Company: SLNH
Filing Date: 2025-02-05
Form Type: 424B3
Source: 0001493152-25-005030
Chunk: 160

Company: Soluna Holdings, Inc
Filing Date: 2025-02-05
Form: 424B3
Chunk 160
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angible assets triggered by the impairment indicators as a critical audit matter because the analysis includes significant estimates, assumptions and judgments. Specifically, the determination of the fair value of the strategic pipeline contracts was based on the status of the projects, undiscounted cash flows and the probability of realization of the benefit. The determination of the intangible fair value required management to make significant judgments, including the appropriateness of the valuation model and the reasonableness of estimates and assumptions included in the model. Changes in these estimates and assumptions could have a significant impact on the fair value of the intangible assets. Auditing these elements involved especially challenging auditor judgment due to the subjectivity and the nature and extent of audit effort required to address the matter, including the extent of specialized skills or knowledge needed.

How We Addressed the Matter in Our Audit

We gained an understanding of certain internal controls over the Company’s process to analyze the intangible asset for impairment, including controls related to the Company’s valuation. For example, we gained an understanding of controls over the estimation process supporting the impairment analysis of the strategic pipeline contracts intangible asset, which included controls over management’s review of assumptions used in its impairment analysis.

To test the impairment analysis of the strategic pipeline contracts, we performed audit procedures that included, among others, evaluating the methodology used by the Company’s valuation specialist, and evaluating the reasonableness of the key assumptions used to determine the estimated undiscounted cash flow. We utilized our firm’s valuation specialists to assist with the evaluation of the methodology used by management and significant assumptions included in the impairment analysis, including testing the likelihood of various scenarios. For example, we compared the Company’s budgets and forecasts and reviewed the status of the projects used as part of the determination of the likelihood of the various scenarios. We performed a sensitivity analysis over key assumptions used in the analysis. We also evaluated the adequacy of the Company’s disclosures included in Note 2 and Note 6 in relation to this valuation.

Fair value of the Warrants and Convertible Note

Description of the Matter

As discussed in Note 10 to the financial statements, the Company had a total of approximately 1.1 million common stock purchase warrants outstanding as of December 31, 2023. In addition, as discussed in Note 9 to the financial statements, the fair value of the convertible notes payable was $8.5 million as of December 31, 2023. The Company uses option pricing models to estimate the fair value of the warrants using various market-based inputs. The convertible notes