Company: SLNH
Filing Date: 2025-11-14
Form Type: 10-Q
Source: 0001493152-25-023503
Chunk: 22

Company: Soluna Holdings, Inc
Filing Date: 2025-11-14
Form: 10-Q
Item: Part I, Item 1
Chunk 22
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 pay all of the unpaid fees that were payable over the
entire term of the HPE Agreement. In accordance with the terms of the HPE Agreement, upon a termination for cause by HPE, CloudCo must
pay HPE the remaining payment stream under the term of the HPE Agreement, including all upfront payments and monthly charges, plus any
fees incurred for the terminated Services (as defined in the HPE Agreement). As of December 31, 2024, the Company reduced its prepaid
assets and other long-term assets by approximately $8.6 million, increased termination liability by approximately $20.0 million and recorded
a loss on contract of approximately $28.6 million to account for the termination of the contract and CloudCo’s contractual payments.
The liability has been reduced to approximately $19.3 million as of September 30, 2025. CloudCo has not made any additional payments under
the HPE Agreement since CloudCo notified HPE of its termination of the HPE Agreement.

7.
Income Taxes

During
the three and nine months ended September 30, 2025, the Company’s effective income tax rate was 2.5% and 4.0%, respectively, and
for the three and nine months ended September 30, 2024, the Company’s effective tax rate was 6.3% and 8.1%, respectively. 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 2025 and permanent differences. For the three months ended September 30, 2025 and 2024,
there was a deferred income tax benefit of $666 thousand and $547 thousand, respectively. For the nine months ended September 30, 2025
and 2024, there was a deferred income tax benefit of approximately $1.7 million and $1.8 million, respectively, offset by a $9 thousand
and $63 thousand current tax expense for the nine months ended September 30, 2025 and 2024, respectively.

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