Company: SLNH
Filing Date: 2025-05-15
Form Type: 10-Q
Source: 0001641172-25-010886
Chunk: 16

Company: Soluna Holdings, Inc
Filing Date: 2025-05-15
Form: 10-Q
Item: Part I, Item 1
Chunk 16
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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 March 31, 2025. See Note 1 for details.

7. Income Taxes

During the three months ended March 31,
2025 and 2024, the Company’s effective income tax rate was 5.54%
and 17.72%.
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.
There was $425 thousand and
$548 thousand income tax benefit
for the three months ended March 31, 2025 and 2024.

In connection with the strategic contract pipeline
acquired in the Soluna Callisto 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 months
ended March 31, 2025 and 2024, the Company amortized $547 thousand each period.

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 incomes 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