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 of approximately 3 years to less than ten years. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. As of June 30, 2025 and December 31, 2024, the Company has no assets recorded under finance leases.

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:

Summary of Lease Expense Recognized on Straight-line Basis Over Lease Term  

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 asset or liability for such leases. On April 3, 2025, Soluna KK Energy ServiceCo, LLC (“Soluna KK Energy”), a subsidiary of the Company, entered into a lease agreement for 50 acres of property located in Willacy County, Texas, for the purpose of constructing, installing, operating, and maintaining modular data centers and related facilities. Soluna KK Energy can terminate the lease within six months of April 3, 2025. As of June 30, 2025, there was uncertainty over project funding and whether the Company would extend the lease agreement. As such, the Company recorded the lease agreement as short-term. If Soluna KK Energy extends the lease agreement for an additional term of twenty-two years, the Company will record a right-of-use asset and lease liability.

Other information related to leases was as follows:

 Schedule of Other Information Related to Leases 

Maturities of noncancellable operating lease liabilities are as follows for the quarter ending June 30:

 Schedule of Maturity of Operating Lease Liabilities 

As of June 30, 2025, there were no additional operating lease commitments that had not yet commenced.

Project Dorothy 2 and Project Kati Commitments:

As of June 30, 2025, the Company was contractually committed for approximately $10.1 million of capital expenditures, primarily related to infrastructure builds, equipment procurement, and labor associated with the Company’s Project Dorothy 2 and Project Kati datacenters. These capital expenditures are expected to occur over the current year.

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 $45.0 million aggregate contribution cap. The Company considers the probability of a payment for the contingency to be remote.

Bonus Contingency

During the year ended December 31, 2024, the Company’s Board of Directors approved a discretionary bonus program with an aggregate payout of approximately $2.1 million, including associated payroll taxes. The bonus is subject to achievement of specific conditions. As of June 30, 2025, management evaluated the likelihood of meeting the requisite conditions for payout and determined that it is not probable that conditions will be satisfied. Accordingly, no liability has been recorded in the accompanying condensed consolidated financial statements as of June 30, 2025 and December 31, 2024. The Company will continue to monitor the status of the conditions and will recognize a liability in future periods if and when it becomes probable that the bonus will be paid.

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.

On December 29, 2022, NYDIG filed a complaint against Soluna MC Borrowings, LLC 2021- 1, a subsidiary of Soluna MC, LLC, a subsidiary of Soluna Digital, a subsidiary of the Company (“Borrower”) and Soluna MC, LLC (“Guarantor”, and together with Borrower, “NYDIG Defendants”) in Marshall Circuit Court of the Commonwealth of Kentucky regarding a series of loans (the “NYDIG Loans”) made by NYDIG to Borrower pursuant to a Master Equipment Finance Agreement (“MEFA”) that were secured by certain assets of Borrower and guaranteed by Guarantor pursuant to a written guaranty agreement executed by Guarantor. On February 23, 2023, NYDIG proceeded to foreclose on all of the collateral securing the MEFA, and repossessed the collateralized assets. Subsequently, NYDIG filed its Motion for Summary Judgment seeking entry of a judgment against the NYDIG Defendants in the approximate amount of $10.3 million, and NYDIG and the NYDIG Defendants consensually resolved the motion in the form of a Stipulation and Agreed Judgment, which the Circuit Court approved on February 23, 2024.

On March 13, 2024, NYDIG served the NYDIG Defendants with a post-judgment discovery seeking information regarding the NYDIG Defendants’ assets and liabilities. The NYDIG Defendants completed responding to NYDIG’s initial document requests on May 13, 2024. On September 24, 2024, NYDIG sent a letter seeking supplemental discovery from the NYDIG Defendants, and the NYDIG Defendants completed responding to NYDIG’s additional/supplemental document requests by November 20, 2024. A deposition of a representative of the NYDIG Defendants occurred on January 23, 2025. On April 2, 2025, NYDIG sent another letter seeking supplemental discovery from the NYDIG Defendants or alternatively to commence discovery discussions. The NYDIG Defendants sent a response on April 10, 2025 requesting contact information for potential settlement discussions and proposing a rolling discovery schedule; as of August 14, 2025 there has not been a response on the proposed discovery schedule.

Additionally, NYDIG has stated its intention to pursue the parent company of Guarantor (“Parent Entity”) under a piercing of the corporate veil theory relating to NYDIG Defendants’ debts and liabilities under the loan documents. Parent Entity intends to vigorously defend itself from NYDIG’s parent company claims. Parent Entity denies any such liability and 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. On June 22, 2023, the court issued an order granting NYDIG’s motion to dismiss, without prejudice. Parent Entity intends to continue to vigorously defend any allegations regarding liability on account of NYDIG Defendants’ debts and liabilities to NYDIG under their loan documents.

As of June 30, 2025, the Company still has an outstanding principal of approximately $9.2 million and outstanding interest and penalty balance of approximately $3.0 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.