguishment and the Company would be required to fair value
the new debt, and in turn write off the existing debt on the books.
Following
the debt extinguishment on July 19, 2022 as noted further above, the Convertible Notes will be accounted for under the fair value method
on a recurring basis upon issuance (e.g., upon execution of the Addendum) per guidance within ASC 480, and at each subsequent reporting
period, with changes in fair value reported in earnings. Although the Notes are not being accounted for under 825-10, the substance of
the debt is considered to be the same and is therefore considered outside the scope of ASC 470-60. As such, the Company performed a fair
value analysis of the Convertible Notes. For the year-ended December 31, 2023 and quarter-ended June 30, 2024, the Company ran Monte
Carlo simulations for the expected conversion dates of the Convertible Notes using risk free rates, annual volatility, daily trading
volumes, likely conversion profiles, and other assumptions based on principal and accrued interest as of the period ends. The Company
determined the fair value of the Convertible Notes uses certain Level 3 inputs.
16
*Changes
in Level 3 Financial Liabilities Carried at Fair Value*
**Schedule of Changes in Level 3 Financial Liabilities Carried at Fair Value**
| (in thousands) | |
| --- | --- |
| Balance, January 1, 2023 | $12,254 |
| Conversions of debt (January 2023- March 31, 2023) | (1,395) |
| Total revaluation gains (January 2023- March 31, 2023) | (473) |
| Balance, March 31, 2023 | 10,386 |
| Conversions of debt (April 1, 2023- June 30, 2023) | (400) |
| Total revaluation losses (April 1, 2023- June 30, 2023) | 724 |
| Balance June 30, 2023 | 10,710 |
| Conversions of debt (July 1, 2023- December 31, 2023) | (4,219) |
| Total revaluation losses (July 1, 2023- December 31, 2023) | 1,983 |
| Balance December 31, 2023 | 8,474 |
| Conversions of debt (January 1, 2024- March 31, 2024) | (1,023) |
| Total revaluation gains (January 1, 2024- March 31, 2024) | (1,235) |
| Balance March 31, 2024 | 6,216 |
| Financial liabilities, Balance | 6,216 |
| Conversions of debt (April 1, 2024- June 30, 2024) | (2,689) |
| Conversions of debt | (2,689) |
| Extension fee | 325 |
| Total revaluation losses (April 1, 2024- June 30, 2024) | 3,999 |
| Total revaluation losses | 3,999 |
| Balance June 30, 2024 | $7,851 |
| Financial liabilities, Balance | $7,851 |
For
the three and six months ended June 30, 2024, the Company had approximately $2.7 million and $3.7 million of note conversions with the Noteholders, approximately $4.0 million and $2.8 million in revaluation losses in relation to fair value assessments of the convertible debt, and a 4%
note extension in June increasing the note balance by approximately $325 thousand. As of June 30, 2024, the Company had a fair value outstanding balance of approximately $7.9 million and a principal outstanding value of approximately $5.3 million. For the three and six months ended June 30, 2023, the Company had approximately $400 thousand and $1.8 million of note conversions with the Noteholders and approximately $724 thousand and $251 thousand revaluation losses due to fair value assessments of the convertible debt.
The
following table represents the significant and subjective fair value assumptions used for Convertible Notes during the six months ended
June 30, 2024:
Schedule of Fair Value Assumptions For Convertible Notes
_Six months ended June 30, 2024_
| | |
| --- | --- |
| Stock price | $2.88 – 6.09 |
| Conversion price | $3.78 |
| Volatility | 90.0 – 115% |
| Risk-free interest rate | 5.31- 5.46% |
The
events of default stated in the Notice of Acceleration and Repossession defined below with NYDIG Financing constituted a cross-default
under the terms of secured convertible notes issued to the Noteholders. In addition to such cross-default, the failure of the Company
pursuant to the Addendum dated as of July 19, 2022, to escrow an aggregate amount of $950,000 for the benefit of the Noteholders by December
21, 2022, constituted an event of default under the Notes. Due to the default, the Company accrued interest at a rate of 18% which amounted
to $617 thousand as of March 10, 2023. On March 10, 2023, the Company entered into a Second Addendum Amendment with the Noteholders,
in which the Company paid the accumulated default accrued interest of $617 thousand using the restricted escrow accounts and contemporaneously
with the payment, the Noteholders waived all existing events of default arising under the convertible notes.
On
May 11, 2023, the Company entered into a Second Amendment Agreement (the “Second Amendment”) with the holders of its October
Secured Notes to extend the maturity date of the October Secured Notes to July 25, 2024. In connection with the Second Amendment, the
Company paid an extension fee of $250,000 and increased the principal amount of the outstanding October Secured Notes by 14%. The Company
also issued 240,000 new Class A warrants exercisable at $12.50 and 80,000 new Class B warrants exercisable at $20.00.
Subject
to the Equity Conditions (as defined below), upon each trigger set forth below, the Company is allowed, once per trigger, require the
Note holders to convert up to 20% percent of the outstanding amount of the October Secured Notes as:
(i) the Company’s Common Stock trades for 10 consecutive days at or above $12.50 per share and at least 40,000 shares trade on each day.
(ii) the Company’s Common Stock trades for 10 consecutive days at or above $17.50 per share and at least 40,000 shares trade on each day.
(iii) the Company’s Common Stock trades for 10 consecutive days at or above $22.50 per share and at least 40,000 shares trade on each day.
17
The
Equity Condition is met if all of the following conditions have been satisfied: (i) the shares of Common Stock issuable upon the conversion
are either registered under the Securities Act of 1933 or resellable under Rule 144 thereunder without any volume restrictions, (ii)
the number of shares issuable to each Note holder are below 4.99% of the outstanding shares, (iii) at least 20 trading days has elapsed
since the previous mandatory conversion, (iv) the Company is current in all the SEC filings, and (v) the Company has obtained all required
approvals from NASDAQ, or any successor trading market, to list the Common Stock to be issued upon such conversion.
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 (collectively, the “Transaction Documents”). The aim is 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, reduce the prepayment penalty in return for reducing the conversion price of the $4.7 million of the Notes and reducing
the exercise price of 150,000 of the Warrants to $0.01.
As
provided in the original terms of the Notes, in the event the Company prepays the amounts owed under Notes, the Company must pay an additional20% prepayment penalty. Under the new Transaction Documents, in the event the prepayment occurs between February 15, 2024 and July 24,
2024, prepayment penalty is reduced to 10%.
In
addition, under the new Transaction Documents, the Company has the right to force the conversion of up to $1.5 million of face value
of the Notes in whole or in part at any time up to the maturity date of the Notes, provided that at the time of such conversion the share
price on the trading market on which the Company’s shares is then listed exceeds $5.00 and a minimum volume of 50,000 traded each
trading day for the five trading days immediately prior to such forced conversion.
As
consideration for the reduction in the prepayment penalty and the new forced conversion right, the Company agreed that an aggregate $4.7 million of the Notes had the conversion price reduced to $3.78 per share and 150,000 of the Warrants had the exercise price reduced to
$0.01 (the “Repriced Warrants”), provided that prior to February 1, 2024, for each $31.33 in Notes converted by a Noteholder,
such Noteholder may exercise one Repriced Warrant and that on February 1, 2024, all Repriced Warrants became immediately exercisable.
On
February 28, 2024 the Company and the Purchasers entered into a Fourth Amendment Agreement to amend the Notes, SPA and related agreements
to facilitate future financings by the Company by amending the Transaction Documents as follows:
The
Company shall be permitted to undertake at-the-market transactions in the future provided:
- No Event of Default shall have occurred and be continuing under the Notes; and
- The market price of the shares of common stock shall be at least the At-the-Market (“ATM”) Floor Price. ATM Floor Price means $10 per share initially, which is reduced to $8 per share six months after the ATM is effective and $6 per share 12 months after the after the effective date of the ATM.
In
addition, the Company will be permitted to unilaterally extend the maturity date of the Notes for two 3-Month extensions if prior to
the then in effect maturity date the Company gives notice to the Purchasers and increases the principal amount of the Notes on the date
of each such extension by two percent (2%) the principal amount of the Notes outstanding on the date of this Agreement per each extension.
In
consideration of the foregoing, the Company:
- Reduced the conversion price of the Notes to $3.78 per share;
- The Purchasers received an aggregate of 850,000 three year warrants exercisable at $0.01 per share;
- An aggregate of 320,005 warrants held by the Purchasers had the exercise price reduced to $3.78 per share (the “$3.78 Warrants”); and
- An aggregate of 478,951 warrants held by the Purchasers had the exercise price reduced to $6.00 per share (the “$6.00 Repriced Warrants”). For every one $6.00 Repriced Warrant exercised by a Purchaser, such Purchaser shall receive 1.36 new five-year warrants with an exercise price of $0.01, 1.6 new five-year warrants with an exercise price of $4.20, and 1.6 new five-year warrants with an exercise price of $5.70.
In
June 2024, pursuant to the Fourth Amendment Agreement, the Company exercised its right to extend the maturity date of the Senior Notes
for an additional six months, or until January 24, 2025, in order to enable the Company to continue to pursue its significant project
development opportunities for Soluna Cloud, Dorothy 2 and other projects. The extension of the notes caused an increase in the convertible
note balance of approximately $325 thousand and the extension fee was recorded within “Other Expense, net” for the three
and six months ended June 30, 2024.
18
The
effect of the additional penny warrants, $3.78 warrants, and the $6.00 repriced warrants including additional warrants if exercised with
the Noteholders, created a loss on debt extinguishment of approximately $5.8 million due to the fair value associated as of February
28, 2024. Such amounts were recorded as a loss on debt extinguishment and affected the Company’s warrant liability and additional
paid in capital balance account. Due to the requirement of the shareholder approval associated with the Fourth Amendment, the warrants
associated will be treated as a liability and be revalued each quarter. In addition, a warrant revaluation was done at March 31, 2024,
which created a gain on revaluation associated with the warrant liability of approximately $1.5 million. As of March 31, 2024, the Company
had a warrant liability of approximately $6.0 million. On May 30, 2024, shareholder approval was obtained removing the cap containment
provision for the warrants, and as such, the liability accounting treatment was no longer required. Since all other criteria were met
to be treated as equity, the Company adjusted the warrant liability as of the date of shareholder approval and reclassified balance to
equity. As such, the Company accounted for the change in the fair value of the warrant liability as of the date of the shareholder approval
(May 30, 2024), in connection with its loss on revaluation of the warrant of approximately $1.6 million.
Pursuant
to additional agreements with holders of another 51,618 outstanding warrants, similar adjustments with those warrants, resulted in a
total adjustment to 530,569 warrants. As the 51,618 warrants were not with the Noteholders, the treatment of $6.00 repriced warrants
was recorded as a deemed dividend and adjusted the Company’s earnings per share calculation noted in Footnote 9 for the six months
ended June 30, 2024. The fair value associated with the 51,618 warrants with non-Noteholders totaled approximately $386 thousand. On
May 17, 2024, the Company permitted the holders of the Company’s Amended Class C Warrants, previously exercisable at $6 per share,
to exercise such warrants at a reduced exercise price of $4 per share, provided that each such holder exercised at least 61.83% of their
Amended Class C Warrants by the close of business on May 17, 2024. The Company also agreed to reduce the exercise price on all remaining
Amended Class C Warrants. The adjustment in the exercise price, resulted in an additional deemed dividend which amounted to approximately
$66 thousand for the three months ended June 30, 2024.
On
March 5, 2024, one of the Noteholders exercised 50 thousand warrants at the $6.00 repriced warrant value. As such, the Company issued68 thousand $0.01 warrants, 80 thousand $4.20 warrants, and 80 thousand $5.70 warrants. As discussed above, the Amended Class C warrants
were amended to an exercise price $4.00 per share. For the three months ended June 30, 2024, the Noteholders exercised an additional428,951 shares, resulting in additional 583,373 shares of $0.01 warrants, 686,322 shares of $4.20 warrants, and 686,322 shares of $5.70 warrants.
The
following table represents the significant fair value assumptions used for warrants issued or repriced during the six months ended June
30, 2024:
Schedule of Fair Value Assumptions For Warrants Issued
_Six months ended June 30, 2024_
| | |
| --- | --- |
| Stock price | $2.88- 4.07 |
| Exercise price | $0.01- 20.00 |
| Expected term in years | 2.68 – 8.77 |
| Expected dividend yield | 0.00% |
| Volatility | 110.0 – 137.50% |
| Risk-free interest rate | 4.28- 4.44% |
***NYDIG
Financing***
Schedule of Financing Debt
| (Dollars in thousands) | Maturity Dates | Interest Rate | January 1, 2024 - June 30, 2024 | January 1, 2023 - December 31, 2023 |
| --- | --- | --- | --- | --- |
| NYDIG Loans #1-11 | April 25, 2023 thru January 25, 2027* | 12% thru 15% | $9,183 | $10,546 |
| Less: repossession of collateralized assets | | | — | (1,363) |
| Total outstanding debt | | | $9,183 | $9,183 |
\* Due to event of default- the entire NYDIG Financing became current, see note below.
On
December 30, 2021, Soluna MC Borrowing 2021-1 LLC (the “Borrower”), an indirect wholly owned subsidiary of the Company entered
into a Master Equipment Finance Agreement (the “Master Agreement”) with NYDIG ABL LLC (“NYDIG”) as lender, servicer
and collateral agent (the “NYDIG facility”). The Master Agreement outlined the framework for a financing up to approximately
$14.4 million in aggregate equipment financing. Subsequently, the parties negotiated the specific terms of each equipment financing transaction
as well as the terms upon which the Noteholders would consent to the transactions contemplated by the Master Agreement.
19
On
January 14, 2022, the Borrower effected an initial drawdown under the Master Agreement in the aggregate principal amount of approximately
$4.6 million that bore interest at 14% and was to be repaid over 24 months. On January 26, 2022, the Borrower had a subsequent drawdown
of $9.8 million. As part of the transactions contemplated under the Master Agreement, (i) the Company’s indirect wholly owned subsidiary,
Soluna MC LLC, formerly EcoChain Block LLC (“Guarantor”), which is the owner of 100% of the equity interests of Borrower,
executed a Guaranty Agreement in favor of NYDIG, as lender, dated as of December 30, 2021 (the “Guaranty Agreement”), (ii)
Borrower has granted a lien on, and security interest in, all of its assets to NYDIG, as collateral agent, (iii) Guarantor entered into
an equipment financing arrangement on assets purchased with the borrowed funds, (iv) Borrower would borrow from NYDIG the loans as forth
in certain loan schedules (the “Specified Loans”), and (v) Borrower had executed a Digital Asset Account Control Agreement
(the “ACA Wallet Agreement”) with NYDIG, as collateral agent and secured party, and NYDIG Trust Company LLC, as custodian,
dated as of December 30, 2021, as well as such other agreements related to the foregoing as mutually agreed (collectively, the “NYDIG
Transactions”).
In
connection with the NYDIG Transactions, on January 13, 2022, the Company entered into a Consent and Waiver Agreement, dated as of January
13, 2022 (the “Consent”), with the Noteholders, in connection with the October SPA, pursuant to which the Noteholders agreed
to waive any lien on, and security interest in, certain assets, provided various contingencies are fulfilled, and each Noteholder who
acquired October Secured Notes having a principal amount of not less than $3,000,000 agreed to waive its rights under Section 4.17 of
the October SPA to participate in Subsequent Financings (as defined in the October SPA) with respect to the NYDIG Transactions and any
additional loans under the MEFA that only finance the purchase of equipment from NYDIG, in order to consent to the NYDIG Transactions.
Pursuant to the Consent, the Noteholders also waived the current requirement of the October SPA and the other transaction documents (collectively,
the “SPA Documents”) that the Borrower become an Additional Debtor (as defined in the Security Agreement) and execute an
Additional Debtor Joinder (as defined in the Security Agreement) for so long as the Specified Loans were outstanding, and NYDIG would
not have entered into a subordination or intercreditor agreement with respect to the Guaranty. Further, pursuant to the Consent, the
Noteholders waived the right to accelerate the Maturity Date of the October Secured Notes and the right to charge a default rate of interest
on such Notes, in each case, with respect to certain changes in names of, and jurisdiction of incorporation, of the Debtors (as defined
in the SPA Documents), which waiver would not waive any other Event of Default (as defined in any of the SPA Documents), known or unknown,
as of the date of Consent.
Promptly
after the date of the Consent, the Company issued warrants to purchase up to 3,400 shares of common stock to the Noteholder holding the
largest outstanding principal amount of October Secured Notes as of the date of the Consent. Such warrants were substantially in form
similar to the other warrants held by the Noteholders. Such warrants were exercisable for three years from the date of the Consent at
an exercise price of $237.50 per share. On December 5, 2022, the exercise price of the warrants was reduced to an exercise price of $19.00 per share, effective with the closing of the Securities Purchase Agreement Offering on December 5, 2022.
The
Company, through the Borrower, was required to make average monthly principal and interest payments to NYDIG of approximately $730 thousand
on initial drawdown in aggregate principal amount of approximately $4.6 million bearing interest at 14%, and a subsequent drawdown of
$9.8 million.
On
December 20, 2022, the 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.
The
NYDIG Notice states that (a) Borrower failed to observe or perform certain covenants, conditions or agreements contained in the Master
Agreement and such failure continued unremedied for a period of ten days after Borrower’s knowledge of such breach, which resulted
in an event of default under the Master Agreement, and (b) Borrower defaulted under the guaranty, collateral agreement, or other support
agreement, which resulted in an event of default under the Master Agreement. In addition, the NYDIG Notice states that Borrower failed
to pay certain payments of principal and interest under the Master Agreement when due, which failure also constituted an event of default
under the Master Agreement. As a result of the foregoing events of default, and pursuant to the Master Agreement, NYDIG (x) declared
the principal amount of all loans due and owing under the Master Agreement and all accompanying Loan Documents (as defined in the Master
Agreement) to be due and immediately payable, (y) imposed a default rate of interest on any outstanding principal amount of each loan
(together with all then unpaid interest accruing thereon) and all other obligations under the Master Agreement and the Loan Documents,
and (z) demanded the return of all equipment subject to the Master Agreement and the Loan Documents. As such, the principal balance of
$10.5 million became due immediately and the Borrower was to 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. Also, as the Company was not able to obtain a waiver, the
outstanding deferred financing costs were written off. As of December 31, 2022, the Borrower had incurred accrued interest and penalty
of approximately $274 thousand. 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. The Company applied the per diem interest rate agreed upon
with the summary judgement for the three and six months ended June 30, 2024 and recorded interest expense of approximately $361 thousand
and $723 thousand and has an outstanding interest and penalty accrual of approximately $1.5 million recorded within “Accrued Liabilities”
as of June 30, 2024. See Note 10 for further information in relation to the NYDIG litigation matter.
20
***Loan
and Security Agreement***
***Navitas
Term Loan***
Schedule of Navitas Term Loan
| (Dollars in thousands) | Maturity Date | Interest Rate | January 1, 2024- June 30, 2024 | May 9, 2023- December 31, 2023 |
| --- | --- | --- | --- | --- |
| Term Loan and capitalized interest (excludes debt issuance cost) | May 9, 2025 | 15% | $1,707 | $2,254 |
| Less: principal and capitalized interest payments | | | (1,234) | (547) |
| Less: debt issuance costs | | | (13) | (25) |
| Total outstanding debt | | | $460 | $1,682 |
On
May 9, 2023, DVCC and Navitas West Texas Investments SPV, LLC entered into a 2-year Loan Agreement (“Term Loan”) for $2,050,000.
The unpaid principal balance of the Term Loan shall bear interest at per annum rate equal to 15%. Beginning on the last Business Day
of the month in which the In-Service Date occurs (date Dorothy 1B is put into full operation following the planned ramp-up period), and
continuing on the last Business Day of each month thereafter until the repayment of all Term Loan debt principal and accrued interest
occurs, DVCC shall make debt service payments on the Term Loan through a cash sweep with the Site-level Free Cash Flow (total revenue
of DVCC minus power costs and site level costs listed in Loan and Security agreement), otherwise to be distributed to Soluna Holdings,
Inc., the ultimate parent entity of DVCC (the “SLNH Cash”) being applied as a permanent repayment of the Loan in an amount
equal to the *greater of*: (i) the sum of (A) the amount of accrued and unpaid interest that has not yet been added to the principal
balance of the Term Loan, if any, *plus* (B) an amount equal to 1/24th of the then outstanding principal balance of the Term Loan;
provided that the aggregate amount payable pursuant to this clause (i) shall not exceed SLNH Cash times 0.60; or (ii) SLNH Cash times
0.33.
Any
and all monthly debt service amounts so paid to Lender shall be applied first to accrued and unpaid interest that has not yet been
added to the principal balance of the Term Loan, if any, and then to repayment of the then outstanding principal balance of the Term
Loan. On the Term Loan Maturity Date (May
9, 2025), all remaining principal and accrued and unpaid interest that has not yet been added to the principal balance of the
Term Loan, if any, shall become immediately due and owing in full and shall be paid by wire transfer in immediately available funds.
As of June 30, 2024 and December 31, 2023, approximately $460 thousand and $1.7 million is included in the current portion of debt as the Company’s expectation is that principal and capitalized interest
payments will be made to pay off the Term Loan within one year after quarter or year-end. The Company has paid approximately $1.2 million in principal for the six months ended June 30, 2024 and $547 thousand in principal and capitalized interest payments for the year ended December 31, 2023. Interest expense related to the
Navitas Term Loan for the three and six months ended June 30, 2024 was approximately $37 and $100 thousand.
***Equipment
Loan Agreement***
On
May 16, 2024, SDI SL Borrowing – 1, LLC, an affiliate of Soluna Holdings, Inc. (the “Borrower”) entered into a loan
agreement (the “Equipment Loan Agreement” or the “Loan”) with Soluna2 SLC Fund II Project Holdco LLC (the “Lender”,
and collectively, the “Parties”). The Equipment Loan Agreement provides for the Company to borrow, from time to time, up
to $1.0 million to be used to purchase necessary equipment for the progression of Project Dorothy 2. Any loans made under the Equipment
Loan Agreement have a maturity date of May 16, 2027, and will bear interest at a rate of 15% per annum. The Equipment Loan Agreement
includes customary covenants for loans of this nature, as well as a multiple on invested capital (“MOIC”) provision, which
requires the Company to pay, in addition to principal and interest, an amount equal to the difference of (i) the greater of (a) the principal
amount of the Loan being repaid *plus* all interest previously paid or simultaneously being paid to Lender in respect of such principal
of the Loan, and (b) the principal amount of the Loan being repaid multiplied by three, *minus* (ii) the sum of the principal amount
of the Loan being repaid *plus* all interest previously paid or simultaneously being paid to Lender in respect of such principal
of the Loan.
21
On
May 16, 2024, the Parties entered into the Security Agreement in connection with the Loan Agreement as described above. The Security
Agreement grants a collateral security interest in the equipment purchased under the Equipment Loan Agreement to secure the obligations
of the Borrower under said Agreement in the event full performance and payment of the Equipment Loan Agreement becomes due.
On
May 17, 2024, the Borrower drew down $720 thousand of the equipment loan with the Lender. As of June 30, 2024, the Borrower has an outstanding
principal and compounded interest of approximately $734 thousand. In addition, the Borrower had deferred financing costs associated with
the line of credit of approximately $118 thousand. Per ASC 835-30-S45-1, debt issuance costs related to line of credits should be recorded
as an asset and amortized over the life of the line of credit agreement. As such, the Company recorded $39 thousand within Prepaid expenses
and other current assets and $79 thousand within Other assets on the condensed balance sheet as of June 30, 2024.
As
noted in Footnote 17, on the July 22, 2024, the Borrower satisfied and repaid the Borrowing Amount in full by issuing the Investor Class
B Membership Interests in the Dorothy 2 project at three times the value of the Borrowing Amount (i.e., $2.16 million).
***June
2024 Secured Note Financing***
Schedule
of Secured Note Financing
| (Dollars in thousands) | Maturity Date | Interest Rate | June 20, 2024- June 30, 2024 |
| --- | --- | --- | --- |
| Term Loan and capitalized interest (excludes debt issuance cost) | June 20, 2027 | 9% | $12,531 |
| Less: principal and capitalized interest payments | | | - |
| Less: debt discount | | | (314) |
| Less: debt issuance costs | | | (557) |
| Total outstanding note | | | 11,660 |
| (Less) Current note outstanding | | | 2,632 |
| Long-term note outstanding | | | $9,028 |
On
June 20, 2024, Soluna AL CloudCo, LLC (“CloudCo”), an indirect wholly-owned subsidiary of Soluna Holdings, Inc. (the “Company”),
issued a $12.5 million secured promissory note to an accredited investor under a Note Purchase Agreement (the “June SPA”).
The note accrues 9% interest annually, adjustable upon default, and matures on June 20, 2027. CloudCo’s obligations are secured by its
assets under a security agreement.
As
additional credit support, Soluna Cloud, Inc., CloudCo’s parent company, provided a guaranty secured by its assets and a pledge
of CloudCo’s membership interests. The Company, as Soluna Cloud’s sole stockholder, also provided a guaranty secured by its assets and
a pledge of its shares in Soluna Cloud.
These
arrangements are documented in the “CloudCo Agreements,” “Cloud Agreements,” and “Holdings Agreements.”
22
As
an inducement for the Investor to purchase the Note, Soluna Cloud will issue a warrant (the “ Cloud Warrant”) exercisable
within three years from June 20, 2024. This Warrant allows the Investor to purchase a number of shares of Soluna Cloud common stock equal
to 12.5% of the issued and outstanding common stock as of the Cloud Warrant date divided by 0.875, plus 12.5% of each Qualified Issuance
divided by 0.875. In addition, granting of appreciation rights, phantom rights, or other rights
with equity features would result in adjustments to the aggregate number of warrants issued.
A
“Qualified Issuance” includes any issuance of common stock by Soluna Cloud from the day after the Cloud Warrant date until
the earlier of raising an additional $112.5 million or December 31, 2024, as well as shares issuable upon exercise or conversion of convertible
securities issued during this period, excluding certain equity compensation plan issuances.
On
June 20, 2024, the Company recorded the Cloud Warrant as a liability valued at approximately $314 thousand and a related debt discount,
which will be amortized over the loan’s term.
In
connection with the June 2024 transactions, the purchasers (collectively, the “Purchasers”) of the secured convertible notes
(“Senior Notes”) issued under the Securities Purchase Agreement dated October 25, 2021 (as amended, the “2021 Purchase
Agreement”), along with Collateral Services LLC as collateral agent, consented to the June 2024 transactions. They also agreed
to enter into an intercreditor agreement with the Investor regarding these transactions.
For
the three and six months ended June 30, 2024, the Company incurred approximately $31 thousand in interest expense related to the June
SPA.
***October
2021 Secured Notes—Extension of Maturity Date***
Pursuant
to Section 6.a. of the Fourth Amendment Agreement to the 2021 Purchase Agreement, dated as of February 28, 2024, the Company exercised
its right to extend the maturity date of the Senior Notes for an additional six months, or until January 24, 2025, in order to enable
the Company to continue to pursue its significant project development opportunities for Soluna Cloud, Dorothy 2 and other projects.
***Line
of Credit***
On
September 15, 2021, the Company entered into a $1.0 million unsecured line of credit with KeyBank National Association (“KeyBank”),
that allows 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, 2023, the Company had drawn on the line of credit
and approximately $350 thousand of the amount drawn under the line of credit remained outstanding. As of December 31, 2023, the remaining
$350 thousand had been paid down. The Company does not have any remaining balance outstanding as of December 31, 2023 and June 30, 2024.
The Company does not plan to draw down on the line of credit in the foreseeable future. In addition, future drawdowns require pre-approval
by KeyBank.
**9.** **Stockholders’ Equity**
***Preferred
Stock***
The
Company has two series of preferred stock outstanding: the Series A Preferred Stock, with a $25.00 liquidation preference; and the Series
B Convertible Preferred Stock, par value $0.0001 per share, with a stated value equal to $100.00 (the “Series B Preferred Stock”).
As of June 30, 2024 and December 31, 2023, there were 4,953,545 and 3,061,245 shares of Series A Preferred Stock issued and outstanding,
respectively, and as of June 30, 2024 and December 31, 2023 there was 62,500 shares of Series B Preferred Stock issued and outstanding,
respectively.
*Series
B Preferred Stock*
On
July 19, 2022, the Company entered into a Securities Purchase Agreement (the “Series B SPA”) with an accredited investor
(the “Series B Investor”) pursuant to which the Company sold to the Series B Investor 62,500 shares of Series B Preferred
Stock, for a purchase price of $5,000,000. The shares of Series B Preferred Stock are initially convertible, subject to certain conditions,
into 46,211 shares of common stock, at a price per share of $135.25 per share, a 20% premium to the closing price of the common stock
on July 18, 2022, subject to adjustment as set forth in the Certificate of Designations of Preferences, Rights and Limitations for the
Series B Preferred Stock (“Series B Certificate of Designations”).
23
In
addition, on July 19, 2022, the Company issued to the Series B Investor common stock purchase warrants (the “Series B Warrants”)
to purchase up to an aggregate of 40,000 shares of common stock at an initial exercise price of $250.00 per share. The Series B Investor
is entitled to exercise the Series B Warrants at any time on or after the date that is 180 days following the issue date and on or prior
to January 19, 2028. On the closing date of the next public offering of the common stock or other securities, the exercise price of the
Series B Warrants is to adjust to a price equal to the lower of (a) the exercise price then in effect, or (b) the price of the warrants
issued in the Company’s next public offering, or if no warrants are issued in the Company’s next public offering, 110% of
the price per share of the common stock issued in the Company’s next public offering. In addition, upon the Series B Closing, the
Series B Investor delivered to the Company for cancellation an outstanding warrant to acquire 40,000 shares of common stock at an exercise
price of $287.50 per share previously issued on April 13, 2022, in connection with the Notes.
***Common
Stock***
The
Company has one class of common stock, par value $0.001 per share. Each share of the Company’s common stock is entitled to one
vote on all matters submitted to stockholders. As of June 30, 2024 and December 31, 2023, there were 5,232,104 and 2,505,620 shares of
common stock issued and outstanding, respectively.
Dividends
Pursuant
to the Certificate of Designations, Preferences and Rights of 9.0% Series A Cumulative Perpetual Preferred Stock of the Company, dividends,
when, as and if declared by the Board (or a duly authorized committee of the Board), will be payable monthly in arrears on the final
day of each month, beginning August 31, 2021. The Board of Directors had not declared any Series A Preferred Stock dividends beginning
October 2022 through December 31, 2023, as such the Company has accumulated approximately $8.6 million of dividends in arrears on the
Series A Preferred Stock through December 31, 2023, and an additional $2.6 million and $4.3 million of dividends in arrears for the three
and six months ended June 30, 2024 million, for a total of approximately $12.9 million.
The
Company’s Series B Preferred Stock includes a 10% accruing dividend compounded daily for 12 months from the original issue date
of July 20, 2022 that may be paid in cash or stock at the Company’s option at the earlier of (i) the date the Series B Preferred
Stock is converted, or (ii) the Series B Dividend Termination Date. On August 11, 2023, the Company paid a mandatory dividend on its
outstanding Series B Convertible Preferred Stock in the amount of approximately $656 thousand. Pursuant to the Certificate of Designation
for the Series B Stock, the Company had the option to pay the dividend in cash or shares of Common Stock. Pursuant to a Dividend Payment
Agreement, the Company and the holder of the Series B Stock agreed to satisfy the payment of the dividend through the issuance of 44,000 shares of its Common Stock and 70,300 prefunded warrants (the “Prefunded Warrants”).
Each
Pre-Funded Warrant has been funded to the amount of $.19999, with $0.00001 per share of common stock payable upon exercise, is immediately
exercisable, may be exercised at any time until exercised in full and is subject to customary adjustments. The Pre-Funded Warrants may
not be exercised if the aggregate number of shares of the Company’s common stock beneficially owned by the holder (together with
her affiliates) would exceed 4.99% of the Company’s outstanding Common Stock immediately after exercise. However, the holder may
increase (upon 61 days’ prior notice from the holder to the Company) or decrease such percentages, provided that in no event such
percentage exceeds 4.99%.
Reservation
of Shares
The
Company had reserved common shares for future issuance as follows as of June 30, 2024:
Schedule
of Reserved Shares of Common Stock for Future Issuance
| | |
| --- | --- |
| Stock options outstanding | 3,325 |
| Restricted stock units outstanding | 5,692 |
| Warrants outstanding | 3,820,152 |
| Common stock available for future equity awards or issuance of options | 15,951 |
| Number of common shares reserved | 3,845,120 |
The
Company also notes that as of June 30, 2024, there are 14,888 Series A preferred stock available for future equity awards under the 2021
Plan.
24
***Loss
per Share***
The
Company computes basic loss per common share by dividing net loss by the weighted average number of common shares outstanding during
the reporting period. Diluted loss per share reflects the potential dilution, if any, computed by dividing loss by the combination of
dilutive common share equivalents, comprised of shares issuable under outstanding investment rights, warrants and the Company’s
share-based compensation plans, and the weighted average number of common shares outstanding during the reporting period. Dilutive common
share equivalents include the dilutive effect of in-the-money stock options, which are calculated based on the average share price for
each period using the treasury stock method. Under the treasury stock method, the exercise price of a stock option and the amount of
compensation cost, if any, for future service that the Company has not yet recognized are assumed to be used to repurchase shares in
the current period.
The
following table sets forth the reconciliation of the numerators and denominators of the basic and diluted per share computations for
operations for the three and six months ended June 30:
Schedule
of Basic and Diluted Per Share Computations for Continuing Operations
| (Dollars in thousands, except shares) | 2024 / Three Months Ended June 30, | 2023 / Three Months Ended June 30, | 2024 / Six Months Ended June 30, | 2023 / Six Months Ended June 30, |
| --- | --- | --- | --- | --- |
| Numerator: | | | | |
| Net loss | $(9,145) | $(9,257) | $(11,689) | $(16,689) |
| (Less) Net income (loss) attributable to non-controlling interest | (1,728) | 482 | (4,438) | 852 |
| Net loss attributable to Soluna Holdings, Inc. | (10,873) | (8,775) | (16,127) | (15,837) |
| Less: Preferred dividends or deemed dividends | (66) | (252) | (452) | (383) |
| Less: Cumulative Preferred Dividends in arrears | (2,609) | (1,722) | (4,331) | (3,444) |
| Balance | $(13,548) | $(10,749) | $(20,910) | $(19,664) |
| Denominator: | | | | |
| Basic and Diluted EPS: | | | | |
| Common shares outstanding, beginning of period, including penny warrants | 2,958,851 | 1,015,255 | 2,592,454 | 940,047 |
| Weighted average common shares issued during the period including penny warrants issued and outstanding as of quarter-end | 1,594,845 | 109,436 | 1,091,104 | 55,021 |
| Denominator for basic earnings per common shares — | 4,563,696 | 1,126,091 | 3,683,558 | 996,228 |
| Weighted average common shares | (2.97) | (9.54) | (5.68) | (19.74) |
The
Company notes as continuing operations was in a Net loss for the three and six months ended June 30, 2024 and 2023, as such basic and
diluted EPS is the same balance as continuing operations acts as the control amount in which would cause antidilution. Not included in
the computation of earnings per share, assuming dilution, for the three and six months ended June 30, 2024, were options to purchase3,325 shares of the Company’s common stock, 5,692 nonvested restricted stock units, and 3,820,152 outstanding warrants not exercised
which excludes penny warrants that can be potentially exercised. These potentially dilutive items were excluded because the calculation
of incremental shares resulted in an anti-dilutive effect.
Not
included in the computation of earnings per share, assuming dilution, for the three and six months ended June 30, 2023, were options
to purchase 1,309,789 shares of the Company’s common stock, 297,680 nonvested restricted stock units, and 23,835,852 outstanding
warrants not exercised. These potentially dilutive items were excluded because the calculation of incremental shares resulted in an anti-dilutive
effect.
**10.** **Commitments and Contingencies**
**Commitments:**
Leases
The
Company determines whether an arrangement is a lease at inception. The Company and its subsidiaries have operating leases for certain
manufacturing, laboratory, office facilities and certain equipment. The leases have remaining lease terms one year to less than ten years.
Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. As of June 30, 2024 and
December 31, 2023, the Company has no assets recorded under finance leases.
25
Lease
expense for these leases is recognized on a straight-line basis over the lease term. For the three and six months ended June 30, total
lease costs are comprised of the following:
Schedule
of Lease Expense Recognized on Straight-line Basis Over Lease Term
| (Dollars in thousands) | 2024 / Three Months Ended June 30, | 2023 / Three Months Ended June 30, | 2024 / Six Months Ended June 30, | 2023 / Six Months Ended June 30, |
| --- | --- | --- | --- | --- |
| Operating lease cost | $61 | $60 | $122 | $116 |
| Short-term lease cost | — | — | — | — |
| Total net lease cost | $61 | $60 | $122 | $116 |
Short-term
leases are leases having a term of twelve months or less. The Company recognizes short-term leases on a straight-line basis and does
not record a related lease asset or liability for such leases.
Other
information related to leases was as follows:
Schedule
of Other Information Related to Leases
**Six Months Ended**
**June 30, 2024**
Weighted Average Remaining Lease Term (in years):
Operating leases 4.15
Weighted Average Discount Rate:
Operating leases 7.03%
| (Dollars in thousands) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 |
| --- | --- | --- |
| Supplemental Cash Flows Information: | | |
| Cash paid for amounts included in the measurement of lease liabilities: | | |
| Operating cash flows from operating leases | $123 | $111 |
| Non-Cash Activity Right-of-use assets obtained in exchange for lease obligations: | | |
| Operating leases | - | $397 |
Maturities
of noncancellable operating lease liabilities are as follows for the quarter ending June 30:
Schedule of Maturity of Operating
Lease Liabilities
| (Dollars in thousands) | 2024 |
| --- | --- |
| 2024 (remainder of year) | $124 |
| 2025 | 79 |
| 2026 | 29 |
| 2027 | 29 |
| 2028 | 29 |
| Thereafter | 116 |
| Total lease payments | 406 |
| Less: imputed interest | (78) |
| Total lease obligations | 328 |
| Less: current obligations | 159 |
| Long-term lease obligations | $169 |
As
of June 30, 2024, there were no additional operating lease commitments that had not yet commenced.
26
**Contingencies:**
***Spring
Lane Capital Contingency***
The
Company has a potential contingency associated with an agreement with Spring Lane of up to $250 thousand which would be reduced by a
proportion of funding received from Spring Lane up to the $35.0 million aggregate contribution cap. The Company considers the probability
of a payment for the contingency to be remote.
Legal
We
are subject to legal proceedings, claims and liabilities which arise in the ordinary course of business. When applicable, we accrue for
losses associated with legal claims when such losses are probable and can be reasonably estimated. These accruals are adjusted as additional
information becomes available or circumstances change. Legal fees are charged to expense as they are incurred.
The
Company has been named as a party in the December 19, 2019 United States Environmental Protection Agency (“EPA”) Demand Letter
regarding the Malta Rocket Fuel Area Superfund Site (“Site”) located in Malta and Stillwater, New York in connection with
an alleged release of hazardous materials into the environment. The EPA is seeking reimbursement of response costs from all named parties
in the amount of approximately $358 thousand plus interest in connection with the investigation and disposal activities associated with
the various drum caches discovered at the Site, issuance of the Explanation of Significant Differences (“ESD”) of the Site,
and implementation of the work contemplated by the ESD. The Company considers the likelihood of a material adverse outcome to be remote
and does not currently anticipate that any expense or liability it may incur as a result of these matters in the future will be material
to the Company’s financial condition.
NYDIG
filed a complaint against a subsidiary of Company, Soluna MC Borrowing 2021-1, LLC (“Borrower”) and Soluna MC, LLC, as Guarantor
(“Guarantor”), and together with Borrower, (“NYDIG Defendants”) in Marshall Circuit Court of the Commonwealth
of Kentucky on December 29, 2022 regarding a series of loans made by NYDIG to Borrower pursuant to a master equipment finance agreement
that were secured by certain assets of Borrower and guaranteed by Guarantor pursuant to a written guaranty agreement executed by Guarantor.
The Court issued on February 15, 2023 an agreed order granting NYDIG’s motion for writ of possession which, among other things,
ordered parties to provide NYDIG access to the collateral described therein and preserved the rights of NYDIG to pursue a deficiency
judgment against the NYDIG Defendants. Also on February 15, 2023, the NYDIG Defendants filed their answer and affirmative defenses in
this proceeding. The NYDIG Defendants believe that NYDIG has liquidated some of the collateral securing the loans and anticipate that
NYDIG will complete the liquidation of collateral and continue to prosecute the complaint to obtain a judgment against the NYDIG Defendants.
Additionally, NYDIG has stated its intention to pursue SCI, the parent company of Guarantor, under a piercing of the corporate veil claim
relating to NYDIG Defendants’ debts and liabilities under the loan documents. SCI denies any such liability and has filed a complaint
for a declaratory judgment against NYDIG in the Eighth Judicial District Court in Clark County, Nevada on March 16, 2023 seeking a declaratory
judgment as to such matter. NYDIG filed a motion to dismiss in response to SCI’s declaratory judgment complaint on April 13, 2023.
SCI filed a response in opposition to NYDIG’s motion to dismiss on April 27, 2023. The court heard oral arguments on May 16, 2023.
On June 22, 2023, the court issued an order granting NYDIG’s motion to dismiss, on the basis that the case was not ripe for decision,
without prejudice. SCI intends to continue to vigorously defend any allegations regarding liability on account of NYDIG Defendants’
debts and liabilities to NYDIG under their loan documents and intends to refile a declaratory judgment complaint against NYDIG.
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 June 30, 2024, the Company still has an outstanding principal of approximately $9.2 million
and outstanding interest and penalty balance of approximately $1.5 million. This settlement did not result in the admission of any liability
on the part of SHI, whose declaratory judgment remains the subject of litigation. On March 13, 2024, NYDIG served the Company with a
post-judgment discovery seeking information regarding the Company’s assets and liabilities. Per agreement between NYDIG and the
NYDIG Defendants, the deadline to respond to the discovery demands was extended to May 13, 2024 but with rolling weekly production that
commenced on April 12, 2024. The Company intends to vigorously defend itself from NYDIG’s parent company claims.
In
September 2023, Atlas Technology Group LLC (“Atlas”) filed a complaint against Soluna MC LLC, Soluna Computing, Inc., and
Soluna Holdings, Inc. (collectively, the “Atlas Defendants”) in the Supreme Court of New York regarding a co-location services
agreement. Atlas alleged that Soluna MC’s termination of the agreement was a breach, seeking a return of pre-paid fees of approximately
$464 thousand, additional damages of at least $7.9 million, and reimbursement of legal fees. The complaint also mentioned alter ego liability
and corporate veil piercing.
The Atlas Defendants filed a motion to dismiss, and on April 17, 2024, the Court dismissed three of the four counts. The remaining count
was answered on May 6, 2024, with counterclaims against Atlas. The Court denied the dismissal of Soluna Computing, Inc. and Soluna Holdings,
Inc. as parties, leading to an appeal filed on May 7, 2024.
On
June 25, 2024, Atlas and the Atlas Defendants entered into a settlement agreement. Soluna MC recorded a gain on the settlement
of approximately $254 thousand for the three and six months ended June 30, 2024, in “Other Expense, net” on the condensed
consolidated financial statements.
27
**11.** **Related Party Transactions**
MeOH
Power, Inc.
On
December 18, 2013, MeOH Power, Inc. and the Company executed a Senior Demand Promissory Note (the Note) in the amount of $380 thousand to secure the intercompany amounts due to the Company from MeOH Power, Inc. upon the deconsolidation of MeOH Power, Inc.
Interest accrues on the Note at the Prime Rate in effect on the first business day of the month, as published in the Wall Street
Journal. At the Company’s option, all or part of the principal and interest due on this Note may be converted to shares of
common stock of MeOH Power, Inc. at a rate of $0.07 per share. Interest began accruing on January 1, 2014. The Company recorded a full allowance against the Note. As of June 30, 2024
and December 31, 2023, $374 thousand and $363 thousand, respectively, of principal and interest are available to convert into shares
of common stock of MeOH Power, Inc. Any adjustments to the allowance are recorded as miscellaneous expense during the period
incurred.
Legal
Services
During
the three and six months ended June 30, 2024 and 2023, the Company incurred $1 thousand and $2 thousand, respectively, to Couch White,
LLP for legal services associated with contract review. A partner at Couch White, LLP is an immediate family member of one of our Directors.
***Employee
Receivables***
Certain
employees have a receivable due to the Company based on their stock-based awards, in which $109 thousand and $110 thousand was outstanding
as of June 30, 2024 and December 31, 2023, respectively. The balance is currently presented as $13 thousand and $13 thousand within Notes
receivable as of June 30, 2024 and December 31, 2023, and $96 thousand and $97 thousand, respectively within Other assets.
***HEL
Transactions***
As
discussed above, on October 29, 2021, the Company completed the Soluna Callisto acquisition pursuant to the Merger Agreement. The purpose
of the transaction was for SCI to acquire substantially all of the assets (other than those assets physically located in Morocco) formerly
held by HEL, which assets consisted of SCI’s existing pipeline of certain cryptocurrency mining projects that HEL previously transferred
to SCI, which was formed expressly for this purpose, and to provide SCI with the opportunity to directly employ or retain the services
of four individuals whose services it had retained through HEL prior to the merger. As a result of the merger, each share of common stock
of Soluna Callisto issued and outstanding immediately prior to the effective time of the merger, other than shares owned by the Company
or any of our subsidiaries, was cancelled and converted into the right to receive a proportionate share of the Merger Consideration.
In
connection with the Soluna Callisto acquisition, effective as of October 29, 2021, upon and subject to the terms and conditions of the
Termination Agreement, on November 5, 2021: (1) the existing Operating and Management Agreements between HEL and SCI were terminated
in all respects; and (2)(A) SCI paid HEL $725 thousand, (B) SHI issued to HEL the Termination Shares, and (C) HEL and SHI entered into
an Amended and Restated Contingent Rights Agreement that, among other things, amended the existing Contingent Rights Agreement by and
between HEL and SHI, dated January 13, 2020, to provide SHI the right to invest directly in certain cryptocurrency mining opportunities
being pursued by HEL. SHI filed a registration statement with the SEC to register the resale of the Termination Shares on February 14,
2022.
Due
to conditions being met within the Merger Agreement in relation to energization and retention of employees, the Company has advised SCI
US Holdings LLC, a Delaware limited liability company, who is the sole Effective Time Holder (as defined in the Merger Agreement) of
the right to receive the Merger Shares and that 19,800 Merger Shares were issued on May 26, 2023 and 39,600 Merger Shares were issued
on October 10, 2023. SCI US Holdings LLC has consented to the issuance of such Merger Shares as required under the Merger Agreement and
has directed the Company to issue such Merger Shares to its affiliate, HEL. Following the issuance of the 59,400 Merger Shares, a total
of 59,400 Merger Shares remains available for possible issuance pursuant to the terms of the Merger Agreement.
28
Please
see Note 5 for additional information regarding the Soluna Callisto acquisition and related transactions.
Several
of HEL’s equity holders are affiliated with Brookstone Partners, the investment firm that holds an equity interest in the Company
through Brookstone Partners Acquisition XXIV, LLC. The Company’s two Brookstone-affiliated directors also serve as directors and,
in one case, as an officer, of HEL and also have ownership interest in HEL. In light of these relationships, the various transactions
by and between the Company and SCI, on the one hand, and HEL, on the other hand, were negotiated on behalf of the Company and SCI via
an independent investment committee of the Board and separate legal representation. The transactions were subsequently unanimously approved
by both the independent investment committee and the full Board.
Four
of the Company’s directors have various affiliations with HEL.
Michael
Toporek, the former Chief Executive Officer, and current Executive Director of the Company, owns (i) 90% of the equity of Soluna Technologies
Investment I, LLC, which owns 57.9% of HEL and (ii) 100% of the equity of MJT Park Investors, Inc., which owns 3.1% of HEL, in each case,
on a fully diluted basis. Mr. Toporek does not own directly, or indirectly, any equity interest in Tera Joule, LLC, which owns 9.2% of
HEL; however, as a result of his 100% ownership of Brookstone IAC, Inc., which is the manager of Tera Joule, LLC, he has dispositive
power over the equity interests that Tera Joule owns in HEL.
In
addition, one of the Company’s directors, Matthew E. Lipman, serves as a director and currently acting as President of HEL. Mr.
Lipman does not directly own any equity interest in Tera Joule, LLC, which owns 9.2% of HEL; however, as a result of his position as
a director and officer of Brookstone IAC, Inc., which is the manager of Tera Joule, LLC, he has dispositive power over the equity interests
that Tera Joule owns in HEL. As a result, the approximate dollar value of the amount of Mr. Toporek’s and Mr. Lipman’s interest
in the Company’s transactions with HEL for the six months ended June 30, 2024 was $0 and $0.
John
Belizaire, the Company’s Chief Executive Officer, and John Bottomley, who were elected to the Board upon the effective time of
SCI’s acquisition of Soluna Callisto, serve as directors of HEL. In addition, Mr. Belizaire is the beneficial owner of 1,317,567 shares of common stock of HEL and 102,380 Class Seed Preferred shares, which are convertible into 86,763 shares of common stock of HEL.
These interests give Mr. Belizaire an ownership of 10.54% in HEL. Mr. Belizaire also owns an interest in HEL indirectly through his 5.0139%
interest of Tera Joule, LLC’s 965,945 Class Seed Preferred shares, which are convertible into 818,596 shares of common stock of
HEL. Mr. Bottomley is the beneficial owner of 96,189, or approximately 0.72%, of the outstanding shares of common stock of HEL.
The
Company’s investment in HEL was initially carried at the cost of investment and was $750 thousand. Based on evaluation of projections
for the Company’s investment in HEL, the Company fully impaired the equity investment of $750 thousand as of December 31, 2022,
writing it down to $0.
The
Company owned approximately 1.79% of HEL, calculated on a converted fully diluted basis, as of June 30, 2024 and December 31, 2023. The
Company may enter into additional transactions with HEL in the future.
**12.** **Stock Based Compensation**
***2023
Plan***
The
2023 Plan was adopted by the Board on February 10, 2023 and approved by the stockholders on March 10, 2023. The 2023 Plan sets the number
of shares of our Common Stock reserved for issuance thereunder, on a quarterly basis, to 9.75% of the shares of our Common Stock outstanding
on the measurement date. Subject to certain adjustments as provided in the 2023 Plan, the maximum aggregate number of shares of our Common
Stock that may be issued under the 2023 Plan (excluding the number of shares of our Common Stock subject to Specified Awards (as defined
below)) (i) pursuant to the exercise of stock options, (ii) as unrestricted or restricted Common Stock, and (iii) in settlement of RSUs
shall be limited to, beginning with the first quarter of our fiscal year ending December 31, 2023 (or January 1, 2023), 9.75% of the
number of shares of our Common Stock outstanding as of the first trading day of each quarter . Subject to certain adjustments as provided
in the 2023 Plan, (i) shares of our Common Stock subject to the 2023 Plan shall include shares of our Common Stock which revert back
to the 2023 Plan in a prior quarter pursuant to the paragraph below, and (ii) the number of shares of our Common Stock that may be issued
under the 2023 Plan may never be less than the number of shares of our Common Stock that are then outstanding under (or available to
settle existing) 2023 Plan Award grants.
29
On
June 29, 2023, at the Annual Shareholder Meeting, the Amended and Restated 2023 Stock Incentive Plan was approved. The Amended and Restated
2023 Plan will, among other things, increase the number of shares of our Common Stock reserved for issuance thereunder, on a quarterly
basis, to 23.75% of the shares of our Common Stock outstanding on the measurement date. Subject to certain adjustments as provided herein,
the maximum aggregate number of Common Shares that may be issued hereunder (excluding the number of Common Shares subject to Specified
Awards (as hereinafter defined)) (i) pursuant to the exercise of Options, (ii) as unrestricted Common Shares or Restricted Stock, and
(iii) in settlement of RSUs shall be limited to, beginning with the third quarter of our fiscal year ending December 31, 2023 (or July
1, 2023), 23.75% of the number of Common Shares outstanding as of the first trading day of each quarter. Subject to certain adjustments
as provided herein, (A) Common Shares subject to this Plan shall include Common Shares which reverted back to this Plan in a prior quarter,
and (B) the number of Common Shares that may be issued under this Plan may never be less than the number of Common Shares that are then
outstanding under (or available to settle existing) Awards. For purposes of determining the number of Common Shares available under this
Plan, Common Shares withheld by the Company to satisfy applicable tax withholding or exercise price obligations pursuant to Section 10(e)
of this Plan shall be deemed issued under this Plan. In the event that, prior to the date this Plan shall terminate, any Award granted
under this Plan expires unexercised or unvested or is terminated, surrendered or cancelled without the delivery of Common Shares, or
any shares of Restricted Stock are forfeited back to the Company, then the Common Shares subject to such Award may be made available
for subsequent Awards under the terms of this Plan. As used in this Plan, “Specified Awards” shall mean (i) Awards to Eligible
Persons who are not employed or engaged by the Company or any of its subsidiaries as of the last day of any fiscal quarter of the Company,
commencing with the fiscal quarter ending March 31, 2023 and (ii) Awards that have a grant date at least three (3) years prior to the
last day of any fiscal quarter of the Company, commencing with the fiscal quarter ending March 31, 2023.
***2021
Plan***
The
Company’s 2021 Plan was adopted by the Board on February 12, 2021 and approved by the stockholders on March 25, 2021. The 2021
Plan was amended and restated effective as of October 29, 2021, and May 27, 2022, respectively. The 2021 Plan authorizes the Company
to issue shares of common stock upon the exercise of stock options, the grant of restricted stock awards, and the conversion of restricted
stock units (collectively, the “Awards”). The Compensation Committee has full authority, subject to the terms of the 2021
Plan, to interpret the 2021 Plan and establish rules and regulations for the proper administration of the 2021 Plan. Subject to certain
adjustments as provided in the 2021 Plan, the maximum aggregate number of shares of the Company’s common stock that may be issued
under the 2021 Plan (i) pursuant to the exercise of options, (ii) as shares or restricted stock and (iii) in settlement of RSUs shall
be limited to (A) during the Company’s fiscal year ending December 31, 2021 (the “2021 Fiscal Year”), 1,460,191 Shares,
(B) for the period from January 1, 2022 to June 30, 2022, fifteen percent (15%) of the number of Shares outstanding on January 3, 2022,
which was the first trading day of 2022, and (C) beginning with the third quarter of the Company’s fiscal year ending December
31, 2022 (the “2022 Fiscal Year”), fifteen percent (15%) of the number of Shares outstanding as of the first trading day
of each quarter, net of any Shares awarded in the previous quarter(s). Subject to certain adjustments as provided in the 2021 Plan, (i)
shares subject to the 2021 Plan shall include shares reverted back to the Company pursuant the 2021 Plan in a prior year or quarter,
as applicable, as provided herein and (ii) the number of shares that may be issued under the 2021 Plan may never be less than the number
of shares that are then outstanding under (or available to settle existing) Awards. For purposes of determining the number of shares
available under the 2021 Plan, shares withheld by the Company to satisfy applicable tax withholding or exercise price obligations pursuant
to the 2021 Plan shall be deemed issued under this Plan. In the event that, prior to the date on which the 2021 Plan shall terminate,
any Award granted under the 2021 Plan expires unexercised or unvested or is terminated, surrendered, or cancelled without the delivery
of shares of common stock, or any Awards are forfeited back to the Company, then the shares of common stock subject to such Award may
be made available for subsequent Awards under the terms of the 2021 Plan.
On
March 10, 2023, at the Special Shareholder Meeting, the Third Amended and Restated 2021 Stock Incentive Plan was approved. The Third
Amended and Restated 2021 Plan will, among other things, (a) increase the number of shares of our Common Stock reserved for issuance
thereunder, on a quarterly basis, to 18.75% of the shares of our Common Stock outstanding on the measurement date and (b) allow us to
grant awards of shares of our 9.0% Series A Cumulative Perpetual Preferred Stock (“Series A Preferred Stock”) (with and without
restrictions). Subject to certain adjustments as provided in the Third Amended and Restated 2021 Plan, the maximum aggregate number of
shares of our Common Stock that may be issued under the Third Amended and Restated 2021 Plan (excluding the number of shares of our Common
Stock subject to Specified Awards (as defined below)) (i) pursuant to the exercise of stock options, (ii) as unrestricted or restricted
Common Stock, and (iii) in settlement of RSUs shall be limited to, beginning with the first quarter of our fiscal year ending December
31, 2023 (or January 1, 2023), 18.75% of the number of shares of our Common Stock outstanding as of the first trading day of each quarter.
Subject to certain adjustments as provided in the Third Amended and Restated 2021 Plan, the maximum aggregate number of shares of our
Series A Preferred Stock that may be issued under the Third Amended and Restated 2021 Plan as unrestricted or restricted Series A Preferred
Stock shall equal $3,600,000 valued as of the effective date of the Third Amended and Restated 2021 Plan as determined at the lower of
the closing price of our Series A Preferred Stock on Nasdaq on such date or the average of the daily volume weighted average price of
our Series A Preferred Stock on Nasdaq as reported by Bloomberg L.P. for a period of five (5) consecutive trading days ending on such
date. Subject to certain adjustments as provided in the Third Amended and Restated 2021 Plan, (i) shares of our Common Stock and Series
A Preferred Stock, as applicable, subject to the Third Amended and Restated 2021 Plan shall include shares of our Common Stock and Series
A Preferred Stock, as applicable, which revert back to the Third Amended and Restated 2021 Plan in a prior quarter or fiscal year, as
applicable, pursuant to the paragraph below, and (ii) the number of shares of our Common Stock and Series A Preferred Stock, as applicable,
that may be issued under the Third Amended and Restated 2021 Plan may never be less than the number of shares of our Common Stock and
Series A Preferred Stock, as applicable, that are then outstanding under (or available to settle existing) 2021 Plan Award grants. For
purposes of the Third Amended and Restated 2021 Plan, “Specified Awards” means (i) 2021 Plan Awards issued to Eligible Persons
who are not employed or engaged by us or any of our subsidiaries as of the last day of any fiscal quarter, commencing with the fiscal
quarter ending March 31, 2023, and (ii) 2021 Plan Awards that have a grant date at least three (3) years prior to the last day of any
fiscal quarter, commencing with the fiscal quarter ending March 31, 2023. The exclusion of Specified Awards from the determination of
the maximum aggregate number of shares of our Common Stock available for issuance under the Third Amended and Restated 2021 Plan could
have material effect on the number of shares of our Common Stock available for issuance thereunder and could have a material dilutive
effect on our stockholders.
30
The
Board approved amendments to both the 2021 and 2023 Plans on April 15, 2024. The amendments were subsequently approved by the stockholders
at the 2024 Annual Meeting on May 30, 2024. Under the Plans, the number of shares of common stock available for awards is limited to,18.75% for the 2021 Plan and 23.75% for the 2023 Plan of the number of Common Shares outstanding as of the first trading day of each
quarter. The amendments to each Plan would change the calculation of this limitation to reflect the applicable percentage to 18.75% and23.75% respectively, after giving effect to the increase in the number of shares subject to Awards after giving effect to the amount
to the increase as of the date of the calculation.
Under
the 2023 Plan and 2021 Plan, the Company may grant stock options, restricted stock awards (RSAs) and restricted stock units (RSUs)
to executive, management, employees, directors, and certain nonemployee personnel. The awards issued under the Plans can vest
immediately, over time or based upon the achievement of market, performance, or service conditions. RSAs and RSUs can vest
immediately but generally vest ratably over three years and Performance RSUs generally fully vest after three years, subject to
achieving market, service or performance conditions. In addition, the Company recognizes certain Awards held by certain employees
and nonemployees that vest upon separation. Each share granted subject to an Award reduces the number of shares available under the
2023 Plan and 2021 Plan by one share.
The
fair value of stock options is estimated based on the Black-Scholes model, taking into account the historical volatility of our stock,
consistent with the accounting guidance. The risk-free interest rate is based on the risk-free zero-coupon rate for a period consistent
with the expected option term at the time of grant. The expected option term is calculated based on our historical forfeitures and cancellation
rates.
During April 2024, the Company cancelled certain vested
Awards and modified the terms of certain unvested Awards, to permit different settlement outcomes. The service period and vesting terms
were changed at the time of modification. All such vested Awards were fully vested as of the cancellation date and all compensation cost
had been recognized. All such unvested equity awards were probable of vesting as of the modification date and the change was accounted
for as a Type I modification. In a Type I modification, the Company is required to calculate the incremental difference of the awards,
which equals the difference of new award value inclusive of estimated forfeitures and the fair value of the original award as of the modification
date. As of the modification date, there is no reversal or adjustment of previously recognized stock compensation expense.
Within the 2021 and 2023 Plans, certain master
grant agreements were executed on April 15, 2024 that have the potential for future additional grants based on additional stock
activity through certain anti-dilution provisions. A mutual understanding of the terms and conditions for the specific awards cannot
be obtained until a later date after all stock activity has occurred in the future period and necessary approvals are obtained. When
Board approval is obtained and the two grant conditions are met, the grant date will be identified and evidenced through an
additional restricted stock agreement. The compensation cost will be recognized per the vesting schedule within the agreement with
no catch-up for the reduced period.
The accounting impact resulting from the recognition of this equity-based
compensation limits the comparability of the Company’s financial statements between periods.
During
the three and six months ended June 30, 2024, the Company awarded 391,544 restricted stock awards under the 2021 Plan, valued at $1.52 per share based on the closing market price of the Company’s common stock on the date of the grant. The Company awarded 90,734 restricted stock awards under the 2021 Plan, valued at $2.41 per share based on the closing market price of the Company’s common
stock on the date of the grant. The Company awarded 1,892,300 preferred A restricted stock awards under the 2021 Plan, valued at $2.50 per share based on the closing market price of the Company’s preferred A stock on the date of the grant. The Company awarded 610,234 restricted stock awards under the 2023 Plan, valued at $1.52 per share based on the closing market price of the Company’s common
stock on the date of the grant. The Company awarded 57,255 restricted stock awards under the 2023 Plan, valued at $2.41 per share based
on the closing market price of the Company’s common stock on the date of the grant. 25,309 of the restricted stock awards vest
immediately, 2,022,246 of the restricted stock awards vest at separation from the Company, 690,223 of the restricted stock awards vest
33% on June 1 ,2024, 33% on June 1, 2025 and 34% on June 1, 2026, and 304,289 of the restricted stock awards vest 33% on June 1, 2025,
33% on June 1 , 2026 and 34% on June 1, 2027.
During
the three months ended June 30, 2023, the Company did not issue any equity awards under its 2021 or 2023 Plans.
During
the six months ended June 30, 2023, the Company awarded 500,000 restricted stock units under the 2021 Plan, valued at $0.2986 per
share based on the closing market price of the Company’s common stock on the date of the grant. The restricted stock units vested
during May 2023.
The
Company will recognize the compensation expense on a straight-line basis over the service period for the entire Awards. Accordingly,
as of June 30, 2024, the Awards from the Plans are presented at fair value within the stockholders’ equity section of the Company’s
balance sheet.
As
of June 30, 2024, unrecognized compensation cost related to unvested Awards was approximately $5.8 million. That cost is expected to
be recognized over a weighted-average period of approximately 2.4 years.
On
April 15, 2024, a modification related to the cancellation of 48,547 under the water stock options granted to eight board members. The
options were replaced with new awards of restricted stock. The amount of incremental compensation cost resulting from the modification
was approximately $4.0 million. There were no modifications during the three and six months ended June 30, 2023.
31
**13.** **Effect of Recent Accounting Updates**
***Accounting
Updates Effective for fiscal year 2024***
Changes
to U.S. GAAP are established by the Financial Accounting Standards Board (the “FASB”) in the form of accounting standard
updates (“ASUs”) to the FASB’s Accounting Standards Codification (“ASC”). The Company considered the applicability
and impact of all ASUs. ASUs not mentioned below were assessed and determined to be either not applicable or are expected to have minimal
impact on our consolidated financial position or results of operations.
***Accounting
Updates Not Yet Effective***
*Improvements
to Reportable Segment Disclosures*
In
November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2023-07, *Segment Reporting
(Topic 280): Improvement to Reportable Segment Disclosures* (ASU 2023-07), which requires disclosure of incremental segment information
on an annual and interim basis, primarily through enhanced disclosures of significant segment expenses. ASU 2023-07 is effective for
fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 and requires
retrospective application to all periods presented upon adoption. Early adoption is permitted. The Company is currently evaluating the
impact that ASU 2023-07 will have on its condensed consolidated financial statements and disclosures.
*Crypto
Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets*
In
December 2023, the FASB issued ASU 2023-08, *Intangibles - Goodwill and Other - Crypto Assets (Subtopic 350-60): Accounting for and
Disclosure of Crypto Assets,* which establishes accounting guidance for crypto assets meeting certain criteria. Bitcoin meets this
criteria. The amendments require crypto assets meeting the criteria to be recognized at fair value with changes recognized in net income
each reporting period. Upon adoption, a cumulative-effect adjustment is made to the opening balance of retained earnings as of the beginning
of the annual reporting period of adoption. ASU 2023-08 is effective for fiscal years beginning after December 15, 2024, including interim
periods within those fiscal years. Early adoption is permitted. The guidance is not expected to have an impact on the Company’s
condensed consolidated financial statements and disclosures, unless the Company intends to hold crypto assets.
*Improvements
to Income Tax Disclosures*
In
December 2023, the FASB issued ASU 2023-09, *Income Taxes (Topic 740): Improvements to Income Tax Disclosures* (ASU 2023-09), which
requires disclosure of incremental income tax information within the rate reconciliation and expanded disclosures of income taxes paid,
among other disclosure requirements. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted.
The Company is currently evaluating the impact that ASU 2023-09 will have on its condensed consolidated financial statements and disclosures.
*Stock
Compensation*
In
March 2024, the FASB issued ASU 2024-01, *Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest
and Similar Awards* (“ASU 2024-01”), to clarify the scope application of profits interest and similar awards
by adding illustrative guidance in *ASC 718, Compensation—Stock Compensation* (“ASC 718”). ASU 2024-01
clarifies how to determine whether profits interest and similar awards should be accounted for as a share-based payment arrangement (ASC
718) or as a cash bonus or profit-sharing arrangement *(ASC 710, Compensation—General,* or other guidance*)* and
applies to all reporting entities that account for profits interest awards as compensation to employees or non-employees. In addition
to adding the illustrative guidance, ASU 2024-01 modified the language in paragraph 718-10-15-3 to improve its clarity and operability
without changing the guidance. ASU 2024-01 is effective for fiscal years beginning after December 15, 2024, including interim periods
within those annual periods. Early adoption is permitted. The amendments should be applied either retrospectively to all prior periods
presented in the financial statements, or prospectively to profits interests and similar awards granted or modified on or after the adoption
date. The Company is currently assessing the impacts of adopting ASU 2024-01 on its condensed consolidated financial statements and disclosures.
32
**14.** **PROJECT MARIE**
As
previously disclosed in Footnote 8, on December 20, 2022, Soluna MC Borrowing 2021-1 LLC (“Borrower”), an indirect wholly
owned subsidiary of Soluna Holdings, Inc. (the “Company”), received a Notice of Acceleration and Repossession (the “NYDIG
Notice”) from NYDIG ABL LLC (“NYDIG”) with respect to the Master Equipment Finance Agreement, dated as of December
30, 2021 (the “MEFA”), by and between Borrower and NYDIG. The NYDIG Notice states that (a) Borrower failed to observe or
perform certain covenants, conditions or agreements contained in the MEFA and such failure continued unremedied for a period of ten days
after Borrower’s knowledge of such breach, which resulted in an event of default under the MEFA, and (b) Borrower defaulted under
the guaranty, collateral agreement, or other support agreement, which resulted in an event of default under the MEFA. In addition, the
NYDIG Notice states that Borrower failed to pay certain payments of principal and interest under the MEFA when due, which failure also
constituted an event of default under the MEFA. As a result of the foregoing events of default, and pursuant to the MEFA, NYDIG (x) declared
the principal amount of all loans due and owing under the MEFA and all accompanying Loan Documents (as defined in the MEFA) to be due
and immediately payable, (y) imposed a default rate of interest on any outstanding principal amount of each loan (together with all then
unpaid interest accruing thereon) and all other obligations under the MEFA and the Loan Documents, and (z) demanded the return of all
equipment subject to the MEFA and the Loan Documents.
The
assets which secure the MEFA represent substantially all of the Company’s mining assets at the site and certain of the operating
assets of Project Marie, a 20 MW facility located in Kentucky. The obligations of Borrower under the MEFA and reflected in the NYDIG
Notice are ring-fenced to Borrower and its direct parent company, Soluna MC LLC. The Company is not a party to any guaranty, collateral
agreement or other support agreement with or for the benefit of NYDIG. For the year ended December 31, 2022, the principal balance of
$10.5 million became due immediately and the Borrower was to 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. As of December 31, 2023, the Company reduced the outstanding
debt by the repossessed collateralized assets net book value of $3.4 million less accrued interest that was paid off first when the collateral
was repossessed of approximately $740 thousand, legal fees of approximately $251 thousand, and an additional penalty expense of $1.0 million, reducing the debt outstanding to approximately $9.2 million as of December 31, 2023. Also, as the Company was not able to obtain
a waiver, the outstanding deferred financing costs were written off 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 June 30, 2024, the Company has an outstanding
principal balance of approximately $9.2 million and an outstanding interest and penalty balance of approximately $1.5 million.
On
February 23, 2023, NYDIG proceeded to foreclose on all of the collateral securing the MEFA, which resulted in a reportable disposition
of all of the Company’s mining assets at the site and certain of the operating assets of Project Marie. The total net book value
of the collateralized assets that were repossessed totaled $3.4 million which were written off the Company’s books for the three
months ended March 31, 2023, with an offset to the outstanding loan. Additionally, NDYIG has stated its intention to pursue SCI, the
parent company of Guarantor, under a piercing of the corporate veil claim relating to Defendants’ debts and liabilities under the
loan documents. SCI denies any such liability and has filed a complaint for a declaratory judgment against NYDIG in the Eighth Judicial
District Court in Clark County, Nevada on March 16, 2023 seeking a declaratory judgment as to such matter. In a related development,
also on February 23, 2023, the Borrower received a notice of termination of the Management and Hosting Services Agreement with CC Metals
and Alloys, LLC. As a result of this action and certain other characteristics of the facility, the Company elected to shut down the Marie
facility. The Company believes it will maximize its profits and return on assets by concentrating its personnel and capital on its Dorothy
Facility.
With
the notice of termination of the Management and Hosting Services from CCMA, the Company notes that this event triggered the impairment
of the remaining fixed assets at the Marie facility for the year ended December 31, 2022. Based on the closure of operations on Project
Marie, the Company performed an impairment analysis and determined that approximately $2.4 million of equipment and leasehold approvements
associated with Project Marie that were not attached with the repossession of NYDIG collateralized assets were impaired as of the year-ended
December 31, 2022.
For
the first quarter of 2023, the Company assessed whether the abandonment of the Project Marie facility qualified for the classification
of discontinued operations under ASC 205-20-45-1B and 1C. A disposal of a component of an entity or a group of components of an entity
shall be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an
entity’s operations and financial results when any of the following occurs:
33
a.
The component of an entity or group of components of an entity meets the criteria in paragraph 205-20-45-1E to be classified as held
for sale.
b.
The component of an entity or group of components of an entity is disposed of by sale.
c.
The component of an entity or group of components of an entity is disposed of other than by sale in accordance with paragraph 360-10-45-15
(for example, by abandonment or in a distribution to owners in a spinoff).
As
such, the Company deemed that criteria c was applicable as the Project Marie facility was abandoned and ceased further operations beginning
on February 23, 2023. However, to qualify for reporting as discontinued operations, it must represent a strategic shift. Per ASC 205-20-45-1C,
examples of a strategic shift that has (or will have) a major effect on an entity’s operations and financial results could include
a disposal of a major geographical area, a major line of business, a major equity method investment, or other major parts of an entity.
A strategic shift implies that the disposal must result from a change in the way management had intended to run the business. Management
does not believe the closure of Project Marie represented a strategic shift as the Company still fully intends to manage operations through
data hosting with customers and proprietary mining arrangements for future pipelines, as such the strategic shift criteria was not met
and will not qualify as discontinued operations.
However,
per ASC 360-10-50-3A, in addition to the disclosures in paragraph 360-10-50-3, if a long-lived asset (disposal group) includes an individually
significant component of an entity that either has been disposed of or is classified as held for sale and does not qualify for presentation
and disclosure as discontinued operation, a public business entity shall disclose the pretax profit or loss of the individually significant
component of an entity for the period in which it is disposed of or is classified as held for sale and for all prior period that are
presented in the statement where net income is reported in accordance with ASC 205-20-45-6 through 45-9. Since the evaluation related
to prior quarter, the Company has included comparative pretax loss for Project Marie for the three and six months ended June 30, 2024
and June 30, 2023.
Set
forth below are the results of Project Marie:
Schedule of Results of Project Marie
| (Dollars in thousands) | 2024 / Three Months Ended June 30, | 2023 / Three Months Ended June 30, | 2024 / Six Months Ended June 30, | 2023 / Six Months Ended June 30, |
| --- | --- | --- | --- | --- |
| Cryptocurrency mining revenue | - | - | | $$769 |
| Operating service revenue-intercompany | 2 | - | 5 | - |
| Data hosting revenue | - | - | - | 276 |
| Total revenue | 2 | - | 5 | 1,045 |
| Operating costs: | | | | |
| Cost of cryptocurrency mining revenue, exclusive of depreciation | - | - | - | 801 |
| Cost of revenue- depreciation | - | 8 | - | 130 |
| Data hosting (income) costs | | (10) | - | 205 |
| Operational service costs-intercompany | 1 | - | 2 | - |
| General and administrative expense | - | 34 | (32) | 319 |
| Impairment on fixed assets | - | - | - | 43 |
| Interest expense | 361 | 315 | 723 | 692 |
| Gain (loss) on sale of fixed assets | - | - | - | 11 |
| Gain on settlement | 254 | - | 254 | - |
| Other income, net | 4 | - | 11 | - |
| Net loss before income taxes | $(102) | $(347) | $(423) | $(1,134) |
For
the three and six months ended June 30, 2024, the intercompany service revenue and costs are eliminated within consolidation. Project
Marie received a $32 thousand refund for- insurance expenses for the six months ended June 30, 2024 and incurs interest expense in relation
to the NYDIG default. On June 25, 2024, Soluna MC settled with Atlas for $210 thousand and recorded a gain on the Atlas settlement of
$254 thousand, see further details in Note 10.
34
**15.** **VARIABLE INTEREST ENTITY**
On
January 26, 2022, DVSL was created in order to construct, own, operate and maintain variable data centers in order to support the mining
of cryptocurrency assets, batch processing and other non-crypto related activities (collectively, the “Project”). On May
3, 2022, SCI entered into a Bilateral Master Contribution Agreement (the “Bilateral Contribution Agreement”) with Spring
Lane Capital, pursuant to which Spring Lane agreed, pursuant to the terms and conditions of such agreement, to make one or more capital
contributions to, and in exchange for equity in, SCI or one of its subsidiaries up to an aggregate amount of $35 million to fund certain
projects to develop green data centers co-located with renewable energy assets (the “Spring Lane Commitment”). We anticipate
that these capital contributions, once deployed into the projects, will help develop up to three behind-the-meter (BTM) projects designed
to convert wasted renewable energy into clean computing services such as Bitcoin mining and artificial intelligence. The Bilateral Contribution
Agreement outlines the framework for the Spring Lane Commitment; however, neither we nor Spring Lane are obligated to complete any projects
under such agreement and any actual capital contributions are subject to various conditions precedent, including the receipt of requisite
lender and other consents, acceptance by Spring Lane of specific projects and negotiations of agreements regarding those projects, including
milestones and structure. In partial consideration of the amendment to the October Secured Notes discussed above, the investors agreed
to release certain collateral covered by their security agreement to permit the Company to proceed forward with the initial phase of
Project Dorothy, which we expect to be partially funded by Spring Lane, which the Company expects to complete in the near future.
On
August 5, 2022, the Company entered into a Contribution Agreement (the “Dorothy Contribution Agreement”) with Spring Lane,
Soluna DV Devco, LLC (“Devco”), an indirect wholly-owned subsidiary of SCI, and DVSL an entity formed in order to further
the Company’s development for Project Dorothy, (each, a “Party” and, together, the “Parties”). Pursuant
to the Dorothy Contribution Agreement, the Company committed to a capital contribution of up to approximately $26.3 million to DVSL (the
“Company Commitment”), and on August 5, 2022, the Company was deemed to have contributed approximately $8.1 million, through
payment of capital expenditures and development costs made on behalf of DVSL by the Company prior to August 5, 2022. Further under the
Agreement, Spring Lane committed to a capital contribution of up to $12.5 million to DVSL (the “Spring Lane Dorothy Commitment”),
and as of December 31, 2022, Spring Lane had actually contributed approximately $4.8 million. Under the Dorothy Contribution Agreement,
the Company and Spring Lane have committed to make subsequent contributions, up to their respective Company Commitment and Spring Lane
Dorothy Commitment amounts, on a pro rata basis, upon receipt of a contribution request from DVSL, as set forth in the Dorothy Contribution
Agreement and subject to the satisfaction of certain conditions described therein. The proceeds of any subsequent commitments will be
applied to pay project costs in accordance with the project budget.
In
exchange for their contributions, the Company and Spring Lane were issued 67.8% and 32.2% of the Class B Membership Interests in DVSL,
respectively, and were admitted as Class B members of DVSL. Further pursuant to the Agreement, DVSL issued 100% of its Class A Membership
Interests to Devco. The Dorothy Contribution Agreement contains customary indemnification provisions, liquidation provisions and governance
provisions with respect to DVSL. The Parties also entered into an Amended and Restated Limited Liability Company Agreement of DVSL providing
for the governance of DVSL.
Soluna
evaluated this legal entity under *ASC 810, Consolidations* and determined that DVSL is a variable interest entity that should be
consolidated into Soluna, with a non-controlling interest recorded to account for Spring Lane’s equity ownership of the Company.
Soluna has a variable interest in DVSL. The entity was designed by Soluna to create an entity for outside investors to invest in specific
projects. The creation of this entity resulted in Soluna, through its equity interest in DVSL, absorbing operational risk that the entity
was created to create and distribute, resulting in Soluna having a variable interest in DVSL.
On
March 10, 2023, the Company along with Devco, and Soluna DVSL ComputeCo, LLC, a Delaware limited liability company (the “Project
Company”) entered into a Purchase and Sale Agreement (the “Purchase and Sale Agreement”) with Soluna SLC
Fund I Projects Holdco, LLC, a Delaware limited liability company (“Spring Lane”) that is wholly owned indirectly
by Spring Lane Management LLC. The Project Company is constructing a modular data center with a peak demand of 25 megawatts (the “Dorothy
Phase 1A Facility”).
Under
a series of transactions in February 2023 and March 2023, culminating in the March 10, 2023 Purchase and Sale Agreement, the Company
sold to Spring Lane certain Class B Membership Interests for a purchase price of $7,500,000 (the “Sale”). After giving
effect to the Sale, the Company owned 6,790,537 Class B Membership Interests (constituting 14.6% of the Class B Membership Interests)
and Spring Lane owns 39,791,988 Class B Membership Interests (constituting 85.4% of the Class B Membership Interests). The cash portion
of the purchase price paid by Spring Lane to the Company was $5,770,065, which represented the purchase price of $7,500,000 less the
Company’s pro rata share of certain contributions funded entirely by Spring Lane in the earlier portion of this series of transactions
occurring during February 2023 and March 2023. As a further part of these transactions, the parties agreed that from January 1, 2023
onwards, Soluna would bear only 14.6% of the costs relating to the construction and operation of the Dorothy Phase 1A Facility, compared
to its 67.8% share until that time, including during the calendar year 2022. After Spring Lane Capital realizes an 16% Internal Rate
of Return hurdle on its investments, the Company retains the right to 50% of the profits on Soluna DVSL ComputeCo. In connection with
the Spring Lane transactions and agreements, Soluna DV Services, LLC. will be providing the operations and maintenance services to Soluna
DVSL ComputeCo, LLC. Soluna DV Services, LLC expects to receive a margin of 20% for services rendered.
Concurrently
with the Sale, the Company, Spring Lane, Devco and the Project Company entered into (a) the Fourth Amended and Restated Limited Liability
Company Agreement of the Project Company, dated as of March 10, 2023 (the “Fourth A&R LLCA”), an amendment and
restatement of the Third Amended and Restated Limited Liability Company Agreement of the Project Company dated as of March 3, 2023, and
(b) the Amended and Restated Contribution Agreement, dated as of March 10, 2023 (the “A&R Contribution Agreement”),
an amendment and restatement of the Contribution Agreement dated as of August 5, 2022. The Fourth A&R LLCA provides for certain updates
in respect of Spring Lane’s majority ownership. The A&R Contribution Agreement reflects updated pro rata member funding percentages
as a result of the Sale as well as updated contribution caps for each of the Company and Spring Lane.
35
As
of January 1, 2023, there were no changes in the Limited Liability Agreement of the Company other than those related to incorporating
the new investment and the purpose and design of the Company has not changed. The Company evaluated the power and benefits concepts under
ASC 810 to determine whether the change in investment of Class B memberships would change the consolidation of the DVSL, and the Company
concluded that, after the additional investment by Spring Lane, Soluna continues to have a controlling financial interest in DVSL. In
addition, the Company continues to have the power and benefits associated with DVSL and therefore will continue to consolidate.
The
carrying amount of the VIE’s assets and liabilities was as follows:
Schedule
of Variable Interest Entities of Assets and Liabilities
| (Dollars in thousands) | June 30, 2024 | December 31, 2023 |
| --- | --- | --- |
| Current assets: | | |
| Cash and restricted cash | $3,090 | $2,275 |
| Accounts receivable | 1,105 | 1,201 |
| Other receivable, related party | 283 | 185 |
| Prepaids and other current assets | 29 | - |
| Total current assets | 4,507 | 3,661 |
| Other assets- long term, related party | 2,192 | 2,172 |
| Operating lease right-of-use assets | 87 | 90 |
| Property, plant, and equipment | 13,195 | 13,712 |
| Total assets | $19,981 | $19,635 |
| Current liabilities: | | |
| Accounts payable, related party | $95 | - |
| Accrued expense | 1,011 | 677 |
| Customer deposits-current | 1,300 | - |
| Operating lease liability | 7 | 7 |
| Current portion of debt | | |
| Total current liabilities | 2,413 | 684 |
| Operating lease liability | 80 | 83 |
| Customer deposits- long term | - | 1,190 |
| Other liabilities, related party | 224 | 224 |
| Total liabilities | $2,717 | $2,181 |
Effective,
January 1, 2023, the Company’s ownership in DVSL was reduced from 67.8% to 14.6%; see above for details.
On
May 9, 2023, the Company’s indirect subsidiary DVCC completed a strategic partnership and financing with a special purpose vehicle,
Navitas West Texas Investments SPV, LLC**,** (“Navitas”) organized by Navitas Global, to complete the second phase of
the Dorothy Project (“Dorothy 1B”). Under a Contribution Agreement among the parties, the Company owned a substantially complete
25MW data center under construction, in which the Company had contributed capital expenditures for the data center. Soluna and Navitas
amended and restated the Initial LLCA (the “Existing LLCA”) to reflect Navitas’ contribution of $4,500,000 and its
receipt of 4,500 Membership Interests, constituting 26.5% of the outstanding Membership Interests of the Company. On June 2, 2023, Soluna
and Navitas amended and restated the Existing LLCA to (a) reflect (i) Navitas’s additional capital contribution of $7,596,970 and
receipt of an additional 7,597 Membership Interests, for a total of 12,097 Membership Interests and 49% ownership of DVCC, and (ii) Soluna’s
additional capital contribution of $1,340,000 and receipt of an additional 1,340 Membership Interests, for a total of 12,590 Membership
Interests and 51% ownership of DVCC, and (b) describe the respective rights and obligations of the Members and the management of DVCC.
As of June 30, 2024, Navitas owns 45% and Soluna owns 55% of DVCC.
Soluna
evaluated this legal entity under *ASC 810, Consolidations* and determined that DVCC is a variable interest entity that should be
consolidated into Soluna, with a non-controlling interest recorded to account for Navita’s equity ownership of the Company. Soluna
has a variable interest in DVCC. The entity was designed by Soluna to create an entity for outside investors to invest in specific projects.
The creation of this entity resulted in Soluna, through its equity interest in DVCC, absorbing operational risk that the entity was created
to create and distribute, resulting in Soluna having a variable interest in DVCC.
DVCC
is a variable interest entity of Soluna due to DVCC being structured with non-substantive voting rights. This is due to the following
two factors being met as outlined in *ASC 810-10-15-14* that require the Variable Interest Entity model to be followed.
a. The voting rights of Soluna are not proportional to their obligation to absorb the expected losses of the legal entity. Soluna gave Navitas veto rights over significant decisions, which results in Soluna having fewer voting rights relative to their obligation to absorb the expected losses of the legal entity.
b. Substantially all of DVCC’s activities are conducted on behalf of Soluna, which has disproportionally fewer voting rights.
36
Also,
Soluna is the primary beneficiary due to having the power to direct the activities of DVCC that most significantly impact the performance
of DVCC due to its role as the manager handling the day-to-day activities of DVCC as well as majority ownership and the obligation to
absorb losses or gains of DVCC that could be significant to Soluna.
Accordingly,
the accounts of DVCC are consolidated in the accompanying financial statements.
The
carrying amount of the VIE’s assets and liabilities was as follows for DVCC:
Schedule
of Variable Interest Entities of Assets and Liabilities
| (Dollars in thousands) | June 30, 2024 | December 31, 2023 |
| --- | --- | --- |
| Current assets: | | |
| Cash and restricted cash | $2,018 | $2,575 |
| Accounts receivable | 98 | 217 |
| Prepaids and other current assets | 29 | - |
| Other receivable, related party | 743 | 476 |
| Total current assets | 2,888 | 3,268 |
| Other assets- long term, related party | 2,192 | 2,172 |
| Operating lease right-of-use assets | 87 | 90 |
| Property, plant, and equipment, net | 19,786 | 22,188 |
| Total assets | $24,953 | $27,718 |
| Current liabilities: | | |
| Accounts payable, related party | $1,493 | $1,259 |
| Accrued expense | 1,271 | 2,213 |
| Operating lease liability | 7 | 7 |
| Current portion of debt | 460 | 1,682 |
| Total current liabilities | 3,231 | 5,161 |
| Operating lease liability | 80 | 83 |
| Total liabilities | $3,311 | $5,244 |
**16.** **Segment Information**
The
Company applies ASC 280, *Segment Reporting*, in determining its reportable segments. The Company has two reportable segments: Cryptocurrency
Mining and Data Center Hosting. The guidance requires that segment disclosures present the measure(s) used by the Chief Operating Decision
Maker (“CODM”) to decide how to allocate resources and for purposes of assessing such segments’ performance. The Company’s
CODM is comprised of several members of its executive management team who use revenue and cost of revenues of both reporting segments
to assess the performance of the business of our reportable operating segments.
No operating segments have been aggregated to form the reportable segments. The Company does not allocate all assets to the reporting segments
as these are managed on an entity-wide basis. Therefore, the Company does not separately disclose the total assets of its reportable
operating segments.
The
Cryptocurrency Mining segment generates revenue from the cryptocurrency the Company earns through its mining activities, which is currently
generated from Project Dorothy, and previously from Project Sophie and Marie. The Data Center Hosting segment generated revenue from
contracts for the provision/consumption of electricity and operation of the data center from the Company’s high performance computing
facilities previously at Project Marie and currently from Project Sophie and Project Dorothy.
For
the three months ended June 30, 2024 and 2023, approximately 100% and 0% of the Company’s cryptocurrency mining revenue was generated
from Project Dorothy 1B (data center located in Silverton, Texas), 0% and 100% from Project Sophie (data center located in Murray, Kentucky),
respectively. For the six months ended June 30, 2024 and 2023, approximately 100% and 0% of the Company’s cryptocurrency mining
revenue was generated from Project Dorothy 1B, 0% and 79% from Project Sophie, and 0% and 21% from Project Marie, respectively.
37
For
three months ended June 30, 2024 and 2023, approximately 73% and 40% of the Company’s data center hosting revenue was generated
from Project Dorothy 1A and 27% and 60% from Project Sophie. For six months ended June 30, 2024 and 2023, approximately 70% and 32% of
the Company’s data center hosting revenue was generated from Project Dorothy 1A, 30% and 48% from Project Sophie, 0% and 19% from
Project Marie, and 0% and 1% from Project Edith.
The
Company evaluates performance based on profit or loss from operations before income taxes, accounting changes, items management does
not deem relevant to segment performance, and interest income and expense. Inter-segment sales and expenses are not significant. Non-cash
items of depreciation and amortization are included within both costs of sales and selling, general and administrative expenses.
The
following table details revenue and cost of revenues for the Company’s reportable segments for three and six months ended June
30, 2024 and 2023, and reconciles to net income (loss) on the consolidated statements of operations:
Schedule
of Segment Reporting Information
| (Dollars in thousands) | 2024 / Three Months Ended June 30, | 2023 / Three Months Ended June 30, | 2024 / Six Months Ended June 30, | 2023 / Six Months Ended June 30, |
| --- | --- | --- | --- | --- |
| Reportable segment revenue: | | | | |
| Cryptocurrency mining revenue | $4,484 | $915 | $10,880 | $3,711 |
| Data hosting revenue | 4,898 | 1,153 | 10,176 | 1,439 |
| Demand response service revenue | 293 | - | 1,168 | - |
| Total segment and consolidated revenue | 9,675 | 2,068 | 22,224 | 5,150 |
| Reportable segment cost of revenue: | | | | |
| Cost of cryptocurrency mining revenue, exclusive of depreciation | 1,883 | 1,160 | 3,724 | 3,410 |
| Cost of data hosting revenue, exclusive of depreciation | 2,176 | 759 | 4,427 | 1,031 |
| Cost of revenue-depreciation | 1,506 | 539 | 3,029 | 1,164 |
| Total cost of revenues | 1,506 | 539 | 3,029 | 1,164 |
| Total segment and consolidated cost of revenues | 5,565 | 2,458 | 11,180 | 5,605 |
| Reconciling items: | | | | |
| General and administrative expenses | 7,785 | 6,515 | 14,183 | 13,252 |
| Impairment on fixed assets | - | 169 | 130 | 379 |
| Interest expense | 449 | 486 | 873 | 1,861 |
| Loss on debt extinguishment and revaluation | 5,600 | 2,054 | 8,698 | 1,581 |
| Loss (gain) on sale of fixed assets | 21 | (48) | 21 | 30 |
| Other expense, net | 49 | 238 | 25 | 224 |
| Income tax (benefit) from continuing operations | (649) | (547) | (1,197) | (1,093) |
| Net loss | (9,145) | (9,257) | (11,689) | (16,689) |
| (Less) Net (income) loss attributable to non-controlling interest | (1,728) | 482 | (4,438) | 852 |
| Net loss attributable to Soluna Holdings, Inc. | $(10,873) | $(8,775) | $(16,127) | $(15,837) |
| Capital expenditures | 44 | 2,035 | 278 | 2,895 |
| Depreciation and amortization | 3,909 | 2,918 | 7,834 | 5,920 |
**17.** **Subsequent Events**
*Amendment
to June 2024 Secured Note Financing*
On July 12, 2024, the Company, CloudCo, Soluna Cloud, and the Existing
Investor entered into a First Amendment to the Note Purchase Agreement (the “June SPA Amendment”). This amendment allows CloudCo
to issue additional secured promissory notes totaling $1,250,000 (the “Additional Notes”) to new accredited investors (the
“Additional Investors”). These Additional Notes are subject to the same terms and conditions as the June 2024 Secured Note
financing and are supported by the Cloud Agreements and the Holdings Agreements.
38
To
further incentivize the Additional Investors, Soluna Cloud will issue warrants (the “Cloud Additional Warrants”) to each
Additional Investor. These Cloud Additional Warrants are exercisable within three years from the effective date of the June SPA Amendment.They allow the purchase of a number of shares of Soluna Cloud common stock equal to 1.25% of Soluna Cloud’s issued and outstanding
common stock as of the Cloud Additional Warrant date, divided by 0.9875, plus 1.25% of each Qualified Issuance, divided by 0.9875.
A
“Qualified Issuance” includes any issuance of common stock by Soluna Cloud from the day after the Cloud Additional Warrant
date until the earlier of raising an additional $111.25 million or December 31, 2024, as well as shares issuable upon exercise or conversion
of convertible securities issued during this period, excluding certain equity compensation plan issuances.
*Dorothy
2 Project Financing*
On
July 22, 2024 (the “Effective Date”), Soluna Holdings, Inc. (the “Company”) closed financing for the Dorothy
2 project. This project involves Soluna Digital, Inc. (the “Developer”) and Soluna DVSL II ComputeCo, LLC (the “ComputeCo”),
a special purpose vehicle initially owned solely by the Developer. They are collaborating on the development, design, procurement, and
construction of a 48 MW modular data center (the “Project Dorothy 2”) in Briscoe County, TX. This facility, located in Silverton,
Texas, is owned by ComputeCo and operated by Soluna US Services, LLC, and may engage in cryptocurrency, batch processing, and other non-crypto
related activities. It is adjacent to two other Soluna modular data center projects at the same site.
Project
Dorothy 2 is financed by Soluna2 SLC Fund II Project Holdco LLC (the “Investor”) with a capital contribution of up to $29.98 million, and the Developer, as the parent company of ComputeCo, with an initial capital contribution of up to $4.6 million. As of the
Effective Date, the Company and the Developer became co-owners of ComputeCo.
The
Dorothy 2 project allows the Developer to invest in ComputeCo, with the total ownership of the Developer and its affiliates capped at49% of the Class B Membership Interests. This investment can occur within 30 days after the Effective Date (treated equally to the initial
Investor), from day 31 to 180 days after the Effective Date (subject to a purchase price formula with a 20% discount rate), or after
180 days with the initial Investor’s approval.
On
May 16, 2024, the Company secured $1.0 million in financing from the Investor for equipment and machinery for Project Dorothy 2 through
an Equipment Loan Agreement (the “ELA”) between SDI SL Borrowing - 1, LLC (the “Borrower”) and the Investor.
On that date, the Investor lent the Borrower $720,000 to purchase medium voltage cables and low voltage switchboards. This debt was later
assigned to ComputeCo on the Effective Date. Subsequently, the Borrower repaid the $720,000 borrowing amount in full by issuing the Investor
Class B Membership Interests in the Dorothy 2 project valued at three times the borrowing amount (i.e., $2.16 million).
39
## Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
*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 Mining** – we collaborate with project-level financial partners to mine Bitcoin at our proprietary data centers.
- **Bitcoin Hosting** – we offer data hosting services at our proprietary data centers to prominent Bitcoin Mining companies.
- **Demand Response Services** – we utilize our data centers to deliver demand response services to grid operators.
- **AI Cloud Services and Hosting** – we are utilizing our data centers to provide specialized AI Cloud and colocation services to companies seeking to train large language models, tune existing AI models, and deploy advanced AI-powered applications.
*Operations
and Project Pipeline*
We
currently operate 75 MW of facilities across two locations. We have another 216 MW of facilities in development or near shovel ready
in the United States. In addition, we have a 2 GW long term pipeline of renewable-energy powered projects. A summary of our pipeline,
current and anticipated operating locations are as follows (as of June 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 |
| Dorothy 2 | Silverton, TX | 50 | Shovel Ready | Bitcoin Hosting | Wind |
| Kati | Harlington, TX | 166 | Development | Bitcoin Hosting / AI | Wind |
**2023
and 2024 overview and developments**
In
2023, we executed on the following four-pronged strategy: (1) Energize Project Dorothy; (2) Cash Flow, Site and Process Optimization;
(3) Flagship Expansion; (4) Pipeline growth. In 2024, we continue to execute upon: (1) Optimize Projects; (2) Grow Pipeline; (3) Launch
AI; and (4) Finance Opportunities. A summary of our overview and developments in these areas follows below.
40
**Energize
Project Dorothy**
We
transitioned our flagship data center Project Dorothy from construction to operations. ERCOT approved the energizing of the first 50
MW of our new data center on April 20, 2023. We completed the construction and ramping of the facility starting in the spring of fiscal
year 2023, and completed the full ramp by the end of October 2023. The data center is co-located with Briscoe Wind Farm (“Briscoe”),
a 150 MW wind power generation facility in Silverton, Texas. The project is comprised of two elements, Project Dorothy 1A (“D1A”),
and Project Dorothy 1B (“D1B”), each 25 MW facilities.
D1A
is focused on Bitcoin Hosting. On April 26, 2023 we signed a 5 MW 2-year hosting deal with Compass Mining at D1A. On April 24, 2023 we
signed a 20 MW 2-year hosting agreement with another strategic hosting partner at Dorothy 1A. In the summer of 2023, we completed the
construction of D1A and the installation of approximately 7,700 Bitcoin miners between the two customers, resulting in an installed hashrate
of approximately 950 PH/s. From May 2023 through December 31, 2023, D1A has consumed over 11,900 MWh of Curtailed Energy from the co-located
power plant and achieved a power usage effectiveness (“PUE”) of 1.03. For the three and six months ended June 30, 2024, D1A
has consumed over 12,900 MWh and 28,100 MWh of Curtailed Energy from the co-located power plant and has achieved a PUE of 1.01 as of
June 30, 2024.
The
construction of D1A was made possible by a partnership with Spring Lane Capital (“SLC”), a leading venture capital firm focused
on sustainability solutions. On April 22, 2022, we finalized agreements with SLC for a $35 million capital pool to finance Soluna projects
alongside renewable energy power plants. Approximately $12.5 million of this was designated for the Dorothy Project. In July 2022, Soluna
began tapping into the SLC managed funds to finance Dorothy construction and repay prior funding provided by the Company. In return,
SLC received approximately 32% of Class B Membership Interests of D1A. On March 10, 2023, we completed a new series of project-level
agreements for $7.5 million from SLC-managed funds. Due to limited liquidity, and access to the capital markets, we sold a portion of
our ownership to SLC in 2023. The funds raised aided in the completion of the substation interconnection, and the final stages of project
Dorothy. It also provided capital to fund Soluna’s corporate operations. SLC, increased its stake in D1A from approximately 32%
to 85%, reducing Soluna’s ownership from 68% to 15%. After SLC achieves an 18% Internal Rate of Return hurdle, Soluna retains 50%
of the profits on D1A.
D1B
is focused on Bitcoin Mining through a strategic partnership with Navitas Global (“Navitas”). On May 9, 2023, we consummated
a project-level financing with Navitas, which included a $2 million loan to D1B to complete the construction and a $12.1 million equity
investment in the project. After consummating the financing, Navitas owned 49% of D1B and Soluna owned 51%. As of March 31, 2024, Navitas
owns 46.7% of D1B, and Soluna owns 53.3%. In June 2023, D1B purchased 8,378 Bitmain Antminer S19s, S19j Pro and S19j Pro+ machines for
the partnership. The purchase resulted in an estimated 868 PH/s of hashrate with an average efficiency of 29.9 J/TH and at a cost of
$10.59 $/TH. As of December 31, 2023, over 7,900 of the miners had been deployed. D1B was fully energized and began ramping in late October
2023. D1B now has an installed hashrate of 817 PH/s. From July 2023 through December 31, 2023, D1B has consumed over 10,600 MWh of Curtailed
Energy from the co-located power plant and achieved a power usage effectiveness (“PUE”) of 1.03. For the three and six months
ended June 30 2024, D1B has consumed over 12,700 and 28,100 MWh of Curtailed Energy from the co-located power plant and achieved a PUE
of 1.01 as of June 30, 2024.
*Demand
Response Services at Dorothy*
In
November 2023, we completed our registration of Project Dorothy for one of ERCOT’s demand response programs establishing the project
as 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. Soluna will be able to generate additional
revenue for Project Dorothy by providing this grid resilience support and potentially reduce its power costs, making it among the lowest
cost players in the industry. Since November 2023, Project Dorothy has successfully participated and completed in the Winter and Spring
demand response periods in ERCOT, and is currently in the summer 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.
The
Company owns 100% of the facility and completed its construction in 2021. In the second quarter of fiscal year 2023, we shifted Project
Sophie to Data Hosting, signing contracts with leading Bitcoin miners. We sold older, less efficient Bitcoin mining equipment and used
the cash to make operational improvements to the site and to fund corporate operations. Throughout 2023, Sophie progressively secured
new more profitable hosting contracts. We have deployed over 8,000 mining machines for hosting in 2023 and 2024 at the site. The Data
Hosting agreements generate revenue for a combination of a fixed services fee and a profit share component. The cost of power is passed
through to customers. Customers at the site now include leading public Bitcoin Miners such as Bit Digital, Compass Mining, and other
leading sustainability focused customers. During the second quarter of 2024, Project Sophie’s team executed well, mitigating the
effects of Kentucky tornadoes. Critical infrastructure optimizations were implemented to prepare for the summer heat to improve efficiency
and utilize additional available capacity to prepare for Sophie’s AI hosting customer.
41
**Marie**
In
February 2023, Project Marie, our 20 MW data center in Kentucky was decommissioned. The decision was sparked by following events:
- NYDIG, our asset-backed-lender on mining and infrastructure equipment, accelerated their loan and repossessed their collateral.
- Our Bitcoin Hosting customer, Atlas Technology Group, LLC (“Atlas”), at the site failed to upgrade and invest in their mining equipment, decreasing the profitability of the site.
- Our landlord, CC Metals and Alloys, LLC, (“CCMA”) terminated our lease.
As
a result, we disposed of all remaining assets at the site, terminated the Atlas hosting agreement, and decommissioned the site.
**Cost
Cutting and Process Optimization**
In
2023, we implemented a number of cost cutting measures including staff reductions, renegotiations or termination of key advisory agreements.
We ramped up a new Financial Planning and Analysis (“FP&A”) function to provide our management and operations teams better
insight into the financial performance of our data centers. This helped us find opportunities to improve profitability and proactively
address critical issues with infrastructure equipment at all sites. Our MaestroOS software platform managed the efficient operations
of projects Dorothy and Sophie through record setting temperatures (hot and cold) in both Texas and Kentucky in 2023. In 2024, our Maestro
control system has continued to respond to increases in grid demand throughout the summer.
Continuing
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.
**Expand
Flagship, Dorothy 2**
In
2023, we began the planning process for building out the second 50 MW phase of Project Dorothy – Dorothy 2. We completed the design,
established new procurement partners, and submitted an updated approval to ERCOT. In May 2024, the Company partnered with Spring
Lane Capital (“SLC”) to finance up to $30 million. The financing will facilitate the construction of the Dorothy 2 facility,
in which the parties will begin construction with the goal of achieving initial energization and ramp-up 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 current income during operational phase. On July 22, 2024, the financing on the Dorothy
2 project closed. Project Dorothy 2 will be adjacent to two other Soluna modular data center projects co-located at the same site.
Project Dorothy 2 is financed by SLC, which will make a capital contribution up to approximately
$29.98 million, and the Company, which will make a capital contribution up to approximately $4.6 million, and as of July 22, 2024 became
co-owners of ComputeCo with Soluna Digital, Inc.
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.
**Grow
Pipeline**
In
2023, we signed a term sheet for a new 166 MW data center called Kati that will be integrated with a 300 MW wind farm that has surplus
energy due to increasing curtailment by the grid. We worked throughout 2023 to advance the project through grid operator’s, ERCOT
planning process, and in 2024 have resubmitted a key study to take into account a change in distance from substation. In May 2024, we
announced the signing of a Power Purchase Agreement (“PPA”) for Project Kati with EDF Renewables and Abu Dhabi Future Energy
Company- Masdar. Project Kati will be co-located at a wind facility owned by EDF Renewables and Masdar. Project Kati will be executed
in two phases, with each phase delivering 83 MW of renewable energy capacity to power high-performance computing applications including
AI.
For
2024, we aim to double our assets under management to 150 MW by the end of fiscal year 2024 or the beginning of 2025, focusing on
constructing and energizing 48 MW of Project Dorothy 2 as noted above, and breaking ground on Project Kati.
42
**Launch
AI**
On
June 18, 2024, CloudCo entered into an HPE Agreement with Hewlett Packard Enterprise Company (“HPE”). Pursuant to the HPE
Agreement, HPE agreed to provide datacenter and cloud services for artificial intelligence and supercomputing processes via Nvidia H100
GPUs to CloudCo in exchange for an aggregate of $34.0 million, including an initial pre-payment of $10.3 million made on June 24, 2024.
The HPE Agreement has a term of 36 months, and the services thereunder are expandable upon agreement of the parties. Soluna
Cloud will begin offering its services by leveraging HPE’s renewable- powered high performance data centers. Their cutting-edge
facilities, known for their energy efficiency and sustainability, will 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.
Soluna’s
new Helix data centers will serve as the growth pathway for customers, addressing the growing demand for more sustainable data centersfor AI powered by renewable energy.
On
June 24, 2024, Soluna Cloud closed on a $12.5 million secured credit facility to fund the GPU contract and Soluna Cloud startup costs,
and on July 17, 2024, raised an additional $1.25 million secured credit facility enabling Soluna Cloud to continue its innovative approach
to sustainable AI clouds and meet the increasing demand for renewable-energy powered, high-performance computing solutions.
**Convertible
Noteholders**
In
2023, the Company negotiated three amendments to the October Convertible Notes. On February 28, 2024, a fourth amendment was executed.
These amendments were focused on extending the maturity date of the notes, lowering the conversion price of the notes, adding features
to the notes to allow early payoff with predetermined cost, and the repricing of certain warrants to assist the Company in raising capital
for operations. Additionally on May 17, 2024, certain warrants were further repriced to assist in raising additional capital.
**Finance
Opportunities**
We
plan to raise funds to support our growth initiatives, particularly in our AI hosting business, which we believe is a great fit for our
renewable computing data center model.
**Recent
Developments and Trends**
**Industry
Trends**
Soluna’s
business is influenced by several industry trends, including: (1) challenges in the Bitcoin ecosystem, (2) the Bitcoin Halving, (3) the
Inflation Reduction Act, (4) the global Supply Chain, (5) the growth of AI.
*Bitcoin
Ecosystem*
Fiscal
years 2022 and 2023 proved challenging for the Bitcoin Mining industry. In 2022, several companies in the ecosystem initiated bankruptcy
proceedings due to the severe decline in the price of Bitcoin and, the impact on energy prices of the war in Ukraine. This turmoil continued
into most of 2023 with many companies working their way through chapter 11 and flooding the market with equipment sales. The trial of
Sam Backman Fried, founder and CEO of FTX, the industry’s largest digital asset exchange, dominated the news and continued to compress
the value of Bitcoin. Later in the year Changpeng Zhao, the founder of Binance, the largest cryptocurrency exchange in the world, pleaded
guilty to money laundering violations. By the end of 2023, tides began to turn for Bitcoin as major asset managers like Black Rock, Greyscale,
and Bitwise filed for Bitcoin Spot ETFs. This caused a surge in Bitcoin price beginning in the tail end of 2023 that has benefited revenues
in the ecosystem. Consolidation in the space will likely decrease competition on the Bitcoin network, increasing our pro rata share of
profits. Our industry leading power prices will allow us to stay on the network longer. Increased regulation of the industry could increase
our costs.
*Bitcoin
Halving*
In
April 2024, Bitcoin underwent its fourth halving event, occurring approximately every four years or after every 210,000 blocks are
mined. During a halving, miners’ rewards for validating transactions and creating new blocks on the Bitcoin blockchain are cut
in half, reducing the rate of new Bitcoin generation. This event typically triggers anticipation and speculation within the Bitcoin
community and among investors, leading to increased market activity. Price volatility tends to rise before and after a halving as
the market reacts to perceived supply scarcity. Mining profitability decreases post-halving, potentially prompting some miners to
shut down operations. This often sparks consolidations in the space, reducing the number of mining companies. However, the network
automatically adjusts mining difficulty to ensure consistent block production. The halving also causes a supply shock, reducing
Bitcoin’s inflation rate and potentially driving long-term price appreciation, although past performance does not guarantee
future outcomes. The 2024 halving 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 ETF 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 settlement has 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.
43
*Inflation
Rate Act*
The
Inflation Reduction Act of 2022 (“IRA”), signed into law by President Biden, is a significant investment in climate and energy
in the U.S. At the time of its passage, legislators estimated that the bill would allocate $370 billion, primarily in the form of tax
credits, to a wide array of decarbonization efforts. Recent private estimates are much higher. In March, the Brookings Institute released
a study estimating the spending at $1.2 trillion, which is three times the Congressional estimate. The Act aims to tackle the climate
crisis, advance environmental justice, secure America’s position as a world leader in clean energy manufacturing, and work towards
achieving a net-zero economy by 2050. Since its enactment, the Inflation Reduction Act has driven substantial investment in clean energy
projects, with over $110 billion announced in new clean-energy manufacturing investments. This includes investments in electric vehicle
supply chains and solar manufacturing. Overall, the IRA stimulates economic growth through renewable energy development and infrastructure
reinvestment in the United States. The IRA is accelerating the development of new renewable power plants across the country and extending
the tax incentives. This growth is likely to exacerbate the wasted energy problem as grid transmission will not keep pace. 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 digitalizing
processes to enhance efficiency. The scarcity of power infrastructure components like transformers is a critical issue and efforts are
being made to address these challenges through various strategies and actions. Difficult to source equipment could affect our growth.
We have developed strategic relationships with key equipment providers with manufacturing facilities in the US and Abroad.
*AI*
Since
the inception of ChatGPT by OpenAI, AI has experienced remarkable growth, transforming the field. Large language models (“LLM”s)
have revolutionized AI, fueling interest in generative AI technologies. The introduction of ChatGPT alone has increased AI-related job
listings significantly, indicating its impact beyond tech. In 2023, global venture capital investments in AI soared to $50 billion, reflecting
confidence in AI’s future potential. Funding focus has shifted to mature companies with proven technologies, signaling market maturation.
This growth has driven demand for computing resources and attracted enterprise interest. The generative AI market is projected to reach
$1.3 trillion by 2032, with significant energy implications. By 2030, AI could comprise 3-4% of global power demand, with Google already
attributing 10-15% of its power use to AI technologies. The widespread adoption of generative AI like ChatGPT may substantially increase
energy consumption across various applications and services. The energy demands of AI will increase focus on the sustainability of the
industry. We expect increasing demand for specialized AI data centers with access to renewable energy. This will likely open opportunities
for Soluna to provide AI Cloud and Co-location services to new companies and enterprises investing in AI initiatives.
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.
44
**Consolidated
Results of Operations**
***Consolidated
Results of Operations for the Three Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023.***
The
following table summarizes changes in the various components of our net loss during the three months ended June 30, 2024 compared to
the three months ended June 30, 2023.
| (Dollars in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | $ Change | % Change |
| --- | --- | --- | --- | --- |
| Cryptocurrency mining revenue | $4,484 | 915 | 3,569 | 390% |
| Data hosting revenue | 4,898 | 1,153 | 3,745 | 325% |
| Demand response service revenue | 293 | - | 293 | 100% |
| Operating costs and expenses: | | | | |
| Cost of cryptocurrency mining revenue, exclusive of depreciation | 1,883 | 1,160 | 723 | 62% |
| Cost of data hosting revenue, exclusive of depreciation | 2,176 | 759 | 1,417 | 187% |
| Costs of revenue- depreciation | 1,506 | 539 | 967 | 179% |
| General and administrative expenses, exclusive of depreciation and amortization | 5,382 | 4,136 | 1,246 | 30% |
| Depreciation and amortization associated with general and administrative expenses | 2,403 | 2,379 | 24 | 1% |
| Impairment on fixed assets | - | 169 | (169) | (100 |
| Operating loss | (3,675) | (7,074) | 3,399 | (48 |
| Other expense, net | (49) | (238) | 189 | (79 |
| Interest expense | (449) | (486) | 37 | (8 |
| (Loss) gain on sale of fixed assets | (21) | 48 | (69) | (144 |
| Loss on debt extinguishment and revaluation, net | (5,600) | (2,054) | (3,546) | 173% |
| Loss before income taxes | (9,794) | (9,804) | 10 | (- |
| Income tax benefit | 649 | 547 | 102 | 19% |
| Net loss | (9,145) | (9,257) | 112 | (1 |
| Net income (loss) attributable to non-controlling interest | 1,728 | (482) | 2,210 | (459 |
| Net loss attributable to Soluna Holdings, Inc. | $(10,873) | (8,775) | (2,098) | 24% |
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 June 30, 2024:
| (Dollars in thousands) | Project Dorothy 1B | Project Dorothy 1A | Project Sophie | Project Marie | Other | Total |
| --- | --- | --- | --- | --- | --- | --- |
| Cryptocurrency mining revenue | $4,484 | - | - | - | - | $4,484 |
| Data hosting revenue | - | 3,567 | 1,331 | - | - | 4,898 |
| Demand response services | - | - | - | - | 293 | 293 |
| Total revenue | $4,484 | $3,567 | $1,331 | - | $293 | $9,675 |
| Cost of cryptocurrency mining, exclusive of depreciation | $1,883 | - | - | - | - | 1,883 |
| Cost of data hosting revenue, exclusive of depreciation | - | 1,758 | 418 | - | - | 2,176 |
| Cost of revenue- depreciation | 1,073 | 282 | 151 | - | - | 1,506 |
| Total cost of revenue | $2,956 | $2,040 | $569 | - | - | $5,565 |
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 June 30, 2023:
| (Dollars in thousands) | Project Dorothy 1B | Project Dorothy 1A | Project Sophie | Project Marie | Other | Total |
| --- | --- | --- | --- | --- | --- | --- |
| Cryptocurrency mining revenue | - | - | $915 | - | | $$915 |
| Data hosting revenue | - | 456 | 692 | - | 5 | 1,153 |
| Demand response services | - | - | - | - | - | - |
| Total revenue | - | $456 | $1,607 | - | $5 | $2,068 |
| Cost of cryptocurrency mining, exclusive of depreciation | $224 | - | 936 | - | - | 1,160 |
| Cost of data hosting revenue, exclusive of depreciation | - | 508 | 251 | - | - | 759 |
| Cost of revenue- depreciation | 14 | 185 | 332 | 8 | - | 539 |
| Total cost of revenue | $238 | $693 | $1,519 | $8 | - | $2,458 |
45
***Cryptocurrency
Mining Revenue***: Cryptocurrency revenue consists of revenue recognized from Soluna’s cryptocurrency mining operations. Cryptocurrency
revenue was approximately $4.5 million for the three months ended June 30, 2024 compared to $915 thousand for the three months ended
June 30, 2023. For the three months ended June 30, 2024, all cryptocurrency mining revenue related to Project Dorothy 1B, which began
energization in the fourth quarter of 2023, and has been running at a full 25 MWs. Operations were stopped for Project Marie in February
2023 with the CCMA termination and NYDIG repossession of collateralized assets, and Project Sophie switched to Data Hosting beginning
in the second quarter of fiscal year 2023 creating only $915 thousand in cryptocurrency revenue for the three months ended June 30, 2023,
as such no revenue was recognized for either Project Marie or Sophie for the three months ended June 30, 2024. In addition to the above,
the average price of Bitcoin increased by 134% from the three months ended June 30, 2023 compared to the same period for June 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 $4.9 million for the three months ended June 30, 2024 compared to $1.2 million
for the three months ended June 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 $3.6 million in data hosting revenue for the second
quarter of 2024 compared to approximately $456 thousand for the second quarter of 2023, approximately a $3.1 million increase. In addition,
Project Sophie switched their business model from proprietary mining to data hosting in the second quarter of 2023 in which created an
additional increase of approximately $639 thousand from approximately $692 thousand in the second quarter of 2023 to approximately $1.3
million.
***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 June 30, 2023.
***Cost
of Cryptocurrency Revenue, exclusive of depreciation****:* Cost of cryptocurrency mining revenue includes direct utility costs,
site overhead expenses, and overhead costs that relate to the operations of our cryptocurrency mining facilities in Kentucky and Texas.
Going forward, cost of cryptocurrency revenue will include any additional cryptocurrency mining facilities that are part of the Company’s
future pipeline.
Cost
of cryptocurrency revenue, exclusive of depreciation costs was approximately $1.9 million and $1.2 million for the three months ended
June 30, 2024 and 2023, respectively, approximately $723 thousand increase. The higher costs during the three months ended June 30, 2024
compared to 2023 were due to the full Project Dorothy 1B site being active the entire quarter of 2024, versus as a start up 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 $2.2 million for the three months ended June 30, 2024 compared to $759 thousand for the same
period in 2023. This increase was due to Project Dorothy 1A which began operations and hosting services in May 2023, creating costs of
approximately $1.8 million for the three months ended June 30, 2024, compared to $508 thousand for the three months ended June 30, 2023.
Also, the Company began data hosting operations at Project Sophie in mid-April 2023, which created an increase in costs of approximately
$166 thousand between the comparable periods.
***Cost
of revenue- depreciation:*** Depreciation costs associated with cryptocurrency and data hosting revenue was approximately $1.5
million for the three months ended June 30, 2024 compared to approximately $539 thousand for the three months ended June 30, 2023.
The increase related to the capital additions to fixed assets between the second quarter of fiscal year 2023 through the second
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.
46
***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 $1.2 million or 30% for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. General and administrative expenses, exclusive of depreciation and amortization were approximately $5.4 million, including approximately $1.4 million of stock compensation expense for the three months ended June 30, 2024, compared to approximately $4.1 million, including $2.0 million of stock compensation for the three months ended June 30, 2023. The increase in general and administrative expenses, exclusive of depreciation and amortization was mainly due to employee related expenses, legal fees, investor relations, and professional fees, which are offset with a decrease in stock compensation expenses.
- The Company had an increase of approximately $900 thousand in employee related expense for the three months ended June 30, 2024 compared to three months ended June 30, 2023 due to an increase in resources and salaries of approximately $515 thousand, and in anticipation of hitting performance based targets of approximately $365 thousand.
- Legal fees increased by approximately $248 thousand for the three months ended June 30, 2024 compared to the three months ended June 30, 2023; the increase is due to the legal work related to projects Dorothy 2 and other development projects.
- The Company took a provision for expected credit loss for approximately $240 thousand for the three months ended June 30, 2024, compared to no provision for the three months ended June 30, 2023.
- Investor relations increased by approximately $197 thousand for the three months ended June 30, 2024 compared to June 30, 2023 due to the Company implementing a series of investor acquisition and influencer marketing programs to attract new investors to Soluna Holdings.
- Professional fees associated to audit and tax increased by approximately $177 thousand for the three months ended June 30, 2024 compared to June 30, 2023 due to additional costs related to subsidiary audits and tax preparation.
- Offsetting the increase in general and administrative expenses, the Company’s stock compensation decreased by approximately $600 thousand due to an acceleration of grants and awards in May of 2023, which did not occur for the three months ended June 30, 2024.
***Depreciation
and Amortization associated with general and administrative expenses:*** Depreciation and amortization expense was comparable for
the three months ended June 30, 2024 and the three months ended June, 2023 in which the balances totaled approximately $2.4 million,
respectively. The balances mainly related to amortization expense related to the strategic pipeline contract that was acquired in October
2021.
***Impairment
on Fixed Assets:*** During the three months ended June 30, 2024, there were no impairment charges on fixed assets, compared to the
Company had impairment charges of approximately $169 thousand for the three months ended June 30, 2023 due to revaluing the S19 miners
to the current market conditions.
***Interest
expense:*** Interest expense for the three months ended June 30, 2024 was approximately $449 thousand related to approximately $361
thousand to the NYDIG loan and $37 thousand to the Navitas loan. In addition there was compounded interest and deferred financing amortization
expense of approximately $50 thousand for the equipment financing loan and June 2024 secured note financing. Interest expense for the
three months ended June 30, 2023, was $486 thousand which primarily related to amortization of warrants for the convertible notes of
$115 thousand and interest on the NYDIG Financing Loan of approximately $315 thousand, as well as interest on the Navitas loan of $47
thousand.
***Loss
on Debt Extinguishment and Revaluation***: For the three months ended June 30, 2024, the Company had a loss on debt revaluation
of approximately $5.6 million, in which was in relation to approximately $4.0 million for the convertible notes 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. In addition, there was a $1.6 million loss on the valuation of a warrant liability.
The warrant liability was ultimately reversed when Shareholder approval occurred on May 30, 2024, however, the Company needed to revalue
the warrants as of May 30, 2024, in which created a loss of approximately $1.6 million due to mainly changes in the stock price as amount
of warrants outstanding. For the three months ended June 30, 2023, the Company had a loss on debt revaluation of approximately $2.1 million.
On May 11, 2023, the Company entered into a new debt agreement with the convertible noteholders and issued new warrants, and with doing
so, created a debt extinguishment and loss of approximately $1.8 million, in which the main factor was the valuation of the new warrants.
There was an additional $170 thousand valuation loss as of June 30, 2023 due to additional assumptions and assessments on the valuation
of the debt at quarter end. See Note 8 for further details.
47
***Loss
(Gain) on Sale of Fixed Assets:*** The Company had an immaterial loss on sale of equipment of approximately $21 thousand for the
three and six months ended June 30, 2024, in which related to equipment held for sale and in storage. The Company received proceeds on
the sale of equipment $145 thousand for the three months ended June 30, 2024, in which the net book value was approximately $166 thousand.
For the three months ended June 30, 2023, the Company had a gain on sale of equipment of $48 thousand in relation to the sale of M30
miners in May and June of 2023, which the Company sold the miners for a higher value than the current net book value. The Company received
proceeds of approximately $561 thousand in which the miners had a net book value of approximately $513 thousand. In addition, the Company
sold Switchgear and M31 miners for cash proceeds of approximately $476 thousand in which no gain or loss was recognized as the switchgear
and miners were sold at net book value.
***Other
expense, net:*** For the three months ended June 30, 2024, other expense, net was approximately $49 thousand, compared to $238 thousand
for the three months ended June 30, 2023. The main reason for the decrease in other expense, net, was that for the three months ended
June 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 three months ended June 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 three months ended June 30, 2024 was $649 thousand, compared to $547 thousand for the
three months ended June 30, 2023. The comparable 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 three
months ended June 30, 2024 and June 30, 2023, the Company amortized $547 thousand, respectively. In addition, for the three months ended June 30, 2024, the income tax benefit increased due to changes in estimable
income and permanent differences in 2024.
***Net
income / (loss) attributable to non-controlling interest:*** Net income attributable to non-controlling interest for the three months
ended June 30, 2024 was $1.7 million compared to a net loss of approximately $482 thousand for the three months ended June 30, 2023.
This amount relates to Spring Lane’s 85% noncontrolling interest of the net profit in Soluna DVSL and Navitas 45.0% through 46.7%
noncontrolling interest of the net profit in Soluna DV ComputeCo for the three months ended June 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 which started to grow in the third
quarter of fiscal year 2023. There was no minority interest for Dorothy 1B until the 2nd quarter of 2023, when Navitas obtained interest
in DV ComputeCo. Dorothy 1A had a net profit of approximately $1.4 million for three months ended June 30, 2024, creating a non-controlling
interest profit of approximately $1.2 million, compared to a $463 thousand net loss for the three months ended June 30, 2023, creating
a non-controlling interest loss of $396 thousand. In addition, the increase also related to Dorothy 1B, which had a $87 thousand non-controlling
interest loss for the three months ended June 30, 2023 to a non-controlling interest profit of $564 thousand for the three months ended
June 30, 2024. As the Company was generating revenue from energization at Project Dorothy, the Company began to see a shift from a net
loss to profit within non-controlling interest.
***Consolidated
Results of Operations for the Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023.***
The
following table summarizes changes in the various components of our net loss during the six months ended June 30, 2024 compared to the
six months ended June 30, 2023.
| (Dollars in thousands) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | $ Change | % Change |
| --- | --- | --- | --- | --- |
| Cryptocurrency mining revenue | $10,880 | 3,711 | 7,169 | 193% |
| Data hosting revenue | 10,176 | 1,439 | 8,737 | 607% |
| Demand response service revenue | 1,168 | - | 1,168 | 100% |
| Operating costs and expenses: | | | | |
| Cost of cryptocurrency mining revenue, exclusive of depreciation | 3,724 | 3,410 | 314 | 9% |
| Cost of data hosting revenue, exclusive of depreciation | 4,427 | 1,031 | 3,396 | 329% |
| Costs of revenue- depreciation | 3,029 | 1,164 | 1,865 | 160% |
| General and administrative expenses, exclusive of depreciation and amortization | 9,378 | 8,496 | 882 | 10% |
| Depreciation and amortization associated with general and administrative expenses | 4,805 | 4,756 | 49 | 1% |
| Impairment on fixed assets | 130 | 377 | (247) | (66 |
| Operating loss | (3,269) | (14,084) | 10,815 | (77 |
| Other expense, net | (25) | (226) | 201 | (89 |
| Interest expense | (873) | (1,861) | 988 | (53 |
| Loss on sale of fixed assets | (21) | (30) | 9 | (30 |
| Loss on debt extinguishment and revaluation, net | (8,698) | (1,581) | (7,117) | 450% |
| Loss before income taxes | (12,886) | (17,782) | 4,896 | (28 |
| Income tax benefit | 1,197 | 1,093 | 104 | 10% |
| Net loss | (11,689) | (16,689) | 5,000 | (30 |
| Net income (loss) attributable to non-controlling interest | 4,438 | (852) | 5,290 | (621 |
| Net loss attributable to Soluna Holdings, Inc. | $(16,127) | (15,837) | (290) | 2% |
48
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
six months ended June 30, 2024:
| (Dollars in thousands) | Project Dorothy 1B | Project Dorothy 1A | Project Sophie | Project Marie | Other | Total |
| --- | --- | --- | --- | --- | --- | --- |
| Cryptocurrency mining revenue | $10,880 | - | - | - | - | $10,880 |
| Data hosting revenue | - | 7,108 | 3,068 | - | - | 10,176 |
| Demand response services | - | - | - | - | 1,168 | 1,168 |
| Total revenue | $10,880 | $7,108 | $3,068 | - | $1,168 | $22,224 |
| Cost of cryptocurrency mining, exclusive of depreciation | $3,724 | - | - | - | - | 3,724 |
| Cost of data hosting revenue, exclusive of depreciation | - | 3,495 | 931 | - | 1 | 4,427 |
| Cost of revenue- depreciation | 2,167 | 560 | 302 | - | - | 3,029 |
| Total cost of revenue | $5,891 | $4,055 | $1,233 | - | $1 | $11,180 |
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
six months ended June 30, 2023:
| (Dollars in thousands) | Project Dorothy 1B | Project Dorothy 1A | Project Sophie | Project Marie | Other | Total |
| --- | --- | --- | --- | --- | --- | --- |
| Cryptocurrency mining revenue | - | - | $2,942 | $769 | | $$3,711 |
| Data hosting revenue | - | 456 | 693 | 276 | 14 | 1,439 |
| Demand response services | - | - | - | - | - | - |
| Total revenue | - | $456 | $3,635 | $1,045 | $14 | $5,150 |
| Cost of cryptocurrency mining, exclusive of depreciation | $286 | - | 2,323 | 801 | - | 3,410 |
| Cost of data hosting revenue, exclusive of depreciation | - | 566 | 251 | 214 | - | 1,031 |
| Cost of revenue- depreciation | 15 | 185 | 834 | 130 | - | 1,164 |
| Total cost of revenue | $301 | $751 | $3,408 | $1,145 | - | $5,605 |
***Cryptocurrency
Mining Revenue***: Cryptocurrency revenue consists of revenue recognized from Soluna’s cryptocurrency mining operations. Cryptocurrency
revenue was approximately $10.9 million for the six months ended June 30, 2024 compared to $3.7 million for the six months ended June
30, 2023. For the six months ended June 30, 2024, all cryptocurrency mining revenue related to Project Dorothy 1B, which began energization
in the fourth quarter of 2023, and has been running at a full 25 MWs. Operations were stopped for Project Marie in February 2023 with
the CCMA termination and NYDIG repossession of collateralized assets, and Project Sophie switched to Data Hosting beginning in the second
quarter of fiscal year, as such no revenue was recognized for either Project Marie or Sophie for the six months ended June 30, 2024.
The Company also noted for the six months ended June 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 134% in the
six months ended June 30, 2023 compared to the same period for June 2024.
49
***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 $10.2 million for the six months ended June 30, 2024 compared to $1.4 million for
the six months ended June 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 $7.1 million in data hosting revenue for the six months ended
June 30, 2024 compared to approximately $456 thousand for the same period in 2023, approximately a $6.7 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 $2.4 million from approximately $692 thousand for the six months ended June 30, 2023 to approximately $3.1
million for the six months ended June 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 six months ended June 30, 2024 compared to June 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 six months ended June 30, 2023.
***Cost
of Cryptocurrency Revenue, exclusive of depreciation****:* Cost of cryptocurrency mining revenue includes direct utility costs,
site overhead expenses, and overhead costs that relate to the operations of our cryptocurrency mining facilities in Kentucky and Texas.
Going forward, cost of cryptocurrency revenue will include any additional cryptocurrency mining facilities that are part of the Company’s
future pipeline.
Cost
of cryptocurrency revenue, exclusive of depreciation costs was approximately $3.7 million and $3.4 million for the six months ended June
30, 2024 and 2023, respectively, approximately a $314 thousand increase. The higher costs during the six months ended June 30, 2024 compared
to 2023 were due to the full Project Dorothy 1B site being active the entire six months ended June 30, 2024, versus as a start up beginning
in the second quarter of 2023. Also noted, Project Sophie was no longer a proprietary mining site in the second quarter of 2023. The
increase was slightly offset with the Company operating only one facility for the six months ended June 30, 2024, compared to two facilities
for the six months ended June 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 $4.4 million for the six months ended June 30, 2024 compared to $1.0 million for the six months
ended June 30, 2023. This increase was due to Project Dorothy 1A which began operations and hosting services in May 2023, creating costs
of approximately $3.5 million for the six months ended June 30, 2024, compared to $566 thousand for the six months ended June 30, 2023.
Also, the Company began data hosting operations at Project Sophie in mid-April 2023, which created an increase in costs of approximately
$680 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 $214
thousand.
***Cost
of revenue- depreciation:*** Depreciation costs associated with cryptocurrency and data hosting revenue was approximately $3.0 million
for the six months ended June 30, 2024 compared to approximately $1.2 million for the six months ended June 30, 2023. The increase related
to the capital additions to fixed assets between the second quarter of fiscal year 2023 through the second 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.
50
***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 $882 thousand or 10% for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. General and administrative expenses, exclusive of depreciation and amortization were approximately $9.4 million, including approximately $2.0 million of stock compensation expense for the six months ended June 30, 2024, compared to approximately $8.5 million, including $2.8 million of stock compensation for the six months ended June 30, 2023. This increase was mainly related to employee related expenses, professional fees and services, and investor relations, offset by a decrease in legal and stock compensation expenses.
- The Company had an increase of approximately $1.3 million in wage related expense for the six months ended June 30, 2024 compared to six months ended June 30, 2023 due to an increase in resources and salaries of approximately $530 thousand and in anticipation of hitting performance based targets of approximately $742 thousand.
- Professional fees associated to audit and tax increased by approximately $178 thousand for the six months ended June 30, 2024 compared to June 30, 2023 due to additional costs related to subsidiary audits and tax preparation.
- The Company took a provision for expected credit loss for approximately $240 thousand for the six months ended June 30, 2024, compared to no provision for the six months ended June 30, 2023.
- Consulting and other professional services increased by approximately $116 thousand for the six months ended June 30, 2024 compared to June 30, 2023 due to using outside support to navigate complex accounting transactions.
- Investor relations increased by approximately $104 thousand for the six months ended June 30, 2024 compared to June 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 decreased by approximately $800 thousand for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, due to an acceleration of the Company’s grants and awards that occurred in May of 2023, as such, the outstanding grants and awards were higher in the previous year for the six months ended June 30, 2023, compared to the six months ended June 30, 2024.
- Legal fees decreased by approximately $220 thousand for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The decrease was mainly attributable to project associated legal expenses.
***Depreciation
and Amortization associated with general and administrative expenses:*** Depreciation and amortization expense was comparable for
the six months ended June 30, 2024 and the six months ended June, 2023 in which the balances totaled approximately $4.8 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 six months ended June 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 six months ended June 30, 2023, the Company had impairment charges of approximately $377 thousand
in which related to impairment of approximately $165 thousand for power supply units (PSUs) at the Sophie location and $43 thousand for
M31 miners in which were subsequently sold in April 2023, in which the Company wrote down the net book value to subsequent sale price.
***Interest
expense:*** Interest expense for the six months ended June 30, 2024 was approximately $873 thousand related to approximately $722
thousand to the NYDIG loan and $100 thousand to the Navitas loan. In addition there was compounded interest and deferred financing amortization
expense of approximately $50 thousand for the equipment financing loan and June 2024 secured note financing. Interest expense for the
six months ended June 30, 2023 was $1.8 million and related to default and continuing interest expense of the NYDIG loan of approximately
$692 thousand, interest and other charges of approximately $220 thousand for the promissory notes issued in January and February of 2023,
and interest on amortization of warrants for the convertible debt of approximately $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***: For the six months ended June 30, 2024, the Company had a loss on debt extinguishment
and revaluation of approximately $8.7 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 in which was noted above. 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. The Company notes for the six months ended June 30, 2023, the Company had a net loss on debt extinguishment
and revaluation of $1.6 million due to the extinguishment and revaluation noted above in the second quarter of 2023, offset with a gain
of $473 thousand in the first quarter of 2023. See Note 8 for further details.
51
***Loss
on Sale of Fixed Assets:*** The Company had an immaterial loss on sale of equipment of approximately $21 thousand for the
six months ended June 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 six months ended June 30, 2024, in which the net book value was approximately $236
thousand.
For
the six months ended June 30, 2023, the Company had a loss on sale of equipment of approximately $30 thousand. In January 2023, the Company
sold M20 and M21 miners for a loss on sale of equipment of approximately $82 thousand in which the Company received proceeds of $213
thousand for our M20 and M21 miners which were previously reported as held for sale as of December 31, 2022, in which had a net book
value of $295 thousand. There were additional proceeds of $36 thousand in March 2023, in which resulted in a gain of approximately $3
thousand of scrap and other equipment. This was offset with a gain on sale of approximately $48 thousand in relation to the sale of M30
miners in May and June of 2023, which the Company sold the miners for a higher value than the current net book value. The Company received
proceeds of approximately $561 thousand in which the miners had a net book value of approximately $513 thousand. In addition, the Company
sold Switchgear and M31 miners for cash proceeds of approximately $476 thousand in which no gain or loss was recognized as the switchgear
and miners were sold at net book value.
***Other
expense, net:*** For the six months ended June 30, 2024, other expense, net was approximately $25 thousand, respectively, compared
to $226 thousand for the six months ended June 30, 2023. The main reason for the decrease in other expense, net, was that for the six
months ended June 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 six months ended June 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 six months ended June 30, 2024 was approximately $1.2 million, compared to approximately
$1.1 million for the six months ended June 30, 2023. The comparable 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 six months ended June 30, 2024 and June 30, 2023, the Company amortized approximately $1.1 million.
***Net
income / (loss) attributable to non-controlling interest:*** Net income attributable to non-controlling interest for the six months
ended June 30, 2024 was $4.4 million compared to a net loss of approximately $852 thousand for the six months ended June 30, 2023. This
amount relates to Spring Lane’s 85% noncontrolling interest of the net profit in Soluna DVSL and Navitas 45.0% through 49% noncontrolling
interest of the net profit in Soluna DV ComputeCo for the six months ended June 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 which started to grow in the third quarter
of fiscal year 2023. There was no minority interest for Dorothy 1B until the 2nd quarter of 2023, when Navitas obtained interest in DV
ComputeCo. Dorothy 1A had a net profit of approximately $2.8 million for six months ended June 30, 2024, creating a non-controlling interest
profit of approximately $2.4 million, compared to a $896 thousand net loss for the six months ended June 30, 2023, creating a non-controlling
interest loss of $765 thousand. In addition, the increase also related to Dorothy 1B, which had a $87 thousand non-controlling interest
loss for the six months ended June 30, 2023 to a non-controlling interest profit of $2.1 million for the six months ended June 30, 2024.
As the Company was generating revenue from energization at Project Dorothy, the Company began to see a shift from a net loss to profit
within non-controlling interest.
**Non-GAAP
Measures**
In
addition to financial measures calculated in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”),
we also use “Adjusted EBITDA.” Adjusted EBITDA is a non-GAAP financial measure defined as net income (loss) from interest,
taxes, depreciation and amortization (“EBITDA”) adjusted to eliminate the effects of certain non-cash, non-recurring items,
that we believe do not reflect our ongoing strategic business operations. Management believes that Adjusted EBITDA results in a performance
measurement that represents a key indicator of the Company’s business operations of cryptocurrency mining and hosting customers
engaged in cryptocurrency mining.
We
believe Adjusted EBITDA can be an important financial measure because it allows management, investors, and the Board to evaluate and
compare our operating results, including our return on capital and operating efficiencies, from period-to-period by making such adjustments.
Non-GAAP financial measures are subject to material limitations as they are not in accordance with, or a substitute for, measurements
prepared in accordance with U.S. GAAP. For example, we expect that stock-based compensation costs, which is excluded from the non-GAAP
financial measures, will continue to be a significant recurring expense over the coming years and is an important part of the compensation
provided to certain employees, officers, and directors. Similarly, we expect that depreciation and amortization of fixed assets will
continue to be a recurring expense over the term of the useful life of the assets.
52
Adjusted
EBITDA is provided in addition to and should not be considered to be a substitute for, or superior to net income, the comparable measure
calculated in accordance with U.S. GAAP. Further, Adjusted EBITDA should not be considered as an alternative to revenue growth,
net income, diluted earnings per share or any other performance measure calculated in accordance with GAAP, or as an alternative to cash
flow from operating activities as a measure of our liquidity. Adjusted EBITDA has limitations as an analytical tool, and you should not
consider such measures either in isolation or as substitutes for analyzing our results as reported under GAAP.
Reconciliations
of Adjusted EBITDA to net loss, the most comparable GAAP financial metric, for historical periods are presented in the table below:
| (Dollars in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 |
| --- | --- | --- | --- | --- |
| Net loss | $(9,145) | $(9,257) | $(11,689) | $(16,689) |
| Interest expense | 449 | 486 | 873 | 1,861 |
| Income tax benefit | (649) | (547) | (1,197) | (1,093) |
| Depreciation and amortization | 3,909 | 2,918 | 7,834 | 5,920 |
| EBITDA | (5,436) | (6,400) | (4,179) | (10,001) |
| Adjustments: Non-cash items | | | | |
| Stock-based compensation costs | 1,368 | 2,232 | 2,029 | 3,111 |
| (Gain) loss on sale of fixed assets | 21 | (48) | 21 | 30 |
| Provision for credit losses | 244 | - | 244 | - |
| Impairment on fixed assets | - | 169 | 130 | 377 |
| Loss on debt extinguishment and revaluation , net | 5,600 | 2,054 | 8,698 | 1,581 |
| Adjusted EBITDA | $1,797 | $(1,993) | $6,943 | $(4,902) |
Stock
based compensation costs represented approximately $1.4 million non-cash restricted stock awards, units and options for the three
months ended June 30, 2024 to members of our Board of Directors and certain Company employees compared to non-cash restricted stock
units and options of $2.2 million to members of our Board of Directors and certain Company employees for the three months ended June
30, 2023. Stock based compensation costs represented approximately $2.0 million non-cash restricted stock units, awards and options
for the six months ended June 30, 2024 to members of our Board of Directors and certain Company employees compared to non-cash
restricted stock units and options of approximately $3.1 million to members of our Board of Directors and certain Company
employees for the six months ended June 30, 2023.
The
following table represents the Adjusted EBITDA activity between each three-month period from January 1, 2024 through June 30, 2024.
| (Dollars in thousands) | Three months ended March 31, 2024 | Three months ended June 30, 2024 |
| --- | --- | --- |
| Net loss | $(2,544) | $(9,145) |
| Interest expense, net | 424 | 449 |
| Income tax (benefit) expense | (548) | (649) |
| Depreciation and amortization | 3,926 | 3,909 |
| EBITDA | 1,258 | (5,436) |
| Adjustments: Non-cash items | | |
| Stock-based compensation costs | 661 | 1,368 |
| Loss on sale of fixed assets | 1 | 21 |
| Provision for credit losses | - | 244 |
| Impairment on fixed assets | 130 | - |
| Loss (gain) on debt extinguishment and revaluation, net | 3,097 | 5,600 |
| Adjusted EBITDA | $5,147 | $1,797 |
53
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) | Six Months Ended or as of / June 30, 2024 | Six Months Ended or as of / June 30, 2023 | Year Ended or as of / December 31, 2023 |
| --- | --- | --- | --- |
| Cash | $9,558 | $7,464 | $6,368 |
| Restricted cash | 1,951 | 2,780 | 3,999 |
| Working capital (deficit) | (5,046) | 6,140 | (13,891) |
| Net loss | (11,689) | (16,689) | (27,703) |
| Net cash provided by (used in) operating activities | (3,473) | (3,836) | (2,987) |
| Purchase of property, plant and equipment | (278) | (2,895) | (12,705) |
The
Company had a consolidated accumulated deficit of approximately $267.1 million as June 30, 2024. As of June 30, 2024, the Company had
negative working capital of approximately $5.0 million, $5.3 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 $12.5 million, an equipment financing of approximately $720 thousand, and a 2-year $2.05
million principal loan commitment to Navitas, in which as of June 30, 2024 has an outstanding principal balance of approximately $472
thousand. The Company had outstanding commitments as of June 30, 2024, related to SDI of $2.4 million in capital expenditures related
to Project Dorothy 2 and $34.3 million related to Cloudco with HPE, and approximately $9.6 million of cash available to fund its operations.
54
Based
on business developments, including changes in production levels, staffing requirements, and network infrastructure improvements, we
will require additional capital equipment in the foreseeable future. The Company is focused on developing and monetizing green, zero-carbon
computing and cryptocurrency mining facilities, as well as facilities capable of hosting customers engaged in cryptocurrency mining,
and data centers to provide specialized AI Cloud and colocation services.
We
plan to continue funding operations from our current cash position and our projected 2024 cash flows pursuant to management’s plans.
If necessary, we may also seek to supplement our resources by increasing credit facilities to fund operational working capital and capital
expenditure requirements. We expect to fund growth, including additional development and build-outs of data centers and its AI initiative
through project-level capital raising and equity sale activities, to the extent that we can successfully raise capital through sales
of additional debt or equity securities, as well as a variety of project specific funding options. Any additional financing, if required,
may not be available to us on acceptable terms or not at all.
As
shown in the accompanying financial statements, the Company did not generate sufficient revenue to generate net income and has negative
working capital as of June 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 June 30, 2024, or August
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 $3.5 million during the six months ended June 30, 2024. The Company had a net loss for the
six months ended June 30, 2024 of approximately $11.7 million. Non-cash items included approximately $3.1 million of depreciation expense
and $4.7 million of amortization expenses, $2.0 million of stock compensation expenses, $8.7 million of loss on debt extinguishment and
revaluation, $244 thousand in provision for credit losses, and $130 thousand of impairment of fixed assets. These non-cash items were
offset with a deferred tax benefit of $1.2 million. The change in asset and liabilities of $9.7 million is mainly due to an increase
in prepaid expenses by $10.8 million due to a prepayment of an arrangement with HPE of $10.3 million, an increase in accounts receivable
of $486 thousand attributable for demand service revenue and data hosting customer receivables increasing, offset with an increase in
accrued expenses and accounts payable of $2.1 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 $3.8 million during the six months ended June 30, 2023. The Company
had a net loss for the six months ended June 30, 2023 of $16.7 million. Non-cash items included $1.2 million of depreciation expense
and approximately $4.7 million of amortization expenses, as well as amortization on deferred financing costs and discount on notes of
approximately $739 thousand, $3.1 million of stock-based compensation expenses, and $1.6 million loss on debt extinguishment and revaluation,
net. These non-cash items were offset with a deferred tax benefit of $1.1 million. The change in asset and liabilities of approximately
$2.1 million related to increase in accounts payable of $696 thousand in which Spring Lane made noncash contributions to pay off approximately
$1.1 million that was outstanding as of December 31, 2022, increases of $1.3 million in other long term liabilities related to electricity
deposits to Western Kentucky and Washington state, increases in accrued expenses of $995 thousand for interest on NYDIG loan, utility
accruals, and security deposits, and increases of $532 to deferred revenue for receipt of cash for hosting services for more customers,
offset with an increase in accounts receivable of $924 thousand in relation to performing further hosting services as of June 30, 2023.
The other changes in assets and liabilities were not material.
**Investing
Activities**
Net
cash used in investing activities during the six months ended June 30, 2024 was approximately $2.2 million consisting mainly of capital
expenditures of $278 thousand and increase in deposits on equipment of $2.1 million. Net cash used in investing activities during the
six months ended June 30, 2023 was approximately $9.6 million consisting mainly of capital expenditures of $2.9 million, in addition
to net increase through purchases on deposits and credits on equipment of $7.9 million, less cash proceeds from sale of equipment of
$1.3 million. Net cash used in investing activities from continuing operations during the six months ended June 30, 2022 was approximately
$50.6 million.
55
**Financing
Activities**
Net
cash provided by financing activities was approximately $7.8 million consisting mainly of proceeds from financing of approximately $13.2
million in which $12.5 million was from 2024 secured loan financing and $720 thousand was drawn down for equipment financing. In addition,
there was $2.3 million in warrants exercised. Offsetting the net cash provided by financing activities was $5.8 million in cash distributions
to non-controlling interest members, and payments of $1.9 million relation to Navitas loan and deferred financing charges. Net cash provided
by financing activities was approximately $21.8 million during the six months ended June 30, 2023, which consisted of cash contributions
for non-controlling interest of approximately $19.4 million. The Company also received net proceeds from debt issuances of $2.9 million
less debt payment costs of $175 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 June 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 $3.7 million between January 1, 2024 through June 30, 2024, reducing the
outstanding principal balance to approximately $5.3 million as of June 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 June 30, 2024,
the Company still has an outstanding loan principal of approximately $9.2 million and outstanding interest and penalty balance of approximately
$1.5 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 June 30, 2024, the Company has
an outstanding principal balance of approximately $472 thousand.
56
On
May 16, 2024, SDI SL Borrowing – 1, LLC, an affiliate of Soluna Holdings, Inc. (the “Borrower”) entered into a loan
agreement (the “Equipment Loan Agreement” or the “Loan”) with Soluna2 SLC Fund II Project Holdco LLC (the “Lender”,
and collectively, the “Parties”). The Equipment Loan Agreement provides for the Company to borrow, from time to time, up
to $1.0 million to be used to purchase necessary equipment for the progression of Project Dorothy 2. Any loans made under the Equipment
Loan Agreement have a maturity date of May 16, 2027, and will bear interest at a rate of 15% per annum. On May 17, 2024, the Borrower
drew down $720 thousand of the equipment loan with the Lender. As of June 30, 2024, the Borrower has an outstanding principal and compounded
interest of approximately $734 thousand. Subsequently, on July 22, 2024, the Borrower satisfied and repaid the Borrowing Amount in full
by issuing the Investor Class B Membership Interests in the Dorothy 2 project at three times the value of the Borrowing Amount (i.e.,
$2.16 million).
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.
**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;
- 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.
57
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 six months ended June
30, 2024, the price of Bitcoin had reached a high of $71,631 and $73,083, and the average price of Bitcoin for the three and six months
ended June 30, 2024 was $65,678 and $59,628.
*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.
## Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not
applicable.
## Item 4. Controls and Procedures Item 4. Controls and Procedures
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.
58
*(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 June 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 June 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 June 30, 2024 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
59
**PART II. OTHER INFORMATION**
## Item 1. Legal Proceedings Item 1. Legal Proceedings
At
any point in time, we may be involved in various lawsuits or other legal proceedings. Such lawsuits could arise from the sale of products
or services or from other matters relating to our regular business activities, compliance with various governmental regulations and requirements,
or other transactions or circumstances.
*EPA*
We
have been named as a party in the December 19, 2019 United States Environmental Protection Agency (“EPA”) Demand Letter regarding
the Malta Rocket Fuel Area Superfund Site (“Site”) located in Malta and Stillwater, New York, in connection with an alleged
release of hazardous materials into the environment. The EPA is seeking reimbursement of response costs from all named parties in the
amount of approximately $358 thousand plus interest in connection with the investigation and disposal activities associated with the
various drum caches discovered at the Site, issuance of the Explanation of Significant Differences (“ESD”) of the Site, and
implementation of the work contemplated by the ESD. We consider the likelihood of a material adverse outcome with respect to this matter
to be remote and do not currently anticipate that any expense or liability that we may incur as a result of this matter in the future
will be material to the Company’s business or financial condition.
*NYDIG*
NYDIG
ABL LLC, (“NYDIG”) filed a complaint against
SMCB1(“Borrower”) and SMC (“Guarantor”, and together with Borrower, “NYDIG Defendants”) in Marshall
Circuit Court of the Commonwealth of Kentucky on December 29, 2022 regarding a series of loans made by NYDIG to Borrower pursuant to
a master equipment finance agreement that were secured by certain assets of Borrower and guaranteed by Guarantor pursuant to a written
guaranty agreement executed by Guarantor. The Court issued on February 15, 2023, an agreed order granting NYDIG’s motion for writ
of possession which, among other things, ordered parties to provide NYDIG access to the collateral described therein and preserved the
rights of NYDIG to pursue a deficiency judgment against the NYDIG Defendants. Also on February 15, 2023, the NYDIG Defendants filed their
answer and affirmative defenses in this proceeding. The NYDIG Defendants believe that NYDIG has liquidated some of the collateral securing
the loans and anticipate that NYDIG will complete the liquidation of collateral and continue to prosecute the complaint to obtain a judgment
against the NYDIG Defendants. Additionally, NYDIG has stated its intention to pursue SCI, the parent company of Guarantor, under a piercing
of the corporate veil claim relating to NYDIG Defendants’ debts and liabilities under the loan documents. SCI denies any such liability
and has filed a complaint for a declaratory judgment against NYDIG in the Eighth Judicial District Court in Clark County, Nevada on March
16, 2023, seeking a declaratory judgment as to such matter. NYDIG filed a motion to dismiss in response to SCI’s declaratory judgment
complaint on April 13, 2023. SCI filed a response in opposition to NYDIG’s motion to dismiss on April 27, 2023. The court heard
oral arguments on May 16, 2023. On June 22, 2023, the court issued an order granting NYDIG’s motion to dismiss, on the basis that
the case was not ripe for decision, without prejudice. SCI intends to continue to vigorously defend any allegations regarding liability
on account of NYDIG Defendants’ debts and liabilities to NYDIG under their loan documents and intends to refile a declaratory judgment
complaint against NYDIG.
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. This settlement did not result in the
admission of any liability on the part of SHI, whose declaratory judgment remains the subject of litigation. On March 13, 2024, NYDIG
served the Company with a post-judgment discovery seeking information regarding the Company’s assets and liabilities. Per agreement
between NYDIG and the NYDIG Defendants, the deadline to respond to the discovery demands was extended to May 13, 2024 but with rolling
weekly production that commenced on April 12, 2024. The Company intends to vigorously defend itself from NYDIG’s parent company
claims.
60
*Atlas*
In
September 2023, Atlas Technology Group LLC (“Atlas”) filed a complaint against Soluna MC LLC, Soluna Computing, Inc., and
Soluna Holdings, Inc. (collectively, the “Atlas Defendants”) in the Supreme Court of New York regarding a co-location services
agreement. Atlas alleged that Soluna MC’s termination of the agreement was a breach, seeking a return of pre-paid fees of approximately
$464 thousand, additional damages of at least $7.9 million, and reimbursement of legal fees. The complaint also mentioned alter ego liability
and corporate veil piercing.
The Atlas Defendants filed a motion to dismiss, and on April 17, 2024, the Court dismissed three of the four counts. The remaining count
was answered on May 6, 2024, with counterclaims against Atlas. The Court denied the dismissal of Soluna Computing, Inc. and Soluna Holdings,
Inc. as parties, leading to an appeal filed on May 7, 2024.
On
June 25, 2024, Atlas and the Atlas Defendants entered into a settlement agreement.
## Item 1A. Risk Factors Item 1A. Risk Factors
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.
## Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
## Item 3. Defaults Upon Senior Securities Item 3. Defaults Upon Senior Securities
None
## Item 4. Mine Safety Disclosures Item 4. Mine Safety Disclosures
Not
applicable.
## Item 5. Other Information Item 5. Other Information
None
61
## Item 6. Exhibits Item 6. Exhibits
| Exhibit No. | Description |
| --- | --- |
| 10.101 | Side Letter Agreement, dated July 22, 2023 by and between Soluna Digital, Inc. and Soluna2 SLC Fund II Project Holdco LLC |
| 10.102 | Payoff Letter between SDI SL Borrowing - 1, LLC and Soluna2 SLC Fund II Project Holdco LLC, dated July 22, 2023 |
| 10.103 | Assignment of Equipment and Debt Agreement by and between Soluna DVSL II Computeco, LLC and SDI SL Borrowing – 1, LLC, dated July 22, 2024 |
| 10.104 | Assignment of Equipment Agreement by and between Soluna EPC Services, LLC and Soluna DVSL II Computeco, LLC, dated July 22, 2024 |
| 10.105 | HPE Greenlake Services Custom Statement of Work, dated June 18, 2024 |
| 10.1061 | Promissory Note between Soluna AL Cloudco, LLC and [***], dated June 20, 2024 |
| 10.1071 | Note Purchase Agreement by and among Soluna AL Cloudco, LLC, Soluna Cloud, Inc., Soluna Holdings, Inc. and [***] |
| 10.1081 | Guaranty Agreement between Soluna Cloud, Inc. and [***] dated June 20, 2024 |
| 31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.1 | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.2 | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101.INS* | Inline XBRL Instance Document |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF* | Inline XBRL Taxonomy Definition Linkbase Document |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
1 Certain confidential portions of this Exhibit have been redacted pursuant to Item 601(b)(10) of Regulation S-K. The omitted information
is not material and would be competitively harmful if disclosed.
All
other exhibits for which no other filing information is given are filed herewith.
*
Submitted electronically herewith. Attached as Exhibit 101 are the following materials from the Company’s Quarterly Report on Form
10-Q for the quarter ended June 30, 2024, formatted in eXtensible Business Reporting Language (XBRL) and tagged as blocks of text and
including detailed tags: (i) Condensed Consolidated Balance Sheets at June 30, 2024 and December 31, 2023; (ii) Condensed Consolidated
Statements of Operations for the Three and Six Months Ended June 30, 2024 and 2023; (iii) Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 2024 and 2023; and (iv) related notes.
62
**SIGNATURES**
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Soluna Holdings, Inc.
Date: August 14, 2024 By: */s/ John Belizaire*
John Belizaire
Chief Executive Officer
By: */s/ John Tunison*
John Tunison
Chief Financial Officer
63
---
## EX-10.101
SEC source: [ex10-101.htm](https://www.sec.gov/Archives/edgar/data/64463/000149315224032123/ex10-101.htm)
**Exhibit
10.101**
***Execution
Version***
**SIDE
LETTER AGREEMENT – ADDITIONAL SHARE ISSUANCE**
This
Side Letter Agreement (the “Agreement”) is made and entered into as of July 22, 2024, by and between:
**Soluna2
SLC Fund II Project Holdco LLC, a (“SLC”)**100 Cambridge Street
Suite
1802
Boston,
MA 02114
and
**Soluna
Digital, Inc. (“Developer”)**325 Washington Ave Ext.,
Albany,
NY 12205
**RECITALS**
WHEREAS,
SLC and Developer have entered into that certain Amended and Restated Limited Liability Company Operating Agreement (as amended, amended
and restated, supplemented or otherwise modified from time to time, the “LLCA”) of Soluna DVSL II ComputeCo, LLC (the “Company”)
and Contribution Agreement (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Contribution
Agreement”), both dated as of July 22, 2024 (collectively, the “Agreements”), outlining the terms and conditions under
which SLC will invest into the Dorothy 2 Project developed by Developer (the “Project”);
WHEREAS,
with respect to the Project, the parties desire to memorialize the specific terms related to the Developer’s investment rights
and obligations as set forth in this Agreement;
NOW,
THEREFORE, in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
**1.
Developer Investment Rights**
1.1 **Purchase Rights**
For
a period of six months following the date hereof (such date that is six months after the date hereof, the “Contribution Deadline”),
Developer shall have the right, but not the obligation, to invest into the Company up until the total ownership of Developer and it’s
affiliates equals 49% ownership of the Class B Membership Interests (as defined in the LLCA), subject to the following restrictions:
a. **Transaction**
The
investment will be a transaction whereby Developer can purchase additional Class B Membership Interests in the Company as described herein
(“Units Purchased”). The purchase price per Class B Membership Interest for such Units Purchased shall be (i) beginning on
the date hereof and ending on or prior to August 21, 2024, equal to $1,000 per unit (the “Initial Price”) and (ii) beginning
August 22, 2024, calculated using the following formula (“Purchase Price”):
Purchase
Price = the per Class B Membership Interest price previously paid by Developer for the Class B Membership Interests held by it as of
the date hereof * Purchase Premium
Where,
Purchase Premium = 1 + ((20% divided by 360 multiplied by the number of days after the date hereof).
Notwithstanding
the foregoing, the Developer and its affiliates, within thirty (30) days after the date of this Agreement, may elect to receive Class
B Membership Interests in lieu of cash for all fees owed to Developer or its affiliates in connection with the development of the Project.
If such option is elected, such Class B Membership Interests shall be issued to the Developer at the Initial Price.
This
investment option is available only until the Contribution Deadline, which represents a period of six months following the date of the
initial investment by SLC.
b. **Limit on Units Purchased**
The
aggregate Purchase Price of the total Units Purchased by Developer may not exceed the total unspent project capital expenditures remaining
under the Engineering, Procurement, and Construction (EPC) contract. For the avoidance of doubt, the Purchase Premium does not count
against the investment cap. Furthermore and notwithstanding the foregoing, if the Company issues any Qualifying Debt (as defined in the
Contribution Agreement), prior to the Contribution Deadline, the Developer’s investments may not exceed an amount that will result
in SLC’s investment being less than $10,000,000.
c. **Amendment of LLCA and Contribution Agreement**
The
Parties hereby agree to amend (or amend and restate) (x) the LLCA to (a) permit issuance of the Units Purchased by Developer at the Purchase
Price, (b) permit the purchase by Developer of the Units Purchased at the Purchase Price, (c) reflect the total Class B Membership Interests
owned by Developer and SLC following the purchase by Developer of the Units Purchased, (d) proportionally decrease the Class B Member
Contribution Cap (as defined therein) of SLC by the amount of the Purchase Price and (e) proportionally increase the Class B Member Contribution
Cap of Developer by the amount of the Purchase Price, and (y) the Contribution Agreement to (a) proportionally reduce the Spring Lane
Commitment (as defined therein) by the amount of the Purchase Price and (b) proportionally increase the Parent Commitment (as defined
therein) by the amount of the Purchase Price.
1.2 **Capital Raise Obligation**
If
Developer or its owner, Soluna Holdings, Inc. undertakes to raise more than $17,000,000 (the “Threshold”) through the sale
and issuance of any of its or their equity securities, respectively, in any private or public offering prior to the Contribution Deadline,
Developer must invest all excess funds into the Company until it owns 49% of the Class B Membership Interests. For the avoidance of doubt,
(x) the sale of warrants or convertible securities shall not be considered for purposes of this section and shall not count towards the
Threshold and (y) the proceeds of the sale of equity securities up to the amount of the Threshold can be used by Developer or Soluna
Holdings, Inc. in its discretion.
**2.
Term**
This
Agreement shall commence on the date hereof and shall continue in full force and effect until the earlier of (i) the date Developer owns
49% of the Class B Membership Interests in the Company or (ii) the occurrence of the Contribution Deadline.
**3.
Miscellaneous**
3.1 **Entire Agreement; Amendments**. This Agreement, the LLCA and the Contribution Agreement constitutes the entire agreement and understanding
of the parties with respect to the subject matter hereof and supersedes any and all prior negotiations, correspondence, agreements, understandings,
duties or obligations between the parties, written or oral, with respect to the subject matter hereof. This Agreement may only be amended,
modified, or supplemented by written agreement signed by the parties. No provision of this Agreement may be waived except in writing
by the parties.
3.2 **Severability**. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability
of any other provision.
3.3 **Governing Law; Jurisdiction and Service of Process**.
(a)
Any dispute or other matter arising out of or in connection with this Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York, without reference to principles of conflict of laws or choice of laws.
(b)
Each of the parties irrevocably consents to the non-exclusive jurisdiction of the courts of the State of New York and of any federal
court located in the Southern District of New York, in each case located in Manhattan, in connection with any suit, action or other proceeding
arising out of or relating to this Agreement or the transactions contemplated herein, agrees to waive any objection to venue in the State
and County of New York. To the extent permitted by law, service of process in connection with any such proceeding may be effected by
mailing in any manner prescribed or permitted by Applicable Law.
(c)
Each party irrevocably waives any and all right to trial by jury in any action or proceeding arising out of or in connection with this
Agreement.
3.4 **Counterpart; Electronic Signatures**. This Agreement may be executed in any number of counterparts, each of which may be delivered
by facsimile transmission or electronically in .PDF format and each of which shall be an original but all of which together will constitute
one instrument, binding upon all parties hereto, notwithstanding that all of such parties may not have executed the same counterpart.
Delivery of an electronic counterpart shall be effective as manual delivery thereof.
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
**Soluna2 SLC Fund II Project Holdco LLC**
By:
Name:
Title:
Date:
**Soluna Digital, Inc.**
By:
Name:
Title:
Date:
**Acknowledged by:**
**Soluna Holdings, Inc.**
By:
Name:
Title:
Date:
***[Signature
Page to Side Letter (Dorothy 2)]***
---
## EX-10.102
SEC source: [ex10-102.htm](https://www.sec.gov/Archives/edgar/data/64463/000149315224032123/ex10-102.htm)
**Exhibit
10.102**
July
22, 2023
Soluna2
SLC Fund II Project Holdco LLC
c/o
Spring Lane Capital
100
Cambridge Street, Suite 1802
Boston,
MA 02114
*with
a copy to*:
Mark
Barnett
Foley
Hoag LLP
155
Seaport Boulevard
Boston,
MA 02210
PAYOFF
LETTER
To
Whom it May Concern:
Reference
is made to that Equipment Loan Agreement, dated as of May 16, 2024 (as amended, restated, supplemented or otherwise modified, the “ELA”),
by and between SDI SL Borrowing - 1, LLC, a Nevada limited liability company (“Borrower”) and Soluna2 SLC Fund II
Project Holdco LLC, as the lender (the “Lender”). Lender acknowledges that the Borrower’s debt under the ELA
has been assigned to Soluna DVSL II Computeco, LLC (“D2”).
Lender
hereby acknowledges that upon receipt of Class B Membership Interests in D2 with a value of $2,160,000 (“Payoff Amount”)
on the date hereof, or soon thereafter as agreed to between the parties, presenting payment in full of the then-outstanding obligations
owing by D2 (as assignee of the Borrower) under the ELA, including accrued principal, interest, fees, expenses, charges or other costs,
the loan amount requested pursuant to the Borrowing Request (as defined in the ELA) shall be deemed repaid in full and satisfied. The
loan repayment pursuant to the ELA will have been extinguished.
This
letter shall be governed by, and construed in accordance with, the laws of the State of New York.
This
letter may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original
and all of which when taken together shall constitute but one and the same letter. Delivery of an executed signature page of this letter
by email transmission shall be effective as delivery of a manually executed counterpart hereof.
*[Signatures
appear on the following page.]*
Very truly yours,
Soluna2 SLC Fund II Project Holdco LLC
By:
Name:
Title:
Acknowledged and Agreed:
SOLUNA DVSL II COMPUTECO, LLC
By:
Name: John Belizaire
Title: CEO
SDI SL BORROWING - 1, LLC
By:
Name: John Belizaire
Title: CEO
*[Signature
Page to Payoff Letter (Dorothy 2)]*
---
## EX-10.103
SEC source: [ex10-103.htm](https://www.sec.gov/Archives/edgar/data/64463/000149315224032123/ex10-103.htm)
**Exhibit
10.103**
ASSIGNMENT
OF EQUIPMENT AND DEBT
This **ASSIGNMENT OF EQUIPMENT AND DEBT**, effective as of this 22nd day of July, 2024 (this “Agreement”),
is entered into by and between Soluna DVSL II Computeco, LLC, a Delaware limited liability company (“Assignee”) and
SDI SL Borrowing - 1, LLC, a Nevada limited liability company (“Assignor”). Capitalized terms used herein and not
otherwise defined shall have the meanings assigned to such terms in the Operating Agreement (defined below).
W
I T N E S S E T H
**WHEREAS**,
Assignee, Soluna Digital, Inc., a Nevada corporation, Soluna Holdings, Inc., a Nevada corporation, and Soluna2 SLC Fund II Project Holdco
LLC, a Delaware limited liability company, have entered into that certain Amended and Restated limited Liability Company Operating Agreement
of the Company, dated as of the date hereof (the “Operating Agreement”);
**WHEREAS**,
Assignor and Spring Lane have entered into that certain Equipment Loan Agreement, dated as of May 16, 2024 (the “ELA”);
**WHEREAS**,
Assignor holds deposits on equipment purchased in April, 2024 and May, 2024, which include 35KV medium voltage cables and ABB low voltage
switchboards (the “Equipment”);
**WHEREAS**,
Assignor has obligations to Spring Lane under the ELA (the “Debt”);
**WHEREAS**,
Assignor and the Assignee, desire that as of the date hereof, Assignor transfers the Equipment to Assignee in consideration of Assignee
assuming the Debt from the Assignor; and
**WHEREAS**,
Assignor and Assignee desire that Assignor assign to Assignee all of its rights, title and interest in the Equipment and the Debt.
**NOW,
THEREFORE**, the parties hereto hereby agree as follows:
**ARTICLE
I****ASSIGNMENT**
**Section
1.01 Assignment**. Assignor hereby assigns all of its rights, title and interest in, the Equipment and the Debt, free and clear of
all liens, claims and liabilities, and Assignee hereby accepts such assignments.
**Section
1.02 Further Assurances**. Assignor and Assignee hereby agree to execute any documents required to evidence further or to confirm the
assignments effected hereby.
**ARTICLE
II****REPRESENTATIONS AND WARRANTIES**
**Section
2.01 Representations and Warranties of Assignor**. Assignor represents and warrants to Assignee as of the date hereof that: (A) Assignor
is conveying good and valid title to the Equipment and Debt, free and clear of all encumbrances, debts, mortgages, attachments, pledges,
charges, claims, and liens of any kind, other than in respect of any unpaid amounts that are not yet due and payable, and (B) Assignor
has the right to sell and otherwise convey the Equipment and Debt to the Assignee.
1
**Section
2.02 Representations and Warranties of Assignor and Assignee**. Each of Assignor and Assignee hereby represents and warrants to the
other as of the date hereof that: (A) it is duly organized, validly existing and in good standing under the laws of its jurisdiction
of organization and has full power and authority to execute, deliver and perform its obligations under this Agreement and to consummate
the transactions contemplated by this Agreement; (B) the execution, delivery and performance by it of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by all necessary organizational action and do not and will not require
any further authorizations, consents or approvals or filings with any governmental authorities or any other person or entity which have
not been obtained or made, or violate or conflict with any provision of any law, regulation, order, permit, license, rule, judgment,
injunction, or similar matters or breach any material agreement, indenture, contract or organizational document presently in effect with
respect to or binding on it or its properties; and (C) this Agreement has been duly and validly executed and delivered by it and constitutes
the legal, valid and binding obligation of it, enforceable against it in accordance with its terms, except as limited by (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the enforceability of creditors’ rights; or (ii) general
principles of equity that limit the availability of remedies (regardless of whether enforceability is considered in a proceeding in equity
or at law).
**ARTICLE
III****MISCELLANEOUS**
**Section
3.01 Severability**. If any term or provision of this Agreement is or shall be held invalid, illegal or unenforceable in any jurisdiction,
such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render
unenforceable the term or provision in any other jurisdiction. Upon a determination that any term or other provision is invalid, illegal
or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the contemplated transactions are consummated as originally
contemplated to the greatest extent possible. In the event the parties cannot reach a mutually agreeable and enforceable replacement
for such an invalid, illegal or unenforceable term or provision, then (i) such term or provision shall be excluded from this Agreement,
(ii) the balance of the Agreement shall be interpreted as if such term or provision were so excluded, and (iii) the balance of the Agreement
shall be enforceable in accordance with its terms.
**Section
3.02 Entire Agreement**. This Agreement constitutes the sole and entire agreement of the parties to this Agreement with respect to
the subject matter contained in this Agreement, and supersedes all prior and contemporaneous understandings and agreements, both written
and oral, with respect to the subject matter.
**Section
3.03 Successors and Assigns**. This Agreement shall be binding upon and shall inure to the benefit of the parties to this Agreement
and their respective successors and permitted assigns.
**Section
3.04 Amendment and Modification; Waiver**. This Agreement may be amended, modified or supplemented only by an agreement in writing
signed by each party to this Agreement. No waiver by any party of any of the provisions of this Agreement shall be effective unless explicitly
set forth in writing and signed by the party so waiving.
**Section
3.05 Governing Law**. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York
without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction)
that would cause the application of laws of any jurisdiction other than those of the State of New York.
**Section
3.06 Counterparts**. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together
shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic
transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.
[Signature
Page Follows]
2
IN
WITNESS WHEREOF, Assignor and Assignee have executed this instrument as of the date first above written.
**ASSIGNOR**
SDI SL BORROWING - 1, LLC
By:
Name: John Tunison
Title: CFO
**ASSIGNEE**
SOLUNA DVSL II COMPUTECO, LLC
By:
Name: John Belizaire
Title: CEO
*[Signature
Page to Assignment of Equipment and Debt (Dorothy 2)]*
---
## EX-10.104
SEC source: [ex10-104.htm](https://www.sec.gov/Archives/edgar/data/64463/000149315224032123/ex10-104.htm)
**Exhibit 10.104**
**ASSIGNMENT
OF EQUIPMENT**
This **ASSIGNMENT OF EQUIPMENT**, effective as of this 22nd day of July, 2024 (this “Agreement”), is entered
into by and between Soluna EPC Services, LLC, a Nevada limited liability company (“Assignee”) and Soluna DVSL II Computeco,
LLC, a Delaware limited liability company (“Assignor”). Capitalized terms used herein and not otherwise defined shall
have the meanings assigned to such terms in the Operating Agreement (defined below).
**W
I T N E S S E T H**
**WHEREAS,
Soluna DVSL II ComputeCo, LLC, a Delaware limited liability company (the “Company”), Soluna Digital, Inc., a Nevada
corporation, Soluna Holdings, Inc., a Nevada corporation, and Soluna2 SLC Fund II Project Holdco LLC, a Delaware limited liability company,
have entered into that certain Amended and Restated limited Liability Company Operating Agreement of the Company, dated as of the date
hereof (the “Operating Agreement”);**
**WHEREAS**,
Assignor holds deposits on equipment purchased in April, 2024 and May, 2024, which include 35KV medium voltage cables and ABB low voltage
switchboards (the “Equipment”);
**WHEREAS**,
Assignor and the Assignee, desire that as of the date hereof, Assignor transfers the Equipment to the Assignee as payment for invoices
owed under the EPC in the amount of $2,160,000, which is value of the Equipment;
**WHEREAS**,
the Assignor will pay the invoice received by the Assignee by sending the Assignee the 35KV medium voltage cables and ABB low voltage
switchboards purchased in April, 2024 and May, 2024 (the “Physical Equipment”); and
**WHEREAS**,
Assignor and Assignee desire that Assignor assign to Assignee all of its rights, title and interest in the Equipment and the Physical
Equipment.
**NOW,
THEREFORE**, the parties hereto hereby agree as follows:
**ARTICLE
I**
**ASSIGNMENT**
**Section
1.01 Assignment**. Assignor hereby assigns all of its rights, title and interest in, the Equipment and the Physical Equipment, free
and clear of all liens, claims and liabilities, and Assignee hereby accepts such assignments.
**Section
1.02 Further Assurances**. Assignor and Assignee hereby agree to execute any documents required to evidence further or to confirm the
assignments effected hereby.
1
**ARTICLE
II**
**REPRESENTATIONS
AND WARRANTIES**
**Section
2.01 Representations and Warranties of Assignor**. Assignor represents and warrants to Assignee as of the date hereof that: (A) Assignor
is conveying good and valid title to the Equipment and Physical Equipment, free and clear of all encumbrances, debts, mortgages, attachments,
pledges, charges, claims, and liens of any kind, other than in respect of any unpaid amounts that are not yet due and payable, and (B)
Assignor has the right to sell and otherwise convey the Equipment and Physical Equipment to the Assignee.
**Section
2.02 Representations and Warranties of Assignor and Assignee**. Each of Assignor, Company and Assignee hereby represents and warrants
to the other as of the date hereof that: (A) it is duly organized, validly existing and in good standing under the laws of its jurisdiction
of organization and has full power and authority to execute, deliver and perform its obligations under this Agreement and to consummate
the transactions contemplated by this Agreement; (B) the execution, delivery and performance by it of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by all necessary organizational action and do not and will not require
any further authorizations, consents or approvals or filings with any governmental authorities or any other person or entity which have
not been obtained or made, or violate or conflict with any provision of any law, regulation, order, permit, license, rule, judgment,
injunction, or similar matters or breach any material agreement, indenture, contract or organizational document presently in effect with
respect to or binding on it or its properties; and (C) this Agreement has been duly and validly executed and delivered by it and constitutes
the legal, valid and binding obligation of it, enforceable against it in accordance with its terms, except as limited by (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the enforceability of creditors’ rights; or (ii) general
principles of equity that limit the availability of remedies (regardless of whether enforceability is considered in a proceeding in equity
or at law).
**ARTICLE
III**
**MISCELLANEOUS**
**Section
3.01 Severability**. If any term or provision of this Agreement is or shall be held invalid, illegal or unenforceable in any jurisdiction,
such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render
unenforceable the term or provision in any other jurisdiction. Upon a determination that any term or other provision is invalid, illegal
or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the contemplated transactions are consummated as originally
contemplated to the greatest extent possible. In the event the parties cannot reach a mutually agreeable and enforceable replacement
for such an invalid, illegal or unenforceable term or provision, then (i) such term or provision shall be excluded from this Agreement,
(ii) the balance of the Agreement shall be interpreted as if such term or provision were so excluded, and (iii) the balance of the Agreement
shall be enforceable in accordance with its terms.
2
**Section
302 Entire Agreement**. This Agreement constitutes the sole and entire agreement of the parties to this Agreement with respect to the
subject matter contained in this Agreement, and supersedes all prior and contemporaneous understandings and agreements, both written
and oral, with respect to the subject matter.
**Section
3.03 Successors and Assigns**. This Agreement shall be binding upon and shall inure to the benefit of the parties to this Agreement
and their respective successors and permitted assigns.
**Section
3.04 Amendment and Modification; Waiver**. This Agreement may be amended, modified or supplemented only by an agreement in writing
signed by each party to this Agreement. No waiver by any party of any of the provisions of this Agreement shall be effective unless explicitly
set forth in writing and signed by the party so waiving.
**Section
3.05 Governing Law**. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York
without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction)
that would cause the application of laws of any jurisdiction other than those of the State of New York.
**Section
3.06 Counterparts**. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together
shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic
transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.
[Signature
Page Follows]
3
IN
WITNESS WHEREOF, Assignor and Assignee have executed this instrument as of the date first above written.
**ASSIGNOR**
SOLUNA DVSL II COMPUTECO, LLC
By:
Name: John Tunison
Title: CFO
**ASSIGNEE**
SOLUNA EPC SERVICES, LLC
By:
Name: John Belizaire
Title: CEO
[*Signature
Page to Assignment of Equipment (Dorothy 2)*]
---
## EX-10.105
SEC source: [ex10-105.htm](https://www.sec.gov/Archives/edgar/data/64463/000149315224032123/ex10-105.htm)
**Exhibit
10.105**
Certain
identified information has been omitted from this exhibit because it is both (i) not material and (ii) of the type that Registrant customarily
and actually treats as private or confidential. Such omitted information is indicated by “[***]” in this exhibit.
HPE
GreenLake Services CUSTOM Statement of Work
About
this HPE Greenlake Services Custom Statement of Work (this “SOW”)
Seller:
Hewlett Packard Enterprise Company
1701 East Mossy Oaks Road
Spring, TX 77389 Purchaser or Customer:
Soluna AL CloudCo, LLC
325 Washington Ave Ext
Albany, NY 12205
**Issue
date:** June 18, 2024
**NOTE:
THIS SOW DOES NOT INCLUDE HPE MANAGED SERVICES DELIVERABLES.**
This
SOW and the prices herein will expire 30 days from the date of issue (the “**Expiration Date**”) unless signed by Seller
and Purchaser on or prior to the Expiration Date.
This
SOW will become effective as of the date specified in Section 5.1 (“**Effective Date**”).
This
SOW is governed by the terms and conditions set out in the HPE & AI Cloud Services Agreement in Appendix 1 herein (the “**MSA**”).
In
the event of any conflict, the following descending order of precedence applies:
| 1. | HPE Support and Professional Services – Data Privacy and Security Agreement | HPE Data Privacy and Security Agreement (the “DPSA”) |
| --- | --- | --- |
| 2. | This SOW | |
| 3. | The MSA | See Appendix 1 |
| 4. | HPE GreenLake for Supercomputing Service Level Agreement (the “SLA”) | See Appendix 2 |
| 5. | Customer purchase order (if applicable), excluding any Customer preprinted terms | |
**Non-Disclosure**
The
information (data) in this SOW constitutes trade secrets and/or information that are commercial
or financial and confidential or privileged. It is furnished in confidence with the understanding that it will not, without permission
of the offeror, be used or disclosed for purposes other than those provided herein, unless otherwise required by law.
**Table
of Contents**
| 1. HPE GREENLAKE for Supercomputing SERVICES OVERVIEW | 3 |
| --- | --- |
| 2. ORDERING | 4 |
| 3. SYSTEMS and Service Technical Description | 4 |
| PRICING | 6 |
| 4. Other contract terms | 7 |
| 5. SIgnatures | 8 |
| Appendix 1 – HPC & AI CLOUD SERVICES AGREEMENT (“MSA”) | 9 |
| APPENDIX 2 – Service Level Agreement (SLA) | 24 |
Page 2 of 24
1.
HPE GREENLAKE for Supercomputing SERVICES OVERVIEW
HPE
GreenLake for Supercomputing service brings the benefits of a cloud pay-for-usage model providing access to supercomputing class systems
managed by HPE and in HPE operated facilities.
Both
parties will work together to ensure Soluna AL CloudCo, LLC is successfully onboarded and has access to the above services per terms
and conditions laid out below. If specific terms are required to be included in this Agreement, they will be added in a subsequent Change
Order.
1.1
SOLUTION FOR CUSTOMER
HPE
will provide to Purchaser at an HPE datacenter in [***] GPU Infrastructure-as-a-Service for Purchaser user access with location in North
America, including HPE program management support services for HPE operations at our Data Center and updates to the system, both as are
customarily provided by HPE to other customers using the same Service environment.
1.2
HPE GreenLake for Supercomputing Services General Phases
**Phase** **Feature** **Delivery specifications**
**Startup** Transition
Upon receipt of an order by HPE from Purchaser, delivery of the Services commences with this activity which assigns the account team responsible for delivery of the Services. A kick-off meeting with the assigned account team is facilitated by HPE with Customer and handover from sales to delivery commences.
Implementation HPE will provide the Services at a data center(s) owned or managed by HPE.
SC aaS Customer Support Lead The supercomputing as a service customer support lead will provide support and guide onboarding. Engagement begins ahead of system availability to facilitate deployment readiness.
**Phase** **Feature** **Delivery specifications**
**Operations** Ongoing Support
Base product support
Change Management The Change Management Process will be used to enable additional Services not part of this SOW, e.g., grow the environment.
Page 3 of 24
2. ORDERING
2.1
Will Purchaser issue a purchase order?
- See Section 4.
2.2
Order information
Purchase
orders (if required) must reference the following Seller service-specific information in order to be valid:
- **SOW ID:** [\*\*\*]
- **Description**: HPE GreenLake GPU Infrastructure-as-a-Service
- [\*\*\*] **GPUs at** [\*\*\*]**.**
- Includes H100 GPU system access and [\*\*\*] of base storage w/[\*\*\*] access
- **System Term:** 36 months
2.3
Updated purchase orders
Annually
or when funds in the current purchase order are insufficient to cover estimated usage for the next 3 months, Purchaser will promptly
provide Seller with an updated or new purchase order with sufficient funds to cover estimated usage during the next year.
Failing
to issue such new or updated purchase order shall have no effect on Purchaser obligation to pay the fees as agreed in this SOW.
**Invoice
address**
Soluna
AL CloudCo, LLC
John
Belizaire
325 Washington Ave Ext
Albany, NY 12205
john@soluna.io
**Customer
Sold To address – if different**
same
3. SYSTEMS and Service Technical Description
3.1
System Definitions
| 1. | The system is made up of multiple GPU nodes and the total number of GPU nodes being delivered as a Service at any given time. |
| --- | --- |
| 2. | [***]. |
| 3. | Handover will be considered complete when Purchaser can successfully login into the system. |
| 4. | The GPU quantities as follows: |
**Datacenter Site** **GPU** **GPU Quantity per Node** **Total Number of GPUs**
[\*\*\*] NVIDIA H100 [\*\*\*] [\*\*\*]
Page 4 of 24
3.2
System
3.2.1
User and access details
**Customer name** **Soluna AL CloudCo, LLC**
**Responsible User address** 325 Washington Ave Ext, Albany, NY 12205
**Customer contact name** John Belizaire
**Customer contact phone**
**Customer contact email** john@soluna.io
**Term for the system (“System Term”)** **36 months**
3.2.2
Technical configuration
HPE
System (H100 COMPUTE NODE):
○ [\*\*\*]
○ [\*\*\*]
○ [\*\*\*]
○ [\*\*\*]
○ High Speed Network: [\*\*\*]
○ [\*\*\*] for ingress/egress
○ Software:
- [\*\*\*]
- [\*\*\*]
○ No data ingress/egress fees
○ The HPE [\*\*\*] Datacenter has 100Gb/s ethernet connectivity to the [\*\*\*]H100 system, with a demarcation point at the edge of the Datacenter. Purchaser to provide telecom connectivity from their site(s) to the demarcation point at the HPE [\*\*\*] Datacenter.
3.2.3
Software included in the system
- [\*\*\*]
- [\*\*\*]
- [\*\*\*]
- [\*\*\*]
3.2.4
Systems capacity
**Hosting Site** **System Component** **Billing Tier** **Requested Capacity**
[\*\*\*] GPU as-a-Service H100-GPU [\*\*\*] GPUs
[\*\*\*] [\*\*\*]
[\*\*\*] [\*\*\*]
Page 5 of 24
3.3
HPE Cloud Services for AI and Supercomputing
HPE
Cloud Control Plane is a multi-tenant software platform, tailored for AI and HPC workloads that delivers rapid access to:
- Supercomputing resources in a secure multi-tenant environment, tailored for AI and high performance computing applications.
- High-performance and scalable services for productive supercomputing applications and workflows.
- The HPE Cloud Control Plane will be delivered as a system update and will be consistently developed and updated to deliver new capabilities for users.
Proposed
Access model / onboarding
- HPE provides:
○ [\*\*\*]
○ Secure high speed network with [\*\*\*]
○ HPE user accounts and customer login via web console
○ [\*\*\*]storage access
3.4
System Setup
Provide
access to a fully functioning supercomputing cluster with [***] GPUs via interconnected systems.
3.5
Project Management
Dedicated
resources for managing the project as defined in this SOW end-to-end for the duration of the Term.
PRICING
3.6
Time-based charges
The
parties agree to the following HPE GreenLake for Supercomputing pricing. Such pricing is effective for the duration of the System Term.
Prices
are in USD$ and exclusive of applicable taxes (such as, sales, value-added tax (VAT), goods and services tax (GST), stamp duty, or similar
taxes or fees including stamp duty).
| SCaa S | 36-month System Term |
| --- | --- |
| Months | 36 |
| [***] | [***] |
| [***] | [***] |
| [***] | [***] |
| [***] | [***] |
| [***] | [***] |
| Upfront Payment $ | $10,293,350.40 |
| Residual | $24,017,817.60 |
| [***] | [***] |
**Service Type** **Compute Resource** **UoM** **Service Quantity and Price** **Requested Term**
**GPU as-a-Service** NVIDIA [\*\*\*] H100 SXM w/ [\*\*\*] RAM per node GPU-hour GPUs
[\*\*\*] [\*\*\*]
[\*\*\*] 36 months
Note:
UoM = Unit of measurement
Page 6 of 24
3.7
Optional services
- HPE Machine Learning Development Environment (MLDE) as-a-service licensed for all GPUs at [\*\*\*]
- Additional Storage options
- [\*\*\*]
- [\*\*\*]
HPE
MLDE or additional storage may be added via a GreenLake change order separate from existing proposal
Additional
service scope and charges will be detailed and agreed upon in subsequent Change Orders.
4.
PURCHASER’S USE of the services
4.1
During the System Term, and subject to Purchaser’s obligations as set forth herein, Purchaser may provide access to the Services
to its own customers, who will be considered End Users under the MSA.
5.
Other contract terms
5.1
This SOW will become effective (such date, the “**Effective Date**”) upon the satisfaction of the following conditions:
(a) execution of this SOW by each of Purchaser and Seller (such date, the “**Execution Date**”) prior to the Expiration
Date, (b) Purchaser issuing the initial purchase order, (c) acceptance of such purchase order by Seller, which will require a satisfactory
credit check, and (d) receipt by Seller of the initial pre-payment in the amount of $10,293,350.40 and [***].
5.2
Once conditions (a), (b) and (c) in Section 5.1 above are satisfied, Seller and Purchaser will begin to prepare for system access on
June 27, 2024.
5.3
Capacity reservation, and commencement of the services, is contingent on occurrence of the Effective Date.
5.4
If the Effective Date has not occurred by June 24, 2024 or such later date agreed to by Seller in its sole discretion, then (a) the order
under the initial purchase order, if any, will be deemed cancelled and null and void, (b) this SOW will be deemed cancelled and null
and void and (c) neither Seller nor Purchaser will have any all other obligations and liabilities under this SOW or otherwise to the
other party or any other person.
5.5
Monthly payments are due by the 24th day of the month for the upcoming monthly service.
Page 7 of 24
5.6
This SOW is considered Supporting Material as defined in Section 1(b) of the MSA. This SOW and the solution and services described herein
is governed by the SLA, which is also considered Supporting Material as defined in Section 1(b) of the MSA.
5.7
Soluna AL CloudCo, LLC represents and warrants that, as of the Execution Date and through at least until the Effective Date, it is a
wholly owned subsidiary of Soluna Cloud, Inc. (“**Cloud**”).
5.8
Upon execution of this SOW by Customer and HPE, all documents, instruments or other agreements by and between HPE and Cloud or by Cloud
in favor of or for the benefit of HPE as of such execution date are automatically terminated and of no further force of effect.
5.9
The terms of any HPE Partner Ready Service Agreement or any other agreement of similar substantive effect will not govern or be used
to interpret (a) the duties and obligations of the parties pursuant to this SOW and the appendixes hereto (including without limitation
the MSA) or (b) the purchase or resale by Customer of the products or services outlined in this SOW (“**Applicable Greenlake Products
and Services**”) or products or services which would be necessary to be acquired by Customer, for resale, in order to resell
the Applicable Greenlake Products and Services.
5.10
This version replaces and supersedes the version signed June 17, 2024.
**6.** SIgnatures
**Hewlett Packard Enterprise Company** **Soluna AL CloudCo, LLC**
Authorized signature
Authorized signature
Print name
Print name
Title Title
Date
Date
Please
sign this document and return to HPE accompanied by your purchase order. HPE will sign and return one copy to your attention.
Page 8 of 24
Appendix
1 – HPC & AI CLOUD SERVICES AGREEMENT
**YOU
(“CUSTOMER”) SHOULD CAREFULLY READ THE FOLLOWING TERMS BEFORE USE OF THE HIGH PERFORMANCE COMPUTE (HPC) AND ARTIFICIAL INTELLIGENCE
(AI) ENVIRONMENT MADE AVAILABLE AS-A-SERVICE (HPC & AI CLOUD SERVICES) FROM THE APPLICABLE HEWLETT PACKARD ENTERPRISE ENTITY THAT
ACCEPTED YOUR ORDER (HPE). USE OF HPC & AI CLOUD SERVICES SHALL BE DEEMED TO CONFIRM YOUR ACCEPTANCE OF THESE TERMS.**
1. **Scope**.
a. This HPC & AI Cloud Services Agreement (this “**Agreement**” or “**MSA**”) sets forth the standard terms and conditions governing access and use of HPE High Performance Compute Environment As-A-Service by the Customer from whom HPE has accepted an Order (defined below). HPE and Customer agree that such Order will be governed by the HPE Greenlake Services Custom Statement of Work to which this MSA is attached as Appendix 1 (the “**SOW**”) and this Agreement. The terms of this Agreement come into effect upon the Effective Date (as defined in the SOW) and will remain in effect until expiration of the Term (defined below) or unless terminated pursuant to this Agreement.
b. Pricing and any additional terms of use of each specific HPE HPC & AI Cloud Services engagement are stated in the applicable quote, service descriptions, SLAs, data sheets, statements of work (including the SOW), Orders, third-party end user license agreements or other applicable exhibits, addenda, documentation and attachments that HPE provides in connection with a quotation pursuant to which Customer submits its Order (“**Supporting Material**”). HPE represents and warrants to Customer that all Supporting Materials as of the Execution Date are attached hereto as Exhibit B.
c. Any Software that is provided as part of the Services is subject to the terms of the software license agreement and additional license authorizations, if applicable, available on hpe.com/software/SW Licensing. For non-HPE branded software, any provided third-party license terms will govern its use. Customer may be directed to the third party’s URL to click and accept the third party’s license terms and/or download the software for use under this Agreement. The respective license terms will be made available to Customer upon request. Any licenses granted will terminate upon termination or expiration of the Services.
d. This Agreement is effective upon the Effective Date. If you are accepting on behalf of Customer, you represent and warrant that (i) you have full legal authority to bind Customer to this Agreement; (ii) you have read and understand this Agreement; and (iii) you agree, on behalf of Customer, to this Agreement.
2. **Definitions**
a. **“Account”** means a Customer’s HPC & AI Cloud Services account.
b. **“Agreement”** means these HPC & AI Cloud Services terms and any applicable Supporting Material. In the event of a conflict, the terms in a quotation or Supporting Material provided directly to Customer takes precedence over this Agreement, which takes precedence over any other Supporting Material that may be made available online.
c. **“Contract Change Management Process”** means process, as described in Supporting Material, used to make modifications to the solution.
d. **“Customer” or “Purchaser”** means the entity that will be receiving the Services.
Page 9 of 24
e. **“Customer Application”** means a software program that Customer creates, uses, or hosts using the Services.
f. “**Customer Data**” means data provided to or by Customer or End Users through the Services under the Account.
g. “**Dashboard**” means the online dashboard/interface provided by HPE to Customer for administering and oversight of the Services.
h. **“Deliverable”** means tangible output of the Services specifically identified as such in Supporting Material.
i. “**Effective Date”** has the meaning assigned to such term in the SOW.
j. “**Execution Date**” has the meaning assigned to such term in the SOW.
k. **“End Users”** means the individuals who are permitted by HPE and Customer to use the Services.
l. **“Errors”** shall mean an incorrect or ambiguous statement in a document, or a condition in the HPE Products that causes a malfunction or a failure to function in accordance with the Supporting Material.
m. **“Feedback”** means information, which may include, but is not limited to, Errors, comments, suggestions for new features or improvements, errors, performance benchmarking, and tests or comparisons with any third-party products.
n. **“Fees”** means amount invoiced to Customer for a Payment Period - [\*\*\*] and any applicable taxes (such as, sales, value-added tax [VAT], goods and services tax [GST] or similar taxes or fees including stamp duty).
o. “**High Risk Activities**” means activities where the use or failure of the Services would reasonably be expected to lead to death, personal injury, or environmental or property damage (including but not limited to such activities as the creation or operation of nuclear facilities, air traffic control, life support systems, or weaponry) and activities that could lead to support of a prohibited end use/user, including proliferation related end use/user, military end use/user, and supercomputing end uses in the People’s Republic of China and Macau.
p. **“HPE” or “Seller”** means the contracting Hewlett Packard Enterprise entity.
q. **“Indirect Customer”** means Customers that receive HPC & AI Cloud Services through a reseller or other authorized partner.
r. **“Order”** means any purchase order issued by Customer in accordance with the SOW or this Agreement.
s. **“Payment Period**” means [\*\*\*].
t. “**Project**” means a collection of HPC & AI Cloud Services resources configured by Customer via the Services.
u. **“Requested Capacity”** means [\*\*\*]. Requested Capacity may increase through the Contract Change Management process documented in the Supporting Material.
v. **“Reseller(s)”** means authorized HPE partner(s) that are reselling HPC & AI Cloud Services to the Customer.
w. **“Reserved Capacity”** means [\*\*\*].
x. **“Services”** means the specific i) HPC & AI Cloud Services, ii) HPE GreenLake for Supercomputing, iii) GPU Infrastructure-as-a-Service, iv) HPE High Performance Compute Environment As-A-Service, as detailed in the Agreement and/or the applicable Supporting Materials that HPE will perform for the Customer and/or make available to the Customer and/or End User. Romanets i) thru iv) above are simply variations in the naming of what is the same Service.
y. **“Service Instance”** means a specific compute node or equivalent resource detailed in the Agreement and/or the applicable Supporting Materials that HPE will make available to the Customer.
Page 10 of 24
z. “**Service Specific Terms**” means the then-current terms specific to one or more Services further described in the applicable Supporting Material.
aa. “**SLA**” means each of the then-current service level agreement described in the applicable Supporting Material.
bb. “**SLA MAC**” means the breach of the Service Level (as defined in a SLA) for six consecutive months.
cc. “**Software**” means any downloadable tools, software development kits, or other such computer software provided by HPE in connection with the Services, and any updates HPE may make to such Software from time to time, excluding any Third-Party Offerings.
dd. “**Term**” means the consecutive thirty-six (36) month period corresponding with system usage rights commencing June 27, 2024 or such later date mutually agreed by Customer and HPE.
ee. **“TSS”** means the then-current technical support service provided by HPE to Customer as described in the Supporting Material.
ff. **“Used Capacity”** means [\*\*\*].
gg. **“Variable Capacity”** means [\*\*\*].
3. **Services**
a. Services Use. During the Term, HPE will provide the Services in accordance with the Agreement, including applicable Supporting Material.
b. Dashboard. Customer will have access to the Dashboard, through which Customer may manage its use of the Services.
c. Accounts. Customer must have an Account to use the Services and is responsible for the information it provides to create the Account, the security of its passwords for the Account, and for any use of its Account. HPE has no obligation to provide multiple accounts to Customer.
d. Modification or Customization.
i. To the Services. HPE may propose commercially reasonable updates to the Services from time to time, to be agreed upon through the change management process, save and except security changes. In the event Purchaser rejects HPE’s proposed reasonable updates, and any rejected update would have improved system performance, then HPE shall be not be responsible for negative repercussions that arise from the failure to make such updates, including without limit, achieving SLA commitments. For security changes, HPE has full control on such decisions and shall make any change necessary to maintain the security of the system and of Purchaser’s data processed on it.
ii. To the Data Privacy and Security Agreement. HPE may change the Data Privacy and Security Agreement (a) where such change is required to comply with applicable law, (b) is expressly permitted by the Data Privacy and Security Agreement, (c) is agreed by Customer, or (d) does not expand the scope or remove any restrictions on HPE’s processing of “Customer Personal Data” as described in the Data Privacy and Security Agreement.
If HPE makes a material change to the Data Privacy and Security Agreement in accordance with Section 3(d)(ii)(a) or (b) or (d),HPE will post the change at the webpage containing the Data Privacy and Security Agreement.
Page 11 of 24
iii. Discontinuation of Services. HPE will notify Customer at least 30 days before discontinuing any Service (or associated material functionality) unless HPE replaces such discontinued Service or functionality with a materially similar Service or functionality. Further, HPE will use reasonable efforts to notify Customer of significant modifications to a Customer-facing API and services interfaces in a backwards-incompatible manner. Nothing in this section limits HPE’s ability to make changes required to comply with applicable law, address a material security risk, or avoid a substantial economic or material technical burden. This section does not apply to development or pre-general availability Services, offerings, or functionality. This Section 3(d)(iv) is subject in all respects to Section 3(d)(i) above.
e. If the Services specifically include Deliverables, those Deliverables will conform materially to their written specifications.
i. If the Customer notifies HPE of a non-conformity during the 30-day period following delivery of such Deliverables, HPE will promptly remedy the impacted Deliverables as described in the associated Supporting Material. The above states all remedies for warranty claims pertaining to Deliverables. To the extent permitted by law, HPE disclaims all other warranties.
f. **Services with training courses.** Any course materials provided or made available are the copyrighted works of HPE or the original content provider. They are provided only for sole use of the person attending the course and may not be reproduced, distributed, or modified without HPE’s written consent.
4. **Customer Responsibilities**
a. Compliance. Customer will (a) ensure that Customer and its End Users’ use of the Services complies with the Agreement, (b) use commercially reasonable efforts to prevent and terminate any unauthorized use of, or access to, the Services, and (c) promptly notify HPE of any unauthorized use of, or access to, the Services, Account, or Customer’s password of which Customer becomes aware. HPE reserves the right to investigate any potential violation of the Acceptable Use Policy (“AUP”) by Customer, which may include reviewing Customer Applications, Customer Data, or Projects.
b. Privacy. Customer is responsible for any consents and notices required to permit (a) Customer’s use and receipt of the Services and (b) HPE’s accessing, storing, and processing of data provided by Customer (including Customer Data, if applicable) under the Agreement.
c. Usage Restrictions. Customer and End Users shall not: (i) violate usage restrictions as set forth in this Agreement and applicable Supporting Material ; (ii) use or access HPC & AI Cloud Services to produce, market, or support its own products except as defined in the applicable SOW or Supporting Material; (iii) use or access HPC & AI Cloud Services to build a competitive product or service; (iv) sell, resell, license, sublicense, lease, rent, provide, transfer, or distribute HPC & AI Cloud Services or include HPC & AI Cloud Services as a service or outsourcing offering, or make any portion of HPC & AI Cloud Services available for the benefit of any third party; (v) violate any of the terms of the AUP; (vi) copy or reproduce any portion, feature, function, or user interface of HPC & AI Cloud Services; (vii) conduct Customer’s business operations except as defined in the applicable SOW or Supporting Material; (viii) use HPC & AI Cloud Services to submit, send, or store Customer-provided Data that comprises financial data, payment information, personal data, protected health information, personally identifiable information, or information subject to privacy or data protection regulations; (ix) use HPC & AI Cloud Services to disrupt or cause harm to a third party’s system or environment; (x) disclose any information relating to the performance or operation of HPC & AI Cloud Services (including any benchmarking or other testing results) to any third party without the express prior written consent of HPE; (xi) engage a third party to perform security testing on HPC & AI Cloud Services unless that third party first enters into a written non-disclosure agreement directly with HPE; (xii) access or use the Services (a) for High Risk Activities; (b) in a manner intended to avoid incurring Fees (including creating multiple Customer Applications, Accounts, or Projects to simulate or act as a single Customer Application, Account, or Project (respectively)) or to circumvent Service-specific usage limits or quotas; (c) to engage in cryptocurrency mining without HPE’s prior written approval; (d) to operate or enable any telecommunications service or in connection with any Customer Application that allows End Users to place calls or to receive calls from any public switched telephone network, unless otherwise described in the Service Specific Terms; (e) for materials or activities that are subject to the International Traffic in Arms Regulations (ITAR) maintained by the United States Department of State; (f) in a manner that breaches, or causes the breach of, Export Control Laws; or (xiii) cause or permit any third party to do any of the foregoing.
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d. Copyright. HPE cannot determine whether something is being used legally without input from the copyright holders. HPE will respond to notices of alleged copyright infringement and may terminate repeat infringers in appropriate circumstances as required to maintain safe harbor for online service providers under the U.S. Digital Millennium Copyright Act. If Customer believes a person or entity is infringing Customer’s or its End User’s copyrights and would like to notify HPE, information about submitting notices and HPE’s policy about responding to notices can be found at DMCA Notice.
e. Customer warrants that it will not disclose or otherwise transfer to HPE or its employees any of Customer’s items that are listed in an Export Control Classification Number (ECCN), other than “EAR99”, under the US or EU export control regulations, or listed on the United States Munitions List in the US International Traffic in Arms Regulations, unless Customer provides HPE at least one (1) month’s prior written notice of the need to disclose or transfer such items. Unless expressly agreed otherwise, Customer will obtain any export licenses required to disclose such items to HPE.
f. Customer warrants that it will not use HPE services, equipment, software, or technology in support of a prohibited end use/user, including proliferation related end use/user, military end use/user, and supercomputing end uses in the People’s Republic of China and Macau. See 15 C.F.R. Sections 744.6; see also 15 C.F.R. 744.2-744.4). Customer warrants that it will not provide access to HPE Services to parties in sanctioned jurisdictions or to the items or Services produced under this Agreement using HPE items or Services.
g. Unless included as part of the Services, the Customer is responsible for purchasing and installing the OS, virtualization software, and any other software licenses and support that it wishes to utilize with the Services.
h. Customer is responsible for any and all use of Services through Customer’s credentials or any account that Customer may establish. Customer agrees to maintain the confidentiality of Customer’s account, credentials, and any passwords necessary to use Services. Should Customer believe that there has been unauthorized use of Customer’s account, credentials, or passwords, Customer must immediately notify HPE.
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i. Customer will comply with HPE’s IT security access requirements set forth in the Supporting Material. HPE may terminate Customer’s access to the Services at any time in HPE’s sole discretion, including a breach of the terms of this Agreement or an Order or HPC & AI Cloud Services End Use/User Certificate.
j. Customer warrants that its software applications that will be loaded onto or interact with the HPE Products will not (i) contain lock out devices or have any virus, disabling device, time bomb, trojan horse, back door or any other harmful component(s), (ii) replicate, transmit or activate itself without control of a person operating the computing equipment on which it resides, (iii) alter, damage or erase any data or other computer programs without control of a person operating the computing equipment on which it resides or (iv) contain any code, key, node lock, time-out or other function whether implemented by electronic, mechanical or other means which restricts or may restrict use or access to programs or data based on residency on a specific hardware configuration, frequency or duration of use, or other limiting criteria.
k. HPE information requests
i. Unless otherwise agreed, the Customer will respond within two business days to HPE requests for Customer business and technical data, documentation, and other Services relevant information required by HPE for the provision of Services. This includes:
| 1. | documentation and information needed for design, development, evaluation, installation, and testing |
| --- | --- |
| 2. | Storage configuration information |
| 3. | Network configuration information (including IP addresses, LAN and WAN connections and network topology, routing, VLANs, firewall settings, DNS, and DHCP). |
5.
Export Controls
a. Customer acknowledges that the HPE Products, HPE Services provided by HPE under this Agreement are U.S. origin and subject to U.S. export control laws and regulations, including the sanctions programs administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the U.S. Department of Commerce’s Bureau of Industry and Security (BIS), and are subject to the local laws where HPC AI Cloud Services and Infrastructure are employed. Accordingly, Company represents and warrants, with respect to its activities pursuant to this Agreement, that: (i) it will comply with all applicable export control and sanctions laws, including the U.S. sanctions programs administered by OFAC, the EAR, and the export control and sanctions laws of the United Nations, the European Union (including any member state thereof), the United Kingdom, and local laws, as applicable; and (ii) it will not take any action, including any use of the HPE Service, or any use, export, reexport, or transfer of information, items, or Services acquired under this Agreement, that causes HPE to be in violation of any applicable export control and sanctions laws.
b. Customer represents and warrants that, except as specifically disclosed to Seller in writing: (i) Customer is not the subject of any sanctions or export restrictions, and is not 50% or more owned, directly or indirectly, individually or in the aggregate, by any person (individual or entity) that is subject to such restrictions; (ii) that Customer is not a prohibited person subject to any end user or end use restrictions under the EAR, including the Military End User or Military Intelligence End User, as those terms are defined in the Export Administration Regulations (EAR) (at 15 C.F.R. §§ 744.21(g), 744.22(f)(2)), (iii) that Customer is not a prohibited person subject to any end user or end use restrictions under any non-U.S. Military End User or Military Intelligence End User prohibitions, and (iv) that Customer will not allow any persons to access or use HPE Services, or any software, data, or items derived from the HPE Lab or HPE’s services, who are subject to the restrictions in (i), (ii) or (iii) absent the prior written approval of HPE as well as any required governmental approval.
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c. Customer will not, without prior written approval from HPE, allow any persons to have access to or use of HPE Products if such access or use would require governmental approval.
d. Prior to gaining access to the Services, any Customer Visitors or third party requesting access must complete and submit an HPC & AI Cloud Services End Use/User Certificate, as attached hereto as Exhibit A.
6. **Support**
a. By Customer. Customer is responsible for technical support of its Customer applications and projects.
b. By HPE. [\*\*\*].
7. **Orders.** Customer may place orders for HPC & AI Cloud Services as directed in a valid quote from HPE.
8. **Term and Termination**.
a. This Agreement shall commence on the Effective Date and shall continue for the Term unless terminated according to the terms of this Section.
b. Termination for Cause.
i. In the event that either party materially breaches this Agreement and such breach continues uncured for thirty (30) days following notice of such breach, the other party may terminate this Agreement immediately upon written notice to the breaching party.
c. Termination for Inactivity. HPE reserves the right to terminate the provision of the Services upon 30 days’ advance notice if, for a period of 60 days Customer has not accessed the Admin Console or the Project has had no network activity.
d. Termination for Convenience. Subject to the Early Termination clause, Customer may terminate this Agreement for its convenience at any time with at least 90 days prior written notice and, upon termination, must cease use of the applicable Services.
e. Termination for Occurrence of an SLA MAC. Customer may terminate this Agreement due to the occurrence of an SLA MAC, within 90 days after such right arises, by providing notice of such termination to HPE. In such event, HPE will refund to Customer [\*\*\*].
f. Termination Due to Applicable Law; Violation of Laws. HPE may terminate this Agreement immediately on written notice if HPE reasonably believes that (a) continued provision of any Service used by Customer would violate applicable law(s) or (b) Customer has violated or caused HPE to violate any Anti-Bribery Laws or Export Control Laws.
g. Upon expiration or termination of a the HPC & AI Cloud Services Order, except as otherwise provided in the Supporting Material or this Agreement:
i. HPE may disable all Customer access to the HPC & AI Cloud Services environment.
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ii. Customer shall promptly return to HPE (or at HPE’s request destroy) any Confidential information and HPE Products provided with HPC & AI Cloud Services ; and
iii. HPE shall make available certain data in the format generally provided by HPE, subject to the terms of the applicable Supporting Material.
iv. HPE will backup Customer-provided Data and return such Data, provided HPE is permitted to backup and return the Data under applicable law.
h. Early Termination
i Insolvency, Bankruptcy. If either party becomes insolvent, unable to pay debts when due, files for or is subject to bankruptcy or receivership or asset assignment, the other party may terminate this Agreement.
ii. In the event of termination of the Agreement or any Order by Customer for convenience or by HPE for Customer breach, insolvency, inability to pay debts when due, filing for or being subject to bankruptcy or receivership or asset assignment before the expiration of the Term, the Customer must pay HPE early termination fees, calculated as [\*\*\*].
iii. In the event of termination for cause resulting from an uncured HPE breach or HPE insolvency event, then Customer’s sole remedy will be [\*\*\*].
iv. In the event of termination for cause resulting from an uncured Customer breach or Customer insolvency or bankruptcy event, HPE may cancel any unfulfilled obligations.
9. **Suspension**. HPE may suspend Customer’s access and use rights to HPC & AI Cloud Services where Customer:
a. Fails to make payments when due.
b. Customer violates any of its obligations under this Agreement.
c. Customer remains responsible for applicable fees through date of suspension including usage and data storage fees. Customer will not be entitled to service credits during any suspension period.
d. AUP or Use Violations. If HPE becomes aware that Customer’s or any End User’s use of the Services violates the AUP or any other provision in section 4.c (Usage Restrictions), HPE will notify Customer and request that Customer correct the violation. If Customer fails to correct the violation within 24 hours of HPE’s request, then HPE may suspend all or part of Customer’s use of the Services until the violation is corrected.
e. Other Suspension. HPE may immediately suspend all or part of Customer’s use of the Services if (a) HPE reasonably believes Customer’s or any End User’s use of the Services could adversely impact the Services, other customers’ or their end users’ use of the Services, or the HPE network or servers used to provide the Services; (b) there is suspected unauthorized third-party access to the Services; (c) HPE reasonably believes that immediate suspension is required to comply with any applicable law; or (d) Customer is in breach. HPE may suspend performance of obligations under this Agreement if: (1) Customer violates any applicable export, import or sanctions law or regulation; (2) to the extent necessary to assure the Parties’ compliance under U.S. or other applicable export, import or sanctions laws or regulations; or (3) for a commercially reasonable purpose. HPE will lift any such Suspension when the circumstances giving rise to the suspension have been resolved. At Customer’s request, HPE will, unless prohibited by applicable law, notify Customer of the basis for the Suspension as soon as is reasonably possible.
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10. **Payments.**
a. [\*\*\*].
b. Customer will pay invoiced amounts [\*\*\*].
c. Taxes.
i. Prices are exclusive of applicable present or future sales, VAT, GST, or similar taxes. HPE’s invoices will separately state charges and applicable taxes. Unless the Customer has provided HPE with an appropriate exemption certificate before the relevant Services are performed, the Customer will pay or reimburse HPE for all present or future taxes, fees, and surcharges applicable to the Services (however levied).
ii. If the Customer is required to withhold any tax related to the Services, the Customer will reduce payment to HPE by the amount of the tax and provide HPE with applicable tax documentation necessary for HPE to reclaim all withheld taxes. If the Customer has not provided the necessary documentation within the time prescribed by the taxing authority, the Customer will reimburse the withheld amount to HPE.
iii. Customer will provide HPE with any applicable tax identification information that HPE may require under applicable law to ensure its compliance with applicable tax regulations and authorities in applicable jurisdictions. Customer will be liable to pay (or reimburse HPE for) any taxes, interest, penalties, or fines arising out of any mis-declaration by Customer.
iv. Each party is solely responsible for all taxes and assessments upon its real and personal property and net income.
v. Payment Disputes & Refunds. [\*\*\*].
vi. Delinquent Payments; Suspension. HPE reserves the right to charge a commercially reasonable and legally permissible interest rate for late payments from the payment due date until paid in full. Customer will be responsible for all reasonable expenses (including attorneys’ fees) incurred by HPE in collecting such delinquent amounts.
vii. No Purchase Order Number Required. Customer is obligated to pay all applicable Fees without any requirement for HPE to provide a purchase order number on HPE’s invoice (or otherwise).
11. **Access and IP Rights, Security Requirements**.
a. HPE grants to Customer a non-exclusive, non-transferable and revocable right, exercisable only during the period of the Order Term, to (i) access and use the Services, through Customer’s credentials or any account that Customer may establish, for the Services purchased; and (ii) to internally reproduce and use copies of any Deliverables.
b. Intellectual Property Rights. Except as expressly stated in this Agreement, this Agreement does not grant either party any rights, implied or otherwise, to the other’s content or any of the other’s intellectual property. As between the parties, Customer retains all its Intellectual Property Rights in Customer Data and Customer applications, and HPE retains all its Intellectual Property Rights in the Services and Software.
c. Protection of Customer Data. HPE will only access or use Customer Data to provide the Services and TSS to Customer or as otherwise instructed by Customer and will not use it for any other HPE products, services, or advertising. HPE has implemented and will maintain administrative, physical, and technical safeguards to protect Customer Data, as further described in the Data Privacy and Security Agreement.
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12. **Personal Information**
a. Personally Identifiable Information may only be used for the purpose of fulfilling obligations or exercising rights under the Agreement. Such information may be shared with employees, affiliates, agents, or contractors with a need to know such information to support that purpose. The parties will use a reasonable degree of care to prevent unauthorized use or disclosure.
b. Where legitimate business purposes require HPE to collect and process personally identifiable business contact information relating to Customer’s employees or other individuals representing Customer, HPE, as a data controller, will process such personally identifiable information i) using appropriate technical and organizational measures, and ii) in compliance with its privacy statement and applicable laws.
c. Where legitimate business purposes require Customer to collect and process personally identifiable business contact information relating to HPE’s employees or other individuals representing HPE, Customer, as a data controller, will process such personally identifiable information (i) using appropriate technical and organizational measures, and (ii) in compliance with Customer’s privacy policies and applicable laws.
d. Where HPE agrees to process personally identifiable information on behalf of Customer, HPE, as a data processor, will process such data only as permitted under the Agreement, including Supporting Materials, and in compliance with applicable laws (solution-based DPSAs and sub-processor information is available here. In the event international data transfers trigger the requirements for a data transfer mechanism, HPE will use its BCR-P or utilize the data transfer mechanism described in the applicable Supporting Materials.
13. **Access and Use**.
a. HPE will use commercially reasonable efforts to provide access and use of the designated HPE Products in a timely manner in accordance with the terms of Customer’s Order. However, HPE’s ability to deliver HPC & AI Cloud Services will depend on Customer’s reasonable and timely cooperation and the accuracy and completeness of any information from Customer needed to deliver HPC & AI Cloud Services.
14. **Derivative Works, Feedback**.
a. Unless otherwise specified in writing by HPE, Customer is not authorized to create modifications to, including, but not limited to, derivative works of the Services or HPE Products.
b. Customer may provide Feedback to HPE regarding the HPE Products or HPC & AI Cloud Services. Customer shall not disclose Feedback to any third parties without the prior written consent of HPE.
c. Customer grants to HPE and its subsidiaries a perpetual, non-exclusive, irrevocable, worldwide, royalty-free license, including the right to grant and authorize sublicenses, under Customer’s intellectual property rights, to implement, disclose, use, make, have made, sell, offer for sale, import, copy, modify, create derivative works of, perform, distribute, disclose and otherwise commercialize, without restriction, any modification or Feedback.
15. **Warranties, Duty to Defend, and other General Legal Terms**.
a. **Warranties**
i. HPE will provide Services using generally recognized commercial practices; however, the parties agree that Services may not be uninterrupted or error-free. HPE will use commercially reasonable efforts to provide the Services in accordance with the Order.
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ii. HPE’s service, support and warranty obligations do not apply for claims that are attributable to Customer based on: a) improper usage, site preparation or site or environment conditions or other non-compliance with Supporting Materials, b) changes or inappropriate maintenance or calibration of systems that were not completed or authorized by HPE, c) malfunctions or functional limitations of third-party software or products that have an effect on systems, for which HPE provides support or service, d) malware (e.g., viruses, worms), not introduced by HPE, or e) negligence, accident, fire or water damage, electrical faults, transport, by the Customer or other reasons beyond the control of HPE.
iii. The Agreement states all remedies for warranty claims. To the fullest extent permitted by law, HPE disclaims all other warranties, conditions and terms implied by law.
b. **Confidentiality**
i. Confidential Information means all material, non-public information disclosed or made available between the parties, if the circumstances of disclosure would reasonably indicate such treatment (including any of the information associated with the metering tools, metering or reporting of usage data, billing, or the process to collect amounts due under the Agreement).
ii. The parties will keep Confidential Information in confidence. The parties may use Confidential Information only to fulfill obligations or exercise rights under the Agreement, and may share it only with employees, agents, or contractors with a need to know such information. The parties will protect the Confidential Information using a reasonable degree of care for three years from the date of receipt. These obligations do not cover information that was known or becomes known to the receiving party without obligation of confidentiality, is independently developed by the receiving party, or is disclosed as required by law.
c. **Rights and Remedies**
i. **HPE and third-party software terms.** During delivery of the Services, HPE may be required to install copies of third-party or HPE software and to accept on behalf of the Customer the license terms of such software, which may be in electronic format, embedded in the software, or contained within the software documentation, and can be made available upon request. Customer is responsible to review the license terms at the time of installation, and hereby authorizes HPE to accept such terms on its behalf.
ii. **Customer duty to defend.** Customer will defend or settle any third-party claims against HPE arising out of Customer’s or its users’, employees’, contractors’-(excluding HPE), or agents’ improper use of the systems and Services, subject to HPE’s prompt notification of the claim and cooperation with Customer’s defense. The Customer will pay third-party claim defense costs, settlement amounts, and any court-awarded damages. This section states Customer’s entire liability and HPE’s sole and exclusive remedy for such third-party claims.
iii. **HPE duty to defend.** HPE will defend or settle any third-party claims against the Customer that allege an HPE-branded system or Service or Deliverables supplied under the Agreement infringes the intellectual property rights of a third party, subject to Customer’s prompt notification of the claim and cooperation with HPE’s defense. HPE may modify the systems or Services or Deliverables to be non-infringing and materially equivalent, or HPE may procure a license. If these options are not available, HPE will refund the balance of any pre-paid and undelivered Services upon return of the impacted systems and/or Deliverables. HPE is not responsible for claims resulting from any unauthorized use of the systems or Services or Deliverables content or design provided by the Customer. HPE will pay third-party claim defense costs, settlement amounts, and any court-awarded damages. This section states HPE’s entire liability and Customer’s sole and exclusive remedy for such third-party claims.
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iv. **Limitation of liability**
a) [\*\*\*].
b) [\*\*\*].
c) This provision does not limit either party’s liability for: unauthorized use of intellectual property, death or bodily injury; damage to tangible personal property caused by their negligence; breaches of confidentiality under section 14(b) caused by their negligence; acts of fraud or wilful misconduct; any payment or fees (including Early Termination under section 7(g)) owed by Customer to HPE pursuant to the Agreement; or any liability which may not be excluded or limited by applicable law.
16. **General Provisions**.
a. **Force Majeure**. Except for payment obligations, neither party will be liable for delays or for non-performance due to causes beyond its reasonable control even if the party has been already in delay when the force majeure event occurred, including acts of God, labor disputes or other industrial disturbances, electrical or power outages, utilities or other telecommunications failures, earthquake, storms or other elements of nature, blockages, embargoes, riots, acts or orders of government, acts of terrorism, worldwide pandemics, insurrection, acts of treason, or war.
b. **Electronic Transactions**. The parties agree to do business electronically. Electronic transactions include consenting to contracts, placing or accepting orders, exchanging and accepting Supporting Material, content posted on HPE websites, or any electronic document related to the HPE solutions (Electronic Transactions). If such Electronic Transactions are contested as unenforceable by Customer, Customer agrees that HPE may terminate Customer’s access to HPE solutions.
c. **Entire Agreement.** This Agreement represents the parties’ entire understanding with respect to its subject matter and supersedes any previous communications. Any changes to the Agreement must be agreed upon in writing by both parties. Any representation, promise, or condition not explicitly set forth in this Agreement shall not be binding on either party.
d. **Assignment.** Customer shall not assign or otherwise transfer any rights or obligations under this Agreement without HPE’s prior written consent. Any attempted assignment or transfer by Customer shall be null and void.
e. **Survival.** Any clause which by its nature should survive to give adequate effect to its terms (for example, but not limited to, confidentiality obligations, rights and remedies, Early Termination Fees, de-installation fees, and more) will survive the termination or expiration of the Agreement.
f. **Enforceability.** If any term or provision of the Agreement is held to be illegal or unenforceable, the validity or enforceability of the remainder of the Agreement will not be affected.
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g. **Compliance with laws** Each party will comply with applicable laws, including the export, import and sanctions laws of the United States (US), European Union (EU) and other applicable jurisdictions. Customer warrants that no Customer locations or recipients of HPE items are subject to any embargoes (currently Cuba, Iran, North Korea, Syria, and the Crimea region of Ukraine), trade control sanctions, or blocking measure, and that Customer is not owned or controlled, directly or indirectly, by any person or entity subject to any such restrictions. Customer will be the importer of record for any hardware items for which import is required for delivery of any portion of the Services. HPE may suspend performance of relevant Services to the extent necessary to ensure compliance under US or other applicable laws. Unless otherwise indicated by the parties, notices sent in connection with this Agreement shall be sent to the attention of the individuals who signed the Agreement at the addresses set forth above.
h. **Waiver.** Failure to exercise any rights under this Agreement shall not constitute a waiver or forfeiture of such rights. If any provision herein is determined to be illegal or unenforceable, the validity or enforceability of the remainder of the provisions will remain in full force and effect.
i. **Governing Law/Disputes.** The validity, construction, and performance of this Agreement will be governed by the substantive laws of the jurisdiction of the HPE Entity signing this Agreement, without regard to the conflicts of law provisions thereof.
j. This Agreement may be executed in counterparts, which together will be taken as one Agreement**.**
17. **Deemed Amendments the DPSA.**
The
parties agree to the following deemed deletions and insertions to the corresponding section of the DPSA (Version 1, published May 1,
2023):
- Section 6.2: “In case HPE and Customer fail to agree on an amicable resolution to the proposed change, either party shall have a right to terminate the Agreement without further obligations or penalty.”
- Section 6.4. “HPE remains responsible for the acts and omissions of the Subprocessors it engages to provide the Services to Customers giving rise to a breach of this DPSA or a Security Incident, as defined below, as if they were its own acts or omissions.”
- Paragraph 10 in Exhibit A should read: “In the event HPE confirms or reasonably suspects a security breach leading to the accidental or unlawful destruction, loss, alteration, or unauthorized disclosure of, or access to, Customer Personal Data (“Security Incident”), HPE will:
○ [\*\*\*].
○ [\*\*\*].
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**EXHIBIT
A**
**HPC
& AI Cloud Services End Use/User Certificate**
In
addition to the representations made in the Agreement related to ensuring compliance with export controls and sanctions, any Customer
Visitors or third party requesting access to the HPE Services (“Guest”) must submit the following information to HPE prior
to gaining access to HPE Services:
**Customer Name:**
**Customer Address:**
**Guest Name:**
**Guest Relationship to Customer:**
**Guest Address:**
**Specific End Use of HPE Service:**
**Project Name (if any):**
**Guest
certifies the following:**
a. Unless Guest or Customer provide notice to HPE and HPE agrees in writing, the Guest shall only use HPE Services in connection with software or technical data/technology that is:
i. Publicly available;
ii. Determined to be classified as EAR99; *or*
iii. Determined to be classified within an Export Control Classification Number (ECCN) that is export controlled only for Anti-Terrorism (AT) purposes.
b. If Guest intends to use HPE Services in connection with software or technical data/technology controlled at a level above those described in paragraph (a) (*e.g.*, ECCNs 3D001, 3E001, 4E001 or any category of the United States Munitions List (USML)), the Guest must declare this intent prior to use of HPE Services and receive prior written consent from HPE.
c. If a use described in paragraph (b) is approved by HPE, the Customer must ensure such software or technical data/technology is marked conspicuously. This marking must include the applicable ECCN or USML category.
d. Any items controlled at levels above those described in section (a) while accessing HPE Services must be disclosed to HPE prior to utilizing HPE Services.
Guest
declares that they intend to upload the following export-controlled hardware, software, or technology/technical data while using HPE
Services:
**Item Description** **Export Classification (ECCN or USML Category)**
Guest
signature: _____________________________________________________________
Date:
HPE
HPC Representative signature: _____________________________________________________________
Date:
HPE
Global Trade Representative signature: _____________________________________________________________
Date:
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**EXHIBIT
B**
**Supporting
Materials**
See
attached.
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APPENDIX
2 – Service Level Agreement (SLA)
**HPE
GreenLake for Supercomputing**
**Customer
Service Level Agreement (SLA) for Production**
Version
2
This
Service Level Agreement for HPE GreenLake for Supercomputing (“**SLA**”) sets forth HPE’s obligations and
Customer’s rights with respect to the performance of the HPE GreenLake for Supercomputing service. HPE has regularly achieved the
Service Level noted in this SLA for our other customers using the same Service environment at our [***] datacentre during the three month
period ending on the Effective Date. All capitalized terms used but not otherwise defined in this SLA have the meanings given to them
in the HPE GreenLake for Supercomputing Agreement (“**MSA**”). HPE reserves the right to change the terms of this
SLA or MSA at any time. The current version of this SLA as of the time of renewal will apply throughout the full renewal Term. For Reserved
Capacity instances for HPE GreenLake for Supercomputing, HPE may negotiate instance specific service levels in a “HPE GreenLake
for Supercomputing Customer Specific SLA” which will take precedence over the terms stated below. This SLA does not apply to testing,
development, or pre-general availability services, offerings, or functionality.
1. During the Term, [\*\*\*]of the GPUs and [\*\*\*]of other critical hardware components in the Service Instance will be operational and available to Customer at least [\*\*\*] of the time in any calendar month (the “**Service Level**”). If Customer notifies HPE that the Service Instance has fallen below the Service Level and HPE is unable to restore the Service Instance to the Service Level within [\*\*\*], then Customer will be eligible for [\*\*\*.
2. [\*\*\*].
3. [\*\*\*], Customer must notify HPE within 30 days from the time Customer becomes eligible to receive [\*\*\*]. Customer must also provide HPE with log files or other reasonable documentation showing loss of external connectivity errors and the date and time those errors occurred. Failure to comply with this requirement will forfeit Customer’s right to receive [\*\*\*]. Customer should provide timely access necessary for HPE to resolve any issues, including remote access. If a dispute arises with respect to this SLA, HPE will determine, in good faith, based on its system logs, monitoring reports, configuration records, and other available information.
4. The Service Level does not apply to service interruptions: (i) caused by factors outside of HPE’s reasonable control, including any Force Majeure event, actions by third parties including HPE suppliers, supply delays or unavailability, or interruption or impediment to Internet access or related problems beyond the demarcation point of HPE and its HPE GreenLake for Supercomputing infrastructure suppliers; (iii) that result from Customer equipment, software or other technology and/or third party equipment, software or other technology (other than third party equipment within HPE’s direct control); (iv) that resulted from performing announced service maintenance and platform upgrades; (v) associated with beta, evaluation and trial accounts; (vi) that result from any voluntary actions or inactions from Customer (e.g. misconfigurations, faulty settings, etc.); (vii) that result from Customer equipment, inputs, software or other technology; or (viii) that result from any actions or inactions of Customer or any third party, including employees, agents, contractors, or vendors, or anyone gaining access to HPE GreenLake for Supercomputing by means of Customer’s passwords or equipment; (ix) arising from HPE’s suspension and termination of your rights.
5. [\*\*\*].
6. Definitions:
“**Downtime**”
means, from the time of Customer’s notification, the number of hours that the Service Instance does not meet the Service Level.
Downtime does not include the initial [***] that the Service Instance fails to meet the Service Level nor include unavailability, suspension,
or termination of Services, or any other HPE GreenLake for Supercomputing performance issues due to any of the factors listed in Section
4.
[***]
[***]
“**Service
Instance**” means a compute node or equivalent resource as defined in the MSA. A Service Instance includes GPUs and other
critical hardware components.
[***]
Page 24 of 24
---
## EX-10.106
SEC source: [ex10-106.htm](https://www.sec.gov/Archives/edgar/data/64463/000149315224032123/ex10-106.htm)
**Exhibit 10.106**
**Certain
identified information has been omitted from this exhibit because it is both (i) not material and (ii) of the type that Registrant customarily
and actually treats as private or confidential. Such omitted information is indicated by [***] in this exhibit.**
THIS
NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “**ACT**”), OR UNDER THE SECURITIES LAWS
OF ANY STATE. THIS NOTE MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM. THE ISSUER OF THIS NOTE MAY REQUIRE AN OPINION
OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND
APPLICABLE STATE SECURITIES LAWS.
PROMISSORY
NOTE
$12,500,000 June 20, 2024
FOR
VALUE RECEIVED, **SOLUNA AL CLOUDCO, LLC**, a Delaware limited liability company (the “Company”), promises to
pay to [***]**,** a Delaware limited liability company (including its successors and permitted assigns, the
“Holder”), the principal amount of **TWELVE MILLION FIVE HUNDRED THOUSAND and 00/100 U.S. DOLLARS
($12,500,000.00 USD)** (or, if less, so much thereof as shall not have been repaid or prepaid) on or before June 20, 2027 (the
“Maturity Date”), with interest on the terms and conditions set forth herein.
This
Promissory Note (this “Note”) is issued by the Company pursuant to that certain Note Purchase Agreement, dated as
of June 20, 2024 (as amended, restated, or otherwise modified from time to time, the “Note Purchase Agreement”), by
and among the Company, **SOLUNA CLOUD, INC.**, a Nevada corporation (“Cloud”), **SOLUNA HOLDINGS, INC.**, a
Nevada corporation (“Holdings” and, along with Cloud, each a “Guarantor” and together the “Guarantors”),
and Holder. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Note Purchase
Agreement.
The
following is a statement of the other rights and obligations of the Holder of this Note and the terms and conditions to which this Note
is subject, and to which the Holder hereof by the acceptance of this Note agrees:
1. Interest. Interest shall accrue on the unpaid principal balance of this Note at a rate of nine percent (9.0%) per annum; *provided*, *however*, that, upon the occurrence of an Event of Default that is continuing, interest shall accrue on the unpaid principal balance
of this Note at a such rate *plus* nine (9.0%) per annum (such additional rate of interest applicable upon the occurrence of an
Event of Default that is continuing, the “Incremental Default Rate”). Interest shall be calculated on the basis of
the actual number of days elapsed over a 360-day year and shall compound monthly (other than with respect to interest that accrues at
the Incremental Default Rate, which shall compound annually). Interest accruing at the Incremental Default Rate shall be payable on demand.
2. Payment.
(a) Scheduled Payments. The Company will pay to the Investor the amounts set forth on Exhibit A on or prior to the dates set
forth on Exhibit A, which payments shall be applied to the outstanding principal balance and accrued interest as set forth on Exhibit A.
(b) Prepayment. The Company may prepay any outstanding balance due under this Note in whole or in part at any time without penalty,
premium or fee.
(c) Maturity Date. The entire remaining unpaid principal balance of this Note, all accrued but unpaid interest and all other sums
due the Holder under this Note shall be due and payable in full, without demand, protest, or notice of protest, on the Maturity Date.
3. Remedies. Upon the occurrence of an Event of Default that is continuing, all unpaid principal, accrued but unpaid interest and
other amounts owing under this Note and the other Note Documents shall, at the option of, and only upon written notice provided to the
Company exclusively by the Holder, be immediately due and payable; *provided*, *however*, that, in the case of an Event of
Default specified under subsection (d) of Section 4 of the Note Purchase Agreement, all unpaid principal, accrued but unpaid
interest and other amounts owing under this Note and the other Note Documents shall automatically be immediately due and payable without
presentment, demand, protest or other formalities of any kind. If an Event of Default occurs and is continuing, then the Holder may pursue
any available remedy by proceeding at law or in equity to collect the payment of amounts due under this Note and the other Note Documents,
or to enforce the performance of any provision of this Note and the other Note Documents. The Company agrees to pay all reasonable costs
and expenses (including, without limitation, reasonable and documented attorneys’ fees) incurred by the Holder in connection with
the enforcement of this Note and the other Note Documents upon the occurrence of an Event of Default that is continuing. Notwithstanding
the foregoing, the Holder may elect in writing to waive any Event of Default and upon receipt of such waiver, any Event of Default (including
any prior Event of Default which is continuing) shall be deemed to be waived by the Holder.
4. Collateral. This Note shall be secured by all or substantially all of the Company’s assets pursuant to the Company Security
Agreement and all other security documents executed in connection this Note and the Note Purchase Agreement, including, without limitation,
the Collateral Assignment, the Cloud Security Agreement, the Cloud Pledge Agreement, the Holdings Security Agreement and the Holdings
Pledge Agreement, in each case, subject to the terms and conditions set forth therein.
5. Assignment. This Note shall not be assignable by Company or the Holder without the prior written consent of the other party; *provided,
however* that the Holder may assign this Note without consent of the Company in accordance with Section 6 of the Note Purchase Agreement.
2
6. Miscellaneous.
6.1 Waivers and Amendments. The terms and provisions of this Note may be waived (either generally or in a particular instance, either
retroactively or prospectively and either for a specified period of time or indefinitely), only with the written consent of the Company
and the Holder. This Note may be discharged or terminated only pursuant to a writing signed by the Holder. This Note, or any provisions
hereof, may not be amended, modified, waived, discharged or terminated orally, but only in writing as provided above.
6.2 Governing Law; Jurisdiction and Venue; Waiver of Jury Trial; Arbitration.
(a)
This Note shall be governed by the internal laws of the State of Delaware, without regard to conflict of law principles that would result
in the application of any law other than the law of the State of Delaware. Subject to clause (c) of this Section 6.2, each of the parties
hereto irrevocably submits to the non-exclusive jurisdiction of the state and federal courts located in the State of Delaware over any
suit, action or proceeding arising out of or relating to this Note.
(b)
EACH OF THE COMPANY AND HOLDER HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT,
TORT OR OTHERWISE, AMONG ANY OF THEM ARISING OUT OF, CONNECTED WITH, RELATING TO OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN CONNECTION
WITH THIS NOTE.
(c)
Except for claims, disputes and controversies that are not subject to arbitration by applicable law, any and all claims, disputes and
controversies between or among the parties hereto, whether in tort, contract or otherwise, arising out of or relating to this Note shall,
upon demand by any party, be determined by binding arbitration in the State of Delaware (or such other location as the parties mutually
agree). The arbitration shall be administered by JAMS pursuant to its Expedited Arbitration Procedures then in effect (or any other form
of arbitration mutually acceptable to the parties so involved). Judgment on the award may be entered in any state or federal court having
jurisdiction in the State of Delaware.
6.3 Severability. Should any provision of this Note be held by any court of competent jurisdiction to be void or unenforceable, such
defect shall not affect the remainder of this Note, which shall continue in full force and effect.
6.4 Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given if provided consistent
with the Notice provision of the Note Purchase Agreement.
6.5 Counterparts. This Note may be executed in one or more counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument. One or more counterparts of this Note may be delivered by facsimile or
by .pdf, .tif, .gif, .peg or similar attachment to electronic mail, and any such counterparts shall have the same effect as an original
executed counterpart hereof, and shall be considered to have the same binding legal effect as if it were the original signed version
thereof delivered in person. The words “execution,” “signed,” “signature,” and words of like import
in this Note (or in any amendment, waiver, consent, joinder or supplement hereto or any other document delivered hereunder) shall be
deemed to include images of manually executed signatures transmitted by facsimile or other electronic format (including, without limitation,
“.pdf”, “.tif” or “.jpg”) and other electronic signatures (including, without limitation, DocuSign
and AdobeSign), each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, to the
extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, or
the Uniform Electronic Transactions Act.
3
IN
WITNESS WHEREOF, Company has caused this Note to be issued as of the date first written above.
**THE COMPANY:**
**SOLUNA AL CLOUDCO, LLC**
By:
Name: John Belizaire
Title: CEO
**ACKNOWLEDGED
AND AGREED TO:**
**HOLDER:**
[***]
EXHIBIT
A
| Payment Date | | | |
| --- | --- | --- | --- |
| July 20, 2024 | $0 | $0 | $0 |
| August 20, 2024 | $0 | $0 | $0 |
| September 20, 2024 | $0 | $0 | $0 |
| October 20, 2024 | $342,856 | $95,875 | $438,731 |
| November 20, 2024 | $345,427 | $93,304 | $438,731 |
| December 20, 2024 | $348,018 | $90,713 | $438,731 |
| January 20, 2025 | $350,628 | $88,103 | $438,731 |
| February 20, 2025 | $353,258 | $85,473 | $438,731 |
| March 20, 2025 | $355,907 | $82,824 | $438,731 |
| April 20, 2025 | $358,577 | $80,155 | $438,731 |
| May 20, 2025 | $361,266 | $77,465 | $438,731 |
| June 20, 2025 | $363,976 | $74,756 | $438,731 |
| July 20, 2025 | $366,705 | $72,026 | $438,731 |
| August 20, 2025 | $369,456 | $69,276 | $438,731 |
| September 20, 2025 | $372,227 | $66,505 | $438,731 |
| October 20, 2025 | $375,018 | $63,713 | $438,731 |
| November 20, 2025 | $377,831 | $60,900 | $438,731 |
| December 20, 2025 | $380,665 | $58,067 | $438,731 |
| January 20, 2026 | $383,520 | $55,212 | $438,731 |
| February 20, 2026 | $386,396 | $52,335 | $438,731 |
| March 20, 2026 | $389,294 | $49,437 | $438,731 |
| April 20, 2026 | $392,214 | $46,518 | $438,731 |
| May 20, 2026 | $395,155 | $43,576 | $438,731 |
| June 20, 2026 | $398,119 | $40,612 | $438,731 |
| July 20, 2026 | $401,105 | $37,626 | $438,731 |
| August 20, 2026 | $404,113 | $34,618 | $438,731 |
| September 20, 2026 | $407,144 | $31,587 | $438,731 |
| October 20, 2026 | $410,198 | $28,534 | $438,731 |
| November 20, 2026 | $413,274 | $25,457 | $438,731 |
| December 20, 2026 | $416,374 | $22,358 | $438,731 |
| January 20, 2027 | $419,496 | $19,235 | $438,731 |
| February 20, 2027 | $422,643 | $16,089 | $438,731 |
| March 20, 2027 | $425,812 | $12,919 | $438,731 |
| April 20, 2027 | $429,006 | $9,725 | $438,731 |
| May 20, 2027 | $432,224 | $6,508 | $438,731 |
| June 20, 2027 | $435,465 | $3,266 | $438,731 |
---
## EX-10.107
SEC source: [ex10-107.htm](https://www.sec.gov/Archives/edgar/data/64463/000149315224032123/ex10-107.htm)
**Exhibit
10.107**
**Certain
identified information has been omitted from this exhibit because it is both (i) not material and (ii) of the type that Registrant customarily
and actually treats as private or confidential. Such omitted information is indicated by [***] in this exhibit.**
NOTE
PURCHASE AGREEMENT
This
Note Purchase Agreement (this “Agreement”) is made as of June 20, 2024 by and among **SOLUNA AL CLOUDCO, LLC**,
a Delaware limited liability company (the “Company”), **SOLUNA CLOUD, INC.**, a Nevada corporation (“Cloud”), **SOLUNA HOLDINGS, INC.**, a Nevada corporation (“Holdings” and, along with Cloud, each a “Guarantor”
and together the “Guarantors” and, each Guarantor along with the Company, each a “Note Party” and
together the “Note Parties”), and [***] (the “Investor”).
RECITALS
A.
Upon the execution and delivery of this Agreement, the Company will issue a secured promissory note to the Investor, in the form attached
hereto as **Exhibit A** (as amended, restated, supplemented or otherwise modified from time to time, the “Note”),
in a principal amount equal to Twelve-Million Five Hundred Thousand Dollars ($12,500,000). The Company’s obligations under the
Note will be secured by all or substantially all of the Company’s assets pursuant to a security agreement to be executed and delivered
by the Company in favor of the Investor, in the form attached hereto as **Exhibit B** (as amended, restated, supplemented or
otherwise modified from time to time, the “Company Security Agreement”) and a collateral assignment of the Company’s
rights under the HPE Greenlake Custom Statement of Work, dated as of June 17, 2024, by and between the Company and Hewlett Packard Enterprise
Company (“HPE”) (the “SOW”) and the Appendixes thereto (including without limitation the HPC &
AI Could Services Agreement (the “MSA”) (collectively, as amended, restated, supplemented or otherwise modified from
time to time, the “HPE Agreement”) pursuant to a Collateral Assignment Agreement to be executed and delivered by the
Company in favor of the Investor, in the form attached hereto as **Exhibit C** (as amended, restated, supplemented or otherwise
modified from time to time, the “Collateral Assignment” and, collectively with the Company Security Agreement, this
Agreement and the Note, the “Company Agreements”).
B.
Upon the execution and delivery of this Agreement, and as further security for the Company’s obligations under the Note, Cloud,
as the sole member of the Company as of the date hereof, shall execute and deliver a guaranty in favor of the Investor in the form attached
hereto as **Exhibit D** (as amended, restated, supplemented or otherwise modified from time to time, the “Cloud Guaranty”).
Cloud’s obligations under the Cloud Guaranty will be secured by all or substantially all of Cloud’s assets pursuant to a
security agreement to be executed and delivered by Cloud in favor of the Investor, in the form attached hereto as **Exhibit E** (as amended, restated, supplemented or otherwise modified from time to time, the “Cloud Security Agreement”), and
a pledge of all membership interests of the Company held by Cloud pursuant to a membership interest pledge agreement to be executed and
delivered by Cloud in favor of the Investor in the form attached hereto as **Exhibit F** (as amended, restated, supplemented
or otherwise modified from time to time, the “Cloud Pledge Agreement,” and, collectively with this Agreement, the
Cloud Guaranty and the Cloud Security Agreement, the “Cloud Agreements”).
C.
Upon the execution and delivery of this Agreement, and as further security for the Company’s obligations under the Note, Holdings,
as the sole shareholder of Cloud as of the date hereof and the indirect parent of the Company, shall execute and deliver a guaranty in
favor of the Investor in the form attached hereto as **Exhibit G** (as amended, restated, supplemented or otherwise modified
from time to time, the “Holdings Guaranty”). Holding’s obligations under the Holdings Guaranty will be secured
by all or substantially all of Holding’s assets pursuant to a security agreement to be executed and delivered by Holdings in favor
of the Investor in the form attached hereto as **Exhibit H** (as amended, restated, supplemented or otherwise modified from
time to time, the “Holdings Security Agreement”), and a pledge of all of shares of Cloud held by Holdings pursuant
to a stock pledge agreement to be executed and delivered by Holdings in favor of the Investor in the form attached hereto as **Exhibit
I** (as amended, restated, supplemented or otherwise modified from time to time, the “Holdings Pledge Agreement,”
and, collectively with this Agreement, the Holdings Guaranty and the Holdings Security Agreement, the “Holdings Agreements”).
As used herein, the term “Note Documents” shall refer, collectively, to each of this Agreement, the Note and the other
Company Agreements, the Cloud Agreements, the Holdings Agreements and the Intercreditor Agreement (as hereinafter defined).
D.
As further inducement for the Investor to purchase the Note from the Company, upon execution and delivery of this Agreement and the execution
by Investor of the Shareholders’ Agreement in the form attached hereto as **Exhibit J** (as amended, restated, supplemented
or otherwise modified from time to time, the “Shareholders’ Agreement”), Cloud will issue to the Investor a
warrant in the form attached hereto as **Exhibit K** (as amended, restated, supplemented or otherwise modified from time to
time, the “Warrant”) exercisable within three (3) years from the date of the Closing for the number of shares of Cloud’s
common stock as described therein, subject to the terms and conditions set forth therein, and an investor’s rights agreement to
be executed by Cloud and the Investor in the form attached hereto as **Exhibit L** (as amended, restated, supplemented or otherwise
modified from time to time, the “Investor Rights Agreement”, and collectively with the Shareholders’ Agreement
and the Warrant, the “Equity Documents”; and together with the Note Documents, the “Transaction Documents”).
In
consideration of the above, and in light of the mutual agreements and covenants detailed below, and for other good and valuable consideration,
the receipt and adequacy of which is hereby acknowledged, the Company, the Investor and each Guarantor hereby agree as follows:
TERMS
**Section
1. Closing; Payment; Deliverables**.
(a) Closing. The purchase, sale, and issuance of the Note shall take place immediately following the execution of this Agreement (the
“Closing”). The Closing may take place by exchange of documents and signatures by facsimile, email, or overnight mail,
as appropriate.
-2 -
(b) Payment. At the Closing, the Investor will pay Twelve-Million Five Hundred Thousand Dollars ($12,500,000) to the Company by wire
in immediately available funds to be deposited in the bank account designated by the Company on **Annex A**.
(c) Company Closing Deliverables. At or before the Closing, the Company shall deliver to the Investor executed versions of the following:
(i) the Note;
(ii) this Agreement;
(iii) the Company Security Agreement;
(iv) the Collateral Assignment; and
(v)
a certificate from a duly authorized representative of the Company certifying: (i) the organizational documents of the Company and (ii) resolutions of the board of managers of the Company approving this Agreement and the other Company Agreements and the transactions contemplated hereunder and thereunder.
(d) Cloud Closing Deliverables. At or before the Closing, Cloud shall deliver to the Investor executed versions of the following:
(i) the Cloud Guaranty;
(ii) this Agreement;
(iii) the Cloud Security Agreement;
(iv) the Cloud Pledge Agreement;
(v) the Warrant;
(vi) the Shareholders’ Agreement;
(vii) the Investor Rights Agreement;
(viii)
a certificate from a duly authorized representative of the Cloud certifying: (i) the good standing of Cloud; (ii) the organizational documents of the Cloud; and (iii) resolutions of the board of directors of Cloud approving this Agreement and the other Cloud Agreements and the transactions contemplated hereunder and thereunder.
-3 -
(e) Holdings Closing Deliverables. At or before the Closing, Holdings shall deliver to the Investor executed versions of the following:
(i) the Holdings Guaranty;
(ii) this Agreement;
(iii) the Holdings Security Agreement;
(iv) the Holdings Pledge Agreement;
(v) the Shareholders’ Agreement;
(vi) the intercreditor agreement in the form attached hereto as **Exhibit M** (the “Intercreditor Agreement”) duly executed by all parties party thereto other than the Investor; and
(vii) a certificate from a duly authorized representative of Holdings certifying: (i) the good standing of Holdings; (ii) the organizational documents of Holdings; and (iii) resolutions of the board of directors of Holdings approving this Agreement and the other Holdings Agreements and the transactions contemplated hereunder and thereunder.
(f) Investor Closing Deliverables. At Closing, Investor shall deliver the amount to be paid to Company as set forth in Section 1(b)
above, and countersigned versions of this Agreement, the Shareholders’ Agreement, the Intercreditor Agreement, the Investor Rights
Agreement, the Warrant and the other Transaction Documents to which it is a party.
**Section
2. Representations and Warranties**.
(a) **Company**. The Company represents and warrants to the Investor as of the Closing as follows:
(i) Organization. The Company is a limited liability company duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company is duly qualified to do business as a foreign entity and is in good standing in each jurisdiction
in which it does business, except where the failure to so qualify could not reasonably be expected to result in a material adverse
change in the business, financial condition, operations or assets (any such material adverse change, a “Material Adverse Change”)
of the Company.
(ii) Power; Authorization. The Company has all necessary limited liability company power and authority to enter into and perform its
obligations under the Company Agreements, and to carry on the business now conducted or presently proposed to be conducted by it. All
limited liability company actions on the part of the Company necessary for the due authorization, execution, and delivery of the Company
Agreements, the consummation of the transactions contemplated herein and therein, and for the due issuance of the Note have been taken.
Upon their execution and delivery, each of the Company Agreements shall be a legally binding obligation of the Company, enforceable in
accordance with its terms, subject to the effect of any applicable bankruptcy, reorganization, moratorium or similar laws affecting the
enforcement of creditors’ rights generally, and general principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law). The execution, delivery and performance by the Company of this Agreement and the issuance and sale
of the Note will not result in any violation of or be in conflict with, or result in a breach of or constitute a default under, any term
or provision of Company’s organizational documents, as amended from time to time.
-4 -
(iii) Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration,
or filing with, any federal, state, or local governmental authority on the part of the Company is required in connection with the consummation
of the transactions contemplated by the Company Agreements other than those filings required to be made to perfect the security interests
granted by the Company pursuant to the Company Agreements.
(iv) Litigation. There is no claim, action, suit, proceeding, arbitration, complaint, charge, or investigation pending, or to the Company’s
knowledge, currently threatened (in writing) against the Company. The Company is not a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or arbitrator or government agency or instrumentality.
(v) Material Liabilities. The Company has no liability or obligation, absolute or contingent (individually or in the aggregate), except:
(A) obligations and liabilities incurred after the date of formation in the ordinary course of business or (B) liabilities or obligations
pursuant to the (i) the HPE Agreement, (ii) the 2021 Financing Agreements (as defined in the Intercreditor Agreement) to which the Company
is a party and (iii) the Transaction Documents to which the Company is a party.
(vi) Intellectual Property. The Company owns, possesses, has the right to use or can obtain on commercially reasonable terms adequate
licenses or other rights to use all patents, trademarks, service marks, trade names, copyrights and all other intellectual property rights
(collectively, “Company Intellectual Property”) necessary to the conduct of its business as presently conducted. No
claim is pending and the Company has not received written notice from any third party to the effect that the operations of the Company
infringe upon or conflict with the asserted rights of any person under any Company Intellectual Property. No claim is pending and the
Company has not received written notice from any third party to the effect that any such Company Intellectual Property owned or licensed
by the Company or which the Company otherwise has the right to use is invalid or unenforceable.
(vii) Capitalization. Immediately prior to the execution and delivery of this Agreement, Cloud owns one hundred percent (100%) of the
issued and outstanding membership interests of the Company. All issued and outstanding membership interests have been duly authorized,
are fully paid and nonassessable and were issued in compliance with all applicable laws and regulations.
-5 -
(viii) Disclosure. The representations and warranties made by the Company in this Agreement and the other Transaction Documents do not
contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make such
representations or warranties not misleading in light of the circumstances under which they were made.
(b) **Cloud**. Cloud represents and warrants to the Investor as of the Closing as follows:
(i) Organization. Cloud is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada.
Cloud is duly qualified to do business as a foreign entity and is in good standing in each jurisdiction in which it does business, except where the failure to so qualify could not reasonably be expected to result in a Material Adverse Change of Cloud.
(ii) Power; Authorization. Cloud has all necessary corporate power and authority to enter into and perform its obligations under the
Cloud Agreements, and to carry on the business now conducted or presently proposed to be conducted by it. All corporate actions on the
part of Cloud necessary for the due authorization, execution, and delivery of the Cloud Agreements, the consummation of the transactions
contemplated herein and therein, and for the due issuance of the Cloud Guaranty have been taken. Upon their execution and delivery, each
of the Cloud Agreements shall be a legally binding obligation of Cloud, enforceable in accordance with its terms, subject to the effect
of any applicable bankruptcy, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally,
and general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). The execution,
delivery and performance by Cloud of the Cloud Agreements and the issuance of the Cloud Guaranty will not result in any violation of
or be in conflict with, or result in a breach of or constitute a default under, any term or provision of Cloud’s organizational
documents, as amended from time to time.
(iii) Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration,
or filing with, any federal, state, or local governmental authority on the part of Cloud is required in connection with the consummation
of the transactions contemplated by the Cloud Agreements other than those filings required to be made to perfect the security interests
granted by Cloud pursuant to the Cloud Agreements.
(iv) Litigation. There is no claim, action, suit, proceeding or arbitration, pending, or Cloud’s knowledge, currently threatened
(in writing) against Cloud. Cloud is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any
court or arbitrator or government agency or instrumentality.
(v) Material Liabilities. Cloud has no liability or obligation, absolute or contingent (individually or in the aggregate), except (A) obligations and liabilities incurred after the date of formation in the ordinary course of business, and (B) liabilities or obligations
pursuant to the 2021 Financing Agreements (as defined in the Intercreditor Agreement)
to which Cloud is a party, the Transaction Documents to which it is a party and a guaranty of the obligations of the Company under the
HPE Agreement.
-6 -
(vi) Intellectual Property. Cloud owns, possesses, has the right to use or can obtain on commercially reasonable terms adequate licenses
or other rights to use all patents, trademarks, service marks, trade names, copyrights and all other intellectual property rights (collectively,
“Cloud Intellectual Property”) necessary to the conduct of its business as presently conducted. No claim is pending
and Cloud has not received written notice from any third party to the effect that the operations of Cloud infringe upon or conflict with
the asserted rights of any person under any Cloud Intellectual Property. No claim is pending and Cloud has not received written notice
from any third party to the effect that any such Cloud Intellectual Property owned or licensed by Cloud or which Cloud otherwise has
the right to use is invalid or unenforceable.
(vii) Capitalization. Immediately prior to the execution and delivery of this Agreement, the authorized capital of Cloud consists of
one (1) share of common stock. All issued and outstanding shares have been duly authorized, are fully paid and nonassessable and were
issued in compliance with all applicable laws and regulations.
(viii) Disclosure. The representations and warranties made by Cloud in this Agreement and the other Transaction Documents do not contain
any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make such representations
or warranties not misleading in light of the circumstances under which they were made.
(c) **Holdings**. Holdings represents and warrants to the Investor as of the Closing as follows:
(i) Organization. Holdings is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada.
Holdings is duly qualified to do business as a foreign entity and is in good standing in each jurisdiction in which it does business, except where the failure to so qualify could not reasonably be expected to result in a Material Adverse Change of Holdings.
(ii) Power; Authorization. Holdings has all necessary corporate power and authority to enter into and perform its obligations under
the Holdings Agreements, and to carry on the business now conducted or presently proposed to be conducted by it. All corporate actions
on the part of Holdings necessary for the due authorization, execution, and delivery of the Holdings Agreements, the consummation of
the transactions contemplated herein and therein, and for the due issuance of the Holdings Guaranty have been taken. Upon their execution
and delivery, each of the Holdings Agreements shall be the legally binding obligation of Holdings, enforceable in accordance with its
terms, subject to the effect of any applicable bankruptcy, reorganization, moratorium or similar laws affecting the enforcement of creditors’
rights generally, and general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity
or at law). The execution, delivery and performance by Holdings of the Holdings Agreements and the issuance of the Holdings Guaranty
will not result in any violation of or be in conflict with, or result
in a breach of or constitute a default under, any term or provision of Holdings’ organizational documents, as amended from time
to time.
-7 -
(iii) Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration,
or filing with, any federal, state, or local governmental authority on the part of Holdings is required in connection with the consummation
of the transactions contemplated by the Holdings Agreements other than those filings required to be made to perfect the security interests
granted by Holdings pursuant to the Holdings Agreements.
(iv) Litigation. Except as disclosed in the securities filings made by Holdings, there is no material claim, action, suit, proceeding
or arbitration, pending, or Holdings’ knowledge, currently threatened (in writing) against Holdings. Holdings is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of any court or arbitrator or government agency or instrumentality.
(v)
[Reserved].
(vi) Intellectual Property. Holdings owns, possesses, has the right to use or can obtain on commercially reasonable terms adequate
licenses or other rights to use all patents, trademarks, service marks, trade names, copyrights and all other intellectual property rights
(collectively, “Holdings Intellectual Property”) necessary to the conduct of its business as presently conducted.
No claim is pending and Holdings has not received written notice from any third party to the effect that the operations of Holdings infringe
upon or conflict with the asserted rights of any person under any Holdings Intellectual Property. No claim is pending and Holdings has
not received written notice from any third party to the effect that any such Holdings Intellectual Property owned or licensed by Holdings
or which Holdings otherwise has the right to use is invalid or unenforceable.
(vii)
[Reserved].
(viii) Disclosure. The representations and warranties made by Holdings in this Agreement and the other Transaction Documents do not contain
any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make such representations
or warranties not misleading in light of the circumstances under which they were made.
(d) **Investor**. The Investor represents and warrants to the Company and each Guarantor as of the Closing that:
(i) Power and Authority; Organization. The Investor has full power and authority to enter into and perform this Agreement in accordance
with its respective terms. The Investor was not organized for the specific purpose of acquiring the Note.
(ii) Financial Knowledge. The Investor has sufficient knowledge and experience in investing in companies similar to the Company in
terms of the Company’s stage of development so as to be able to evaluate the risks and merits of the Investor’s investment
in the Company, and the Investor is able financially to bear the risks thereof for an indefinite period of time.
-8 -
(iii) Investigation. The Investor has made an investigation of the Company and its business as the Investor deemed necessary, and has
had an opportunity to discuss and review the Company’s business, management, and financial affairs with the Company’s management
as the Investor deemed necessary, and has engaged professional advice to the Investor’s satisfaction with respect to the risks
inherent in acquiring the Note and the suitability of an investment in the Note in light of the Investor’s financial condition
and investment needs.
(iv) Purchase for Own Account. The Note being purchased by the Investor are being acquired for the Investor’s own account for
the purpose of investment and not with a view to or for sale in connection with any distribution thereof.
(v) Execution and Delivery. This Agreement has been duly executed and delivered by the Investor, and constitutes the legal, valid
and binding obligation of the Investor, enforceable in accordance with its respective terms, subject to the effect of any applicable
bankruptcy, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally, and general principles
of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).
(vi) Not Subject to IRC Withholding Provisions. The Investor certifies, under penalty of perjury, that it is NOT subject to the backup
withholding provisions of Section 340(a)(i)(C) of the Internal Revenue Code.
**Section
3. Covenants**.
(a) Use of Proceeds. The proceeds from the sale of the Note shall be used by the Company and Cloud to finance the execution of a strategic
transaction with HPE pursuant to which the Company will gain access to a cluster of NVIDIA H100 GPUs to offer scalable AI cloud and hosting
services to customers as follows: [***].
(b) Payments under the Note. So long as the Note is outstanding, the Company covenants and agrees with the Investor that it shall
pay the principal of, and interest on, the Note, at the times and place and in the manner provided in the Note.
-9 -
(c) Information Rights. Until all principal and interest under the Note have been paid, Company shall provide to the Investor:
(i)
promptly, as soon as available, but in any event within thirty (30) days of the last day of each calendar month, monthly trial balances
(unaudited) together with a narrative summarizing significant business activities and other developments (including, without limitation,
sales realized, sales in process and operational results) of (y) the Company and (z) Cloud and its consolidated Subsidiaries for such
calendar month then ended; and
(ii)
promptly, as soon as available, but in any event within forty-five (45) days of the last day of each calendar quarter, commencing with
the calendar quarter ending September 30, 2024, quarterly internally prepared financial statements (unaudited) of (y) the Company and
(z) Cloud and its consolidated Subsidiaries for such calendar quarter then ended; provided, however, that with respect
to any calendar quarter ending December 31, the financial statements under this clause (ii) shall be delivered promptly, as soon as available,
but in any event within sixty (60) days of the last day of such calendar quarter.
(d) Related Party Transactions. Until all principal and interest under the Note have been paid, prior to entering into any transaction
with any Guarantor or any of their respective affiliates (including, but not limited to, transactions involving shared payroll and any
other shared cost arrangements), Company shall obtain Investor’s prior written consent. Such consent shall be conditioned upon
the Company providing adequate documentation demonstrating that the proposed transaction will be on terms no less favorable to the Company
than terms that could have been reached with an unrelated third party, but shall not otherwise be unreasonably withheld, conditioned
or delayed. For the avoidance of doubt, any such consent once given by the Investor shall constitute a consent to the execution and delivery
by such Guarantor of all agreements, instruments and other documents contemplated under, or otherwise deemed necessary in connection
with, such proposed transaction, and the performance by such Guarantor of its obligations thereunder, including, without limitation,
the payment and performance of all obligations when due thereunder. Further, Holdings covenants and agrees that, until all principal
and interest under the Note have been paid, and without first obtaining Investor’s prior written consent, it shall not organize
or incorporate any subsidiary, over which Holdings shall have voting or beneficial control, which is being formed with the intent to
engage in a business or line of business substantially similar to that of Cloud or Company.
(e) Incorporation of Covenants by Reference.
(i) Company hereby agrees that each of the covenants contained in Sections 4 (*Covenants*), 6 (*Covenants Concerning Collateral, Etc.*) and 7 (*Insurance*) of the Company Security Agreement and clause (e) of Section 2 of the Collateral Assignment, in each case, are hereby incorporated herein by reference, and shall apply to this Agreement, *mutatis mutandis*, as if fully set forth herein.
(ii) Cloud hereby agrees that each of the covenants contained in Sections 4 (*Covenants*), 6 (*Covenants Concerning Collateral, Etc.*) and 7 (*Insurance*) of the Cloud Security Agreement and clauses (i) and (j) of Article 5 of the Cloud Pledge Agreement, in each case, are hereby incorporated herein by reference, and shall apply to this Agreement, *mutatis mutandis*, as if fully set forth herein.
(iii) Holdings hereby agrees that each of the covenants contained in Sections 4 (*Covenants*), 6 (*Covenants Concerning Collateral, Etc.*) and 7 (*Insurance*) of the Holding Security Agreement and clauses (i) and (j) of Article 5 of the Holdings Pledge Agreement, in each case, are hereby incorporated herein by reference, and shall apply to this Agreement, *mutatis mutandis*, as if fully set forth herein.
-10 -
(f) Post-Closing Covenant. Within thirty (30) days of Closing (or such later date as the Investor may reasonably agree), Cloud shall
have increased the total number of shares of common stock authorized to be issued by Cloud to an amount equal to or greater than one
million (1,000,000) in the aggregate.
**Section
4. Events of Default**. The occurrence of any one or more of the following shall constitute an “Event of Default”:
(a) (i) the Company fails to timely pay when due any principal of the Note, (ii) the Company fails to timely pay when due interest on the Note, and such failure continues for five (5) days or (iii) any Note Party fails to pay any other amount due under the Note or the other Note Documents, and such failure continues for ten (10) days;
(b) any representation or warranty made by any Note Party in any Note Document shall be untrue in any material respect when made;
(c) any Note Party shall fail to comply with any provision or covenant in any Note Document which does not otherwise constitute an Event of Default under another subsection of this Section 4 and such failure is not cured within thirty (30) days after the Company receives written notice from the Holder specifying the breach or default;
(d) (i) any Note Party (as a debtor) commences any proceeding in bankruptcy or other relief under state or federal bankruptcy laws; or (ii) such proceedings are commenced against any Note Party (as a debtor) in a court of competent jurisdiction, or a receiver or trustee is appointed for any Note Party or a substantial part of its property, and such proceeding or appointment is not dismissed or discharged within sixty (60) days after its commencement;
(e) an assignment for the benefit of creditors by any Note Party;
(f) the failure by the Company to pay when due any indebtedness under any bonds, debentures, notes or other evidences of indebtedness for money borrowed in an aggregate principal amount in excess of $250,000 and such default shall continue unremedied following any applicable cure periods; or
(g) the occurrence of a Material Adverse Change of (i) Holdings, individually, or (ii) Cloud and the Company, taken together.
-11 -
**Section
5. Notices**. Any notice, request or other communication required or permitted under the Note Agreements shall be in writing
and (i) if given by mail, three (3) business days following such posting, if postage prepaid, and if sent via U.S. certified or registered
mail, (ii) if given by overnight courier, one (1) Business Day after deposit thereof with a national overnight courier service, or (iii)
if given by any other means, when received. Notices shall be sent to the respective addresses of the parties as set forth below:
| if to the Investor: / To the address specified for the Investor on the signature page of this Agreement. / if to the Company: / Soluna AL Cloud Co, LLC | with a copy to: / [***] / Robert Drobnak, Esq. / Nixon Peabody LLP / 70 West Madison / Suite 5200 / Chicago, IL 60602 |
| --- | --- |
| 325 Washington Avenue Extension | Nixon Peabody LLP |
| Albany, NY 12205 | 70 West Madison |
| | Suite 5200 |
| | Chicago, IL 60602 |
| if to Cloud: | |
| Soluna Cloud, Inc. | Robert Drobnak, Esq. |
| 325 Washington Avenue Extension | Nixon Peabody LLP |
| Albany, NY 12205 | 70 West Madison |
| | Suite 5200 |
| | Chicago, IL 60602 |
| if to Holdings: | |
| Soluna Holdings, Inc. | |
| 325 Washington Avenue Extension | |
| Albany, NY 12205 | |
Any
party hereto may by notice so given change its address for future notices hereunder.
-12 -
**Section
6. Successors and Assigns; Assignment**. The terms and conditions of this Agreement and the other Note Documents shall inure
to the benefit of and be binding upon the respective successors and permitted assigns of the parties. No Note Party may assign any of
its rights or obligations hereunder or under any of the other Note Documents without the prior written consent of the Investor. Investor
may not assign any of its rights or obligations hereunder or under any of the other Note Documents without the prior written consent
of each Note Party; provided, however, the Investor may assign any of its rights or obligations under this Agreement and
the other Note Documents to any single purpose fund, controlled investment vehicle or other special purpose vehicle that is wholly owned
or controlled by the Investor or David Altshuler without the prior written consent of any Note Party.
**Section
7. No Other Representations and Warranties.** EXCEPT AS EXPRESSLY SET FORTH IN SECTION 2 OR IN ANY TRANSACTION DOCUMENT, NONE
OF THE COMPANY, CLOUD, HOLDINGS NOR ANY OTHER PERSON MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT LAW OR IN EQUITY, IN
RESPECT OF THE NOTE PARTIES OR ANY OF THEIR RESPECTIVE ASSETS, LIABILITIES OR OPERATIONS, INCLUDING WITH RESPECT TO MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE, AND ANY SUCH OTHER REPRESENTATIONS OR WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED.
**Section
8. Non-Reliance.** Neither Investor, nor any of its affiliates, equityholders, creditors, managers, officers, employees, counsel,
agents, representatives, successors, or assigns, are entitled to rely on any statements, representations or warranties, oral or written,
express or implied, at law or in equity, other than those expressly set forth in Sections 2(a), 2(b) and 2(c) of this Agreement or in
any other Transaction Document.
**Section
9. Governing Law; Jurisdiction and Venue; Waiver of Jury Trial; Arbitration.**
(a)
This Agreement shall be governed by the internal laws of the State of Delaware, without regard to conflict of law principles that would
result in the application of any law other than the law of the State of Delaware. Subject to clause (c) of this Section 9, each of the
parties hereto irrevocably submits to the non-exclusive jurisdiction of the state and federal courts located in the State of Delaware
over any suit, action or proceeding arising out of or relating to this Agreement or the Note.
(b)
EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT,
TORT OR OTHERWISE, AMONG ANY OF THEM ARISING OUT OF, CONNECTED WITH, RELATING TO OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN CONNECTION
WITH THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS.
(c)
Except for claims, disputes and controversies that are not subject to arbitration by applicable law, any and all claims, disputes and
controversies between or among the parties hereto, whether in tort, contract or otherwise, arising out of or relating to this Agreement
shall, upon demand by any party, be determined by binding arbitration in the State of Delaware (or such other location as the parties
mutually agree). The arbitration shall be administered by JAMS pursuant to its Expedited Arbitration Procedures then in effect (or any
other form of arbitration mutually acceptable to the parties so involved). Judgment on the award may be entered in any state or federal
court having jurisdiction in the State of Delaware.
**Section
10. Entire Agreement**. This Agreement and each of the other Note Documents constitute the entire agreement of the respective
parties with respect to the subject matter hereof and thereof and supersede all prior and contemporaneous understandings, whether written
or oral.
**Section
11. Waiver; Amendment**. This Agreement may not be amended or modified, nor may any terms hereunder be waived, except by a written instrument signed by each of the parties hereto.
**Section
12. Counterparts**. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original,
but all of which together shall constitute one and the same instrument. One or more counterparts of this Agreement may be delivered by
facsimile or by .pdf, .tif, .gif, .peg or similar attachment to electronic mail, and any such counterparts shall have the same effect
as an original executed counterpart hereof, and shall be considered to have the same binding legal effect as if it were the original
signed version thereof delivered in person. The words “execution,” “signed,” “signature,” and words
of like import in this Agreement and in any other Transaction Document (or in any amendment, waiver, consent, joinder or supplement hereto
or any other document delivered hereunder or thereunder) shall be deemed to include images of manually executed signatures transmitted
by facsimile or other electronic format (including, without limitation, “.pdf”, “.tif” or “.jpg”)
and other electronic signatures (including, without limitation, DocuSign and AdobeSign), each of which shall be of the same legal effect,
validity or enforceability as a manually executed signature, to the extent and as provided for in any applicable law, including the Federal
Electronic Signatures in Global and National Commerce Act, or the Uniform Electronic Transactions Act.
[*Signature
Pages to Follow*.]
-13 -
**INTENDING
TO BE LEGALLY BOUND HEREBY**, the Company has caused this Note Purchase Agreement to be executed as of the date first written above.
**COMPANY:**
**SOLUNA AL CLOUDCO, LLC**
By:
Name: John Belizaire
Title: CEO
**INTENDING
TO BE LEGALLY BOUND HEREBY**, Holdings has caused this Note Purchase Agreement to be executed as of the date first written above.
**GUARANTOR:**
SOLUNA HOLDINGS, INC.
By:
Name: John Belizaire
Title: CEO
**INTENDING
TO BE LEGALLY BOUND HEREBY**, Cloud has caused this Note Purchase Agreement to be executed as of the date first written above.
**GUARANTOR:**
SOLUNA CLOUD, INC.
By:
Name: John Belizaire
Title: CEO
[Company
and Guarantors Signature Page to Note Purchase Agreement]
-14 -
**INTENDING
TO BE LEGALLY BOUND HEREBY**, the Company and the Investor have caused this Note Purchase Agreement to be executed as the date first
written above.
INVESTOR:
[Investor
Signature Page to Note Purchase Agreement]
-15 -
---
## EX-10.108
SEC source: [ex10-108.htm](https://www.sec.gov/Archives/edgar/data/64463/000149315224032123/ex10-108.htm)
**Exhibit
10.108**
**Certain
identified information has been omitted from this exhibit because it is both (i) not material and (ii) of the type that Registrant customarily
and actually treats as private or confidential. Such omitted information is indicated by “[***]” in this exhibit.**
EXECUTION
VERSION
GUARANTY
AGREEMENT
This
GUARANTY AGREEMENT (this “**Guaranty**”) is dated effective as of June 20, 2024, and is given by **SOLUNA CLOUD, INC.**,
a Nevada corporation, with a notice address of 325 Washington Avenue Extension, Albany, NY 12205 (the “**Guarantor**”),
in favor of [***] **(**the “**Holder**”).
Reference
is made to the Note Purchase Agreement dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time
to time, the “**Note Purchase Agreement**”; capitalized terms used but not otherwise defined herein shall have the meanings
ascribed to such terms in the Note Purchase Agreement) by and among SOLUNA AL CLOUDCO, LLC, a Delaware limited liability company (the
“**Issuer**”), the Guarantor, SOLUNA HOLDINGS, INC., a Nevada corporation, and the Holder, pursuant to which, among other
things, the Issuer has issued in favor of Holder a promissory note dated as of the date hereof (as amended, restated, supplemented or
otherwise modified from time to time, the “**Note**”) in a principal amount equal to Twelve Million Five Hundred Thousand
Dollars ($12,500,000).
Pursuant
to the terms of the Note Purchase Agreement, the Guarantor is required to execute and deliver this Guaranty in favor of the Holder.
THEREFORE,
for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Guarantor hereby agrees for the benefit
of the Holder as follows:
**1.** **Guaranty of Payment and Performance.** Subject to the Intercreditor Agreement, the Guarantor hereby guarantees to the Holder, the full and punctual payment and the performance when due (whether at maturity, by acceleration or otherwise) of the following obligations of the Issuer to the Holder: (i) all indebtedness of the Issuer to the Holder evidenced by the Note, when the same shall become due and payable (subject to any applicable periods of grace or cure), whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise, including principal, interest and all other amounts payable under the terms the Note and (ii) all other payment obligations, now existing or hereafter arising, that are now or hereafter owed by the Issuer to the Holder in connection with, arising out of or relating to the Note or any other Note Document, including, without limitation, all reasonable and documented out-of-pocket fees and disbursements of counsel incurred in connection with the enforcement of the Note or any other Note Document as permitted hereunder or thereunder, as applicable (such obligations are referred to herein as the “**Obligations**”). The Guarantor acknowledges that it has received copies of the Note, the Note Purchase Agreement and the other Note Documents, including all respective exhibits and schedules thereto, has reviewed and understands the Obligations which it has agreed to Guaranty. This Guaranty is an absolute, unconditional and continuing guaranty of the full and punctual payment and performance of the Obligations when due and not of their collectability. All payments required under this Guaranty shall be made to the Holder.
| 2. | Guarantor’s Agreement to Pay. The Guarantor further agrees to reimburse the Holder, promptly on demand, for all reasonable costs and expenses (including reasonable and documented legal expenses) incurred or expended by the Holder in connection with the Obligations, this Guaranty and the enforcement thereof. |
| --- | --- |
| 3. | Waivers by Guarantor; Holder’s Freedom to Act. The Guarantor waives presentment, demand, protest, notice of acceptance, notice of the Obligations incurred and all other notices of any kind, all defenses which may be available by virtue of any valuation, stay, moratorium law or other similar law now or hereafter in effect, any right to require the marshalling of assets of the Issuer, and any other rights that could accrue to a surety against a principal. Without limiting the generality of the foregoing, the Guarantor agrees to the provisions of any instrument evidencing, securing or otherwise executed in connection with the Obligations and agrees that the Obligations of the Guarantor hereunder shall not be released or discharged, in whole or in part, or otherwise affected by (i) the failure of the Holder to assert any claim or demand or to enforce any right or remedy against the Issuer; (ii) any extensions or renewals of any Obligations; (iii) any rescissions, waivers, amendments or modifications of any of the terms or provisions of any agreement evidencing, securing or otherwise executed in connection with the Obligations; (iv) the substitution or release of any entity primarily or secondarily liable for the Obligations; (v) the adequacy of any rights the Holder may have against any collateral or other means of obtaining repayment of the Obligations; (vi) the impairment of any collateral securing the Obligations, including without limitation the failure to perfect or preserve any rights the Holder might have in such collateral or the substitution, exchange, surrender, release, loss or destruction of any such collateral; or (vii) any other act or omission which might in any manner or to any extent vary the risk of the Guarantor or otherwise operate as a release or discharge of the Guarantor, all of which may be done without notice to the Guarantor. |
| 4. | Unenforceability of Obligations Against Borrower. The Guarantor waives any and all defenses, claims and discharges of the Issuer pertaining to the Obligations, except the defense of discharge by payment in full. Without limiting the generality of the foregoing, the Guarantor will not assert, plead or enforce against the Bank any defense of waiver, release, discharge in bankruptcy, statute of limitations, res judicata, statute of frauds, anti-deficiency statute, fraud, incapacity, minority, usury, illegality or unenforceability which may be available to the Issuer in respect of any of the Obligations. |
| 5. | Security. This Guaranty is secured by the security interests granted by the Guarantor in favor of the Holder pursuant to the Cloud Security Agreement and the Cloud Pledge Agreement, in each case, which are subject to the Intercreditor Agreement. |
2
| 6. | Subrogation; Subordination. Until the payment and performance in full of the Obligations, the Guarantor shall not exercise any subrogation or similar rights against the Issuer arising as a result of payment by the Guarantor hereunder, and will not assert any claim in competition with the Holder in respect of any payment hereunder in bankruptcy or insolvency proceedings of any nature; the Guarantor will not claim any set-off or counterclaim against the Issuer in respect of any liability of the Guarantor to the Issuer; and the Guarantor waives any benefit of and any right to participate in any collateral which may be held by the Holder. The payment of any amounts due with respect to any indebtedness of the Borrower now or hereafter held by the Guarantor is hereby subordinated to the prior payment in full of the Obligations. The Guarantor agrees that after the occurrence of any Event of Default that is continuing, the Guarantor will not demand, sue for or otherwise attempt to collect any such indebtedness of the Issuer to the Guarantor until the Obligations shall have been paid in full. If, notwithstanding the foregoing sentence, the Guarantor shall collect, enforce or receive any amounts in respect of such indebtedness, such amounts shall be collected, enforced and received by the Guarantor in trust for the benefit of the Holder and be paid over to the Holder to be applied to the Obligations in accordance with the terms of the Note Purchase Agreement. |
| --- | --- |
| 7. | Successors and Assigns. This Guaranty shall be binding upon the Guarantor, and the Guarantor’s successors and assigns, and shall inure to the benefit of and be enforceable by the Holder and its successors, permitted transferees and assigns. |
| 8. | Amendments and Waivers. No amendment or waiver of any provision of this Guaranty nor consent to any departure by the Guarantor therefrom shall be effective unless the same shall be in writing and signed by the Holder and the Guarantor. No failure on the part of the Holder to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. |
| 9. | Notices. All notices required under this Guaranty will be in writing and will be transmitted in the manner and to the addresses required by the Note Purchase Agreement, or to such other addresses as Guarantor and Holder may specify from time to time in writing. |
| 10. | Governing Law; Jurisdiction and Venue; Arbitration. This Guaranty shall be governed by the internal laws of the State of Delaware, without regard to conflict of law principles that would result in the application of any law other than the law of the State of Delaware. Subject to the last sentence of this Section 10, each of the parties hereto irrevocably submits to the non-exclusive jurisdiction of the state and federal courts located in the State of Delaware over any suit, action or proceeding arising out of or relating to this Guaranty. Except for claims, disputes and controversies that are not subject to arbitration by applicable law, any and all claims, disputes and controversies between or among the parties hereto, whether in tort, contract or otherwise, arising out of or relating to this Guaranty shall, upon demand by any party, be determined by binding arbitration in the State of Delaware (or such other location as the parties mutually agree). The arbitration shall be administered by JAMS pursuant to its Expedited Arbitration Procedures then in effect (or any other form of arbitration mutually acceptable to the parties so involved). Judgment on the award may be entered in any state or federal court having jurisdiction in the State of Delaware. |
3
**11.** **WAIVER OF JURY TRIAL.** EACH OF THE GUARANTOR AND HOLDER HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG ANY OF THEM ARISING OUT OF, CONNECTED WITH, RELATING TO OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN CONNECTION WITH THIS GUARANTY**.**
**12.** **Miscellaneous.** This Guaranty and the other Cloud Agreements referenced herein constitute the entire agreement of the Guarantor and the Holder with respect to the matters set forth herein and therein. The rights and remedies herein provided are cumulative and not exclusive of any remedies provided by law or any other agreement, and this Guaranty shall be in addition to any other guaranty of the Obligations. The invalidity or unenforceability of any one or more sections of this Guaranty shall not affect the validity or enforceability of its remaining provisions. Captions are for the ease of reference only and shall not affect the meaning of the relevant provisions. The meanings of all defined terms used in this Guaranty shall be equally applicable to the singular and plural, masculine, feminine and generic forms of the terms defined. The words “execution,” “signed,” “signature,” and words of like import in this Guaranty (or in any amendment, waiver, consent, joinder or supplement hereto or any other document delivered hereunder) shall be deemed to include images of manually executed signatures transmitted by facsimile or other electronic format (including, without limitation, “.pdf”, “.tif” or “.jpg”) and other electronic signatures (including, without limitation, DocuSign and AdobeSign), each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, or the Uniform Electronic Transactions Act.
[SIGNATURE
PAGE FOLLOWS]
4
IN
WITNESS WHEREOF, the Guarantor has caused this Guaranty to be executed and delivered as of the date appearing in the introductory paragraph
of this Guaranty.
GUARANTOR:
SOLUNA CLOUD, INC.
By:
Name: John Belizaire
Title: CEO
ACKNOWLEDGED
AND AGREED TO:
HOLDER:
[***]
---
## EX-31.1
SEC source: [ex31-1.htm](https://www.sec.gov/Archives/edgar/data/64463/000149315224032123/ex31-1.htm)
**Exhibit
31.1**
**CERTIFICATION
OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002**
I,
John Belizaire, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Soluna Holdings, Inc.; |
| --- | --- |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| | a) |
| | b) |
| | c) |
| | d) |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
| | (a) |
| | (b) |
August 14, 2024 */s/ John Belizaire*
John Belizaire
Chief Executive Officer
(Principal Executive Officer)
---
## EX-31.2
SEC source: [ex31-2.htm](https://www.sec.gov/Archives/edgar/data/64463/000149315224032123/ex31-2.htm)
**Exhibit
31.2**
**CERTIFICATION
OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002**
I,
John Tunison certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Soluna Holdings, Inc.; |
| --- | --- |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| | a) |
| | b) |
| | c) |
| | d) |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
| | (a) |
| | (b) |
August 14, 2024 */s/ John Tunison*
John Tunison
Chief Financial Officer
(Principal Financial Officer)
---
## EX-32.1
SEC source: [ex32-1.htm](https://www.sec.gov/Archives/edgar/data/64463/000149315224032123/ex32-1.htm)
**Exhibit
32.1**
**Soluna
Holdings, Inc.**
**Certification
of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
**(18
U.S.C. Section 1350)**
In
connection with the Quarterly Report on Form 10-Q of Soluna Holdings, Inc. (the “Company”) for the three and six month period
ended June 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John Belizaire,
Chief Executive Officer of the Company, certify, pursuant to the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, (18 U.S.C.
Sections 1350(a) and (b)), that, to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
August 14, 2024 */s/ John Belizaire*
John Belizaire
Chief Executive Officer
(Principal Executive Officer)
This
certification is made solely for the purpose of 18 U.S.C. Section 1350, and is not being filed as part of the Report or as a separate
disclosure document, and may not be disclosed, distributed or used by any person for any reason other than as specifically required by
law.
---
## EX-32.2
SEC source: [ex32-2.htm](https://www.sec.gov/Archives/edgar/data/64463/000149315224032123/ex32-2.htm)
**Exhibit
32.2**
**Soluna
Holdings, Inc.**
**Certification
of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
**(18
U.S.C. Section 1350)**
In
connection with the Quarterly Report on Form 10-Q of Soluna Holdings, Inc. (the “Company”) for the three and six month period
ended June 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John Tunison,
Chief Financial Officer of the Company, certify, pursuant to the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, (18 U.S.C.
Sections 1350(a) and (b)), that, to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
August 14, 2024 */s/ John Tunison*
John Tunison
Chief Financial Officer
(Principal Financial Officer)
This
certification is made solely for the purpose of 18 U.S.C. Section 1350, and is not being filed as part of the Report or as a separate
disclosure document, and may not be disclosed, distributed or used by any person for any reason other than as specifically required by
law.