UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31,~~June 30, 2023


☐			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: 001-40931

Stronghold Digital Mining, Inc.

(Exact name of registrant as specified in its charter)


Delaware			86-2759890
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

595 Madison Avenue, 28th Floor New York, New York			10022
(Address of principal executive offices)			(Zip Code)

(845) 579-5992

(Registrant's telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock	SDIG	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 x 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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~May 8,~~August 7, 2023, the registrant had outstanding ~~53,002,750~~7,397,605 shares of Class A common stock, par value $0.0001 per share, 21,572 shares of Series C convertible preferred stock, par value $0.0001 per share, and ~~26,057,600~~2,405,760 shares of Class V common stock, par value $0.0001 per share. On May 15, 2023, the Company effected a 1-for-10 reverse stock split ("Reverse Stock Split") of its Class A common stock, par value $0.0001 per share, and Class V common stock, par value $0.0001 per share. All share and per share amounts and related stockholders' equity balances presented herein have been retroactively adjusted to reflect the Reverse Stock Split.

Table of Contents

Part I - Financial Information

Item 1. Financial Statements

STRONGHOLD DIGITAL MINING, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


		March 31, 2023		December 31, 2022			June 30, 2023		December 31, 2022
ASSETS:	ASSETS:					ASSETS:
Cash and cash equivalents	Cash and cash equivalents	$	6,353,973	$	13,296,703	Cash and cash equivalents	$	5,104,192	$	13,296,703
Digital currencies	Digital currencies	672,852		109,827		Digital currencies	1,429,653		109,827
Accounts receivable	Accounts receivable	4,742,092		10,837,126		Accounts receivable	2,338,099		10,837,126
Inventory	Inventory	4,700,832		4,471,657		Inventory	4,168,189		4,471,657
Prepaid insurance	Prepaid insurance	3,541,898		4,877,935		Prepaid insurance	3,311,214		5,471,498
Due from related parties	Due from related parties	74,107		73,122		Due from related parties	69,947		73,122
Other current assets	Other current assets	1,354,955		1,975,300		Other current assets	1,047,731		1,381,737
Total current assets	Total current assets	21,440,709		35,641,670		Total current assets	17,469,025		35,641,670
Equipment deposits	Equipment deposits	5,422,338		10,081,307		Equipment deposits	5,422,338		10,081,307
Property, plant and equipment, net	Property, plant and equipment, net	158,366,684		167,204,681		Property, plant and equipment, net	160,398,999		167,204,681
Operating lease right-of-use assets	Operating lease right-of-use assets	1,581,400		1,719,037		Operating lease right-of-use assets	1,722,900		1,719,037
Land	Land	1,748,440		1,748,440		Land	1,748,440		1,748,440
Road bond	Road bond	211,958		211,958		Road bond	211,958		211,958
Security deposits	Security deposits	348,888		348,888		Security deposits	348,888		348,888
TOTAL ASSETS	TOTAL ASSETS	$	189,120,417	$	216,955,981	TOTAL ASSETS	$	187,322,548	$	216,955,981
LIABILITIES:	LIABILITIES:					LIABILITIES:
Accounts payable	Accounts payable	$	14,847,939	$	27,540,317	Accounts payable	$	16,158,911	$	27,540,317
Accrued liabilities	Accrued liabilities	7,112,648		8,893,248		Accrued liabilities	8,630,165		8,893,248
Financed insurance premiums	Financed insurance premiums	2,806,538		4,587,935		Financed insurance premiums	1,993,120		4,587,935
Current portion of long-term debt, net of discounts and issuance fees	Current portion of long-term debt, net of discounts and issuance fees	995,145		17,422,546		Current portion of long-term debt, net of discounts and issuance fees	796,668		17,422,546
Current portion of operating lease liabilities	Current portion of operating lease liabilities	613,657		593,063		Current portion of operating lease liabilities	724,539		593,063
Due to related parties	Due to related parties	1,612,515		1,375,049		Due to related parties	910,376		1,375,049
Total current liabilities	Total current liabilities	27,988,442		60,412,158		Total current liabilities	29,213,779		60,412,158
Asset retirement obligation	Asset retirement obligation	1,036,575		1,023,524		Asset retirement obligation	1,049,626		1,023,524
Warrant liabilities	Warrant liabilities	2,846,548		2,131,959		Warrant liabilities	5,253,582		2,131,959
Long-term debt, net of discounts and issuance fees	Long-term debt, net of discounts and issuance fees	58,208,207		57,027,118		Long-term debt, net of discounts and issuance fees	57,965,960		57,027,118
Long-term operating lease liabilities	Long-term operating lease liabilities	1,067,654		1,230,001		Long-term operating lease liabilities	1,095,116		1,230,001
Contract liabilities	Contract liabilities	277,397		351,490		Contract liabilities	456,582		351,490
Total liabilities	Total liabilities	91,424,823		122,176,250		Total liabilities	95,034,645		122,176,250
COMMITMENTS AND CONTINGENCIES (NOTE 10)	COMMITMENTS AND CONTINGENCIES (NOTE 10)					COMMITMENTS AND CONTINGENCIES (NOTE 10)
REDEEMABLE COMMON STOCK:	REDEEMABLE COMMON STOCK:					REDEEMABLE COMMON STOCK:
Common Stock – Class V; $0.0001 par value; 34,560,000 shares authorized; 26,057,600 and 26,057,600 shares issued and outstanding as of March 31, 2023, and December 31, 2022, respectively.		15,499,219		11,754,587
Common Stock – Class V; $0.0001 par value; 34,560,000 shares authorized; 2,405,760 and 2,605,760 shares issued and outstanding as of June 30, 2023, and December 31, 2022, respectively.						Common Stock – Class V; $0.0001 par value; 34,560,000 shares authorized; 2,405,760 and 2,605,760 shares issued and outstanding as of June 30, 2023, and December 31, 2022, respectively.	9,947,656		11,754,587
Total redeemable common stock	Total redeemable common stock	15,499,219		11,754,587		Total redeemable common stock	9,947,656		11,754,587
STOCKHOLDERS’ EQUITY (DEFICIT):	STOCKHOLDERS’ EQUITY (DEFICIT):					STOCKHOLDERS’ EQUITY (DEFICIT):
Common Stock – Class A; $0.0001 par value; 685,440,000 shares authorized; 41,046,186 and 31,710,217 shares issued and outstanding as of March 31, 2023, and December 31, 2022, respectively.		4,105		3,171
Series C convertible preferred stock; $0.0001 par value; 23,102 shares authorized; 21,572 and 0 shares issued and outstanding as of March 31, 2023, and December 31, 2022, respectively.		2		—
Common Stock – Class A; $0.0001 par value; 685,440,000 shares authorized; 5,976,099 and 3,171,022 shares issued and outstanding as of June 30, 2023, and December 31, 2022, respectively.						Common Stock – Class A; $0.0001 par value; 685,440,000 shares authorized; 5,976,099 and 3,171,022 shares issued and outstanding as of June 30, 2023, and December 31, 2022, respectively.	606		317
Series C convertible preferred stock; $0.0001 par value; 23,102 shares authorized; 21,572 and 0 shares issued and outstanding as of June 30, 2023, and December 31, 2022, respectively.						Series C convertible preferred stock; $0.0001 par value; 23,102 shares authorized; 21,572 and 0 shares issued and outstanding as of June 30, 2023, and December 31, 2022, respectively.	2		—
Accumulated deficits	Accumulated deficits	(290,848,496)		(240,443,302)		Accumulated deficits	(298,199,062)		(240,443,302)
Additional paid-in capital	Additional paid-in capital	373,040,764		323,465,275		Additional paid-in capital	380,538,701		323,468,129
Total stockholders' equity	Total stockholders' equity	82,196,375		83,025,144		Total stockholders' equity	82,340,247		83,025,144
Total redeemable common stock and stockholders' equity	Total redeemable common stock and stockholders' equity	97,695,594		94,779,731		Total redeemable common stock and stockholders' equity	92,287,903		94,779,731
TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' EQUITY	TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' EQUITY	$	189,120,417	$	216,955,981	TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' EQUITY	$	187,322,548	$	216,955,981

The accompanying notes are an integral part of these condensed consolidated financial statements.

STRONGHOLD DIGITAL MINING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


		Three Months Ended				Three Months Ended				Six Months Ended
		March 31, 2023		March 31, 2022				June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
OPERATING REVENUES:	OPERATING REVENUES:						OPERATING REVENUES:
Cryptocurrency mining	Cryptocurrency mining	$	11,297,298	$	18,204,193		Cryptocurrency mining	$	13,782,798	$	20,227,536	$	25,080,096	$	38,431,729
Energy	Energy	2,730,986		9,044,392			Energy	740,793		7,691,226		3,471,779		16,735,618
Cryptocurrency hosting	Cryptocurrency hosting	2,325,996		67,876			Cryptocurrency hosting	3,079,701		121,172		5,405,697		189,048
Capacity	Capacity	859,510		2,044,427			Capacity	582,557		1,668,001		1,442,067		3,712,428
Other	Other	52,425		20,762			Other	47,892		32,008		100,317		52,770
Total operating revenues	Total operating revenues	17,266,215		29,381,650			Total operating revenues	18,233,741		29,739,943		35,499,956		59,121,593
OPERATING EXPENSES:	OPERATING EXPENSES:						OPERATING EXPENSES:
Fuel	Fuel	7,414,014		10,019,985			Fuel	6,291,501		9,188,165		13,705,515		19,208,150
Operations and maintenance	Operations and maintenance	8,440,923		10,520,305			Operations and maintenance	8,804,097		16,586,756		17,245,020		27,921,089
General and administrative	General and administrative	8,468,755		11,424,231			General and administrative	10,077,738		10,903,876		18,546,493		21,514,079
Depreciation and amortization	Depreciation and amortization	7,722,841		12,319,581			Depreciation and amortization	8,634,967		12,667,300		16,357,808		24,986,881
Loss on disposal of fixed assets	Loss on disposal of fixed assets	91,086		44,958			Loss on disposal of fixed assets	17,281		1,724,642		108,367		1,769,600
Realized gain on sale of digital currencies	Realized gain on sale of digital currencies	(326,768)		(751,110)			Realized gain on sale of digital currencies	(266,665)		—		(593,433)		(751,110)
Realized loss on sale of miner assets							Realized loss on sale of miner assets	—		8,012,248		—		8,012,248
Impairments on miner assets							Impairments on miner assets	—		4,990,000		—		4,990,000
Impairments on digital currencies	Impairments on digital currencies	71,477		2,506,172			Impairments on digital currencies	254,353		5,205,045		325,830		7,711,217
Impairments on equipment deposits	Impairments on equipment deposits	—		12,228,742			Impairments on equipment deposits	—		—		—		12,228,742
Total operating expenses	Total operating expenses	31,882,328		58,312,864			Total operating expenses	33,813,272		69,278,032		65,695,600		127,590,896
NET OPERATING LOSS	NET OPERATING LOSS	(14,616,113)		(28,931,214)			NET OPERATING LOSS	(15,579,531)		(39,538,089)		(30,195,644)		(68,469,303)
OTHER INCOME (EXPENSE):	OTHER INCOME (EXPENSE):						OTHER INCOME (EXPENSE):
Interest expense	Interest expense	(2,383,913)		(2,911,453)			Interest expense	(2,603,478)		(4,508,782)		(4,987,391)		(7,420,235)
Loss on debt extinguishment	Loss on debt extinguishment	(28,960,947)		—			Loss on debt extinguishment	—		—		(28,960,947)		—
Gain on extinguishment of PPP loan							Gain on extinguishment of PPP loan	—		841,670		—		841,670
Changes in fair value of warrant liabilities	Changes in fair value of warrant liabilities	(714,589)		—			Changes in fair value of warrant liabilities	6,475,880		—		5,761,291		—
Changes in fair value of forward sale derivative	Changes in fair value of forward sale derivative	—		(483,749)			Changes in fair value of forward sale derivative	—		3,919,388		—		3,435,639
Changes in fair value of convertible note							Changes in fair value of convertible note	—		(962,761)		—		(962,761)
Other	Other	15,000		20,000			Other	15,000		10,000		30,000		30,000
Total other income (expense)	Total other income (expense)	(32,044,449)		(3,375,202)			Total other income (expense)	3,887,402		(700,485)		(28,157,047)		(4,075,687)
NET LOSS	NET LOSS	$	(46,660,562)	$	(32,306,416)		NET LOSS	$	(11,692,129)	$	(40,238,574)	$	(58,352,691)	$	(72,544,990)
NET LOSS attributable to noncontrolling interest	NET LOSS attributable to noncontrolling interest	(18,119,131)		(18,897,638)			NET LOSS attributable to noncontrolling interest	(3,355,873)		(23,537,554)		(21,475,004)		(42,435,192)
NET LOSS attributable to Stronghold Digital Mining, Inc.	NET LOSS attributable to Stronghold Digital Mining, Inc.	$	(28,541,431)	$	(13,408,778)		NET LOSS attributable to Stronghold Digital Mining, Inc.	$	(8,336,256)	$	(16,701,020)	$	(36,877,687)	$	(30,109,798)
NET LOSS attributable to Class A common shareholders:	NET LOSS attributable to Class A common shareholders:						NET LOSS attributable to Class A common shareholders:
Basic	Basic	$	(0.65)	$	(0.66)		Basic	$	(1.35)	$	(8.21)	$	(6.99)	$	(14.85)
Diluted	Diluted	$	(0.65)	$	(0.66)		Diluted	$	(1.35)	$	(8.21)	$	(6.99)	$	(14.85)
Weighted average number of Class A common shares outstanding:	Weighted average number of Class A common shares outstanding:						Weighted average number of Class A common shares outstanding:
Basic	Basic	43,756,137		20,206,103			Basic	6,163,450		2,034,107		5,274,471		2,027,468
Diluted	Diluted	43,756,137		20,206,103			Diluted	6,163,450		2,034,107		5,274,471		2,027,468

The accompanying notes are an integral part of these condensed consolidated financial statements.

STRONGHOLD DIGITAL MINING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)


		Three Months Ended March 31, 2023																Three Months Ended June 30, 2023
		Convertible Preferred			Noncontrolling Redeemable Preferred			Common A										Convertible Preferred			Noncontrolling Redeemable Preferred			Common A
		Series C Shares	Amount		Series A Shares	Amount		Shares	Amount		Accumulated Deficit		Additional Paid-in Capital		Stockholders’ Equity			Series C Shares	Amount		Series A Shares	Amount		Shares	Amount		Accumulated Deficit		Additional Paid-in Capital		Stockholders’ Equity
Balance – January 1, 2023		—	$	—	—	$	—	31,710,217	$	3,171	$	(240,443,302)	$	323,465,275	$	83,025,144
Balance – April 1, 2023																	Balance – April 1, 2023	21,572	$	2	—	$	—	4,104,617	$	411	$	(290,848,496)	$	373,044,458	$	82,196,375
Net loss attributable to Stronghold Digital Mining, Inc.	Net loss attributable to Stronghold Digital Mining, Inc.	—	—		—	—		—	—		(28,541,431)		—		(28,541,431)		Net loss attributable to Stronghold Digital Mining, Inc.	—	—		—	—		—	—		(8,336,256)		—		(8,336,256)
Net loss attributable to noncontrolling interest	Net loss attributable to noncontrolling interest	—	—		—	—		—	—		(18,119,131)		—		(18,119,131)		Net loss attributable to noncontrolling interest	—	—		—	—		—	—		(3,355,873)		—		(3,355,873)
Maximum redemption right valuation [Common V Units]	Maximum redemption right valuation [Common V Units]	—	—		—	—		—	—		(3,744,632)		—		(3,744,632)		Maximum redemption right valuation [Common V Units]	—	—		—	—		—	—		4,341,563		—		4,341,563
Stock-based compensation	Stock-based compensation	—	—		—	—		—	—		—		2,449,324		2,449,324		Stock-based compensation	—	—		—	—		250,000	25		—		4,366,699		4,366,724
Vesting of restricted stock units	Vesting of restricted stock units	—	—		—	—		508,319	51		—		(51)		—		Vesting of restricted stock units	—	—		—	—		202,932	20		—		(20)		—
Warrants issued and outstanding		—	—		—	—		—	—		—		1,739,882		1,739,882

Exercised warrants	Exercised warrants	—	—		—	—		5,002,650	501		—		(228)		273		Exercised warrants	—	—		—	—		633,318	63		—		(20)		43
Issuance of Series C convertible preferred stock		23,102	2		—	—		—	—		—		45,386,944		45,386,946
Conversion of Series C convertible preferred stock		(1,530)	—		—	—		3,825,000	382		—		(382)		—
Balance – March 31, 2023		21,572	$	2	—	$	—	41,046,186	$	4,105	$	(290,848,496)	$	373,040,764	$	82,196,375
Redemption of Class V shares																	Redemption of Class V shares	—	—		—	—		200,000	20		—		1,209,980		1,210,000
Issuance of common stock to settle payables																	Issuance of common stock to settle payables	—	—		—	—		97,330	10		—		973,184		973,194
Issuance of common stock - April 2023 Private Placement																	Issuance of common stock - April 2023 Private Placement	—	—		—	—		566,661	57		—		941,595		941,652
Issuance of common stock - ATM Agreement																	Issuance of common stock - ATM Agreement	—	—		—	—		760	—		—		2,825		2,825
Balance – June 30, 2023																	Balance – June 30, 2023	21,572	$	2	—	$	—	6,055,618	$	606	$	(298,199,062)	$	380,538,701	$	82,340,247


		Three Months Ended March 31, 2022																Three Months Ended June 30, 2022
		Convertible Preferred			Noncontrolling Redeemable Preferred			Common A										Convertible Preferred			Noncontrolling Redeemable Preferred			Common A
		Series C Shares	Amount		Series A Shares	Amount		Shares	Amount		Accumulated Deficit		Additional Paid-in Capital		Stockholders’ Equity			Series C Shares	Amount		Series A Shares	Amount		Shares	Amount		Accumulated Deficit		Additional Paid-in Capital		Stockholders’ Equity
Balance – January 1, 2022		—	$	—	1,152,000	$	37,670,161	20,016,067	$	2,002	$	(338,709,688)	$	241,872,747	$	(59,164,778)
Balance – April 1, 2022																	Balance – April 1, 2022	—	$	—	1,152,000	$	36,898,361	2,002,088	$	200	$	(241,895,907)	$	245,617,544	$	40,620,198
Net loss attributable to Stronghold Digital Mining, Inc.	Net loss attributable to Stronghold Digital Mining, Inc.	—	—		—	—		—	—		(13,408,778)		—		(13,408,778)		Net loss attributable to Stronghold Digital Mining, Inc.	—	—		—	—		—	—		(16,701,020)		—		(16,701,020)
Net loss attributable to noncontrolling interest	Net loss attributable to noncontrolling interest	—	—		—	(771,800)		—	—		(18,125,838)		—		(18,897,638)		Net loss attributable to noncontrolling interest	—	—		—	(961,300)		—	—		(22,576,254)		—		(23,537,554)
Maximum redemption right valuation [Common V Units]	Maximum redemption right valuation [Common V Units]	—	—		—	—		—	—		128,348,397		—		128,348,397		Maximum redemption right valuation [Common V Units]	—	—		—	—		—	—		125,464,316		—		125,464,316
Stock-based compensation	Stock-based compensation	—	—		—	—		—	—		—		1,150,000		1,150,000		Stock-based compensation	—	—		—	—		—	—		—		3,152,631		3,152,631
Vesting of restricted stock units	Vesting of restricted stock units	—	—		—	—		4,810	—		—		—		—		Vesting of restricted stock units	—	—		—	—		1,400	—		—		—		—
Warrants issued and outstanding	Warrants issued and outstanding	—	—		—	—		—	—		—		2,592,995		2,592,995		Warrants issued and outstanding	—	—		—	—		—	—		—		6,604,881		6,604,881
Balance – March 31, 2022		—	$	—	1,152,000	$	36,898,361	20,020,877	$	2,002	$	(241,895,907)	$	245,615,742	$	40,620,198
Balance – June 30, 2022																	Balance – June 30, 2022	—	$	—	1,152,000	$	35,937,061	2,003,488	$	200	$	(155,708,865)	$	255,375,056	$	135,603,452

The accompanying notes are an integral part of these condensed consolidated financial statements.

STRONGHOLD DIGITAL MINING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~STOCKHOLDERS’ EQUITY

(UNAUDITED)

Three Months Ended
March 31, 2023 March 31, 2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (46,660,562) $ (32,306,416)
Adjustments to reconcile net loss to cash flows from operating activities:
Depreciation and amortization 7,722,841 12,319,581
Accretion of asset retirement obligation 13,051 6,084
Loss on disposal of fixed assets 91,086 44,958
Change in value of accounts receivable 1,002,750 —
Amortization of debt issuance costs 34,517 881,463
Stock-based compensation 2,449,324 2,592,995
Loss on debt extinguishment 28,960,947 —
Impairments on equipment deposits — 12,228,742
Changes in fair value of warrant liabilities 714,589 —
Changes in fair value of forward sale derivative — 483,749
Forward sale contract prepayment — 970,000
Other (12,139) —
(Increase) decrease in digital currencies:
Mining revenue (12,921,075) (18,204,193)
Net proceeds from sales of digital currencies 12,286,573 12,247,300
Impairments on digital currencies 71,477 2,506,172
(Increase) decrease in assets:
Accounts receivable 4,959,865 410,525
Prepaid insurance 1,336,037 1,852,595
Due from related parties (68,436) (864,624)
Inventory (229,175) (179,774)
Other assets (296,265) (37,242)
Increase (decrease) in liabilities:
Accounts payable (1,390,895) (410,917)
Due to related parties 237,466 68,647
Accrued liabilities (1,518,296) 1,227,709
Other liabilities, including contract liabilities (125,146) (55,742)
NET CASH FLOWS USED IN OPERATING ACTIVITIES (3,341,466) (4,218,388)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (13,738) (38,157,218)
Equipment purchase deposits - net of future commitments — (6,482,000)
NET CASH FLOWS USED IN INVESTING ACTIVITIES (13,738) (44,639,218)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt (1,836,925) (9,290,668)
Repayments of financed insurance premiums (1,750,874) (1,832,149)
Proceeds from debt, net of issuance costs paid in cash — 53,671,001
Proceeds from exercise of warrants 273 —
NET CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES (3,587,526) 42,548,184
NET DECREASE IN CASH AND CASH EQUIVALENTS (6,942,730) (6,309,422)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 13,296,703 31,790,115
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 6,353,973 $ 25,480,693


	Six Months Ended June 30, 2023
	Convertible Preferred			Noncontrolling Redeemable Preferred			Common A
	Series C Shares	Amount		Series A Shares	Amount		Shares	Amount		Accumulated Deficit		Additional Paid-in Capital		Stockholders’ Equity
Balance – January 1, 2023	—	$	—	—	$	—	3,171,022	$	317	$	(240,443,302)	$	323,468,129	$	83,025,144
Net loss attributable to Stronghold Digital Mining, Inc.	—	—		—	—		—	—		(36,877,687)		—		(36,877,687)
Net loss attributable to noncontrolling interest	—	—		—	—		—	—		(21,475,004)		—		(21,475,004)
Maximum redemption right valuation [Common V Units]	—	—		—	—		—	—		596,931		—		596,931
Stock-based compensation	—	—		—	—		250,000	25		—		6,816,023		6,816,048
Vesting of restricted stock units	—	—		—	—		253,762	26		—		(26)		—
Warrants issued and outstanding	—	—		—	—		—	—		—		1,739,882		1,739,882
Exercised warrants	—	—		—	—		1,133,583	113		—		203		316
Redemption of Class V shares	—	—		—	—		200,000	20		—		1,209,980		1,210,000
Issuance of common stock to settle payables	—	—		—	—		97,330	10		—		973,184		973,194
Issuance of common stock - April 2023 Private Placement	—	—		—	—		566,661	57		—		941,595		941,652
Issuance of common stock - ATM Agreement	—	—		—	—		760	—		—		2,825		2,825
Issuance of Series C convertible preferred stock	23,102	2		—	—		—	—		—		45,386,944		45,386,946
Conversion of Series C convertible preferred stock	(1,530)	—		—	—		382,500	38		—		(38)		—
Balance – June 30, 2023	21,572	$	2	—	$	—	6,055,618	$	606	$	(298,199,062)	$	380,538,701	$	82,340,247


	Six Months Ended June 30, 2022
	Convertible Preferred			Noncontrolling Redeemable Preferred			Common A
	Series C Shares	Amount		Series A Shares	Amount		Shares	Amount		Accumulated Deficit		Additional Paid-in Capital		Stockholders’ Equity
Balance – January 1, 2022	—	$	—	1,152,000	$	37,670,161	2,001,607	$	200	$	(338,709,688)	$	241,874,549	$	(59,164,778)
Net loss attributable to Stronghold Digital Mining, Inc.	—	—		—	—		—	—		(30,109,798)		—		(30,109,798)
Net loss attributable to noncontrolling interest	—	—		—	(1,733,100)		—	—		(40,702,092)		—		(42,435,192)
Maximum redemption right valuation [Common V Units]	—	—		—	—		—	—		253,812,713		—		253,812,713
Stock-based compensation	—	—		—	—		—	—		—		5,745,625		5,745,625
Vesting of restricted stock units	—	—		—	—		1,881	—		—		—		—
Warrants issued and outstanding	—	—		—	—		—	—		—		7,754,882		7,754,882
Balance – June 30, 2022	—	$	—	1,152,000	$	35,937,061	2,003,488	$	200	$	(155,708,865)	$	255,375,056	$	135,603,452

The accompanying notes are an integral part of these condensed consolidated financial statements.

STRONGHOLD DIGITAL MINING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Six Months Ended
	June 30, 2023		June 30, 2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(58,352,691)	$	(72,544,990)
Adjustments to reconcile net loss to cash flows from operating activities:
Depreciation and amortization	16,357,808		24,986,881
Accretion of asset retirement obligation	26,102		12,169
Gain on extinguishment of PPP loan	—		(841,670)
Loss on disposal of fixed assets	108,367		1,769,600
Realized loss on sale of miner assets	—		8,012,248
Change in value of accounts receivable	1,142,750		—
Amortization of debt issuance costs	109,620		2,060,806
Stock-based compensation	6,816,048		5,745,625
Loss on debt extinguishment	28,960,947		—
Impairments on equipment deposits	—		12,228,742
Impairments on miner assets	—		4,990,000
Changes in fair value of warrant liabilities	(5,761,291)		—
Changes in fair value of forward sale derivative	—		(3,435,639)
Forward sale contract prepayment	—		970,000
Changes in fair value of convertible note	—		962,761
Other	(532,880)		—
(Increase) decrease in digital currencies:
Mining revenue	(28,709,950)		(38,431,729)
Net proceeds from sale of digital currencies	27,064,294		36,006,390
Impairments on digital currencies	325,830		7,711,217
(Increase) decrease in assets:
Accounts receivable	7,140,368		260,136
Prepaid insurance	542,828		3,945,290
Due from related parties	(64,276)		(848,150)
Inventory	303,468		(233,279)
Other assets	306,998		(1,072,267)
Increase (decrease) in liabilities:
Accounts payable	(145,649)		(4,763,351)
Due to related parties	219,778		543,639
Accrued liabilities	27,326		4,393,075
Other liabilities, including contract liabilities	(78,849)		(55,742)
NET CASH FLOWS USED IN OPERATING ACTIVITIES	(4,193,054)		(7,628,238)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(10,581,332)		(57,074,647)
Proceeds from sale of equipment deposits	—		13,844,780
Equipment purchase deposits - net of future commitments	—		(12,073,928)
NET CASH FLOWS USED IN INVESTING ACTIVITIES	(10,581,332)		(55,303,795)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt	(2,446,953)		(24,022,738)
Repayments of financed insurance premiums	(651,495)		(3,906,462)
Proceeds from debt, net of issuance costs paid in cash	(147,385)		92,058,299
Proceeds from private placements, net of issuance costs paid in cash	9,824,567		—
Proceeds from ATM, net of issuance costs paid in cash	2,825		—
Proceeds from exercise of warrants	316		—
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES	6,581,875		64,129,099
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(8,192,511)		1,197,066
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD	13,296,703		31,790,115
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	5,104,192	$	32,987,181

The accompanying notes are an integral part of these condensed consolidated financial statements.

STRONGHOLD DIGITAL MINING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NATURE OF OPERATIONS

Stronghold Digital Mining, Inc. ("Stronghold Inc." or the "Company") is a low-cost, environmentally beneficial, vertically integrated crypto asset mining company ~~currently~~ focused on mining Bitcoin and environmental remediation and reclamation services. The Company wholly owns and operates two coal refuse power generation facilities that it has upgraded: (i) the Company's first reclamation facility located on a 650-acre site in Scrubgrass Township, Venango County, Pennsylvania, which the Company acquired the remaining interest of in April 2021, and has the capacity to generate approximately 83.5 megawatts (“MW”) of electricity (the "Scrubgrass Plant"); and (ii) a facility located near Nesquehoning, Pennsylvania, which the Company acquired in November 2021, and has the capacity to generate approximately 80 MW of electricity (the "Panther Creek Plant," and collectively with the Scrubgrass Plant, the "Plants"). Both facilities qualify as an Alternative Energy System because coal refuse is classified under Pennsylvania law as a Tier II Alternative Energy Source (large-scale hydropower is also classified in this tier). The Company is committed to generating energy and managing its assets sustainably, and the Company believes that it is one of the first vertically integrated crypto asset mining companies with a focus on environmentally beneficial operations.

Stronghold Inc. operates in two business segments – the Energy Operations segment and the Cryptocurrency Operations segment. This segment presentation is consistent with how the Company's chief operating decision maker evaluates financial performance and makes resource allocation and strategic decisions about the business.

Energy Operations

The Company operates as a qualifying cogeneration facility (“Facility”) under the provisions of the Public Utilities Regulatory Policies Act of 1978 and sells its electricity into the PJM Interconnection Merchant Market ("PJM") under a Professional Services Agreement (“PSA”) with Customized Energy Solutions (“CES”), effective July 27, 2022. Under the PSA, CES agreed to act as the exclusive provider of services for the benefit of the Company related to interfacing with PJM, including handling daily marketing, energy scheduling, telemetry, capacity management, reporting, and other related services for the Plants. The initial term of the agreement is two years, and then will extend automatically on an annual basis unless terminated by either party with 60 days written (or electronic) notice prior to the current term end. The Company’s primary fuel source is waste coal which is provided by various third parties. Waste coal tax credits are earned by the Company by generating electricity utilizing coal refuse.

Cryptocurrency Operations

The Company is also a vertically-integrated digital currency mining business. The Company buys and maintains a fleet of Bitcoin ~~mining equipment and~~miners as well as the required infrastructure and provides power to third-party digital currency miners under power purchase and hosting agreements. The digital currency mining operations are in their early stages, and digital currencies and energy pricing mining economics are volatile and subject to uncertainty. The Company’s current strategy will continue to expose it to the numerous risks and volatility associated with the digital mining and power generation sectors, including fluctuating Bitcoin-to-U.S.-Dollar prices, the costs and availability of miners, the number of market participants mining Bitcoin, the availability of other power generation facilities to expand operations, and regulatory changes.

NOTE 1 – BASIS OF PRESENTATION

The unaudited condensed consolidated balance sheet as of ~~March 31,~~June 30, 2023, the unaudited condensed consolidated statements of operations and stockholders' equity for the three and six months ended June 30, 2023, and 2022, and the unaudited condensed consolidated statements of cash flows for the ~~three~~six months ended ~~March 31,~~June 30, 2023, and 2022, have been prepared by the Company. In the opinion of management, all adjustments, consisting of only normal and recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for the periods presented, have been made. The results of operations for the three and six months ended ~~March 31,~~June 30, 2023, are not necessarily indicative of the operating results expected for the full year.

The condensed consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2022. Certain information and footnote disclosures normally included in the annual financial statements, prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), have been condensed or omitted. Certain reclassifications of amounts previously reported have been made to the accompanying condensed consolidated financial statements in order to conform to current presentation.

Additionally, since there are no differences between net income (loss) and comprehensive income (loss), all references to comprehensive income (loss) have been excluded from the condensed consolidated financial statements.

On May 15, 2023, following approval by the Board of Directors (the "Board") and stockholders of the Company, the Company effected a 1-for-10 reverse stock split ("Reverse Stock Split") of its Class A common stock, par value $0.0001 per share, and Class V common stock, par value $0.0001 per share. The par values of the Company's Class A and Class V common stock were not adjusted as a result of the Reverse Stock Split. All share and per share amounts and related stockholders' equity balances presented herein have been retroactively adjusted to reflect the Reverse Stock Split.

Cash and Cash Equivalents

As of ~~March 31,~~June 30, 2023, cash and cash equivalents includes $900,000 of restricted cash, which represents a continuous bond in place of $400,000 to mitigate fees charged by customs brokerage companies associated with importing miners and a $500,000 letter of credit required to finance the Company's directors and officers insurance policy.

Reclassification

During the first quarter of 2023, the Company revised its accounting policy to reclassify the presentation of imported power charges. Imported power charges are now recorded within fuel expenses, whereas they were previously netted against energy revenue. Prior periods have been reclassified to conform to the current period presentation. The reclassification increased 2022 energy revenues and fuel expenses as shown in the table below. The reclassification had no impact on net operating income (loss), earnings per share or equity.


	Three Months Ended
	March 31, 2022		June 30, 2022		September 30, 2022		December 31, 2022
Energy revenues - previously disclosed	$	8,362,801	$	7,129,732	$	11,454,016	$	14,247,688
Reclassification: imported power charges	681,591		561,494		1,617,878		1,329,753
Energy revenues - restated	$	9,044,392	$	7,691,226	$	13,071,894	$	15,577,441

Fuel expenses - previously disclosed	$	9,338,394	$	8,626,671	$	8,466,588	$	2,348,457
Reclassification: imported power charges	681,591		561,494		1,617,878		1,329,753
Fuel expenses - restated	$	10,019,985	$	9,188,165	$	10,084,466	$	3,678,210

Recently Implemented Accounting Pronouncements

In September 2016, the Financial Accounting Standards Board issued ASU 2016-13, Financial Instruments – Credit Losses, which adds a new impairment model, known as the current expected credit loss ("CECL") model, that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes an allowance for its estimate of expected credit losses at the initial recognition of an in-scope financial instrument and applies it to most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments. The CECL model does not have a minimum threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low risk of loss. Since the Company is a smaller reporting company, as defined by the U.S. Securities and Exchange Commission (the "SEC"), the new guidance became effective on January 1, 2023. The Company adopted ASU 2016-13 effective January 1, 2023, but the adoption of ASU 2016-13 did not have an impact on the Company's consolidated financial statements.

Recently Issued Accounting Pronouncements

There have been no recently issued accounting pronouncements applicable to the Company.

NOTE 2 – DIGITAL CURRENCIES

As of ~~March 31,~~June 30, 2023, the Company held an aggregate amount of ~~$672,852~~$1,429,653 in digital currencies comprised of unrestricted Bitcoin. Changes in digital currencies consisted of the following for the three and six months ended ~~March 31,~~June 30, 2023, and 2022:


							Three Months Ended				Six Months Ended
		March 31, 2023		March 31, 2022			June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Digital currencies at beginning of period	Digital currencies at beginning of period	$	109,827	$	10,417,865	Digital currencies at beginning of period	$	672,852	$	13,868,586	$	109,827	$	10,417,865
Additions of digital currencies	Additions of digital currencies	12,921,075		18,204,193		Additions of digital currencies	15,788,875		20,227,536		28,709,950		38,431,729
Realized gain on sale of digital currencies	Realized gain on sale of digital currencies	326,768		751,110		Realized gain on sale of digital currencies	266,665		—		593,433		751,110
Impairment losses	Impairment losses	(71,477)		(2,506,172)		Impairment losses	(254,353)		(5,205,045)		(325,830)		(7,711,217)
Proceeds from sale of digital currencies	Proceeds from sale of digital currencies	(12,613,341)		(12,998,410)		Proceeds from sale of digital currencies	(15,044,386)		(23,759,090)		(27,657,727)		(36,757,500)
Digital currencies at end of period	Digital currencies at end of period	$	672,852	$	13,868,586	Digital currencies at end of period	$	1,429,653	$	5,131,987	$	1,429,653	$	5,131,987

NOTE 3 – INVENTORY

Inventory consisted of the following components as of ~~March 31,~~June 30, 2023, and December 31, 2022:


		March 31, 2023		December 31, 2022			June 30, 2023		December 31, 2022
Waste coal	Waste coal	$	4,267,308	$	4,147,369	Waste coal	$	3,617,441	$	4,147,369
Fuel oil	Fuel oil	60,913		143,592		Fuel oil	60,445		143,592
Limestone	Limestone	372,611		180,696		Limestone	490,303		180,696
Inventory	Inventory	$	4,700,832	$	4,471,657	Inventory	$	4,168,189	$	4,471,657

NOTE 4 – EQUIPMENT DEPOSITS

Equipment deposits represent contractual agreements with vendors to deliver and install miners at future dates. The following details the vendor, miner model, miner count, and expected delivery month(s).

In March 2022, the Company evaluated the MinerVa Semiconductor Corp ("MinerVa") equipment deposits for impairment under the provisions of ASC 360, Property, Plant and Equipment. As a result of the evaluation, the Company determined an indicator for impairment was present under ASC 360-10-35-21. The Company undertook a test for recoverability under ASC 360-10-35-29 and a further fair value analysis in accordance with ASC 820, Fair Value Measurement. The difference between the fair value of the MinerVa equipment deposits and the carrying value resulted in the Company recording an impairment charge of $12,228,742 in the first quarter of 2022 and an additional $5,120,000 in the fourth quarter of 2022, as summarized in the table below.

The following table details the total equipment deposits of $5,422,338 as of ~~March 31,~~June 30, 2023:


Vendor	Vendor	Model	Count	Delivery Timeframe	Total Commitments		Transferred to PP&E [A]		Impairment		Sold		Equipment Deposits		Vendor	Model	Count	Delivery Timeframe	Total Commitments		Transferred to PP&E (1)		Impairment		Sold		Equipment Deposits
MinerVa	MinerVa	MinerVa MV7	15,000	Oct '21 - TBD	$	68,887,550	$	(37,415,271)	$	(17,348,742)	$	(8,701,199)	$	5,422,338	MinerVa	MinerVa MV7	15,000	Oct '21 - TBD	$	68,887,550	$	(37,415,271)	$	(17,348,742)	$	(8,701,199)	$	5,422,338
Totals	Totals		15,000		$	68,887,550	$	(37,415,271)	$	(17,348,742)	$	(8,701,199)	$	5,422,338	Totals		15,000		$	68,887,550	$	(37,415,271)	$	(17,348,742)	$	(8,701,199)	$	5,422,338

~~[A]~~(1) Miners that are delivered and physically placed in service are transferred to a fixed asset account at the respective unit price as defined in the agreement.

NOTE 5 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following as of ~~March 31,~~June 30, 2023, and December 31, 2022:


		Useful Lives (Years)	March 31, 2023		December 31, 2022			Useful Lives (Years)	June 30, 2023		December 31, 2022
Electric plant	Electric plant	10 - 60	$	66,490,600	$	66,295,809	Electric plant	10 - 60	$	66,836,615	$	66,295,809
Strongboxes and power transformers	Strongboxes and power transformers	8 - 30	54,588,284		52,318,704		Strongboxes and power transformers	8 - 30	54,588,284		52,318,704
Machinery and equipment	Machinery and equipment	5 - 20	18,131,977		18,131,977		Machinery and equipment	5 - 20	16,072,800		18,131,977
Rolling stock	Rolling stock	5 - 7	261,000		261,000		Rolling stock	5 - 7	261,000		261,000
Cryptocurrency machines and powering supplies	Cryptocurrency machines and powering supplies	2 - 3	86,481,239		81,945,396		Cryptocurrency machines and powering supplies	2 - 3	96,123,666		81,945,396
Computer hardware and software	Computer hardware and software	2 - 5	17,196		17,196		Computer hardware and software	2 - 5	86,419		17,196
Vehicles and trailers	Vehicles and trailers	2 - 7	659,133		659,133		Vehicles and trailers	2 - 7	659,133		659,133
Leasehold improvements							Leasehold improvements	2 - 3	2,935,855		—
Construction in progress	Construction in progress	Not Depreciable	11,099,409		19,553,826		Construction in progress	Not Depreciable	10,762,486		19,553,826
Asset retirement cost	Asset retirement cost	10 - 30	580,452		580,452		Asset retirement cost	10 - 30	580,452		580,452
			238,309,290		239,763,493				248,906,710		239,763,493
Accumulated depreciation and amortization	Accumulated depreciation and amortization		(79,942,606)		(72,558,812)		Accumulated depreciation and amortization		(88,507,711)		(72,558,812)
Property, plant and equipment, net	Property, plant and equipment, net		$	158,366,684	$	167,204,681	Property, plant and equipment, net		$	160,398,999	$	167,204,681

Construction in progress consists of various projects to build out the cryptocurrency machine power infrastructure and is not depreciable until the asset is considered in service and successfully powers and runs the attached cryptocurrency machines. Completion of these projects will have various rollouts of energized transformed containers and are designed to

calibrate power from the plant to the container that houses multiple cryptocurrency machines. Currently, the balance of ~~$11,099,409~~$10,762,486 as of ~~March 31,~~June 30, 2023, represents open contracts for future projects.

Depreciation and amortization expense charged to operations was ~~$7,722,841~~$8,634,967 and ~~$12,319,581~~$12,667,300 for the three months ended ~~March 31,~~June 30, 2023, and 2022, respectively, including depreciation of assets under finance leases of ~~$133,382~~$112,141 and ~~$94,262~~$73,023 for the three months ended ~~March 31,~~June 30, 2023, and 2022, respectively.

Depreciation and amortization expense charged to operations was $16,357,808 and $24,986,881 for the six months ended June 30, 2023, and 2022, respectively, including depreciation of assets under finance leases of $245,523 and $167,285 for the six months ended June 30, 2023, and 2022, respectively.

The gross value of assets under finance leases and the related accumulated amortization approximated ~~$2,890,665~~$2,678,265 and ~~$1,207,473~~$1,181,555 as of ~~March 31,~~June 30, 2023, respectively, and $2,890,665 and $1,074,091 as of December 31, 2022, respectively.

NOTE 6 – ACCRUED LIABILITIES

Accrued liabilities consisted of the following as of ~~March 31,~~June 30, 2023, and December 31, 2022:


		March 31, 2023		December 31, 2022			June 30, 2023		December 31, 2022
Accrued legal and professional fees	Accrued legal and professional fees	$	886,370	$	1,439,544	Accrued legal and professional fees	$	541,482	$	1,439,544
Accrued interest	Accrued interest	2,992		1,343,085		Accrued interest	2,992		1,343,085
Accrued sales and use tax	Accrued sales and use tax	5,430,197		5,150,659		Accrued sales and use tax	5,430,197		5,150,659
Accrued plant utilities						Accrued plant utilities	1,107,607		—
Accrued salaries and benefits						Accrued salaries and benefits	160,437		285,300
Other	Other	793,089		959,960		Other	1,387,450		674,660
Accrued liabilities	Accrued liabilities	$	7,112,648	$	8,893,248	Accrued liabilities	$	8,630,165	$	8,893,248

NOTE 7 – DEBT

Total debt consisted of the following as of ~~March 31,~~June 30, 2023, and December 31, 2022:


		March 31, 2023		December 31, 2022			June 30, 2023		December 31, 2022
$499,520 loan, with interest at 2.49%, due December 2023.	$499,520 loan, with interest at 2.49%, due December 2023.	$	97,779	$	124,023	$499,520 loan, with interest at 2.49%, due December 2023.	$	71,354	$	124,023
$499,895 loan, with interest at 2.95%, due July 2023.	$499,895 loan, with interest at 2.95%, due July 2023.	88,694		121,470		$499,895 loan, with interest at 2.95%, due July 2023.	55,655		121,470
$517,465 loan, with interest at 4.78%, due October 2024.	$517,465 loan, with interest at 4.78%, due October 2024.	296,898		339,428		$517,465 loan, with interest at 4.78%, due October 2024.	253,857		339,428
$585,476 loan, with interest at 4.99%, due November 2025.	$585,476 loan, with interest at 4.99%, due November 2025.	472,196		513,334		$585,476 loan, with interest at 4.99%, due November 2025.	430,543		513,334
$431,825 loan, with interest at 7.60%, due April 2024.	$431,825 loan, with interest at 7.60%, due April 2024.	99,610		121,460		$431,825 loan, with interest at 7.60%, due April 2024.	77,344		121,460
$58,149,411 Credit Agreement, with interest at 10.00% plus SOFR, due October 2025.	$58,149,411 Credit Agreement, with interest at 10.00% plus SOFR, due October 2025.	54,370,570		56,114,249		$58,149,411 Credit Agreement, with interest at 10.00% plus SOFR, due October 2025.	54,438,473		56,114,249
$33,750,000 Convertible Note, with interest at 10.00%, due May 2024.	$33,750,000 Convertible Note, with interest at 10.00%, due May 2024.	—		16,812,500		$33,750,000 Convertible Note, with interest at 10.00%, due May 2024.	—		16,812,500
$92,381 loan, with interest at 1.49%, due April 2026.	$92,381 loan, with interest at 1.49%, due April 2026.	71,903		79,249		$92,381 loan, with interest at 1.49%, due April 2026.	67,902		79,249
$64,136 loan, with interest at 11.85%, due May 2024.	$64,136 loan, with interest at 11.85%, due May 2024.	33,018		39,056		$64,136 loan, with interest at 11.85%, due May 2024.	26,798		39,056
$196,909 loan, with interest at 6.49%, due May 2024.	$196,909 loan, with interest at 6.49%, due May 2024.	172,684		184,895		$196,909 loan, with interest at 6.49%, due May 2024.	160,275		184,895
$60,679 loan, with interest at 7.60%, due March 2025.						$60,679 loan, with interest at 7.60%, due March 2025.	55,427		—
$3,500,000 Promissory Note, with interest at 7.50%, due October 2025.	$3,500,000 Promissory Note, with interest at 7.50%, due October 2025.	3,500,000		—		$3,500,000 Promissory Note, with interest at 7.50%, due October 2025.	3,125,000		—
Total outstanding borrowings	Total outstanding borrowings	$	59,203,352	$	74,449,664	Total outstanding borrowings	$	58,762,628	$	74,449,664

Current portion of long-term debt, net of discounts and issuance fees	Current portion of long-term debt, net of discounts and issuance fees	995,145		17,422,546		Current portion of long-term debt, net of discounts and issuance fees	796,668		17,422,546
Long-term debt, net of discounts and issuance fees	Long-term debt, net of discounts and issuance fees	$	58,208,207	$	57,027,118	Long-term debt, net of discounts and issuance fees	$	57,965,960	$	57,027,118

WhiteHawk Refinancing Agreement

On October 27, 2022, the Company entered into a secured credit agreement (the “Credit Agreement”) with WhiteHawk Finance LLC ("WhiteHawk") to refinance an existing equipment financing agreement, dated June 30, 2021, by and between Stronghold Digital Mining Equipment, LLC and WhiteHawk (the “WhiteHawk Financing Agreement”)~~, effectively terminating the WhiteHawk Financing Agreement.~~. Upon closing, the Credit Agreement consisted of $35.1 million in term loans and $23.0 million in additional commitments.

The financing pursuant to the Credit Agreement (such financing, the “WhiteHawk Refinancing Agreement”) was entered into by Stronghold Digital Mining Holdings, LLC ("Stronghold LLC"), as Borrower (in such capacity, the “Borrower”), and is secured by substantially all of the assets of the Company and its subsidiaries and is guaranteed by the Company and each of its material subsidiaries. The WhiteHawk Refinancing Agreement requires equal monthly amortization payments resulting in full amortization at maturity. The WhiteHawk Refinancing Agreement has customary representations, warranties and covenants including restrictions on indebtedness, liens, restricted payments and dividends, investments, asset sales and similar covenants and contains customary events of default.

On February 6, 2023, the Company, Stronghold LLC, as borrower, their subsidiaries and WhiteHawk Capital Partners LP ("WhiteHawk Capital"), as collateral agent and administrative agent, and the other lenders thereto, entered into an amendment to the Credit Agreement (the “First Amendment”) in order to modify certain covenants and remove certain prepayment requirements contained therein. As a result of the First Amendment, amortization payments for the period from February 2023 through July 2024 ~~will~~are not be required, with monthly amortization resuming July 31, 2024. Beginning June 30, 2023, following a five-month holiday, Stronghold LLC will make monthly prepayments of the loan in an amount equal to 50% of its average daily cash balance (including cryptocurrencies) in excess of $7,500,000 for such month. The First Amendment also modified the financial covenants to (i) in the case of the requirement of the Company to maintain a leverage ratio no greater than 4.0:1.00, such covenant will not be tested until the fiscal quarter ending September 30, 2024, and (ii) in the case of the minimum liquidity covenant, modified to require minimum liquidity at any time to be not less than: (A) until March 31, 2024, $2,500,000; (B) during the period beginning April 1, 2024, through and including December 31, 2024, $5,000,000; and (C) from and after January 1, 2025, $7,500,000. The Company was in compliance with all applicable covenants under the WhiteHawk Refinancing Agreement as of ~~March 31,~~June 30, 2023.

Convertible Note Exchange

On December 30, 2022, the Company entered into an exchange agreement with the holders (the ~~“Holders”~~“Purchasers”) of the Company’s Amended and Restated 10% Notes (the ~~“Notes”~~“Amended May 2022 Notes”), providing for the exchange of the

Amended May 2022 Notes (the “Exchange ~~Transaction”~~Agreement”) for shares of the Company’s newly-created Series C Convertible Preferred Stock, par value $0.0001 per share (the “Series C Preferred Stock”). On February 20, 2023, the transactions contemplated under the Exchange ~~Transaction was~~Agreement were consummated, and the Amended May 2022 Notes were deemed paid in full. Approximately $16.9 million of principal amount of debt was extinguished in exchange for the issuance of the shares of Series C Preferred Stock. As a result of this transaction, the Company incurred a loss on debt extinguishment of approximately $29 million ~~for~~during the ~~three months ended March 31,~~first quarter of 2023.

On February 20, 2023, in connection with the consummation of the Exchange ~~Transaction,~~Agreement, the Company entered into a Registration Rights Agreement with the ~~Holders~~Purchasers (the “Registration Rights Agreement”) whereby it agreed to, among other things, (i) file within two business days following the filing of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, a resale registration statement (the “Resale Registration Statement”) with the SEC covering all shares of the Company’s Class A common stock issuable upon conversion of the Series C Preferred Stock or upon exercise of the pre-funded warrants that may be issued in lieu of Class A common stock upon conversion of the Series C Preferred Stock, and (ii) to cause the Resale Registration Statement to become effective within the timeframes specified in the Registration Rights Agreement.

Bruce & Merrilees Promissory Note

On March 28, 2023, the Company and Stronghold LLC entered into a settlement agreement (the “B&M Settlement”) with its electrical contractor, Bruce & Merrilees Electric Co. (“B&M”). Pursuant to the B&M Settlement, B&M agreed to eliminate an approximately $11.4 million outstanding payable in exchange for a promissory note in the amount of $3,500,000 (the "B&M Note") and a stock purchase warrant for the right to purchase from the Company ~~3,000,000~~300,000 shares of Class A common stock (the "B&M Warrant"). The B&M Note has no definitive payment schedule or term. Pursuant to the B&M Settlement, B&M released ten (10) 3000kva transformers to the Company and fully cancelled ninety (90) transformers remaining under a pre-existing order with a third-party supplier. The terms of the B&M Settlement included a mutual release of all claims. Simultaneous with the B&M Settlement, the Company and each of its subsidiaries entered into a subordination agreement with B&M and WhiteHawk Capital pursuant to which all obligations, liabilities and indebtedness of every nature of the Company and each of its subsidiaries owed to B&M shall be subordinate and subject in right and time of payment, to the prior payment of full of the Company's obligation to WhiteHawk Capital pursuant to the Credit Agreement.

Pursuant to the B&M Note, the first $500,000 of the principal amount of the loan ~~shall be~~is payable in four equal monthly installments of $125,000 beginning on April 30, 2023, so long as (i) no default or event of default has occurred or is occurring under the WhiteHawk Credit Agreement and (ii) no PIK Option (as such term is defined in the WhiteHawk Refinancing Agreement) has been elected by the Company. The principal amount under the B&M Note bears interest at seven and one-half percent (7.5%). As of June 30, 2023, the Company paid $375,000 of principal pursuant to the B&M Note.

NOTE 8 – RELATED-PARTY TRANSACTIONS

Waste Coal Agreement

The Company is obligated under a Waste Coal Agreement (the “WCA”) to take minimum annual delivery of 200,000 tons of waste coal as long as there is a sufficient quantity of waste coal that meets the Average Quality Characteristics (as defined in the WCA). Under the terms of the WCA, the Company is not charged for the waste coal itself but is charged a $6.07 per ton base handling fee as it is obligated to mine, process, load, and otherwise handle the waste coal for itself and also for other customers of Coal Valley Sales, LLC (“CVS”) from the Company's Russellton site specifically. The Company is also obligated to unload and properly dispose of ash at its Russellton site. The Company is charged a reduced handling fee of $1.00 per ton for any tons in excess of the minimum take of 200,000 tons. The Company is the designated operator of the Russellton site, and therefore, is responsible for complying with all state and federal requirements and regulations.

The Company purchases coal from Coal Valley Properties, LLC, a single-member limited liability company which is entirely owned by one individual who has ownership in Q Power LLC ("Q Power"), and from CVS. CVS is a single-member limited liability company which is owned by a coal reclamation partnership of which an owner of Q Power has a direct and an indirect interest in the partnership of 16.26%.

The Company expensed $150,000 and $303,500 for the three months ended ~~March 31,~~June 30, 2023, and 2022, respectively, and $300,000 and $607,000 for the six months ended June 30, 2023, and 2022, respectively, associated with coal purchases

from CVS, which is included in fuel expense in the condensed consolidated statements of operations. See the composition of the due to related parties balance as of ~~March 31,~~June 30, 2023, and December 31, 2022, below.

Fuel Service and Beneficial Use Agreement

The Company has a Fuel Service and Beneficial Use Agreement (“FBUA”) with Northampton Fuel Supply Company, Inc. (“NFS”), a wholly owned subsidiary of Olympus Power. The Company buys fuel from and sends ash to NFS, for the mutual benefit of both facilities, under the terms and rates established in the FBUA. The FBUA expires on December 31, 2023. The Company expensed ~~$1,157,927~~$923,874 and ~~$379,646~~$541,466 for the three months ended ~~March 31,~~June 30, 2023, and 2022, respectively, and $2,081,801 and $921,112 for the six months ended June 30, 2023, and 2022, respectively, which is included in fuel expense in the condensed consolidated statements of operations. See the composition of the due to related parties balance as of ~~March 31,~~June 30, 2023, and December 31, 2022, below.

Fuel Management Agreements

Panther Creek Fuel Services LLC

Effective August 1, ~~2012,~~2021, the Company entered into the Fuel Management Agreement (the “Panther Creek Fuel Agreement”) with Panther Creek Fuel Services LLC, a wholly owned subsidiary of Olympus Services LLC which, in turn, is a wholly owned subsidiary of Olympus Power LLC. Under the Panther Creek Fuel Agreement, Panther Creek Fuel Services LLC provides the Company with operations and maintenance services with respect to the Facility. The Company reimburses Panther Creek Energy Services LLC for actual wages and salaries. The Company expensed ~~$478,621~~$449,228 and ~~$398,769~~$452,290 for the three months ended ~~March 31,~~June 30, 2023, and 2022, respectively, and $927,849 and $851,059 for the six months ended June 30, 2023, and 2022, respectively, which is included in operations and maintenance expense in the condensed consolidated statements of operations. See the composition of the due to related parties balance as of ~~March 31,~~June 30, 2023, and December 31, 2022, below.

Scrubgrass Fuel Services, LLC

Effective February 1, 2022, the Company entered into the Fuel Management Agreement (the “Scrubgrass Fuel Agreement”) with Scrubgrass Fuel Services LLC, a wholly owned subsidiary of Olympus Services LLC, which, in turn, is a wholly owned subsidiary of Olympus Power LLC. Under the Scrubgrass Fuel Agreement, Scrubgrass Fuel Services LLC provides the Company with operations and maintenance services with respect to the Facility. The Company reimburses Scrubgrass Energy Services LLC for actual wages and salaries. The Company expensed ~~$276,119~~$98,825 and ~~$96,624~~$236,993 for the three months ended ~~March 31,~~June 30, 2023, and 2022, respectively, and $374,944 and $333,617 for the six months ended June 30, 2023, and 2022, respectively, which is included in operations and maintenance expense in the condensed consolidated statements of operations. See the composition of the due to related parties balance as of ~~March 31,~~June 30, 2023, and December 31, 2022, below.

O&M Agreements

Olympus Power LLC

On November 2, 2021, Stronghold LLC entered into an Operations, Maintenance and Ancillary Services Agreement (the “Omnibus Services Agreement”) with Olympus Stronghold Services, LLC (“Olympus Stronghold Services”), whereby Olympus Stronghold Services ~~currently provides~~provided certain operations and maintenance services to Stronghold LLC and ~~currently employs~~employed certain personnel to operate the Plants. Stronghold LLC ~~reimburses~~reimbursed Olympus Stronghold Services for those costs incurred by Olympus Stronghold Services and approved by Stronghold LLC in the course of providing services under the Omnibus Services Agreement, including payroll and benefits costs and insurance costs. The material costs incurred by Olympus Stronghold Services ~~shall~~were to be approved by Stronghold LLC. From November 2, 2021, until October 1, 2023, Stronghold LLC also agreed to pay Olympus Stronghold Services a management fee at the rate of $1,000,000 per year, payable monthly for services provided at each of the Plants, and an additional one-time mobilization fee of $150,000 upon the effective date of the Omnibus Services Agreement, which ~~has been~~was deferred. Effective October 1, 2022, Stronghold LLC began paying Olympus Stronghold Services a management fee for the Panther Creek Plant in the amount of $500,000 per year, payable monthly for services provided at the Panther Creek Plant. This iswas a reduction of $500,000 from the $1,000,000 per year management fee that the Company was previously scheduled to pay Olympus Stronghold Services. The Company expensed ~~$235,376~~$234,688 and ~~$228,598~~$568,093 for the three months ended ~~March 31,~~June 30, 2023, and 2022, respectively, and $470,064 and $796,691 for the six months ended June 30, 2023, and 2022, respectively, which includes the monthly management fees plus reimbursable costs incurred by Olympus Stronghold Services for payroll, benefits and insurance. See the composition of the due to related parties balance as of ~~March 31,~~June 30, 2023, and December 31, 2022, below. The Company expects that the

Omnibus Services Agreement will be terminated, to be effective July 1, 2023. The Company subsequently expects to enter into a Transition Services Agreement whereby Stronghold LLC or its affiliates will pay a fee to Olympus Stronghold Services for certain operations and maintenance services.

Panther Creek Energy Services LLC

Effective August 2, 2021, the Company entered into the Operations and Maintenance Agreement (the “O&M Agreement”) with Panther Creek Energy Services LLC, a wholly owned subsidiary of Olympus Services LLC which, in turn, is a wholly owned subsidiary of Olympus Power LLC. Under the O&M Agreement, Panther Creek Energy Services LLC provides the Company with operations and maintenance services with respect to the Facility. The Company reimburses Panther Creek Energy Services LLC for actual wages and salaries. The Company also agreed to pay a management fee of $175,000 per operating year, which is payable monthly, and is adjusted by the consumer price index on each anniversary date of the effective date. The Company expensed ~~$910,394~~$935,770 and ~~$887,824~~$1,137,345 for the three months ended ~~March 31,~~June 30, 2023, and 2022, respectively, and $1,846,164 and $2,025,169 for the six months ended June 30, 2023, and 2022, respectively, which includes the monthly management fees plus reimbursable costs incurred by Olympus Stronghold Services for payroll, benefits and insurance. See the composition of the due to related parties balance as of ~~March 31,~~June 30, 2023, and December 31, 2022, below.

In connection with the equity contribution agreement, effective July 9, 2021 (the "Equity Contribution Agreement"), the Company entered into the Amended and Restated Operations and Maintenance Agreement (the “Amended O&M Agreement”) with Panther Creek Energy Services LLC. Under the Amended O&M Agreement, the management fee is $250,000 for the twelve-month period following the effective date and $325,000 per year thereafter. The effective date of the Amended O&M Agreement was the closing date of the Equity Contribution Agreement.

Scrubgrass Energy Services, LLC

Effective February 1, 2022, the Company entered into the Operations and Maintenance Agreement (the “Scrubgrass O&M Agreement”) with Scrubgrass Energy Services LLC, a ~~wholly-owned~~wholly owned subsidiary of Olympus Services LLC which, in turn, is a ~~wholly-owned~~wholly owned subsidiary of Olympus Power LLC. Under the Scrubgrass O&M Agreement, Scrubgrass Energy Services LLC provides the Company with operations and maintenance services with respect to the Facility. The Company reimburses Scrubgrass Energy Services LLC for actual wages and salaries. The Company also agreed to pay a management fee of $175,000 per operating year, which is payable monthly, and is adjusted by the consumer price index on each anniversary date of the effective date. The Company expensed ~~$1,724,112~~$545,178 and ~~$857,913~~$1,792,214 for the three months ended ~~March 31,~~June 30, 2023, and 2022, respectively, and $2,269,290 and $2,650,127 for the six months ended June 30, 2023, and 2022, respectively, which includes the monthly management fees plus reimbursable costs incurred by Olympus Stronghold Services for payroll, benefits and insurance. See the composition of the due to related parties balance as of ~~March 31,~~June 30, 2023, and December 31, 2022, below.

In connection with the Equity Contribution Agreement effective July 9, 2021, the Company entered into the Amended and Restated Operations and Maintenance Agreement (the “Scrubgrass Amended O&M Agreement”) with Scrubgrass Energy Services LLC. Under the Scrubgrass Amended O&M Agreement, the management fee is $250,000 for the twelve-month period following the effective date and $325,000 per year thereafter. The effective date of the Scrubgrass Amended O&M Agreement is the closing date of the Equity Contribution Agreement.

Effective October 1, 2022, Stronghold LLC no longer pays Olympus Stronghold Services a management fee for the Scrubgrass Plant.

Management Services Agreement

On May 10, 2021, a new management and advisory agreement was entered into between Q Power and William Spence (the "Spence Agreement"). In consideration of the consultant’s performance of the services thereunder, Q Power will pay Mr. Spence a fee at the rate of $50,000 per complete calendar month (pro-rated for partial months) that Mr. Spence provides services thereunder, payable in arrears. The previous agreement requiring monthly payments of $25,000 was terminated. Q Power will not be liable for any other payments to Mr. Spence including, but not limited to, any cost or expenses incurred by Mr. Spence in the course of performing his obligations thereunder. Under the Spence Agreement, the Company expensed $150,000 for the three months ended March 31, 2023, and 2022.

On April 19, 2023, pursuant to an independent consulting agreement the Company entered into with William Spence in connection with his departure from the ~~board of directors (the "Board")~~Board (the "Spence Consulting Agreement"), Mr. Spence's annualized ~~salary~~management fee of $600,000 decreased to the greater of $200,000 or 10% of any economic benefits derived from the sale of beneficial use ash, carbon sequestration efforts or alternative fuel arrangements, in each case, arranged by Mr. Spence. The previous consulting and advisory agreement with Mr. Spence ~~Agreement~~ was terminated in connection with entry into the Spence Consulting Agreement.

In April 2023, as part of the compensation pursuant to the Spence Consulting Agreement, Mr. Spence also received a one-time grant of ~~2,500,000~~250,000 fully vested shares of the Company's Class A common ~~stock.~~stock, which has been recorded as stock-based compensation for the three and six months ended June 30, 2023, within general and administrative expense in the condensed consolidated statements of operations.

Warrants

On September 13, 2022, the Company entered into a Securities Purchase Agreement with Greg Beard, the Company's chairman and chief executive officer, for the purchase and sale of ~~602,409~~60,241 shares of Class A common stock and warrants to purchase ~~602,409~~60,241 shares of Class A common stock, at an initial exercise price of ~~$1.75~~$17.50 per share, subsequently amended to $10.10 per share. Refer to Note 15 – ~~Private Placements~~Equity Issuances for additional details.

Additionally, on April 20, 2023, Mr. Beard invested $1.0 million in exchange for ~~1,000,000~~100,000 shares of Class A common stock and ~~1,000,000~~100,000 pre-funded warrants. Refer to Note 15 – ~~Private Placements~~Equity Issuances for additional details.

Amounts due to related parties as of ~~March 31,~~June 30, 2023, and December 31, 2022, were as follows:


		March 31, 2023		December 31, 2022			June 30, 2023		December 31, 2022
Coal Valley Properties, LLC	Coal Valley Properties, LLC	$	134,452	$	134,452	Coal Valley Properties, LLC	$	—	$	134,452
Q Power LLC	Q Power LLC	500,000		500,000		Q Power LLC	—		500,000
Coal Valley Sales, LLC	Coal Valley Sales, LLC	—		—		Coal Valley Sales, LLC	—		—
Panther Creek Energy Services LLC	Panther Creek Energy Services LLC	90,483		10,687		Panther Creek Energy Services LLC	—		10,687
Panther Creek Fuel Services LLC	Panther Creek Fuel Services LLC	687		53,482		Panther Creek Fuel Services LLC	—		53,482
Northampton Generating Fuel Supply Company, Inc.	Northampton Generating Fuel Supply Company, Inc.	886,135		594,039		Northampton Generating Fuel Supply Company, Inc.	833,625		594,039
Olympus Power LLC and other subsidiaries	Olympus Power LLC and other subsidiaries	758		78,302		Olympus Power LLC and other subsidiaries	76,751		78,302
Scrubgrass Energy Services LLC	Scrubgrass Energy Services LLC	—		4,087		Scrubgrass Energy Services LLC	—		4,087
Scrubgrass Fuel Services LLC	Scrubgrass Fuel Services LLC	—		—		Scrubgrass Fuel Services LLC	—		—
Due to related parties	Due to related parties	$	1,612,515	$	1,375,049	Due to related parties	$	910,376	$	1,375,049

NOTE 9 – CONCENTRATIONS

Credit risk is the risk of loss the Company would incur if counterparties fail to perform their contractual obligations (including accounts receivable). The Company primarily conducts business with counterparties in the cryptocurrency mining and energy industry. This concentration of counterparties may impact the Company’s overall exposure to credit risk, either positively or negatively, in that its counterparties may be similarly affected by changes in economic, regulatory or other conditions. The Company mitigates potential credit losses by dealing, where practical, with counterparties that are rated at investment grade by a major credit agency or have a history of reliable performance within the cryptocurrency mining and energy industry.

Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of cash and accounts receivable. Cash and cash equivalents customarily exceed federally insured limits. The Company’s significant credit risk is primarily concentrated with CES. Over the course of 2022, the Company transitioned entirely to CES from Direct Energy Business Marketing, LLC. CES accounted for approximately 100% of the Company's energy operations segment revenues for the three and six months ended ~~March 31,~~June 30, 2023. Additionally, CES accounted for approximately ~~100%~~75% of the Company’s

accounts receivable balance as of ~~March 31,~~June 30, 2023, including approximately ~~$3.7~~$0.7 million CES expects to receive from PJM on the Company's behalf, and forward to the Company upon receipt. During the first ~~quarter~~half of 2023, following an updated calculation from PJM revising the expected December 2022 performance assessment interval account receivable, the Company recorded a decrease in the value of accounts receivable of ~~$1,002,750~~$1,142,750 within general and administrative ~~expenses~~expense in the condensed consolidated statement of operations. The Company expects to receive the approximately ~~$3.7~~$0.7 million of remaining accounts receivable from PJM (via CES) during the remainder of 2023.

~~For~~The Company purchased 26% and 14% of coal from two related parties for the three months ended ~~March 31,~~June 30, 2023, and 2022, ~~respectively,~~respectively. For the six months ended June 30, 2023, and 2022, the Company purchased ~~19%~~22% and 13% of coal, respectively, from ~~two~~the same related parties. See Note 8 – Related-Party Transactions for further information.

NOTE 10 – COMMITMENTS AND CONTINGENCIES

Commitments:

As discussed in Note 4 – Equipment Deposits, the Company has entered into various equipment contracts to purchase miners. Most of these contracts required a percentage of deposits upfront and subsequent payments to cover the contracted purchase price of the equipment. Details of the outstanding purchase agreement with MinerVa are summarized below.

MinerVa Semiconductor Corp

On April 2, 2021, the Company entered into a purchase agreement (the "MinerVa Purchase Agreement") with MinerVa for the acquisition of 15,000 of their MV7 ASIC SHA256 model cryptocurrency miners with a total terahash to be delivered equal to 1.5 million terahash. The price per miner was $4,892.50 for an aggregate purchase price of $73,387,500 to be paid in installments. The first installment equal to 60% of the purchase price, or $44,032,500, was paid on April 2, 2021, and an additional payment of 20% of the purchase price, or $14,677,500, was paid on June 2, 2021. As of ~~March 31,~~June 30, 2023, there were no remaining deposits owed.

In December 2021, the Company extended the deadline for delivery of the MinerVa miners to April 2022. In March 2022, MinerVa was again unable to meet its delivery date and had only delivered approximately 3,200 of the 15,000 miners. As a result, an impairment totaling $12,228,742 was recorded in the first quarter of 2022. Furthermore, in the fourth quarter of 2022, the difference between the fair value of the MinerVa equipment deposits and the carrying value resulted in the Company recording an additional impairment charge of $5,120,000.

As of March 31, 2023, MinerVa had delivered, refunded cash, or swapped into deliveries of industry-leading miners of equivalent value to approximately 12,700 of the 15,000 miners. The aggregate purchase price does not include shipping costs, which are the responsibility of the Company and shall be determined at which time the miners are ready for shipment. While the Company continues to engage in discussions with MinerVa on the delivery of the remaining miners, it does not know when the remaining miners will be delivered, if at all. On July 18, 2022, the Company provided written notice of dispute to MinerVa pursuant to the MinerVa Purchase Agreement obligating the Company and MinerVa to work together in good faith towards a resolution for a period of sixty (60) days. In accordance with the MinerVa Purchase Agreement, if no settlement has been reached after sixty (60) days, Stronghold Inc. may end discussions and declare an impasse and adhere to the dispute resolution provisions of the MinerVa Purchase Agreement. As the 60-day period has expired, the Company is evaluating all available remedies under the MinerVa Purchase Agreement.

As of June 30, 2023, MinerVa had delivered, refunded cash or swapped into deliveries of industry-leading miners of equivalent value to approximately 12,700 of the 15,000 miners. The aggregate purchase price does not include shipping costs, which are the responsibility of the Company and shall be determined at which time the miners are ready for shipment. While the Company continues to engage in discussions with MinerVa on the delivery of the remaining miners, it does not know when the remaining miners will be delivered, if at all.

Contingencies:

Legal Proceedings

The Company experiences litigation in the normal course of business. Management is of the belief that none of this routine litigation will have a material adverse effect on the Company’s financial position or results of operations.

McClymonds Supply & Transit Company, Inc. and DTA, L.P. vs. Scrubgrass Generating Company, L.P.

On January 31, 2020, McClymonds Supply and Transit Company, Inc. (“McClymonds”) made a Demand for Arbitration, as required by the terms of the Transportation Agreement between McClymonds and Scrubgrass Generating Company, L.P. ("Scrubgrass") dated April 8, 2013 (the “Agreement”). In its demand, McClymonds alleged damages in the amount of $5,042,350 for failure to pay McClymonds for services. On February 18, 2020, Scrubgrass submitted its answering statement denying the claim of McClymonds in its entirety. On March 31, 2020, Scrubgrass submitted its counterclaim against McClymonds in the amount of $6,747,328 as the result of McClymonds’ failure to deliver fuel as required under the terms of the Agreement. Hearings were held from January 31, 2022, to February 3, 2022. On May 9, 2022, an award in the amount of $5.0 million plus interest of approximately $0.8 million was issued in favor of McClymonds. The two

managing members of Q Power have executed a binding document to pay the full amount of the award and have begun to pay the full amount of the award, such that there will be no effect on the financial condition of the Company. McClymonds shall have no recourse to the Company with respect to the award.

Allegheny Mineral Corporation v. Scrubgrass Generating Company, L.P., Butler County Court of Common Pleas, No. AD 19-11039

In November 2019, Allegheny Mineral Corporation ("Allegheny Mineral") filed suit against the Company seeking payment of approximately $1,200,000 in outstanding invoices. In response, the Company filed counterclaims against Allegheny Mineral asserting breach of contract, breach of express and implied warranties, and fraud in the amount of $1,300,000.

After unsuccessful mediation in August 2020, the parties again attempted to mediate the case on October 26, 2022, which led to a mutual agreement to settlement terms of a $300,000 cash payment, and a supply agreement for limestone. Subject to completion of the settlement terms, this matter has been stayed in Butler County Court, and the outstanding litigation has been terminated.

Federal Energy Regulatory Commission ("FERC") Matters

On November 19, 2021, Scrubgrass received a notice of breach from PJM Interconnection, LLC alleging that Scrubgrass breached Interconnection Service Agreement – No. 1795 (the “ISA”) by failing to provide advance notice to PJM Interconnection, LLC and Mid-Atlantic Interstate Transmission, LLC pursuant to ISA, Appendix 2, section 3, of modifications made to the Scrubgrass Plant. On December 16, 2021, Scrubgrass responded to the notice of breach and respectfully disagreed that the ISA had been breached. On January 7, 2022, Scrubgrass participated in an information gathering meeting with representatives from PJM regarding the notice of breach and Scrubgrass continues to work with PJM regarding the dispute, including conducting a necessary study agreement with respect to the Scrubgrass Plant. On January 20, 2022, the Company sent PJM a letter regarding the installation of a resistive computational load bank at the Panther Creek Plant. On March 1, 2022, the Company executed a necessary study agreement with respect to the Panther Creek Plant. PJM's investigation and discussions regarding the notice of breach at the Scrubgrass Plant and Panther Creek Plant and other potential issues related to the computational load banks, including power consumption and potential resettlements of billing statements for certain prior months, are ongoing and discussions between PJM and the Company are continuing.

On May 11, 2022, the Division of Investigations of the FERC Office of Enforcement (“OE”) informed the Company that the ~~Office of Enforcement is~~OE was conducting a non-public preliminary investigation concerning Scrubgrass’ compliance with various aspects of the PJM tariff. The OE requested that the Company provide certain information and documents concerning Scrubgrass’ operations by June 10, 2022. On July 13, 2022, after being granted an extension to respond by the OE, the Company submitted a formal response to the OE's request. Since the Company submitted its formal response to the OE's request, the Company has had further discussions with the OE regarding the Company's formal response. The OE's investigation, and discussions between the OE and the Company, regarding potential instances of non-compliance is continuing. The Company does not believe that the PJM notice of breach, the Panther Creek necessary study agreement, discussions regarding other potential issues related to the computational load bank, including power consumption and potential resettlements of billing statements for certain prior months, or the preliminary investigation by the OE will have a material adverse effect on the Company’s reported financial position or results of operations, although the Company cannot predict with certainty the final outcome of these proceedings.

Winter v. Stronghold Digital Mining Inc., et al., U.S. District Court for the Southern District of New York

On April 14, 2022, the Company, and certain of our current and former directors, officers and underwriters were named in a putative class action complaint filed in the United States District Court for the Southern District of New York. In the complaint, the plaintiffs allege that the Company made misleading statements and/or failed to disclose material facts in violation of Section 11 of the Securities Act, 15 U.S.C. §77k and Section 15 of the Securities Act of 1933, as amended (the "Securities Act"), about the Company’s business, operations, and prospects in the Company’s registration statement on Form S-1 related to its initial public offering, and when subsequent disclosures were made regarding these operational issues when the Company announced its fourth quarter and full year 2021 financial results, the Company’s stock price fell, causing significant losses and damages. As relief, the plaintiffs are seeking, among other things, compensatory damages. On August 4, 2022, co-lead plaintiffs were appointed. On October 18, 2022, the plaintiffs filed an amended complaint. On December 19, 2022, the Company filed a ~~Motion~~motion to ~~Dismiss.~~dismiss. On February 17, 2023, the plaintiffs filed an opposition to the defendant's motion to dismiss. On March 20, 2023, the Company filed a reply brief in further support of its motion to dismiss. ~~The~~On June 13, 2023, the Company ~~cannot predict when~~made oral arguments in support of its motion to dismiss. On August 10, 2023, the court ~~will rule on its motion.~~largely denied the motion to dismiss. The defendants continue to believe the allegations in the ~~initial~~ complaint are without merit and intend to defend the suit vigorously.

Mark Grams v. Treis Blockchain, LLC, Chain Enterprises, LLC, Cevon Technologies, LLC, Stronghold Digital Mining, LLC, David Pence, Michael Bolick, Senter Smith, Brian Lambretti and John Chain

On May 4, 2023, Stronghold Digital Mining, LLC, a subsidiary of the Company, was named as one of several defendants in a complaint filed in the United States District Court for the Middle District of Alabama Eastern Division (the "Grams Complaint"). The Grams Complaint alleges that certain Bitcoin miners ~~that~~ the Company purchased from Treis Blockchain,

LLC ("Treis") in December 2021 contained firmware that ~~Treis misappropriated from~~is alleged to have constituted “trade secrets” owned by Grams. Principally, the Grams Complaint included allegations of misappropriation of these alleged trade secrets.

The Company believes that the allegations against ~~the Company~~it and its subsidiaries in the Grams Complaint are without merit and intends to vigorously defend the ~~suit vigorously.~~suit. To that end, the Company has entered into a joint defense agreement with Treis and the other named defendants. The Company has also entered into a tolling agreement with Treis.

The Company filed a motion to dismiss the case for lack of personal jurisdiction on June 23, 2023. The Company does not believe the Grams Complaint will have a material adverse effect on the Company's reported financial position or results of operations.

NOTE 11 – REDEEMABLE COMMON STOCK

Class V common stock represented ~~38.8%~~28.4% and 45.1% ownership of Stronghold LLC, as of ~~March 31,~~June 30, 2023, and December 31, 2022, respectively, granting the owners of Q Power economic rights and, as a holder, one vote on all matters to be voted on by the Company's stockholders generally, and a redemption right into Class A shares. Refer to Note 12 – Noncontrolling Interests for more details.

The Company classifies its Class V common stock as redeemable common stock in the accompanying condensed consolidated balance sheets as, pursuant to the Stronghold LLC Agreement, the redemption rights of each unit held by Q Power for either shares of Class A common stock or an equivalent amount of cash is not solely within the Company’s control. This is due to the holders of the Class V common stock collectively owning a majority of the voting stock of the Company, which allows the holders of Class V common stock to elect the members of the Board, including those directors who determine whether to make a cash payment upon a Stronghold LLC unit holder’s exercise of its redemption rights. Redeemable common stock is recorded at the greater of the book value or redemption amount from the date of the issuance, April 1, 2021, and the reporting date as of ~~March 31,~~June 30, 2023.

The Company recorded redeemable common stock as presented in the table below.


		Common - Class V				Common - Class V
		Shares	Amount			Shares	Amount
Balance - December 31, 2022	Balance - December 31, 2022	26,057,600	$	11,754,587	Balance - December 31, 2022	2,605,760	$	11,754,587
Net loss attributable to noncontrolling interest	Net loss attributable to noncontrolling interest	—	(18,119,131)		Net loss attributable to noncontrolling interest	—	(21,475,004)
Redemption of Class V shares					Redemption of Class V shares	(200,000)	(1,210,000)
Maximum redemption right valuation	Maximum redemption right valuation	—	21,863,763		Maximum redemption right valuation	—	20,878,073
Balance - March 31, 2023		26,057,600	$	15,499,219
Balance - June 30, 2023					Balance - June 30, 2023	2,405,760	$	9,947,656

NOTE 12 – NONCONTROLLING INTERESTS

The Company is the sole managing member of Stronghold LLC and, as a result, consolidates the financial results of Stronghold LLC and reports a noncontrolling interest representing the common units of Stronghold LLC held by Q Power. Changes in the Company's ownership interest in Stronghold LLC, while the Company retains its controlling interest, are accounted for as redeemable common stock transactions. As such, future redemptions or direct exchanges of common units of Stronghold LLC by the continuing equity owners will result in changes to the amount recorded as noncontrolling interest. Refer to Note 11 – Redeemable Common Stock which describes the redemption rights of the noncontrolling interest.

The following summarizes the redeemable common stock adjustments pertaining to the noncontrolling interest as of and for the ~~three~~six months ended ~~March 31,~~June 30, 2023:


		Class V Common Stock Outstanding	Fair Value Price		Temporary Equity Adjustments			Class V Common Stock Outstanding	Fair Value Price		Temporary Equity Adjustments
Balance - December 31, 2022	Balance - December 31, 2022	26,057,600	$	0.45	$	11,754,587	Balance - December 31, 2022	2,605,760	$	4.51	$	11,754,587
Net loss for the three months ended March 31, 2023					(18,119,131)
Net loss attributable to noncontrolling interest							Net loss attributable to noncontrolling interest	—			(21,475,004)
Redemption of Class V shares							Redemption of Class V shares	(200,000)			(1,210,000)
Adjustment of temporary equity to redemption amount (1)	Adjustment of temporary equity to redemption amount (1)				21,863,763		Adjustment of temporary equity to redemption amount (1)	—			20,878,073
Balance - March 31, 2023		26,057,600	$	0.59	$	15,499,219
Balance - June 30, 2023							Balance - June 30, 2023	2,405,760	$	4.13	$	9,947,656

(1) Temporary equity adjustment based on Class V common stock outstanding at fair value price at each quarter end, using a 10-day variable weighted average price ("VWAP") of trading dates including the closing date.	(1) Temporary equity adjustment based on Class V common stock outstanding at fair value price at each quarter end, using a 10-day variable weighted average price ("VWAP") of trading dates including the closing date.						(1) Temporary equity adjustment based on Class V common stock outstanding at fair value price at each quarter end, using a 10-day variable weighted average price ("VWAP") of trading dates including the closing date.

NOTE 13 – STOCK-BASED COMPENSATION

Stock-based compensation expense ~~was $2,449,324 and $2,592,995~~ for the three months ended ~~March 31,~~June 30, 2023, and 2022, equaled $4,366,724 and $3,152,631, respectively, and for the six months ended June 30, 2023, and 2022, equaled $6,816,048 and $5,745,625, respectively. There was no income tax benefit related to stock-based compensation expense due to the Company having a full valuation allowance recorded against its deferred income tax assets.

On March 15, 2023, the Company entered into award agreements with certain executive officers. In total, the executive officers were granted ~~2,725,000~~272,500 restricted stock units in exchange for the cancellation of ~~986,688~~98,669 stock options and ~~250,000~~25,000 performance share units previously granted to the executive officers. All restricted stock units were granted under the Company’s previously adopted Omnibus Incentive Plan, dated October 19, 2021. ~~The Company evaluated this modification under ASC 718,~~ ~~Compensation – Stock Compensation, and determined there was no significant impact on the Company's results of operations for the three months ended March 31, 2023.~~

NOTE 14 – WARRANTS

The following table summarizes outstanding warrants as of ~~March 31,~~June 30, 2023.


			Number of Warrants
Outstanding as of December 31, 2022			~~15,875,106~~1,587,511
Issued			~~3,000,000~~1,733,340
Exercised			~~(5,002,650)~~(1,135,903)
Outstanding as of ~~March 31,~~June 30, 2023			~~13,872,456~~2,184,948

B&M Warrant

On March 28, 2023, as part of the B&M Settlement described in Note 7 – Debt, the Company issued a stock purchase warrant to B&M providing for the right to purchase from the Company ~~3,000,000~~300,000 shares of Class A common stock, par value $0.0001 per share, at an exercise price of ~~$0.0001~~$0.001 per warrant share. As of and during the three months ended June 30, 2023, 200,000 shares of Class A common stock available for purchase pursuant to the B&M Warrant were exercised.

May 2022 Private Placement

On May 15, 2022, the Company entered into a note and warrant purchase agreement, by and among the Company and the purchasers thereto, whereby the Company agreed to issue and sell (i) $33,750,000 aggregate principal amount of 10.00% unsecured convertible promissory notes and (ii) warrants representing the right to purchase up to ~~6,318,000~~631,800 shares of Class A common stock of the Company with an exercise price per share equal to ~~$2.50.~~$25.00. The promissory notes and warrants were sold for aggregate consideration of approximately $27 million.

On August 16, 2022, the Company amended the note and warrant purchase agreement, such that $11.25 million of the ~~outstanding~~outstanding principal was exchanged for the execution of an amended and restated warrant agreement pursuant to which the strike price of the ~~6,318,000~~631,800 warrants was reduced from ~~$2.50~~$25.00 to ~~$0.01.~~$0.10. Refer to Note 15 – ~~Private Placements~~Equity Issuances for additional details.

During the ~~three~~six months ended ~~March 31,~~June 30, 2023, ~~2,277,000 of~~230,000 warrants issued in connection with the May 2022 Private Placement, or subsequent transactions associated with the unsecured convertible promissory notes, were exercised.

September 2022 Private Placement

On September 13, 2022, the Company entered into Securities Purchase Agreements with Armistice Capital Master Fund Ltd. ("Armistice") and Greg Beard, the Company's chairman and chief executive officer, for the purchase and sale of ~~2,274,350~~227,435 and ~~602,409~~60,241 shares of Class A common stock, respectively, and warrants to purchase an aggregate of ~~5,602,409~~560,241 shares of Class A common stock, at an initial exercise price of ~~$1.75~~$17.50 per share. Refer to Note 15 – ~~Private Placements~~Equity Issuances for additional details. As part of the transaction, Armistice purchased the pre-funded warrants for ~~2,725,650~~272,565 shares of Class A

common stock at a purchase price of ~~$1.60~~$16.00 per warrant. The pre-funded warrants have an exercise price of ~~$0.0001~~$0.001 per warrant share.

~~As of and during the three months ended March 31, 2023,~~ ~~the pre-funded warrants for 2,725,650 shares of Class A common stock have been exercised.~~

In April 2023, the Company, Armistice and Mr. Beard entered into amendments to, among other things, adjust the strike price of the remaining outstanding warrants from ~~$1.75~~$17.50 per share to ~~$1.01~~$10.10 per share. Refer to Note 15 – ~~Private Placements~~Equity Issuances for additional details.

As of and during the six months ended June 30, 2023, the pre-funded warrants for 272,565 shares of Class A common stock have been exercised.

April 2023 Private Placement

On April 20, 2023, the Company entered into Securities Purchase Agreements with an institutional investor and the Company's Chief Executive Officer, Greg Beard, for the purchase and sale of shares of Class A common stock, par value $0.0001 per share at a purchase price of ~~$1.00~~$10.00 per share, and warrants to purchase shares of Class A common stock, at an initial exercise price of ~~$1.10~~$11.00 per share (the “April 2023 Private Placement”). Pursuant to the Securities Purchase Agreements, the institutional investor invested $9.0 million in exchange for an aggregate of ~~9,000,000~~900,000 shares of Class A common stock and pre-funded warrants, and Mr. Beard invested $1.0 million in exchange for an aggregate of ~~1,000,000~~100,000 shares of Class A common stock, in each case at a price of ~~$1.00~~$10.00 per share equivalent. Further, the institutional investor and Mr. Beard received warrants exercisable for ~~9,000,000~~900,000 shares and ~~1,000,000 shares,~~100,000 shares, respectively, of Class A common stock. Refer to Note 15 – ~~Private Placements~~Equity Issuances for additional details.

As of and during the six months ended June 30, 2023, the pre-funded warrants for 433,340 shares of Class A common stock have been exercised.

NOTE 15 – ~~PRIVATE PLACEMENTS~~EQUITY ISSUANCES

May 2022 Private Placement

On May 15, 2022, the Company entered into a note and warrant purchase agreement (the “Purchase Agreement”), by and among the Company and the purchasers thereto (collectively, the “May Purchasers”), whereby the Company agreed to issue and sell to the May Purchasers, and the May Purchasers agreed to purchase from the Company, (i) $33,750,000 aggregate principal amount of 10.00% unsecured convertible promissory notes (the “May 2022 Notes”) and (ii) warrants (the “May 2022 Warrants”) representing the right to purchase up to ~~6,318,000~~631,800 shares of Class A common stock, of the Company with an exercise price per share equal to ~~$2.50,~~$25.00, on the terms and subject to the conditions set forth in the Purchase Agreement (collectively, the “2022 Private Placement”). The Purchase Agreement contained representations and warranties by the Company and the May Purchasers that are customary for transactions of this type. The May 2022 Notes and the May 2022 Warrants were sold for aggregate consideration of approximately $27.0 million.

In connection with the 2022 Private Placement, the Company undertook to negotiate with the May Purchasers and to file a certificate of designation with the State of Delaware, following the closing of the 2022 Private Placement, for the terms of a new series of preferred stock.

In connection with the 2022 Private Placement, the May 2022 Warrants were issued pursuant to the Warrant Agreement. The May 2022 Warrants are subject to mandatory cashless exercise provisions and have certain anti-dilution provisions. The May 2022 Warrants are exercisable for a five-year period from the closing.

The issuance of the May 2022 Notes was within the scope of ASC 480-10 and, therefore, was initially measured at fair value (consistent with ASC 480-10-30-7). Additionally, under the guidance provided by ASC 815-40-15-7, the Company determined that the May 2022 Warrants were indexed to the Company's stock. As a result, the May 2022 Warrants were initially recorded at their fair value within equity. The May 2022 Notes were valued using the gross yield method under the income approach. As of the issuance date of May 15, 2022, a calibration analysis was performed by back solving the implied yield associated with the May 2022 Notes, such that the total value of the May 2022 Notes and the May 2022 Warrants equaled the purchase amount. The calibrated yield was then rolled forward for changes to the risk-free rate and option-adjusted spreads to the August 16, 2022, valuation date to value the May 2022 Notes.

On August 16, 2022, the Company entered into an amendment to the Purchase Agreement, by and among the Company and the May Purchasers, whereby the Company agreed to amend the Purchase Agreement, such that $11.25 million of the outstanding principal was exchanged for the May Purchaser's execution of an amended and restated warrant agreement pursuant to which the strike price of the ~~6,318,000~~631,800 May 2022 Warrants was reduced from ~~$2.50~~$25.00 to ~~$0.01.~~$0.10. After giving effect to the principal reduction and amended and restated warrants, the Company was to continue to make subsequent monthly, payments to the May Purchasers on the fifteenth (15th) day of each of November 2022, December 2022, January 2023, and February 2023. The Company was able to elect to pay each such payment (A) in cash or (B) in shares of

common stock, in each case, at a twenty percent (20%) discount to the average of the daily VWAPs for each of the twenty (20) consecutive trading days preceding the payment date.

Series C Convertible Preferred Stock

On December 30, 2022, the Company entered into ~~an exchange agreement (the “Exchange Agreement”)~~the Exchange Agreement with the ~~holders (the “Purchasers”)~~Purchasers of the Amended May 2022 Notes (as defined above) whereby the Amended May 2022 Notes were to be exchanged for shares of ~~a new series of convertible preferred stock, par value $0.0001 per share (the “Series~~Series C Preferred ~~Stock”)~~Stock that, among other things, will convert into shares of Class A common stock or pre-funded warrants that may be exercised for shares of Class A common stock, at a conversion rate equal to the stated value of $1,000 per share plus cash in lieu of fractional shares, divided by a conversion price of ~~$0.40~~$4.00 per share of Class A common stock. Upon the fifth anniversary of the Series C Preferred Stock, each outstanding share of Series C Preferred Stock will automatically and immediately convert into Class A common stock or pre-funded warrants. In the event of a liquidation, the Purchasers shall be entitled to receive an amount per share of Series C Preferred Stock equal to its stated value of $1,000 per share. The Exchange Agreement closed on February 20, 2023.

Pursuant to the Exchange Agreement, the Purchasers received an aggregate 23,102 shares of the Series C Preferred Stock, in exchange for the cancellation of an aggregate $17,893,750 of principal and accrued interest, representing all of the amounts owed to the Purchasers under the May 2022 Notes. On February 20, 2023, one Purchaser converted 1,530 shares of the Series C Preferred Stock to ~~3,825,000~~382,500 shares of the Company’s Class A common stock. The rights and preferences of the Series C Preferred Stock are designated in a certificate of designation, and the Company provided certain registration rights to the Purchasers.

September 2022 Private Placement

On September 13, 2022, the Company entered into Securities Purchase Agreements with Armistice and Greg Beard, the Company's chairman and chief executive officer (together with Armistice, the “September 2022 Private Placement Purchasers”), for the purchase and sale of ~~2,274,350~~227,435 and ~~602,409~~60,241 shares, respectively, of Class A common stock, par value $0.0001 per share at a purchase price of ~~$1.60~~$16.00 and ~~$1.66,~~$16.60, respectively, and warrants to purchase an aggregate of ~~5,602,409~~560,241 shares of Class A common stock, at an initial exercise price of ~~$1.75~~$17.50 per share (subject to certain adjustments). Subject to certain ownership limitations, such warrants are exercisable upon issuance and will be exercisable for five and a half years commencing upon the date of issuance. Armistice also purchased the pre-funded warrants to purchase ~~2,725,650~~272,565 shares of Class A common stock at a purchase price of ~~$1.60~~$16.00 per pre-funded warrant. The pre-funded warrants have an exercise price of ~~$0.0001~~$0.001 per warrant share. The transaction closed on September 19, 2022. The gross proceeds from the sale of such securities, before deducting offering expenses, was approximately $9.0 million.

The warrant liabilities are subject to remeasurement at each balance sheet date, and any change in fair value is recognized as "changes in fair value of warrant liabilities" in the condensed consolidated statements of operations. The fair value of the warrant liabilities was estimated as of ~~March 31,~~June 30, 2023, using a Black-Scholes model with significant inputs as follows:


	~~March 31,~~June 30, 2023
Expected volatility	~~132.1~~128.8		%
Expected life (in years)	~~5.50~~4.75
Risk-free interest rate	~~3.6~~4.1		%
Expected dividend yield	0.00		%
Fair value	$	~~2,846,548~~1,821,980

April 2023 Private Placement

On April 20, 2023, the Company entered into Securities Purchase Agreements with an institutional investor and the Company’s chairman and chief executive officer, Greg Beard, for the purchase and sale of shares of Class A common stock, par value $0.0001 per share at a purchase price of ~~$1.00~~$10.00 per share, and warrants to purchase shares of Class A common stock, at an initial exercise price of ~~$1.10~~$11.00 per share (subject to certain adjustments in accordance with the terms thereof). Pursuant to the Securities Purchase Agreements, the institutional investor invested $9.0 million in exchange for an

aggregate of ~~9,000,000~~900,000 shares of Class A common stock and pre-funded warrants, and Mr. Beard invested $1.0 million in exchange for an aggregate of ~~1,000,000~~100,000 shares of Class A common stock, in each case at a price of ~~$1.00~~$10.00 per share equivalent. Further, the institutional investor and Mr. Beard received warrants exercisable for ~~9,000,000~~900,000 shares and ~~1,000,000~~100,000 shares, respectively, of Class A common stock.

Subject to certain ownership limitations, the warrants are exercisable six months after issuance. The warrants are exercisable for five and a half years commencing upon the date of issuance, subject to certain ownership limitations. The pre-funded warrants have an exercise price of ~~$0.0001~~$0.001 per warrant share and are immediately exercisable, subject to certain ownership limitations. The gross proceeds from the April 2023 Private Placement, before deducting offering expenses, was approximately $10.0 million. The April 2023 Private Placement closed on April 21, 2023.

The warrant liabilities are subject to remeasurement at each balance sheet date, and any change in fair value is recognized as "changes in fair value of warrant liabilities" in the condensed consolidated statements of operations. The fair value of the warrant liabilities was estimated as of June 30, 2023, using a Black-Scholes model with significant inputs as follows:


	June 30, 2023
Expected volatility	128.8		%
Expected life (in years)	5.50
Risk-free interest rate	4.1		%
Expected dividend yield	0.00		%
Fair value	$	3,431,602

Additionally, as previously disclosed, the Company entered into Securities Purchase Agreements with the September 2022 Private Placement Purchasers for, in part, warrants to purchase an aggregate of ~~5,602,409~~560,241 shares of Class A common stock, at an exercise price of ~~$1.75~~$17.50 per share. On April 20, 2023, the Company and the September 2022 Private Placement Purchasers entered into amendments to, among other things, adjust the strike price of the warrants from ~~$1.75~~$17.50 per share to ~~$1.01~~$10.10 per share.

ATM Agreement

On May 23, 2023, the Company entered into an at-the-market offering agreement (the "ATM Agreement") with H.C. Wainwright & Co., LLC ("HCW") to sell shares of its Class A common stock having aggregate sales proceeds of up to $15.0 million (the "ATM Shares"), from time to time, through an "at the market" equity offering program under which HCW acts as sales agent and/or principal.

Pursuant to the ATM Agreement, the ATM Shares may be offered and sold through HCW in transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act, including sales made directly on The Nasdaq Stock Market LLC or sales made to or through a market maker other than on an exchange or in negotiated transactions. Under the ATM Agreement, HCW is entitled to compensation equal to 3.0% of the gross proceeds from the sale of the ATM Shares sold through HCW. The Company has no obligation to sell any of the ATM Shares under the ATM Agreement and may at any time suspend solicitations and offers under the ATM Agreement. The Company and HCW may each terminate the ATM Agreement at any time upon specified prior written notice.

The ATM Shares have been and are being issued pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-271671), filed with the SEC on May 5, 2023, as amended by Amendment No. 1 to the registration statement filed with the SEC on May 23, 2023 (as amended, the “ATM Registration Statement”). Pursuant to the ATM Agreement, no sales may be made until 30 days following the date on which the ATM Registration Statement is declared effective. The ATM Registration Statement was declared effective on May 25, 2023.

The Company sold 760 ATM Shares under the ATM Agreement during the quarter ended June 30, 2023, for an insignificant amount of proceeds. As of June 30, 2023, the Company had $312,055 of offering costs included within other current assets in the condensed consolidated balance sheet. As of August 7, 2023, the Company has received net proceeds of approximately $6.1 million from the sale of 798,944 ATM Shares under the ATM Agreement after deducting sales commissions of approximately $0.2 million.

NOTE 16 – SEGMENT REPORTING

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly in deciding how to allocate resources and assess performance. The Company's CEO is the chief operating decision maker. The Company functions in two operating segments, Energy Operations and Cryptocurrency Operations, about which separate financial information is presented below.


		Three Months Ended				Three Months Ended				Six Months Ended
		March 31, 2023		March 31, 2022				June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
OPERATING REVENUES:	OPERATING REVENUES:						OPERATING REVENUES:
Energy Operations	Energy Operations	$	3,642,921	$	11,109,581		Energy Operations	$	1,371,242	$	9,391,235	$	5,014,163	$	20,500,816
Cryptocurrency Operations	Cryptocurrency Operations	13,623,294		18,272,069			Cryptocurrency Operations	16,862,499		20,348,708		30,485,793		38,620,777
Total operating revenues	Total operating revenues	$	17,266,215	$	29,381,650		Total operating revenues	$	18,233,741	$	29,739,943	$	35,499,956	$	59,121,593
NET OPERATING LOSS:	NET OPERATING LOSS:						NET OPERATING LOSS:
Energy Operations	Energy Operations	$	(10,734,947)	$	(12,097,125)		Energy Operations	$	(9,578,048)	$	(11,678,177)	$	(20,179,073)	$	(23,775,302)
Cryptocurrency Operations	Cryptocurrency Operations	(3,881,166)		(16,834,089)			Cryptocurrency Operations	(6,001,483)		(27,859,912)		(10,016,571)		(44,694,001)
Total net operating loss	Total net operating loss	$	(14,616,113)	$	(28,931,214)		Total net operating loss	$	(15,579,531)	$	(39,538,089)	$	(30,195,644)	$	(68,469,303)
OTHER EXPENSE [A]		(32,044,449)		(3,375,202)
OTHER EXPENSE (1)							OTHER EXPENSE (1)	3,887,402		(700,485)		(28,157,047)		(4,075,687)
NET LOSS	NET LOSS	$	(46,660,562)	$	(32,306,416)		NET LOSS	$	(11,692,129)	$	(40,238,574)	$	(58,352,691)	$	(72,544,990)

DEPRECIATION AND AMORTIZATION:	DEPRECIATION AND AMORTIZATION:						DEPRECIATION AND AMORTIZATION:
Energy Operations	Energy Operations	$	(1,332,873)	$	(1,256,101)		Energy Operations	$	(1,330,647)	$	(1,326,552)	$	(2,663,520)	$	(2,582,653)
Cryptocurrency Operations	Cryptocurrency Operations	(6,389,968)		(11,063,480)			Cryptocurrency Operations	(7,304,320)		(11,340,748)		(13,694,288)		(22,404,228)
Total depreciation and amortization	Total depreciation and amortization	$	(7,722,841)	$	(12,319,581)		Total depreciation and amortization	$	(8,634,967)	$	(12,667,300)	$	(16,357,808)	$	(24,986,881)
INTEREST EXPENSE:	INTEREST EXPENSE:						INTEREST EXPENSE:
Energy Operations	Energy Operations	$	(159,287)	$	(31,522)		Energy Operations	$	(252,178)	$	(24,547)	$	(411,465)	$	(56,069)
Cryptocurrency Operations	Cryptocurrency Operations	(2,224,626)		(2,879,931)			Cryptocurrency Operations	(2,351,300)		(4,484,235)		(4,575,926)		(7,364,166)
Total interest expense	Total interest expense	$	(2,383,913)	$	(2,911,453)		Total interest expense	$	(2,603,478)	$	(4,508,782)	$	(4,987,391)	$	(7,420,235)

~~[A]~~(1) The Company does not allocate other income (expense) for segment reporting purposes. Amount is shown as a reconciling item between net operating income (loss) and consolidated net income (loss). Refer to the accompanying condensed consolidated statements of operations for further details.

NOTE 17 – EARNINGS (LOSS) PER SHARE

Basic EPS is computed by dividing the Company’s net income (loss) by the weighted average number of Class A shares of common stock outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted net loss per share of Class A common stock for the three and six months ended ~~March 31,~~June 30, 2023, and 2022.


		Three Months Ended				Three Months Ended						Six Months Ended
		March 31, 2023		March 31, 2022				June 30, 2023		June 30, 2022			June 30, 2023		June 30, 2022
Numerator:	Numerator:						Numerator:
Net loss	Net loss	$	(46,660,562)	$	(32,306,416)		Net loss	$	(11,692,129)	$	(40,238,574)		$	(58,352,691)	$	(72,544,990)
Less: net loss attributable to noncontrolling interest		(18,119,131)		(18,897,638)
Less: net income (loss) attributable to noncontrolling interest							Less: net income (loss) attributable to noncontrolling interest	(3,355,873)		(23,537,554)			(21,475,004)		(42,435,192)
Net loss attributable to Stronghold Digital Mining, Inc.	Net loss attributable to Stronghold Digital Mining, Inc.	$	(28,541,431)	$	(13,408,778)		Net loss attributable to Stronghold Digital Mining, Inc.	$	(8,336,256)	$	(16,701,020)		$	(36,877,687)	$	(30,109,798)
Denominator:	Denominator:						Denominator:
Weighted average number of Class A common shares outstanding	Weighted average number of Class A common shares outstanding	43,756,137		20,206,103			Weighted average number of Class A common shares outstanding	6,163,450		2,034,107			5,274,471		2,027,468
Basic net loss per share	Basic net loss per share	$	(0.65)	$	(0.66)		Basic net loss per share	$	(1.35)	$	(8.21)		$	(6.99)	$	(14.85)
Diluted net loss per share	Diluted net loss per share	$	(0.65)	$	(0.66)		Diluted net loss per share	$	(1.35)	$	(8.21)		$	(6.99)	$	(14.85)

Securities that could potentially dilute earnings (loss) per share in the future were not included in the computation of diluted loss per share for the three and six months ended ~~March 31,~~June 30, 2023, and 2022, because their inclusion would be anti-dilutive. The potentially dilutive impact of Series C Preferred Stock not yet exchanged for shares of Class A common stock totaled ~~53,930,000~~5,393,000 as of ~~March 31,~~June 30, 2023.

Subsequent to ~~March 31,~~June 30, 2023, as described in Note 15 – ~~Private Placements~~Equity Issuances, the Company ~~completed~~continued to sell the ~~April 2023 Private Placement, which resulted~~ATM Shares under the ATM Agreement, resulting in an ~~aggregate 10,000,000~~additional 798,184 shares of Class A common stock ~~and 10,000,000 pre-funded warrants issued to an institutional investor and Greg Beard, the Company's chairman and chief executive officer, in exchange for their investments.~~outstanding as of August 7, 2023.

NOTE 18 – INCOME TAXES

Tax Receivable Agreement

The Company entered into a Tax Receivable Agreement (“TRA”) with Q Power and an agent named by Q Power on April 1, 2021 (to which an additional holder was subsequently joined as an additional "TRA Holder" on March 14, 2023), pursuant to which the Company will pay the TRA Holders 85% of the realized (or, in certain circumstances, deemed to be realized) cash tax savings attributable to the tax basis step-ups arising from taxable exchanges of units and certain other items.

During 2022 aand 2023, taxable ~~exchange~~exchanges of Stronghold LLC units, together with a corresponding number of Class V common shares by Q Power for Class A common stock of the Company, resulted in adjustments to the tax basis of Stronghold LLC’s assets. Such step-ups in tax basis, which were allocated to Stronghold Inc., are expected to increase Stronghold Inc.’s tax depreciation, amortization and/or other cost recovery deductions, which may reduce the amount of tax Stronghold Inc. would otherwise be required to pay in the future. No cash tax savings have been realized by Stronghold Inc. with respect to these basis adjustments due to the Company’s estimated taxable losses, and the realization of cash tax savings in the future is dependent, in part, on estimates of sufficient future taxable income. As such, a deferred income tax asset has not been recorded due to maintaining a valuation allowance on the Company’s deferred income tax assets, and no liability has been recorded with respect to the TRA in light of the applicable criteria for accrual.

Estimating the amount and timing of Stronghold Inc.'s realization of income tax benefits subject to the TRA is imprecise and unknown at this time and will vary based on a number of factors, including when future redemptions actually occur. Accordingly, the Company has not recorded any deferred income tax asset or liability associated with the TRA.

Provision for Income Taxes

The provision for income taxes for the three and six months ended ~~March 31,~~June 30, 2023, and 2022, was zero, resulting in an effective income tax rate of zero. The difference between the statutory income tax rate of 21% and the Company’s effective tax rate for the three and six months ended ~~March 31,~~June 30, 2023, and 2022, was primarily due to pre-tax losses attributable to the noncontrolling interest and due to maintaining a valuation allowance against the Company’s deferred income tax assets.

The determination to record a valuation allowance was based on management’s assessment of all available evidence, both positive and negative, supporting realizability of the Company’s net operating losses and other deferred income tax assets, as required by ASC 740, Income Taxes. In light of the criteria under ASC 740 for recognizing the tax benefit of deferred income tax assets, the Company maintained a valuation allowance against its federal and state deferred income tax assets as of ~~March 31,~~June 30, 2023, and December 31, 2022.

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NOTE 19 – SUPPLEMENTAL CASH AND NON-CASH INFORMATION

Supplemental disclosures of cash flow information for the ~~three~~six months ended ~~March 31,~~June 30, 2023, and 2022, were as follows:


		March 31, 2023		March 31, 2022			June 30, 2023		June 30, 2022
Income tax payments	Income tax payments	$	—	$	—	Income tax payments	$	—	$	—
Interest payments	Interest payments	$	2,222,350	$	837,174	Interest payments	$	4,676,461	$	2,071,167

Supplementary non-cash investing and financing activities consisted of the following for the ~~three~~six months ended ~~March 31,~~June 30, 2023, and 2022:


	~~March 31, 2023~~		~~March 31, 2022~~
~~Equipment financed with debt~~	$	—	$	~~30,750,688~~
~~Purchases of property, plant and equipment included in accounts payable or accrued liabilities~~	~~3,716~~		—
~~Reclassifications from deposits to property, plant and equipment~~	~~4,658,970~~		—
~~Issued as part of financing:~~
~~Warrants – WhiteHawk~~	—		~~1,150,000~~
~~Convertible Note Exchange for Series C Convertible Preferred Stock:~~
~~Extinguishment of convertible note~~	~~16,812,500~~		—
~~Extinguishment of accrued interest~~	~~655,500~~		—
~~Issuance of Series C convertible preferred stock, net of issuance costs~~	~~45,386,944~~		—
~~B&M Settlement:~~
~~Warrants – B&M~~	~~1,739,882~~		—
~~Return of transformers to settle outstanding payable~~	~~6,007,500~~		—
~~Issuance of B&M Note~~	~~3,500,000~~		—
~~Elimination of accounts payable~~	~~11,426,720~~		—


	June 30, 2023		June 30, 2022
Equipment financed with debt	$	—	$	59,537,733
Purchases of property, plant and equipment through finance leases	60,679		—
Purchases of property, plant and equipment included in accounts payable or accrued liabilities	24,137		43,102,870
Operating lease right-of-use assets exchanged for lease liabilities	291,291		—
Reclassifications from deposits to property, plant and equipment	4,658,970		3,473,096
Issued as part of financing:
Warrants – WhiteHawk	—		1,150,000
Warrants – convertible note	—		6,604,881
Warrants – April 2023 Private Placement	8,882,914		—
Convertible Note Exchange for Series C Convertible Preferred Stock:
Extinguishment of convertible note	16,812,500		—
Extinguishment of accrued interest	655,500		—
Issuance of Series C convertible preferred stock, net of issuance costs	45,386,944		—
B&M Settlement:
Warrants – B&M	1,739,882		—
Return of transformers to settle outstanding payable	6,007,500		—
Issuance of B&M Note	3,500,000		—
Elimination of accounts payable	11,426,720		—
Financed insurance premiums	1,275,288		523,076
Class A common stock issued to settle outstanding payables or accrued liabilities	954,793		—

NOTE 20 – SUBSEQUENT EVENTS

~~April 2023 Private Placement~~Canaan Purchase Agreement and Amendment to Canaan Bitcoin Mining Agreement

On ~~April 20,~~July 19, 2023, the Company entered into ~~Securities~~a Sales and Purchase ~~Agreements~~Contract with ~~an institutional investor and~~Canaan Inc. ("Canaan") whereby the ~~Company’s chairman and chief executive officer, Greg Beard,~~Company purchased 2,000 A1346 Bitcoin miners for ~~the purchase and sale of shares of Class A common stock, par value $0.0001 per share at~~ a total purchase price of ~~$1.00 per share, and warrants~~$2,962,337. The miners are expected to ~~purchase shares~~be delivered during the third quarter of ~~Class A common stock,~~2023 for use at ~~an initial exercise price of $1.10 per share (subject to certain adjustments in accordance with~~ the terms thereof). Pursuant to the Securities Purchase Agreements, the institutional investor invested $9.0 million in exchange for an aggregate of 9,000,000 shares of Class A common stock and pre-funded warrants, and Mr. Beard invested $1.0 million in exchange for an aggregate of 1,000,000 shares of Class A common stock, in each case at a price of $1.00 per share equivalent. Further, the institutional investor and Mr. Beard received warrants exercisable for 9,000,000 shares and 1,000,000 shares, respectively, of Class A common stock.

Subject to certain ownership limitations, the warrants are exercisable six months after issuance. The warrants are exercisable for five and a half years commencing upon the date of issuance, subject to certain ownership limitations. The pre-funded warrants have an exercise price of $0.0001 ~~per warrant share and are immediately exercisable, subject to certain ownership limitations. The gross proceeds from the April 2023 Private Placement, before deducting offering expenses, was approximately $10.0 million. The April 2023 Private Placement closed~~Company's Panther Creek Plant. Simultaneously, on ~~April 21, 2023.~~

Additionally, as previously disclosed, the Company entered into Securities Purchase Agreements with the September 2022 Private Placement Purchasers for, in part, warrants to purchase an aggregate of 5,602,409 shares of Class A common stock, at an exercise price of $1.75 per share. On April 20,July 19, 2023, the Company ~~and~~amended the ~~September 2022 Private Placement Purchasers entered into amendments to, among other things, adjust~~Canaan Bitcoin Mining Agreement with the ~~strike price of the warrants from $1.75 per share to $1.01 per share.~~

~~MicroBT Miner Purchase~~

On April 20, 2023, Stronghold Inc. entered into a Master Sales and Purchase Agreement to acquire 5,000 new, latest-generation MicroBT WhatsMiner M50 miners (the “M50 Miners”) for $15.50 per terahash per second, including shipping. The M50 Miners have an average hash rate of 118 terahash per second and energy efficiency of 28.5 joules per terahash. This addition of approximately 600 petahash per second of hash rate capacity is expected to grow Stronghold Inc.'s total delivered hash rate capacity by over 20% to over 3.2 exahash per second (“EH/s”) and to approximately 3.5 EH/s with all2,000 A1346 Bitcoin miners under the same terms as the Canaan Bitcoin Mining Agreement.

2225

~~remaining contracted miners delivered. The Company expects to receive and install the M50 Miners during the second quarter of 2023.~~

~~Canaan Bitcoin Mining Agreement~~

On April 27, 2023, the Company signed a two-year hosting agreement with Cantaloupe Digital LLC, a subsidiary of Canaan Inc. ("Canaan"), whereby Stronghold Inc. will operate 2,000 A1346 (110 TH/s per miner) and 2,000 A1246 (90 TH/s per miner) Bitcoin miners supplied by Canaan (the “Canaan Miners”), with total hash rate capacity of 400 PH/s (the “Canaan Bitcoin Mining Agreement”). The Canaan Bitcoin Mining Agreement has a two-year term, with no unilateral early termination option. The Company will receive 50% of the Bitcoin mined by the Canaan Miners and receive payments from Canaan equal to 55% of the net cost of power at the Company’s Panther Creek Plant, in dollar-per-megawatt-hour terms, calculated on a monthly basis. Additionally, Stronghold Inc. will retain all upside associated with selling power to the grid, and, if the Company elects to curtail the Canaan Miners to sell power to the grid, Canaan will receive a true-up payment that represent estimates of the Bitcoin mining revenue would have been generated had the miners not been curtailed. The A1246 Bitcoin miners are to be installed by May 15, 2023, and the A1346 Bitcoin miners are to be installed by June 15, 2023. On May 3, 2023, the 2,000 A1246 Bitcoin miners were delivered to the Company's Panther Creek Plant and were ready to be deployed.

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (this "Form 10-Q") contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended (the "Securities Act")), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In particular, statements pertaining to our trends, liquidity, capital resources, and future performance, among others, contain forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology including, but not limited to, “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions.

Forward-looking statements involve numerous risks and uncertainties, and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all).

Forward-looking statements may include statements about:

•the hybrid nature of our business model, which is highly dependent on the price of Bitcoin;

•our ability to raise capital to fund our business growth;

•our dependence on the level of demand and financial performance of the crypto asset industry;

•our ability to manage our growth, business, financial results and results of operations;

•uncertainty regarding our evolving business model;

•our ability to maintain sufficient liquidity to fund operations, growth and acquisitions;

•our substantial indebtedness and its effect on our results of operations and our financial condition;

•uncertainty regarding the outcomes, monetary or otherwise, of any investigations or proceedings;

•our ability to retain management and key personnel and the integration of new management;

•our ability to enter into purchase agreements, acquisitions and financing transactions;

•our ability to maintain our relationships with our third-party brokers and our dependence on their performance;

•public health crises, epidemics, and pandemics such as the coronavirus ("COVID-19") pandemic;

•our ability to procure crypto asset mining equipment from foreign-based suppliers;

•developments and changes in laws and regulations, including increased regulation of the crypto asset industry through legislative action and revised rules and standards applied by The Financial Crimes Enforcement Network under the authority of the U.S. Bank Secrecy Act and the Investment Company Act;

•the future acceptance and/or widespread use of, and demand for, Bitcoin and other crypto assets;

•our ability to respond to price fluctuations and rapidly changing technology;

•our ability to operate our coal refuse power generation facilities as planned;

•our ability to remain listed on a stock exchange and maintain an active trading market;

•our ability to avail ourselves of tax credits for the clean-up of coal refuse piles; and

•legislative or regulatory changes, and liability under, or any future inability to comply with, existing or future energy regulations or requirements.

We caution you that the forward-looking statements contained in this Form 10-Q are subject to a variety of risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks include, but are not limited to, decline in demand for our products and services, the seasonality and volatility of the crypto asset industry, our acquisition strategies, the inability to comply with developments and changes in regulation, cash flow and access to capital, maintenance of third-party relationships, and the other risks described under the heading “Item 1A.Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the U.S. Securities and Exchange Commission (the "SEC") on April 3, 2023, and in this Form 10-Q. Should one or more of the risks or uncertainties

described in the Annual Report on Form 10-K or in ~~this~~any subsequently filed Form 10-Q occur, or should underlying

assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.

All forward-looking statements, expressed or implied, included in this Quarterly Report on Form 10-Q are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

Any forward-looking statement that we make in this Form 10-Q speaks only as of the date of such statement. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Form 10-Q.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Except as otherwise indicated or required by the context, all references in this prospectus to the “Company,” “we,” “us” or “our” relate to Stronghold Digital Mining, Inc. (“Stronghold Inc.”) and its consolidated subsidiaries.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing in this Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, including information with respect to our plans, expectations and strategy for our business, and operations, includes forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see section above entitled “Cautionary Statement Regarding Forward-Looking Statements.” Certain risks may cause actual results, performance or achievements to differ materially from those expressed or implied by the following discussion and analysis. Factors that may cause actual results to differ materially from current expectations include, among other things, those described under the heading “Item 1A.Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on April 3, 2023 (the "2022 Form 10-K"), our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, as filed with the SEC on May 12, 2023, and in this Form 10-Q. Except as set forth in Item 1A. "Risk Factors" below, there have been no material changes to the risk factors previously disclosed in the 2022 Form 10-K.

Overview of the Business

Stronghold Digital Mining, Inc. (“Stronghold Inc.,” the “Company,” “we,” “us,” or “our”) was incorporated as a Delaware corporation on March 19, 2021. We are a low-cost, environmentally beneficial, vertically integrated crypto asset mining company ~~currently~~ focused on mining Bitcoin with environmental remediation and reclamation services. We wholly own and operate two coal refuse power generation facilities that we have upgraded: (i) our first reclamation facility located on a 650-acre site in Scrubgrass Township, Venango County, Pennsylvania, which we acquired the remaining interest of in April 2021, and has the capacity to generate approximately 83.5 megawatts (“MW”) of electricity (the “Scrubgrass Plant”) and (ii) a facility located near Nesquehoning, Pennsylvania, which we acquired in November 2021, and ~~which~~ has the capacity to generate approximately 80 MW of electricity (the “Panther Creek ~~Plant”~~Plant,” and collectively with the Scrubgrass Plant, the "Plants")~~, each of which is~~. Both facilities qualify as an Alternative Energy System because coal refuse is classified under Pennsylvania law as a Tier II Alternative Energy Source (large-scale hydropower is also classified in this tier). We are committed to generating our energy and managing our assets sustainably, and we believe that we are one of the first vertically integrated crypto asset mining companies with a focus on environmentally beneficial operations.

We believe that our integrated model of owning our own power plants and Bitcoin mining data center operations helps us to produce Bitcoin at a cost that is attractive versus the price of Bitcoin, and generally below the prevailing market price of power that many of our peers must pay and may have to pay in the future during periods of uncertain or elevated power pricing. Due to the environmental benefit resulting from the remediation of the sites from which the waste coal utilized by our two power generation facilities is removed, we also qualify for Tier II renewable energy tax credits (“RECs”) in Pennsylvania. These RECs are currently valued at approximately over ~~$22~~$29 per megawatt hour (“MWh”) and help reduce our net cost of power. We believe that our ability to utilize RECs in reducing our net cost of power further differentiates us from our public company peers that purchase power from third-party sources or import power from the grid and that do not have access to RECs or other similar tax credits. Should power prices weaken to a level that is below the Company’s cost to produce power, we have the ability to purchase power from the PJM grid to ensure that we are producing Bitcoin at the lowest possible cost. Conversely, we are able to sell power to the PJM grid instead of using the power to produce Bitcoin, as we have recently done, on an opportunistic basis, when revenue from power sales exceeds Bitcoin mining revenue. We operate as a market participant through PJM Interconnection, a Regional Transmission Organization (“RTO”) that coordinates the movement of wholesale electricity. Our ability to sell energy in the wholesale generation market in the PJM RTO provides us with the ability to optimize between selling power to the grid and mining for Bitcoin. We also believe that owning our own power source makes us a more attractive partner to crypto asset mining equipment purveyors. We intend to leverage these competitive advantages to continue to grow our business through the opportunistic acquisition of additional power generating assets and miners.

Our net cost of power, taking into account RECs and waste coal tax credits that we receive, reached the guided range of $45 and $50 per MWh by the end of the first quarter of 2023. We believe that our net cost of power will average between $40 and $50 per MWh over the course of the rest of 2023. This $40 to $50 per MWh corresponds to a cost per Bitcoin of approximately $10,000 to $14,000 with modern miners and assuming a network hash rate of 320 exahash per second (“EH/s”). We believe this cost to mine is attractive versus the price of Bitcoin and generally below the prevailing market price of power that many of our publicly traded peers who engage in Bitcoin mining, who do not generate their own power but instead must purchase it. For reference, per Bloomberg, as of May 1, 2023, the estimated cost to procure electricity over the

forward 24-month period based on the forward power price curve for six major pricing points (Electric Reliability Council of Texas (“ERCOT”) North, ERCOT West, Mid-continent Independent System Operator (“MISO”) Illinois, MISO Indiana, PJM East, and PJM West) is approximately $52 per MWh, to which our expected cost of approximately $40 to $50 per MWh compares favorably.

As of ~~May 8,~~August 7, 2023, we operate more than ~~31,000~~38,000 Bitcoin miners with hash rate capacity of approximately ~~2.8~~3.7 EH/s. Of these Bitcoin miners, approximately ~~25,000~~30,000 are wholly owned with hash rate capacity of approximately ~~2.2~~2.9 EH/s. We host the remaining approximately ~~6,500~~8,000 Bitcoin miners with hash rate capacity of approximately ~~600~~800 petahash per second (“PH/s”). As of ~~May 8,~~August 7, 2023, we expect to receive an additional approximately ~~0.6 EH/~~220 PH/s related to the purchase of ~~5,000 MicroBT WhatsMiner M50~~2,000 A1346 Bitcoin ~~miners on April 20, 2023,~~Miners, and we also expect to receive an additional approximately ~~0.2 EH/~~210 PH/s related to the ~~purchase agreement we entered into with MinerVa Semiconductor Corp. (“MinerVa”) dated April 2, 2021, representing the final 15%~~expansion of the ~~contracted hash rate yet to be delivered. We also expect to receive~~

Canaan Bitcoin Mining Agreement effective July 27, 2023 (as defined below), where they will contribute an additional 2,000 ~~Canaan~~ A1346 Bitcoin miners ~~which will yield an additional 0.2 EH/s of hash rate capacity, related~~ to ~~our~~the existing hosting agreement with Cantaloupe Digital LLC, a subsidiary of Canaan Inc. ("Canaan") after receiving the first 2,000 miners (0.2 EH/s) in early May. We are actively evaluating incremental opportunities, and while no assurances can be made that we will receive the remaining MinerVa miners or be able to consummate any of these incremental transactions, we continue to believe that we will be able to fill our existing 4 EH/s of data center capacity by the end of the third quarter.agreement.

Bitcoin

Bitcoin was introduced in 2008 with the goal of serving as a digital means of exchanging and storing value. Bitcoin is a form of digital currency that depends upon a consensus-based network and a public ledger called a “blockchain,” which contains a record of every Bitcoin transaction ever processed. The Bitcoin network is the first decentralized peer-to-peer payment network, powered by users participating in the consensus protocol with no central authority or middlemen, that has wide network participation. The authenticity of each Bitcoin transaction is protected through digital signatures that correspond with addresses of users that send and receive Bitcoin. Users have full control over remitting Bitcoin from their own sending addresses. All transactions on the Bitcoin blockchain are transparent, allowing those running the appropriate software to confirm the validity of each transaction. To be recorded on the blockchain, each Bitcoin transaction is validated through a proof-of-work consensus method, which entails solving complex mathematical problems to validate transactions and post them on the blockchain. This process is called mining. Miners are rewarded with Bitcoins, both in the form of newly created Bitcoins and fees in Bitcoin, for successfully solving the mathematical problems and providing computing power to the network. A company’s computing power, measured in hash rate, is generally considered to be one of the most important metrics for evaluating Bitcoin mining companies.

We receive Bitcoin as a result of our mining operations, and we sell Bitcoin, from time to time, to support our operations and strategic growth. We do not currently plan to engage in regular trading of Bitcoin (other than as necessary to convert our Bitcoin to U.S. dollars) or ~~to engage in~~ hedging activities related to our holding of Bitcoin; however, our decisions to hold or sell Bitcoin at any given time may be impacted by the Bitcoin market, which has been historically characterized by significant volatility. Currently, we do not use a formula or specific methodology to determine whether or when we will sell Bitcoin that we hold or the number of Bitcoins we will sell. We assess our fiat currency needs on an ongoing basis, incorporating market conditions, our financial forecasts, and scenarios analyses. We safeguard and keep private our digital assets by utilizing storage solutions provided by Anchorage Digital Bank (“Anchorage”), which require multi-factor authentication and utilize cold and hot storage. While we are confident in the security of our digital assets, we are evaluating additional measures to provide additional protection.

Recent Developments

~~Bruce~~Nasdaq Continued Listing Compliance and ~~Merrilees Settlement Agreement~~Cure

On March 28, 2023, the Company and Stronghold Digital Mining Holdings, LLC ("Stronghold LLC") entered into a Settlement Agreement (the “B&M Settlement”) with its electrical contractor, Bruce & Merrilees Electric Co. (“B&M”). Pursuant to the B&M Settlement, B&M eliminated an estimated $11.4 million outstanding payable in exchange for a promissory note in the amount of $3,500,000 (the "B&M Note") and a stock purchase warrant for the right to purchase from the Company 3,000,000 shares of Class A Common Stock (the B&M Warrant").

Pursuant to the B&M Settlement, B&M released ten (10) 3000kva transformers to the Company and fully cancelled ninety (90) transformers remaining under a pre-existing order with a third-party supplier. The terms of the B&M Settlement include a mutual release of all pre-existing claims.

Pursuant to the B&M Note, the first $500,000 of the principal amount of the loan shall be payable in four equal monthly installments of $125,000 beginning on April 30, 2023, so long as (i) no default or event of default has occurred or is occurring under the Credit Agreement (as defined below) and (ii) no PIK Option (as such term is defined in the First Amendment, as defined below) has been elected by the Company. The principal amount under the B&M Note bears interest at seven and one-half percent (7.5%). Pursuant to the B&M Warrant, the Company entered into a registration rights agreement with B&M for the shares underlying the warrants.

Simultaneous with the B&M Settlement, the Company and each of its subsidiaries entered into a Subordination Agreement with B&M and WhiteHawk Capital Partners LP ("Whitehawk Capital") pursuant to which all obligations, liabilities and indebtedness of every nature of the Company and each of its subsidiaries owed to B&M pursuant to the B&M Note, B&M Settlement and otherwise shall be subordinate and subject in right and time of payment, to the prior payment of full of the Company's obligation to WhiteHawk pursuant to the Credit Agreement.

~~Series C Convertible Preferred Stock~~

~~On December~~November 30, 2022, as previously disclosed in our Form 8-K filed on December 6, 2022, we received a written notification from The Nasdaq Stock Market LLC (the "Nasdaq") notifying us that, based upon the Company entered into an exchange agreement (the “Exchange Agreement”) with the holders (the “Purchasers”) of the May 2022 Notes (as defined below) whereby the May 2022 Notes were to be exchanged for shares of a new series of convertible preferred stock (the “Series C Preferred Stock”) that, among other things, will convert into shares of Common Stock or pre-funded warrants that may be exercised for shares of Class A common stock, at a conversionclosing bid price of $0.40 per share. The Exchange Agreement closed on February 20, 2023. Pursuant to the Exchange Agreement, the Purchasers received an aggregate 23,102 shares of the Series C Preferred Stock in exchange for the cancellation of an aggregate $17,893,750 of principal and accrued interest, representing all of the amounts owed to the Purchasers under the May 2022 Notes. On February 20, 2023, one Purchaser converted 1,530 shares of the Series C Preferred Stock to 3,825,000 shares of the Company’s Class A common ~~stock. On February 20, 2023, one Purchaser converted 1,530 shares of~~stock, for the ~~Series C Preferred Stock to 3,825,000 shares of~~last 30 consecutive business days, the ~~Company’s~~ Class A common ~~stock. The rights and preferences~~stock did not meet the minimum bid price of $1.00 per share required by the ~~Series C Preferred Stock are designated in a certificate of designation (the “Certificate of Designation”)~~Nasdaq Listing Rule 5450(a)(1), ~~and the Company provided certain registration rights to the Purchasers.~~

~~MinerVa~~

~~On April 2, 2021, we entered into a purchase agreement with MinerVa (the “MinerVa Purchase Agreement”)~~initiating an automatic 180 calendar-day grace period, or until May 29, 2023, for the acquisition of 15,000 of their MV7 ASIC SHA256 model cryptocurrency miners, with a total hash rate capacity of 1.5 exahash per second to be delivered. In December 2021, we extended the deadline for delivery of the MinerVa miners to April 2022. Due to continued delays in deliveries, an impairment of approximately $12 million was recognized on March 31, 2022. Due to market conditions, an additional impairment of approximately $5 million was recognized on December 31, 2022. On July 18, 2022, the Company provided written notice of dispute to MinerVa pursuant to the MinerVa Purchase Agreement obligating the Company and MinerVa to work together in good faith towards a resolution for a period of sixty (60) days. As of December 31, 2022, and May 8, 2023, MinerVa had delivered value to Stronghold Inc. equivalent to approximately 1,070 PH/s and approximately 1,270 PH/s, respectively, of the 1,500 PH/s in the form of MinerVa miners, refunded cash, and other industry leading miners. We have continued to receive MinerVa miners during the first quarter of 2023 and expect to receive the remaining MinerVa miners, but we do not know when they will be received, if at all.

~~WhiteHawk Credit Agreement Amendment~~

On February 6, 2023, the Company, Stronghold LLC, as borrower, their subsidiaries and WhiteHawk Capital, as collateral agent and administrative agent, and the other lenders thereto, entered into an amendment (the “First Amendment”) to the previously announced secured credit agreement (the "Credit Agreement") the Company entered into with WhiteHawk Finance LLC ("WhiteHawk") on October 27, 2022, in order to modify certain covenants and remove certain prepayment requirements contained therein. Following the First Amendment, Stronghold LLC will be permitted to pay interest in kind in each month that its average daily cash balance (including cryptocurrencies) is less than $5,000,000, up to a maximum of six elections during the life of the Credit Agreement. As a result of the First Amendment, amortization payments for the period from February 2023 through July 2024 will not be required, with monthly amortization resuming July 31, 2024. Beginning June 30, 2023, following a five-month holiday, Stronghold LLC will make monthly prepayments of the loan in an amount equal to 50% of its average daily cash balance (including cryptocurrencies) in excess of $7,500,000 for such month. The First Amendment also modifies the financial covenants to (i) in the case of the requirement of the Company to ~~maintain~~regain compliance.

On January 9, 2023, as previously disclosed in our Current Report on Form 8-K filed on January 13, 2023, stockholders holding a ~~leverage ratio no greater than 4.00:1.00, such covenant will not be tested until the fiscal quarter ending September 30, 2024~~majority of our issued and (ii) in the case of the minimum liquidity covenant, modified to require minimum liquidity at any time to be not less than: (A) until March 31, 2024, $2,500,000; (B) during the period beginning April 1, 2024 throughoutstanding Class A common stock and ~~including December 31, 2024, $5,000,000; and (C) from and after January 1, 2025, $7,500,000. The average monthly~~

minimum liquidity requirement has been removed entirely. The First Amendment required the Company to produce a budget, to be approved by the required lenders, and to resolve all claims of and amounts payable to B&M in a manner satisfactory to the required lenders by February 28, 2023.

During the term of the Credit Agreement, the administrative agent (at the direction of the required lenders) will have the right to designate a board observer to attend meetings of Board and all committees thereof. Such person will not beClass V common stock entitled to vote on orsuch matters took action by written consent to authorize our Board of Directors (the "Board") to effect a reverse stock split in its discretion with a ratio in a range from and including one-for-two (1:2) up to one-for-ten (1:10) at any ~~matters presented to the Board~~time on or any committees thereof. Such observer maybe excluded from certain meetings or discussions in limited circumstances. The Company will reimburse the observer for its reasonable out-of-pocket expenses incurred in connection with attending any meetings, but none of the lenders or such observer will receive any additional compensation or remuneration for such services.

Further, the Company agreed to appoint an additional independent director that is reasonably satisfactory to the required lenders to its Board to serve until the Company’s next annual meeting, and to nominate such person for election at its next annual meeting. Further, the failure of the sponsor, which includes Q Power LLC (which is controlled by Greg Beard, the chairman and chief executive officer of the Company), to vote for such person as a director will constitute an event of default under the Credit Agreement. On March 7, 2023, the Board appointed Thomas Doherty to the Board.

Simultaneous with the entry into the B&M Settlement and the Subordination Agreement, on March 28, 2023, the Company, Stronghold LLC, as borrower, their subsidiaries and WhiteHawk Capital, as collateral agent and administrative agent, and the other lenders thereto, entered into a second amendment to the Credit Agreement (the “Second Amendment”). Pursuant to the Second Amendment, among other items, the terms “Permitted Indebtedness”, “Subordinated Indebtedness” and “Material Contracts” under the Credit Agreement were amended to include and account for the B&M Settlement, B&M Note and B&M Warrant, and the Company’s obligations thereunder.

~~May 2022 Private Placement~~before June 30, 2023.

On May 15, 2022, the Company entered into a note and warrant purchase agreement (the “Purchase Agreement”), by and among the Company and the purchasers thereto (collectively, the “May Purchasers”), whereby the Company agreed to issue and sell to the May Purchasers, and the May Purchasers agreed to purchase from the Company, (i) $33,750,000 aggregate principal amount of 10.00% unsecured convertible promissory notes (the “May 2022 Notes”) and (ii) warrants (the “May 2022 Warrants”) representing the right to purchase up to 6,318,000 shares of Class A common stock, of the Company with an exercise price per share equal to $2.50, on the terms and subject to the conditions set forth in the Purchase Agreement (collectively, the “2022 Private Placement”). The Purchase Agreement contained representations and warranties2023, following approval by the ~~Company and the May Purchasers that are customary for transactions~~Board, we effected a 1-for-10 reverse stock split ("Reverse Stock Split") of ~~this type. The May 2022 Notes and the May 2022 Warrants were sold for aggregate consideration of approximately $27.0 million.~~

On August 16, 2022, the Company entered into an amendment to the Purchase Agreement, by and among the Company and the May Purchasers, whereby the Company agreed to amend the Purchase Agreement, such that $11.25 million of the outstanding principal was exchanged for the May Purchaser's execution of an amended and restated warrant agreement pursuant to which the strike price of the 6,318,000 May 2022 Warrants was reduced from $2.50 to $0.01. After giving effect to the principal reduction and amended and restated warrants, the Company was to continue to make subsequent monthly, payments to the May Purchasers on the fifteenth (15th) day of each of November 2022, December 2022, January 2023, and February 2023. The Company was able to elect to pay each such payment (A) in cash or (B) in shares of common stock, in each case, at a twenty percent (20%) discount to the average of the daily VWAPs for each of the twenty (20) consecutive trading days preceding the payment date.

~~April 2023 Private Placement~~

On April 20, 2023, we entered into Securities Purchase Agreements with an institutional investor (the “Institutional Purchaser”) and the Company’s chairman and chief executive officer, Greg Beard, for the purchase and sale of shares ofour Class A common stock, par value $0.0001 per share, atand Class V common stock, par value $0.0001 per share. The par values of our Class A and Class V common stock were not adjusted as a ~~purchase~~result of the Reverse Stock Split. All share and per share amounts and related stockholders' equity balances presented herein have been retroactively adjusted to reflect the Reverse Stock Split.

On May 31, 2023, we received a letter from the Nasdaq indicating that, based on the closing bid price of ~~$1.00 per~~our common stock price for the 10 trading days ended May 30, 2023, our stock price was above the Nasdaq's minimum share ~~and warrants~~price requirement. Accordingly, we have successfully regained compliance with the Nasdaq's continued listing standards.

ATM Agreement

On May 23, 2023, we entered into an at-the-market offering agreement (the "ATM Agreement") with H.C. Wainwright & Co., LLC ("HCW") to ~~purchase~~sell shares of our Class A common stock, having aggregate sales proceeds of up to $15.0 million

(the "ATM Shares"), from time to time, through an "at the market" equity offering program under which HCW acts as sales agent and/or principal.

Pursuant to the ATM Agreement, the ATM Shares may be offered and sold through HCW in transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act, as amended, including sales made directly on the Nasdaq or sales made to or through a market maker other than on an exchange or in negotiated transactions. Under the ATM Agreement, HCW is entitled to compensation equal to 3.0% of the gross proceeds from the sale of the ATM Shares sold through HCW. We have no obligation to sell any of the ATM Shares under the ATM Agreement and may at ~~an initial exercise price of $1.10 per share (subject~~any time suspend solicitations and offers under the ATM Agreement. We and HCW may each terminate the ATM Agreement at any time upon specified prior written notice.

The ATM Shares have been and are being issued pursuant to ~~certain adjustments in accordance~~our shelf registration statement on Form S-3 (File No. 333-271671), filed with the ~~terms thereof) (“April~~SEC on May 5, 2023, ~~Private Placement”~~as amended by Amendment No. 1 to the registration statement filed with the SEC on May 23, 2023 (as amended, the “ATM Registration Statement”). Pursuant to the Securities Purchase Agreements, the Institutional Purchaser invested $9.0 million in exchange for an aggregate of 9,000,000 shares of Class A common stock and pre-funded warrants, and Mr. Beard invested $1.0 million in exchange for an aggregate of 1,000,000 shares of Class A common stock, in each case at a price of $1.00 per share equivalent. Further, the Institutional Purchaser and Mr. Beard received warrants exercisable for 9,000,000 shares and 1,000,000 shares, respectively, of Class A common stock.

~~Subject to certain ownership limitations, the warrants are exercisable six months after issuance. The warrants are exercisable for five and a half years commencing upon~~ATM Agreement, no sales may be made until 30 days following the date on which the ATM Registration Statement is declared effective. The ATM Registration Statement was declared effective on May 25, 2023.

As of ~~issuance, subject to certain ownership limitations. The pre-funded warrants~~August 7, 2023, we have ~~an exercise price~~received net proceeds of $0~~.0001 per warrant share and are immediately exercisable, subject to certain ownership limitations. The gross proceeds~~approximately $6.1 million from the ~~April 2023 Private Placement, before~~sale of 798,944 ATM Shares under the ATM Agreement after deducting ~~offering expenses, was~~sales commissions of approximately ~~$10.0~~$0.2 million. ~~The April 2023 Private Placement closed on April 21, 2023.~~

~~Additionally, as previously disclosed, on September 13, 2022, we entered into Securities Purchase Agreements (the “2022 SPAs”) with the Institutional Purchaser and Greg Beard for~~ ~~the purchase of shares of Class A common stock, pre-funded warrants and~~ warrants to purchase an aggregate of 5,602,409 shares of Class A common stock (the “2022 Warrants”), at an exercise price of $1.75 per share (the “September 2022 Private Placement). On April 20, 2023, we and the September 2022 Private Placement Purchasers entered into amendments to the 2022 SPAs and the 2022 Warrants to, among other things, (i) replace Section 4.11(b) in the 2022 SPA with Section 4.11(b) in the Securities Purchase Agreements, (ii) with respect to the Institutional Purchaser, remove Section 4.2(b) in the 2022 SPA, and (iii) adjust the strike price of the 2022 Warrants to $1.01 per share.

~~MicroBT Miner Purchase~~

~~On April 20, 2023, we entered into a Master Sales and~~Canaan Purchase Agreement and Amendment to acquire 5,000 new, latest-generation MicroBT WhatsMiner M50 miners (the “M50 Miners”) for $15.50 per terahash per second, including shipping (the “MicroBT Miner Purchase”). The M50 Miners have an average hash rate of 118 terahash per second and energy efficiency of 28.5 joules per terahash. This addition of approximately 600 petahash per second of hash rate capacity is expected to grow our total delivered hash rate capacity by over 20% to over 3.2 EH/s and to approximately 3.5 EH/s with all remaining contracted miners delivered. We expect to receive and install the M50 Miners during the second quarter of 2023.

Canaan Bitcoin Mining Agreement

On April 27, 2023, we ~~signed~~entered into a two-year hosting agreement with Cantaloupe Digital LLC, a subsidiary of Canaan Inc. ("Canaan"), whereby we ~~will~~ operate 2,000 A1346 (110 TH/s per miner) and 2,000 A1246 (90 TH/s per miner) Bitcoin miners supplied by Canaan (the “Canaan Miners”), with total hash rate capacity of 400 PH/s (the “Canaan Bitcoin Mining Agreement”). The Canaan Bitcoin Mining Agreement has a two-year term, with no unilateral early termination option. We will receive 50% of the Bitcoin mined by the Canaan Miners and receive payments from Canaan equal to 55% of the net cost of power at the Company’s Panther Creek Plant, in dollar-per-megawatt-hour terms, calculated on a monthly basis. Additionally, we will retain all upside associated with selling power to the grid, and, if we elect to curtail the Canaan Miners to sell power to the grid, Canaan will receive a true-up payment that ~~represent estimates~~represents an estimate of the Bitcoin mining revenue that would have been generated had the miners not been curtailed. The A1246 ~~Bitcoin miners are to be installed by May 15, 2023,~~ and ~~the~~ A1346 Bitcoin miners ~~are to be installed by June 15, 2023. On May 3, 2023,~~arrived at the ~~2,000 A1246 Bitcoin miners were delivered to our~~ Panther Creek Plant and were ~~ready~~installed during the second quarter of 2023 as planned.

On July 19, 2023, we entered into a Sales and Purchase Contract with Canaan whereby we purchased 2,000 A1346 Bitcoin miners for a total purchase price of $2,962,337. The miners are expected to be ~~deployed.~~delivered during the third quarter of 2023 for use at the Panther Creek Plant. Simultaneously, on July 19, 2023, we amended the Canaan Bitcoin Mining Agreement with the addition of 2,000 A1346 Bitcoin miners under the same terms as the Canaan Bitcoin Mining Agreement.

~~Nasdaq Continued Listing Deficiency~~April 2023 Private Placement

~~As disclosed in~~On April 20, 2023, we entered into Securities Purchase Agreements with an institutional investor (the “Institutional Purchaser”) and our Form 8-K filing on December 6, 2022, on November 30, 2022, we received a written notification from the Nasdaq Stock Market LLC ("Nasdaq") notifying us that, based upon the closing bid price of the Company’s Class A common stock,chairman and chief executive officer, Greg Beard, for the ~~last 30 consecutive business days, the Class A common stock did not meet the minimum bid price~~purchase and sale of $1.00 per share required by Nasdaq Listing Rule 5450(a)(1), initiating an automatic 180 calendar-day grace period for the Company to regain compliance. Pursuant to the Nasdaq Listing Rule 5810(c)(3)(A), we have been granted a 180 calendar day compliance period, or until May 29, 2023, to regain compliance with the minimum bid price requirement. During the compliance period, our shares of Class A common stock, ~~will continue~~par value $0.0001 per share at a purchase price of $10.00 per share, and warrants to ~~be listed~~purchase shares of Class A common stock, at an initial exercise price of $11.00 per share (subject to certain adjustments in accordance with the terms thereof) (“April 2023 Private Placement”). Pursuant to the Securities Purchase Agreements, the Institutional Purchaser invested $9.0 million in exchange for an aggregate of 900,000 shares of Class A common stock and ~~traded~~pre-funded warrants, and Mr. Beard invested $1.0 million in exchange for an aggregate of 100,000 shares of Class A common stock, in each case at a price of $10.00 per share equivalent. Further, the Institutional Purchaser and Mr. Beard received warrants exercisable for 900,000 shares and 100,000 shares, respectively, of Class A common stock.

Subject to certain ownership limitations, the warrants are exercisable six months after issuance. The warrants are exercisable for five and a half years commencing upon the date of issuance, subject to certain ownership limitations. The pre-funded warrants have an exercise price of $0.001 per warrant share and are immediately exercisable, subject to certain ownership limitations. The gross proceeds from the April 2023 Private Placement, before deducting offering expenses, was approximately $10.0 million. The April 2023 Private Placement closed on April 21, 2023.

Additionally, as previously disclosed, on September 13, 2022, we entered into Securities Purchase Agreements (the “2022 SPAs”) with the ~~Nasdaq Global Market. If~~Institutional Purchaser and Greg Beard for the purchase of shares of Class A common stock, pre-funded warrants and warrants to purchase an aggregate of 560,241 shares of Class A common stock (the “2022 Warrants”), at an exercise price of $17.50 per share (the “September 2022 Private Placement). On April 20, 2023, we ~~do not regain compliance during~~and the ~~compliance period, we may be afforded a second 180 calendar day period~~September 2022 Private Placement Purchasers entered into amendments to the 2022 SPAs and the 2022 Warrants to, among other things, (i) replace Section 4.11(b) in the 2022 SPA with Section 4.11(b) in the Securities Purchase Agreements, (ii) with

~~regain compliance if, among other things, we meet certain listing requirements of, and elect to transfer~~respect to the ~~Nasdaq Capital Market.~~Institutional Purchaser, remove Section 4.2(b) in the 2022 SPA, and (iii) adjust the strike price of the 2022 Warrants to $10.10 per share.

MicroBT Miner Purchase

On April 20, 2023, we entered into a Master Sales and Purchase Agreement to acquire 5,000 new, latest-generation MicroBT WhatsMiner M50 miners (the “M50 Miners”) for $15.50 per terahash per second, including shipping (the “MicroBT Miner Purchase”). The ~~Company may regain compliance~~M50 Miners have an average hash rate of 118 terahash per second and energy efficiency of 28.5 joules per terahash. We received and installed the M50 Miners during the second quarter of 2023 as planned.

Bruce and Merrilees Settlement Agreement

On March 28, 2023, we entered into a Settlement Agreement (the “B&M Settlement”) with our electrical contractor, Bruce & Merrilees Electric Co. (“B&M”). Pursuant to the B&M Settlement, B&M eliminated an estimated $11.4 million outstanding payable in exchange for a promissory note in the amount of $3,500,000 (the "B&M Note") and a stock purchase warrant for the right to purchase from us 300,000 shares of Class A Common Stock (the B&M Warrant").

Pursuant to the B&M Settlement, B&M released ten (10) 3000kva transformers to us and fully cancelled ninety (90) transformers remaining under a pre-existing order with a third-party supplier. The terms of the B&M Settlement include a mutual release of all pre-existing claims.

Pursuant to the B&M Note, the first $500,000 of the principal amount of the loan is payable in four equal monthly installments of $125,000 beginning on April 30, 2023, so long as (i) no default or event of default has occurred or is occurring under the Credit Agreement (as defined below) and (ii) no PIK Option (as such term is defined in the First Amendment, as defined below) has been elected. The principal amount under the B&M Note bears interest at seven and one-half percent (7.5%). As of June 30, 2023, we paid $375,000 of principal pursuant to the B&M Note, and as of August 7, 2023, the first $500,000 of the principal amount due in 2023 pursuant to the B&M Note has been fully repaid.

Simultaneous with the B&M Settlement, we and each of our subsidiaries entered into a subordination agreement with B&M and WhiteHawk Capital Partners LP ("WhiteHawk Capital") pursuant to which all obligations, liabilities and indebtedness of every nature of us and each of our subsidiaries owed to B&M will be subordinate and subject in right and time of payment, to the prior payment of full of our obligation to WhiteHawk Capital pursuant to the Credit Agreement (as defined below).

WhiteHawk Credit Agreement Amendment

On February 6, 2023, we entered into an amendment (the “First Amendment”) to the previously announced secured credit agreement (the "Credit Agreement") with WhiteHawk Finance LLC ("WhiteHawk") on October 27, 2022, in order to modify certain covenants and remove certain prepayment requirements contained therein. Following the First Amendment, we are permitted to pay interest in kind in each month that its average daily cash balance (including cryptocurrencies) is less than $5,000,000, up to a maximum of six elections during the life of the Credit Agreement. As a result of the First Amendment, amortization payments for the period from February 2023 through July 2024 are not required, with monthly amortization resuming July 31, 2024. Beginning June 30, 2023, following a five-month holiday, we will make monthly prepayments of the loan in an amount equal to 50% of our average daily cash balance (including cryptocurrencies) in excess of $7,500,000 for such month. The First Amendment also modifies the financial covenants to (i) in the case of the requirement to maintain a leverage ratio no greater than 4.00:1.00, such covenant will not be tested until the fiscal quarter ending September 30, 2024, and (ii) in the case of the minimum ~~bid price requirement if~~liquidity covenant, modified to require minimum liquidity at any time ~~before May 29, 2023,~~to be not less than: (A) until March 31, 2024, $2,500,000; (B) during the ~~bid price for our Class A common stock closes at or above $1.00 per share for~~period beginning April 1, 2024 through and including December 31, 2024, $5,000,000; and (C) from and after January 1, 2025, $7,500,000. The average monthly minimum liquidity requirement has been removed entirely. The First Amendment required us to produce a ~~minimum~~budget, to be approved by the required lenders, and to resolve all claims of ~~10 consecutive business days.~~and amounts payable to B&M in a manner satisfactory to the required lenders by February 28, 2023.

~~As disclosed in our Form 8-K filing on January 13, 2023, on January 9, 2023, stockholders holding~~During the term of the Credit Agreement, the administrative agent (at the direction of the required lenders) has the right to designate a ~~majority~~board observer to attend meetings of ~~our issued~~the Board and ~~outstanding Class A common stock and Class V common stock~~all committees thereof. Such person will not be entitled to vote on ~~such matters took action by written~~or consent to ~~authorize~~any matters presented to the Board or any committees thereof. Such observer may be excluded from certain meetings or discussions in limited circumstances. We will reimburse the observer for its reasonable out-of-pocket expenses incurred in connection with attending any meetings, but none of the lenders or such observer will receive any additional compensation or remuneration for such services.

Further, we agreed to appoint an additional independent director that is reasonably satisfactory to the required lenders to our Board to ~~effect~~serve until our next annual meeting, and to nominate such person for election at our next annual meeting.

Further, the failure of the sponsor, which includes Q Power LLC (controlled by Greg Beard, our chairman and chief executive officer), to vote for such person as a ~~reverse~~director will constitute an event of default under the Credit Agreement. On March 7, 2023, the Board appointed Thomas Doherty to the Board.

Series C Convertible Preferred Stock

On December 30, 2022, we entered into an exchange agreement (the “Exchange Agreement”) with the holders (the “Purchasers”) of the Amended May 2022 Notes (as defined below) whereby the Amended May 2022 Notes were to be exchanged for shares of a new series of convertible preferred stock ~~split in its discretion with a ratio in a range from and including one-for-two (1:2) up to one-for-ten (1:10) at any time on~~(the “Series C Preferred Stock”) that, among other things, will convert into shares of Common Stock or ~~before June 30, 2023 (the “Reverse Stock Split”).~~

~~If we do not regain compliance within the allotted compliance period, including any extensions~~pre-funded warrants that may be ~~granted by Nasdaq, Nasdaq will provide notice that the Company’s~~exercised for shares of Class A common stock, ~~will be subject~~at a conversion price of $4.00 per share. The Exchange Agreement closed on February 20, 2023. Pursuant to ~~delisting. At such time, we may appeal~~ the ~~delisting determination~~Exchange Agreement, the Purchasers received an aggregate 23,102 shares of the Series C Preferred Stock in exchange for the cancellation of an aggregate $17,893,750 of principal and accrued interest, representing all of the amounts owed to ~~a hearings panel. We intend~~the Purchasers under the May 2022 Notes. On February 20, 2023, one Purchaser converted 1,530 shares of the Series C Preferred Stock to ~~continue to monitor the bid price for our~~382,500 shares of Class A common ~~stock~~stock. The rights and ~~will consider appropriate alternatives~~preferences of the Series C Preferred Stock are designated in a certificate of designation (the “Certificate of Designation”), and we provided certain registration rights to ~~achieve compliance within~~ the ~~initial 180 calendar-day compliance~~Purchasers.

MinerVa

On April 2, 2021, we entered into a purchase agreement with MinerVa (the “MinerVa Purchase Agreement”) for the acquisition of 15,000 of their MV7 ASIC SHA256 model cryptocurrency miners, with a total hash rate capacity of 1.5 exahash per second to be delivered. In December 2021, we extended the deadline for delivery of the MinerVa miners to April 2022. Due to continued delays in deliveries, an impairment of approximately $12.2 million was recognized in the first quarter of 2022. Due to market conditions, an additional impairment of approximately $5.1 million was recognized in the fourth quarter of 2022. On July 18, 2022, we provided written notice of dispute to MinerVa pursuant to the MinerVa Purchase Agreement obligating us and MinerVa to work together in good faith towards a resolution for a period ~~including, among~~of sixty (60) days. As of December 31, 2022, and August 7, 2023, MinerVa had delivered value to us equivalent to approximately 1,070 PH/s and approximately 1,270 PH/s, respectively, of the 1,500 PH/s in the form of MinerVa miners, refunded cash, and other ~~things, effecting~~industry leading miners. We have continued to receive MinerVa miners during the ~~Reverse Stock Split. We intend~~first quarter of 2023 and expect to ~~effect a Reverse Stock Split to regain compliance within~~receive the ~~initial 180 calendar-day compliance period. There can be no assurance, however, that~~remaining MinerVa miners, but we do not know when they will be ~~able to do so.~~received, if at all.

Trends and Other Factors Impacting Our Performance

General Digital Asset Market Conditions

The market price of Bitcoin has historically and recently been volatile. For example, the price of Bitcoin ranged from a low of approximately $15,000 to a high of approximately $48,000 during 2022 and has ranged from approximately $17,000 to approximately $31,000 year-to-date as of ~~May 8,~~August 7, 2023. During 2022 and more recently in 2023, a number of companies in the crypto assets industry have declared bankruptcy, including, but not limited to, Core Scientific, Celsius Network LLC, Voyager Digital, Three Arrows Capital, BlockFi, FTX Trading Ltd., and Genesis Holdco. Such bankruptcies have contributed, at least in part, to further price decreases in Bitcoin, a loss of confidence in the participants of the digital asset ecosystem and negative publicity surrounding digital assets more broadly. To date, aside from the general decrease in the price of Bitcoin and in our and our peers stock price that may be indirectly attributable to the bankruptcies in the crypto assets industry, we have not been indirectly or directly materially impacted by such bankruptcies. As of the date hereof, we have no direct or material contractual relationship with any company in the crypto assets industry that has experienced a bankruptcy. Additionally, there has been no impact on our hosting agreement or relationship with Foundry Digital, LLC (“Foundry”) or trading activities conducted with Genesis Global Trading, Inc. (“Genesis Trading”), an entity regulated by the New York Department of Financial Services and the SEC, that engages in the trading of our mined Bitcoin. The hosting agreement with Foundry is performing in line with our expectations, and on February 6, 2023, we entered into a new hosting agreement to replace the existing hosting agreement with Foundry which, among other things, extended the agreement term to two years with no unilateral early termination option and made amendments to certain profit-sharing components. The recent bankruptcy of Genesis Holdco, which is affiliated with the parent entity of Foundry and Genesis Trading, has not materially impacted the original or currently existing hosting arrangement, nor has it impacted trading activities with Genesis Trading. Additionally, we have had no direct exposure to Celsius Network LLC, First Republic Bank, FTX Trading Ltd., Signature Bank, Silicon Valley Bank, or Silvergate Capital Corporation. We continue to conduct diligence, including into liquidity or insolvency issues, on third parties in the crypto asset space with whom we have potential or ongoing relationships. While we have not been materially impacted by any liquidity or insolvency issues with

such third parties to date, there is no guarantee that our counterparties will not experience liquidity or insolvency issues in the future.

We safeguard and keep private our digital assets, including the Bitcoin that we mine, by utilizing storage solutions provided by Anchorage, which requires multi-factor authentication. While we are confident in the security of our digital assets held by Anchorage, given the broader market conditions, there can be no assurance that other crypto asset market participants, including Anchorage as our custodian, will not ultimately be impacted. Further, given the current conditions in the digital assets ecosystem, we are liquidating our mined Bitcoin often, and generally at multiple points every week through Anchorage. We continue to monitor the digital assets industry as a whole, although it is not possible at this time to predict all of the risks stemming from these events that may result to us, our service providers, our counterparties, and the broader industry as a whole. We cannot provide any assurance that we will not be materially impacted in the future by bankruptcies of participants in the crypto asset space. See ~~“Risk~~“Risk Factors—Crypto Asset Mining Related Risks—Our crypto assets may be subject to loss, damage, theft or restriction on access. Further, digital asset exchanges on which crypto assets trade are relatively new and largely unregulated, and thus may be exposed to fraud and failure. Incorrect or fraudulent cryptocurrency transactions may be ~~irreversible”~~irreversible—” in the 2022 Form 10-K filed on April 3, 2023, for additional information.

Bitcoin Price Volatility

The market price of Bitcoin has historically and recently been volatile. After our initial public offering, the price of Bitcoin dropped over 75%, resulting in an adverse effect on our results of operations, liquidity and strategy, and resulting in increased credit pressures on the cryptocurrency industry. Since then, Bitcoin has recovered approximately 100%. Our operating results depend on the value of Bitcoin because it is the only crypto asset we currently mine. We cannot accurately predict the future market price of Bitcoin and, as such, we cannot accurately predict potential adverse effects, including whether we will record impairment of the value of our Bitcoin assets. The future value of Bitcoin will affect the revenue from our operations, and any future impairment of the value of the Bitcoin we mine and hold for our account would be reported in our consolidated financial statements and results of operations as charges against net income, which could have a material adverse effect on the market price for our securities.

Bitcoin Adoption and Network Hash Rate

Since its introduction in 2008, Bitcoin has become the leading cryptocurrency based on several measures of adoption: total value of coins in circulation, transactions, and computing power devoted to its protocol. The total value of Bitcoin in circulation was approximately ~~$558~~$567 billion as of ~~May 4,~~July 27, 2023, ~~nearly~~over twice that of Ethereum at ~~$230~~$228 billion, the second largest cryptocurrency. Bitcoin cumulative transactions have increased from ~~13,528~~one transaction on ~~May 4,~~January 7, 2009, to ~~831,761,978 on May 4,~~870 million transactions through July 27, 2023. Transactions in Bitcoin greatly surpassed the ~~1,110,210~~approximately 30 million Ethereum transactions ~~on May 4,~~through July 27, 2023. As the adoption of Bitcoin has progressed, the computing power devoted to mining for it has also increased. This collective computing power is referred to as "network hash rate". Bitcoin network hash rate has risen from nearly zero at inception to ~~approximately 351~~359 EH/s as of ~~May 4,~~July 27, 2023, as Bitcoin price has risen from its initial trading price of $0.0008 in July 2010 to approximately $29,000 as of ~~May 4,~~July 27, 2023. The actual number of mining computers hashing at any given time cannot be known; therefore, the network hash rate, at any given time, is approximated by using "mining difficulty."

The term difficulty refers to the complexity of the mathematical problems that the miners solve and is adjusted up or down automatically after 2,016 blocks (an "epoch") have been mined on the network. Difficulty on ~~May 4,~~July 27, 2023, was ~~48.01~~52.3 trillion, and it has ranged from one to ~~48.7~~53.9 trillion. Generally speaking, if network hash rate has moved up during the current epoch, it is likely that difficulty will increase in the next epoch, which reduces the award per unit of hash rate during that epoch, all else equal, and vice versa. Deriving network hash rate from difficulty requires the following equation: network hash rate is the product of a) blocks solved over the last 24 hours divided by 144, b) difficulty, c) 2^32, divided by 600 seconds.

Embedded in the Bitcoin source code is an upper limit of 21 million for the quantity of Bitcoin that can ever be mined or in circulation, which means that the currency is finite, unlike fiat currencies. Through the end of the ~~first~~second quarter of 2023, approximately 19 million Bitcoins have been mined, leaving approximately 2 million left to be mined. The year in which the last Bitcoin is expected to be mined is 2140. Every four years there is an event called a halving where the coins awarded per block is cut in half. Whereas today the reward for adding a block to the blockchain is currently 6.25 Bitcoins, it is estimated that in April 2024, the award per block will be reduced to 3.125 Bitcoins. Each day there are approximately 144 blocks awarded to the entirety of the global Bitcoin network. While network hash rate has been somewhat cyclical over short periods of time, since the creation of Bitcoin, as network hash rate has increased over time through a combination of

an increased number of network participants, an increased quantity of miners hashing, and more efficient miners with faster processing speeds hashing, competition for block awards has increased.

Hash Price

There are three critical drivers of revenue per unit of hash rate in the Bitcoin mining industry (using terahash as the unit of hash rate): Bitcoin price, difficulty, and Bitcoin transaction fees. Hash price is the nexus of those terms and is equivalent to revenue per terahash per day. Hash price was ~~$0.084~~$0.072 on ~~May 4,~~July 27, 2023, compared to the average year-to-date hash price of $0.075, and compared to the five-year, one year, 2022, and 2021 average hash prices of ~~$0.20,~~$0.18, $0.08, $0.12, and $0.31, respectively. The five-year high price was May 5, 2018, when hash price was at $0.62. The five-year low hash price was November 21, 2022, ten days after the bankruptcy filing of FTX Trading Ltd. and certain of its subsidiaries, when hash price reached $0.056. We estimate that the average global Bitcoin network breakeven hash price required to cover operating costs is between $0.06 to $0.10, which assumes operating expenses of $60 to $70 per MWh, annual fixed expenses of $1 to $5 million per EH/s, and network efficiency of 40 to 50 J/TH. We believe that the majority of network hash rate was operating at or below breakeven operating costs during the last six months.

In addition to mining for new Bitcoin, we are also paid transaction fees in the form of Bitcoin for processing and validating transactions. From November 2021 to April 2023, transaction fees averaged approximately 1.8% of a block subsidy. However, transaction fees and volume ~~have risen~~rose sharply on the Bitcoin network ~~in recent weeks,~~throughout most of the second quarter of 2023, and from ~~May~~April 1, 2023, to ~~May 8,~~June 30, 2023, transaction ~~fess~~fees averaged ~~approximately 26%~~8.2% of block subsidy, meaning that we ~~have~~ received more

Bitcoin ~~in May~~during the second quarter of 2023 than what we previously received in prior periods for processing and validating transactions. Transaction fees are volatile and there are no assurances that transaction fees will continue at recent levels in the future.

Critical Accounting Policies and Significant Estimates

The Company's critical accounting policies and significant estimates, as summarized in its Annual Report on Form 10-K for the year ended December 31, 2022, remain unchanged.

Post IPO Taxation and Public Company Costs

Stronghold LLC is and has been organized as a pass-through entity for U.S. federal income tax purposes and is therefore not subject to entity-level U.S. federal income taxes. Stronghold Inc. was incorporated as a Delaware corporation on March 19, 2021, and is therefore is subject to U.S. federal income taxes and state and local taxes at the prevailing corporate income tax rates, including with respect to its allocable share of any taxable income of Stronghold LLC. In addition to tax expenses, Stronghold Inc. also incurs expenses related to its operations, plus payment obligations under the Tax Receivable Agreement entered into between the Company, Q Power LLC (“Q Power”) and an agent named by Q Power, dated April 1, 2021 (the “TRA”), which are expected to be significant. Additionally, on March 14, 2023, we executed a joinder agreement with an additional holder (together with Q Power, the “TRA Holders”) who thereby became a party to the TRA. To the extent Stronghold LLC has available cash and subject to the terms of any current or future debt instruments, the Fifth Amended and Restated Limited Liability Company Agreement of Stronghold LLC, as amended from time to time (the “Stronghold LLC Agreement”) requires Stronghold LLC to make cash distributions to holders of Stronghold LLC Units (“Stronghold Unit Holders”), including Stronghold Inc., and Q Power, in an amount sufficient to allow Stronghold Inc. to pay its taxes and to make payments under the TRA. In addition, the Stronghold LLC Agreement requires Stronghold LLC to make non-pro rata payments to Stronghold Inc. to reimburse it for its corporate and other overhead expenses, which payments are not treated as distributions under the Stronghold LLC Agreement. See “Tax Receivable Agreement” herein for additional information.

In addition, we have incurred, and expect to continue to incur incremental, non-recurring costs related to our transition to a publicly traded corporation, including the costs of the IPO and the costs associated with the initial implementation of our internal control reviews and testing pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"). We have also incurred, and expect to continue to incur additional significant and recurring expenses as a publicly traded corporation, including costs associated with compliance under the Exchange Act, annual and quarterly reports to common stockholders, registrar and transfer agent fees, national stock exchange fees, audit fees, incremental director and officer liability insurance costs, and director and officer compensation. Our financial statements following the IPO will continue to reflect the impact of these expenses.

Factors Affecting Comparability of Our Future Results of Operations to Our Historical Results of Operations

Our historical financial results discussed below may not be comparable to our future financial results for the reasons described below.

Stronghold Inc. is subject to U.S. federal, state and local income taxes as a corporation. Our accounting predecessor was treated as a partnership for U.S. federal income tax purposes and, as such, was generally not subject to U.S. federal income tax at the entity level. Rather, the tax liability with respect to its taxable income was passed through to its members. Accordingly, the financial data attributable to our predecessor contains no provision for U.S. federal income taxes or income taxes in any state or locality. Due to cumulative and current losses as well as an evaluation of other sources of income as outlined in ASC 740, Income Taxes, management has determined that the utilization of our deferred income tax assets is not more likely than not, and therefore, we have recorded a valuation allowance against our net deferred income tax assets. Management continues to evaluate the likelihood of the Company utilizing its deferred taxes, and while the valuation allowance remains in place, we expect to record no deferred income tax expense or benefit. Should the valuation allowance no longer be required, the 21% statutory federal income tax rate, as well as state and local income taxes at their respective rates, will apply to income allocated to Stronghold Inc.

As we further implement controls, processes and infrastructure applicable to companies with publicly traded equity securities, it is likely that we will incur additional selling, general and administrative expenses relative to historical periods. Our future results will depend on our ability to efficiently manage our consolidated operations and execute our business strategy.

As we continue to acquire miners and utilize our power generating assets to power such miners, we anticipate that a greater proportion of our revenue and expenses will relate to crypto asset mining.

As previously discussed in the "Critical Accounting Policies" section in our 2022 Form 10-K, the preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements. The most significant accounting estimates inherent in the preparation of our financial statements include estimates associated with revenue recognition, property, plant and equipment (including the useful lives and recoverability of long-lived assets), investments, intangible assets, stock-based compensation, and business combinations. The Company’s financial position, results of operations and cash flows are impacted by the accounting policies the Company has adopted. In order to get a full understanding of the Company’s financial statements, one must have a clear understanding of the accounting policies employed.

Consolidated Results of Operations


	Three Months Ended				Six Months Ended
	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
OPERATING REVENUES:
Cryptocurrency mining	$	13,782,798	$	20,227,536	$	25,080,096	$	38,431,729
Energy	740,793		7,691,226		3,471,779		16,735,618
Cryptocurrency hosting	3,079,701		121,172		5,405,697		189,048
Capacity	582,557		1,668,001		1,442,067		3,712,428
Other	47,892		32,008		100,317		52,770
Total operating revenues	18,233,741		29,739,943		35,499,956		59,121,593
OPERATING EXPENSES:
Fuel	6,291,501		9,188,165		13,705,515		19,208,150
Operations and maintenance	8,804,097		16,586,756		17,245,020		27,921,089
General and administrative	10,077,738		10,903,876		18,546,493		21,514,079
Depreciation and amortization	8,634,967		12,667,300		16,357,808		24,986,881
Loss on disposal of fixed assets	17,281		1,724,642		108,367		1,769,600
Realized gain on sale of digital currencies	(266,665)		—		(593,433)		(751,110)
Realized loss on sale of miner assets	—		8,012,248		—		8,012,248
Impairments on miner assets	—		4,990,000		—		4,990,000
Impairments on digital currencies	254,353		5,205,045		325,830		7,711,217
Impairments on equipment deposits	—		—		—		12,228,742
Total operating expenses	33,813,272		69,278,032		65,695,600		127,590,896
NET OPERATING LOSS	(15,579,531)		(39,538,089)		(30,195,644)		(68,469,303)
OTHER INCOME (EXPENSE):
Interest expense	(2,603,478)		(4,508,782)		(4,987,391)		(7,420,235)
Loss on debt extinguishment	—		—		(28,960,947)		—
Gain on extinguishment of PPP loan	—		841,670		—		841,670
Changes in fair value of warrant liabilities	6,475,880		—		5,761,291		—
Changes in fair value of forward sale derivative	—		3,919,388		—		3,435,639
Changes in fair value of convertible note	—		(962,761)		—		(962,761)
Other	15,000		10,000		30,000		30,000
Total other income (expense)	3,887,402		(700,485)		(28,157,047)		(4,075,687)
NET LOSS	$	(11,692,129)	$	(40,238,574)	$	(58,352,691)	$	(72,544,990)

Highlights of our consolidated results of operations for the three and six months ended ~~March 31,~~June 30, 2023, compared to the three and six months ended ~~March 31,~~June 30, 2022, include:

Operating ~~Revenue~~Revenues

~~Revenue~~Revenues decreased ~~$12.1~~by $11.5 million for the ~~three-month period~~three months ended ~~March 31,~~June 30, 2023, as compared to the same period in 2022, primarily due to a ~~$6.9~~$7.0 million decrease in energy revenue driven by lower prevailing market rates per MW and a $6.4 million decrease in cryptocurrency mining revenue due to lower Bitcoin prices and a higher global network hash ~~rate, and a $6.3 million decrease in energy revenue driven by lower prevailing market rates per MW.~~rate. Cryptocurrency hosting revenue increased by ~~$2.3~~$3.0 million primarily due to the hosting agreement with Foundry Digital, LLC (the "Foundry Hosting Agreement") which began in November ~~2022.~~of 2022, and the Canaan Bitcoin Mining Agreement which began in May of 2023. Capacity revenue decreased ~~$1.2~~by $1.1 million due to both plants strategically reducing exposure to the capacity markets, and the resulting cost-capping and operational requirements in the day ahead market by PJM.

Revenues decreased by $23.6 million for the six months ended June 30, 2023, as compared to the same period in 2022, primarily due to a $13.4 million decrease in cryptocurrency mining revenue due to lower Bitcoin prices and a higher global network hash rate and a $13.3 million decrease in energy revenue driven by lower prevailing market rates per MW. Cryptocurrency hosting revenue increased by $5.2 million primarily due to the Foundry Hosting Agreement which began in November of 2022, and the Canaan Bitcoin Mining Agreement which began in May of 2023. Capacity revenue decreased by $2.3 million due to both plants strategically reducing exposure to the capacity markets, and the resulting cost-capping and operational requirements in the day ahead market by PJM.

Operating Expenses

Total operating expenses decreased ~~$26.4~~by $35.5 million for the ~~three-month period~~three months ended ~~March 31,~~June 30, 2023, as compared to the same period in 2022, primarily driven by ~~(1)~~(i) an $8.0 million realized loss on sale of miner assets that was recorded in the second quarter of 2022, (ii) a ~~$12.2~~$7.8 million decrease in operations and maintenance expenses due to improved plant stability and performance driven by one-time plant upgrades that occurred in 2022 and the termination of the hosting services agreement by and between Stronghold LLC and Northern Data PA, LLC (the "Northern Data Hosting Agreement"), (iii) a $5.0 million impairment on miner assets attributable to the decline in the price of Bitcoin that was recorded in the second quarter of 2022, (iv) a $5.0 million decrease in impairments on ~~equipment deposits, (2)~~digital currencies driven by an upward trend of Bitcoin prices during the second quarter of 2023 compared to a ~~$4.6~~downward trend in 2022, (v) a $4.0 million decrease in depreciation and amortization due to prior period asset impairments, ~~(3)~~and (vi) a ~~$3.0~~$2.9 million decrease in ~~general~~fuel expense driven by reduced electricity generation and ~~administrative expenses primarily due to lower insurance expenses, professional services and other cost saving initiatives,~~higher proceeds from the sale of RECs, partially offset by an increase in imported power charges.

Total operating expenses decreased by $61.9 million for the six months ended June 30, 2023, as compared to the same period in 2022, primarily driven by (i) a ~~$1.0~~$12.2 million ~~expense related to~~impairment on equipment deposits recorded in 2022, (ii) a ~~decrease in the value of accounts receivable, (4) a $2.1~~$10.7 million decrease in operations and maintenance expenses due to improved plant stability and performance driven by one-time plant upgrades that occurred in 2022 and ~~(5)~~the termination of the Northern Data Hosting Agreement, (iii) an $8.6 million decrease in depreciation and amortization due to prior period asset impairments, (iv) an $8.0 million realized loss on sale of miner assets that was recorded in 2022, (v) a ~~$2.6~~$7.4 million decrease in impairments on digital currencies driven by an upward trend of Bitcoin prices in 2023, (vi) a $5.5 million decrease in fuel ~~expenses due to~~expense driven by higher proceeds from the sale of RECs ~~driven~~and lower MW generation, partially offset by ~~a year-over-year~~an increase in ~~REC market pricing.~~imported power charges and (vii) a $5.0 million impairment on miner assets attributable to the decline in the price of Bitcoin that was recorded in 2022.

Other Income (Expense)

Total other income (expense) increased by $4.6 million for the three months ended June 30, 2023, as compared to the same period in 2022, primarily driven by higher income from changes in the fair value of warrant liabilities and a decrease in interest expense, partially offset by a change in fair value of forward sale derivative recorded in 2022.

Total other income (expense) decreased ~~$28.7~~by $24.1 million for the ~~three-month period~~six months ended ~~March 31,~~June 30, 2023, as compared to the same period in 2022, primarily driven by a loss on debt extinguishment related to the extinguishment of the Convertible Notes in exchange for the newly-created Series C Convertible Preferred Stock, as described in Note 7 – Debt in the notes to our Condensed Consolidated Financial ~~Statements.~~Statements, and from a change in the fair value of a forward sale derivative recorded in 2022. These losses were partially offset by a gain from changes in the fair value of warrant liabilities and a decrease in interest expense.

Segment Results

The below presents summarized results for our operations for the two reporting segments: Energy Operations and Cryptocurrency Operations.


		Three Months Ended				Three Months Ended				Six Months Ended
		March 31, 2023		March 31, 2022				June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
OPERATING REVENUES:	OPERATING REVENUES:						OPERATING REVENUES:
Energy Operations	Energy Operations	$	3,642,921	$	11,109,581		Energy Operations	$	1,371,242	$	9,391,235	$	5,014,163	$	20,500,816
Cryptocurrency Operations	Cryptocurrency Operations	13,623,294		18,272,069			Cryptocurrency Operations	16,862,499		20,348,708		30,485,793		38,620,777
Total operating revenues	Total operating revenues	$	17,266,215	$	29,381,650		Total operating revenues	$	18,233,741	$	29,739,943	$	35,499,956	$	59,121,593
NET OPERATING LOSS:	NET OPERATING LOSS:						NET OPERATING LOSS:
Energy Operations	Energy Operations	$	(10,734,947)	$	(12,097,125)		Energy Operations	$	(9,578,048)	$	(11,678,177)	$	(20,179,073)	$	(23,775,302)
Cryptocurrency Operations	Cryptocurrency Operations	(3,881,166)		(16,834,089)			Cryptocurrency Operations	(6,001,483)		(27,859,912)		(10,016,571)		(44,694,001)
Total net operating loss	Total net operating loss	$	(14,616,113)	$	(28,931,214)		Total net operating loss	(15,579,531)		(39,538,089)		(30,195,644)		(68,469,303)
OTHER EXPENSE [A]		$	(32,044,449)	$	(3,375,202)
OTHER EXPENSE (1)							OTHER EXPENSE (1)	3,887,402		(700,485)		(28,157,047)		(4,075,687)
NET LOSS	NET LOSS	$	(46,660,562)	$	(32,306,416)		NET LOSS	$	(11,692,129)	$	(40,238,574)	$	(58,352,691)	$	(72,544,990)

DEPRECIATION AND AMORTIZATION:	DEPRECIATION AND AMORTIZATION:						DEPRECIATION AND AMORTIZATION:
Energy Operations	Energy Operations	$	(1,332,873)	$	(1,256,101)		Energy Operations	$	(1,330,647)	$	(1,326,552)	$	(2,663,520)	$	(2,582,653)
Cryptocurrency Operations	Cryptocurrency Operations	(6,389,968)		(11,063,480)			Cryptocurrency Operations	(7,304,320)		(11,340,748)		(13,694,288)		(22,404,228)
Total depreciation and amortization	Total depreciation and amortization	$	(7,722,841)	$	(12,319,581)		Total depreciation and amortization	$	(8,634,967)	$	(12,667,300)	$	(16,357,808)	$	(24,986,881)
INTEREST EXPENSE:	INTEREST EXPENSE:						INTEREST EXPENSE:
Energy Operations	Energy Operations	$	(159,287)	$	(31,522)		Energy Operations	$	(252,178)	$	(24,547)	$	(411,465)	$	(56,069)
Cryptocurrency Operations	Cryptocurrency Operations	(2,224,626)		(2,879,931)			Cryptocurrency Operations	(2,351,300)		(4,484,235)		(4,575,926)		(7,364,166)
Total interest expense	Total interest expense	$	(2,383,913)	$	(2,911,453)		Total interest expense	$	(2,603,478)	$	(4,508,782)	$	(4,987,391)	$	(7,420,235)

~~[A]~~(1) We do not allocate other income (expense) for segment reporting purposes. Amount is shown as a reconciling item between net operating income (loss) and consolidated net income (loss). Refer to our accompanying condensed consolidated statements of operations for further details.

Energy Operations Segment


		Three Months Ended March 31,						Three Months Ended				Six Months Ended
		2023		2022		Change				June 30, 2023		June 30, 2022		Change		June 30, 2023		June 30, 2022		Change
OPERATING REVENUES:	OPERATING REVENUES:								OPERATING REVENUES:
Energy	Energy	$	2,730,986	$	9,044,392	$	(6,313,406)		Energy	$	740,793	$	7,691,226	$	(6,950,433)	$	3,471,779	$	16,735,618	$	(13,263,839)
Capacity	Capacity	859,510		2,044,427		(1,184,917)			Capacity	582,557		1,668,001		(1,085,444)		1,442,067		3,712,428		(2,270,361)
Other	Other	52,425		20,762		31,663			Other	47,892		32,008		15,884		100,317		52,770		47,547
Total operating revenues	Total operating revenues	3,642,921		11,109,581		(7,466,660)			Total operating revenues	1,371,242		9,391,235		(8,019,993)		5,014,163		20,500,816		(15,486,653)
OPERATING EXPENSES:	OPERATING EXPENSES:								OPERATING EXPENSES:
Fuel - net of crypto segment subsidy (1)	Fuel - net of crypto segment subsidy (1)	2,716,047		7,489,171		(4,773,124)			Fuel - net of crypto segment subsidy (1)	709,441		5,260,383		(4,550,942)		3,425,488		12,749,554		(9,324,066)
Operations and maintenance	Operations and maintenance	7,412,152		10,346,687		(2,934,535)			Operations and maintenance	7,655,058		11,122,830		(3,467,772)		14,933,288		21,469,517		(6,536,229)
General and administrative	General and administrative	1,447,473		441,127		1,006,346			General and administrative	541,802		316,563		225,239		1,989,275		757,690		1,231,585
Depreciation and amortization	Depreciation and amortization	1,332,873		1,256,101		76,772			Depreciation and amortization	1,330,647		1,326,552		4,095		2,663,520		2,582,653		80,867
Total operating expenses	Total operating expenses	12,908,545		19,533,086		(6,624,541)			Total operating expenses	10,236,948		18,026,328		(7,789,380)		$	23,011,571	$	37,559,414	$	(14,547,843)
NET OPERATING LOSS (EXCLUDING CORPORATE OVERHEAD)	NET OPERATING LOSS (EXCLUDING CORPORATE OVERHEAD)	$	(9,265,624)	$	(8,423,505)	$	(842,119)		NET OPERATING LOSS (EXCLUDING CORPORATE OVERHEAD)	$	(8,865,706)	$	(8,635,093)	$	(230,613)	$	(17,997,408)	$	(17,058,598)	$	(938,810)
Corporate overhead	Corporate overhead	1,469,323		3,673,620		(2,204,297)			Corporate overhead	712,342		3,043,084		(2,330,742)		2,181,665		6,716,704		(4,535,039)
NET OPERATING LOSS	NET OPERATING LOSS	$	(10,734,947)	$	(12,097,125)	$	1,362,178		NET OPERATING LOSS	$	(9,578,048)	$	(11,678,177)	$	2,100,129	$	(20,179,073)	$	(23,775,302)	$	3,596,229

INTEREST EXPENSE	INTEREST EXPENSE	$	(159,287)	$	(31,522)	$	(127,765)		INTEREST EXPENSE	$	(252,178)	$	(24,547)	$	(227,631)	$	(411,465)	$	(56,069)	$	(355,396)

(1) Cryptocurrency operations consumed ~~$4.7~~$5.6 million and $10.3 million of electricity generated by the Energy Operations segment for the three and six months ended ~~March 31,~~June 30, 2023, respectively, and ~~$2.5~~$3.9 million and $6.5 million for the three and six months ended ~~March 31, 2022.~~June 30, 2022, respectively. For segment reporting, this intercompany electric charge is recorded as a contra-expense to offset fuel costs within the Energy Operations segment.

Operating Revenues

Total operating ~~revenue~~revenues decreased ~~$7.5~~by $8.0 million for the ~~three-month period~~three months ended ~~March 31,~~June 30, 2023, as compared to the same period in 2022, primarily due to a ~~$6.3~~$7.0 million decrease in energy revenue driven by lower prevailing market rates per ~~MW.~~MW and greater consumption of self-generated electricity due to the expansion of cryptocurrency operations. Capacity revenue decreased ~~$1.2~~by $1.1 million.

Total operating revenues decreased by $15.5 million for the six months ended June 30, 2023, as compared to the same period in 2022, primarily due to a $13.3 million decrease in energy revenue driven by lower prevailing market rates per MW and greater consumption of self-generated electricity due to the expansion of cryptocurrency operations. Capacity revenue decreased by $2.3 million.

Effective June 1, 2022, through May 31, 2024, both plants strategically reduced their exposure to the capacity markets, and the resulting cost-capping and operational requirements in the day ahead market by PJM. The Company chose to be an energy resource after achieving its RegA certification, which reduced monthly capacity revenue and the frequency with

which the plants will be mandated to sell power at non-market rates, in exchange for the opportunity to sell power to the grid at prevailing market rates, which management expects will more than make up for lost capacity revenue. This also gives our plants the ability to provide fast response energy to the grid in the real time market when needed without having to comply with day ahead power commitments. When high power prices call for more electricity to be supplied by our plants, and those prices are in excess of Bitcoin-equivalent power prices, the Company may shut off its data center Bitcoin mining load in order to sell power to the grid. The Company believes that this integration should allow it to optimize for both revenue as well as grid support over time.

Full plant power utilization is optimal for our revenue growth as it also drives a higher volume of Tier II RECs, waste coal tax credits, and beneficial use ash sales, as well as the increased electricity supply for the crypto asset operations.

Operating Expenses

Total operating expenses decreased ~~$6.6~~by $7.8 million for the ~~three-month period~~three months ended ~~March 31,~~June 30, 2023, as compared to the same period in 2022, primarily due to ~~(1)~~(i) a ~~$4.8~~$4.6 million decrease in fuel expenses due to higher proceeds from the sale of RECs and ~~(2)~~(ii) a ~~$2.9~~$3.5 million decrease in operations and maintenance expenses due to improved plant stability and performance driven by one-time plant upgrades that occurred in 2022. These decreases were partially offset by a ~~$1.0~~$0.2 million increase in general and administrative expenses related to a decrease in the value of accounts receivable. REC sales of ~~$4.9~~$5.4 million and ~~$0.5~~$2.1 million were recognized as contra-expense to offset fuel expenses for the three months ended ~~March 31,~~June 30, 2023, and 2022, respectively.

Corporate overhead allocated to the Energy Operations segment decreased ~~$2.2~~by $2.3 million for the three months ended June 30, 2023, primarily ~~due to lower insurance expenses and~~driven by a decrease in Energy Operations revenues, a decrease in professional services related to organizing and scaling operations, ~~which~~and a decrease in insurance expenses. Corporate overhead has been allocated to the two segments using a “fair-share” of revenues approach, where the revenue for the segment is divided by the total combined revenues of the segments and is then multiplied by the shared general and administrative costs for the combined segments.

Total operating expenses decreased by $14.5 million for the six months ended June 30, 2023, as compared to the same period in 2022, primarily due to (i) a $9.3 million decrease in fuel expenses due to higher proceeds from the sale of RECs and (ii) a $6.5 million decrease in operations and maintenance expenses due to improved plant stability and performance driven by one-time plant upgrades that occurred in 2022, as well as a reduction in outsourced professional services. These decreases were partially offset by a $1.2 million increase in general and administrative expenses related to a decrease in the value of accounts receivable. REC sales of $10.4 million and $2.6 million were recognized as contra-expense to offset fuel expenses for the six months ended June 30, 2023, and 2022, respectively.

Corporate overhead allocated to the Energy Operations segment decreased by $4.5 million for the six months ended June 30, 2023, primarily driven by a decrease in Energy Operations revenues, a decrease in professional services related to organizing and scaling operations, and a decrease in insurance expenses. Corporate overhead has been allocated to the two segments using a “fair-share” of revenues approach, where the revenue for the segment is divided by the total combined revenues of the segments and is then multiplied by the shared general and administrative costs for the combined segments.

Cryptocurrency Operations Segment


		Three Months Ended March 31,						Three Months Ended				Six Months Ended
		2023		2022		Change				June 30, 2023			June 30, 2022		Change		June 30, 2023		June 30, 2022		Change
OPERATING REVENUES:	OPERATING REVENUES:								OPERATING REVENUES:
Cryptocurrency mining	Cryptocurrency mining	$	11,297,298	$	18,204,193	$	(6,906,895)		Cryptocurrency mining	$	13,782,798		$	20,227,536	$	(6,444,738)	$	25,080,096	$	38,431,729	$	(13,351,633)
Cryptocurrency hosting	Cryptocurrency hosting	2,325,996		67,876		2,258,120			Cryptocurrency hosting	3,079,701			121,172		2,958,529		5,405,697		189,048		5,216,649
Total operating revenues	Total operating revenues	13,623,294		18,272,069		(4,648,775)			Total operating revenues	16,862,499			20,348,708		(3,486,209)		30,485,793		38,620,777		(8,134,984)
OPERATING EXPENSES:	OPERATING EXPENSES:								OPERATING EXPENSES:
Electricity - purchased from energy segment	Electricity - purchased from energy segment	4,697,967		2,530,814		2,167,153			Electricity - purchased from energy segment	5,582,060			3,927,782		1,654,278		10,280,027		6,458,596		3,821,431
Operations and maintenance	Operations and maintenance	1,028,771		987,646		41,125			Operations and maintenance	1,149,039			5,463,926		(4,314,887)		2,311,732		6,451,572		(4,139,840)
General and administrative	General and administrative	57,186		58,487		(1,301)			General and administrative	63,751			511,058		(447,307)		120,937		569,545		(448,608)
Impairments on digital currencies	Impairments on digital currencies	71,477		2,506,172		(2,434,695)			Impairments on digital currencies	254,353			5,205,045		(4,950,692)		325,830		7,711,217		(7,385,387)
Impairments on equipment deposits	Impairments on equipment deposits	—		12,228,742		(12,228,742)			Impairments on equipment deposits	—			—		—		—		12,228,742		(12,228,742)
Impairments on miner assets									Impairments on miner assets	—			4,990,000		(4,990,000)		—		4,990,000		(4,990,000)
Realized gain on sale of digital currencies	Realized gain on sale of digital currencies	(326,768)		(751,110)		424,342			Realized gain on sale of digital currencies	(266,665)			—		(266,665)		(593,433)		(751,110)		157,677
Loss on disposal of fixed assets	Loss on disposal of fixed assets	91,086		44,958		46,128			Loss on disposal of fixed assets	17,281			1,724,642		(1,707,361)		108,367		1,769,600		(1,661,233)
Realized loss on sale of miner assets									Realized loss on sale of miner assets	—			8,012,248		(8,012,248)		—		8,012,248		(8,012,248)
Depreciation and amortization	Depreciation and amortization	6,389,968		11,063,480		(4,673,512)			Depreciation and amortization	7,304,320			11,340,748		(4,036,428)		13,694,288		22,404,228		(8,709,940)
Total operating expenses	Total operating expenses	12,009,687		28,669,189		(16,659,502)			Total operating expenses	14,104,139			41,175,449		(27,071,310)		$	26,247,748	$	69,844,638	$	(43,596,890)
NET OPERATING LOSS (EXCLUDING CORPORATE OVERHEAD)	NET OPERATING LOSS (EXCLUDING CORPORATE OVERHEAD)	$	1,613,607	$	(10,397,120)	$	12,010,727		NET OPERATING LOSS (EXCLUDING CORPORATE OVERHEAD)	$	2,758,360		$	(20,826,741)	$	23,585,101	$	4,238,045	$	(31,223,861)	$	35,461,906
Corporate overhead	Corporate overhead	5,494,773		6,436,969		(942,196)			Corporate overhead	8,759,843			7,033,171		1,726,672		14,254,616		13,470,140		784,476
NET OPERATING LOSS	NET OPERATING LOSS	$	(3,881,166)	$	(16,834,089)	$	12,952,923		NET OPERATING LOSS	$	(6,001,483)		$	(27,859,912)	$	21,858,429	$	(10,016,571)	$	(44,694,001)	$	34,677,430

INTEREST EXPENSE	INTEREST EXPENSE	$	(2,224,626)	$	(2,879,931)	$	655,305		INTEREST EXPENSE	$	(2,351,300)		$	(4,484,235)	$	2,132,935	$	(4,575,926)	$	(7,364,166)	$	2,788,240

Operating Revenues

Total operating revenues decreased by ~~$4.6~~$3.5 million for the ~~three-month period~~three months ended ~~March 31,~~June 30, 2023, as compared to the same period in 2022, primarily due to a decrease in cryptocurrency mining revenue due to lower Bitcoin prices and a higher global network hash rate. Cryptocurrency hosting revenue increased by ~~$2.3~~$3.0 million ~~due to~~driven by the Foundry Hosting Agreement and Canaan Bitcoin Mining Agreement, which began in ~~November 2022.~~

~~Operating Expenses~~the fourth quarter of 2022 and second quarter of 2023, respectively.

Total operating ~~expenses~~revenues decreased by ~~$16.7~~$8.1 million for the ~~three-month period~~six months ended ~~March 31,~~June 30, 2023, as compared to the same period in 2022, primarily due to ~~(1)~~ a ~~$12.2~~decrease in cryptocurrency mining revenue due to lower Bitcoin prices and a higher global network hash rate. Cryptocurrency hosting revenue increased by $5.2 million ~~impairment~~driven by the Foundry Hosting Agreement and Canaan Bitcoin Mining Agreement, which began in the fourth quarter of 2022 and second quarter of 2023, respectively.

Operating Expenses

Total operating expenses decreased by $27.1 million for the three months ended June 30, 2023, as compared to the same period in 2022, primarily due to (i) an $8.0 million realized loss on ~~equipment deposits~~sale of miner assets that was recorded in the second quarter of 2022, ~~(2)~~(ii) a ~~$4.7~~$5.0 million ~~decrease~~impairment on miner assets attributable to the decline in ~~depreciation and amortization due to prior period asset impairments, and (3)~~the price of Bitcoin that was recorded in the second quarter of 2022, (iii) a ~~$2.4~~$5.0 million decrease in impairments on digital currencies driven by an upward trend of Bitcoin prices during the ~~first~~second quarter of ~~2023.~~2023, (iv) a $4.3 million decrease in operations and maintenance expenses primarily driven by the termination of the Northern Data Hosting Agreement and lower expenses for miner parts and maintenance, and (v) a $4.0 million decrease in depreciation and amortization due to prior period asset impairments. These decreases were partially offset by a ~~$2.2~~$1.7 million increase in intercompany electric charges related to the ramp up of cryptocurrency mining operations.

Corporate overhead ~~decreased~~allocated to the Cryptocurrency Operations segment increased by ~~$0.9~~$1.7 million for the three months ended June 30, 2023, primarily ~~due to lower insurance expenses and~~driven by an increase in Cryptocurrency Operations segment revenues, partially offset by a decrease in professional services related to organizing and scaling operations, and a decrease in insurance expenses. Corporate overhead has been allocated to the two segments using a “fair-share” of revenues approach, where the revenue for the segment is divided by the total combined revenues of the segments and is then multiplied by the shared general and administrative costs for the combined segments.

Total operating expenses decreased by $43.6 million for the six months ended June 30, 2023, as compared to the same period in 2022, primarily due to (i) a $12.2 million impairment on equipment deposits that was recorded in 2022, (ii) an $8.7 million decrease in depreciation and amortization due to prior period asset impairments, (iii) an $8.0 million realized loss on sale of miner assets that was recorded in the second quarter of 2022, (iv) a $7.4 million decrease in impairments on digital currencies driven by an upward trend of Bitcoin prices in 2023 compared to a downward trend in 2022, (v) a $5.0 million impairment on miner assets attributable to the decline in the price of Bitcoin that was recorded in the second quarter of 2022, and (vi) a $4.1 million decrease in operations and maintenance expenses primarily driven by the termination of the Northern Data Hosting Agreement and lower expenses for miner parts and maintenance. These decreases were partially offset by a $3.8 million increase in intercompany electric charges related to the ramp up of cryptocurrency mining operations.

Corporate overhead allocated to the Cryptocurrency Operations segment increased by $0.8 million for the six months ended June 30, 2023, primarily driven by an increase in Cryptocurrency Operations segment revenues, partially offset by a decrease in professional services related to organizing and scaling operations, and a decrease in insurance expenses, which has been allocated to the two segments using a “fair-share” of revenues approach, where the revenue for the segment is divided by the total combined revenues of the segments and is then multiplied by the shared general and administrative costs for the combined segments.

Impairments on Digital Currencies

Impairments on digital currencies of ~~$0.1~~$0.3 million and ~~$2.5~~$7.7 million were recognized for the ~~three-months~~six months ended ~~March 31,~~June 30, 2023, and ~~March 31,~~ 2022, respectively, as a result of the negative impacts from ~~the crypto coin~~Bitcoin spot market declines. As of ~~March 31,~~June 30, 2023, ~~the Company~~we held approximately 2447 Bitcoin on ~~its~~our balance sheet at carrying value. The spot market price of Bitcoin was ~~$28,478~~$30,477 as of ~~March 31,~~June 30, 2023, per Yahoo Finance.

Interest Expense

Interest expense decreased ~~$0.7~~by $2.8 million for the ~~three~~six months ended ~~March 31,~~June 30, 2023, as compared to the same period in 2022, primarily due to lower debt as a result of extinguishing the debt under the master equipment financing agreements entered into with an affiliate of NYDIG ABL, LLC, from August to October 2022.

Liquidity and Capital Resources

Overview

Stronghold Inc. is a holding company with no operations and is the sole managing member of Stronghold LLC. Our principal asset consists of units of Stronghold LLC. Our earnings and cash flows and ability to meet any debt obligations ~~will~~ depend on the cash flows resulting from the operations of our operating subsidiaries and the payment of distributions to us by such subsidiaries.

Our cash needs are primarily for growth through acquisitions, capital expenditures, working capital to support equipment financing, and the purchase of additional miners and general operating expenses. We have incurred, and may continue to incur, significant expenses in servicing and maintaining our power generation facilities. If we were to acquire additional facilities in the future, capital expenditures may include improvements, maintenance and build out costs associated with equipping such facilities to house miners to mine Bitcoin.

We have historically relied on funds from equity issuances, equipment financings and revenue from sales of Bitcoin and power generated at our power plants to provide for our liquidity needs. ~~Subsequent to March 31,~~During the three months ended June 30, 2023, we received approximately $10.0 million pursuant to theApril 2023 Private Placement. ~~Please see~~Subsequent to June 30, 2023, we received net proceeds of approximately $6.1 million from the sale of 798,944 ATM Shares under the ATM Agreement after deducting sales commissions of approximately $0.2 million. Refer to Note 15 – ~~Private Placements~~Equity Issuances in the notes to our Condensed Consolidated Financial Statements.

As of ~~March 31,~~June 30, 2023, and ~~May 8,~~August 7, 2023, we had approximately ~~$7.0~~$6.5 million and ~~$8.0~~$5.6 million, respectively, of cash and cash equivalents and Bitcoin on our balance sheet, which included 2447 Bitcoin and 2235 Bitcoin, respectively. As of ~~March 31,~~June 30, 2023, and ~~May 8,~~August 7, 2023, we had principal amount outstanding indebtedness of ~~$59.8~~$59.3 million and ~~$59.6~~$59.1 million, respectively.

If our cash flows from operations continue to fall short of uses of capital, we may need to seek additional sources of capital to fund our short-term and long-term capital needs. We may further sell assets or seek potential additional debt or equity financing to fund our short-term and long-term needs. Further, the terms of the Credit Agreement, September 2022 Private

Placement and April 2023 Private Placement contain certain restrictions, including maintenance of certain financial and ~~liquidit~~yliquidity ratios and minimums, and certain restrictions on future issuances of equity and debt. Beginning with the third quarter of 2023, we may be required to make monthly prepayment pursuant to the WhiteHawk Refinancing Agreement if we maintain cash balance above a certain amount. If we are unable to raise additional capital, there is a risk that we could default on our obligations and could be required to discontinue or significantly reduce the scope of our operations, including through the sale of our assets, if no other means of financing options are available.

Operations have not yet established a consistent record of covering our operating expenses, and we incurred a net ~~loss~~losses of ~~$46.7~~$11.7 million and $58.4 million for the three and six months ended ~~March 31,~~June 30, 2023, respectively, and an accumulated deficit of ~~$290.8~~$298.2 million as of ~~March 31,~~June 30, 2023. We experienced a number of previously disclosed setbacks and unexpected challenges, including a longer-than-expected and continuing delay of the MinerVa miners and longer than expected downtime at our Scrubgrass Plant for maintenance, the Panther Creek Plant's mining operations shutdown in April 2022 and the outages of our mining operations due to higher than anticipated requirements from PJM. As a result of the delay in delivery of the MinerVa miners, we were at risk of defaulting on our obligations under the WhiteHawk debt facility because those miners were to be provided as collateral to WhiteHawk by April 30, 2022. Pursuant to the Second WhiteHawk Amendment, the MinerVa miners were exchanged for collateral for additional miners received by the Company. Due to the delay, we determined an impairment charge totaling $12.2 million that was recognized on March 31, 2022. We spent approximately $7 million in fiscal year 2022 on major repairs and upgrades at our plants, primarily during the planned maintenance outage that occurred beginning in September 2022.

As previously disclosed, the Panther Creek Plant's mining operations were offline for ten days in April 2022 due to the failure of a switchgear and the need to source, deliver and install a new piece of equipment, causing ten days of no mining revenue generation at the facility and resulting in an estimated loss of approximately $1.4 million.

As previously disclosed in the Company's Current Report on Form 8-K dated July 25, 2022, the Panther Creek Plant experienced approximately 8.5 days of unplanned downtime in the month of June from damaged transmission lines caused by a storm, and other plant maintenance issues. The Company estimates the financial impact of the June outages to be lost revenue of approximately $1.8 million and a net income impact of approximately $1.4 million. The Company's Panther Creek Plant will be taking a planned two-week outage in May 2023. The Company's Scrubgrass Plant does not currently expect to take a planned outage this spring.

Taking into account the First Amendment, Second Amendment, the Exchange Agreement, the MicroBT Miner Purchase, the Canaan Bitcoin Mining Agreement, the April 2023 Private Placement, and transactions subsequent to the ~~March 31,~~end of the second quarter of 2023, ~~quarter end~~ which include proceeds from the ~~April 2023 Private Placement~~,ATM Agreement and ~~the~~ continued expansion of our cryptocurrency mining operations through the ~~MicroBT Miner~~Canaan Purchase Agreement and the amendment to Canaan Bitcoin Mining Agreement, we believe our liquidity position, combined with expected improvements in operating cash flows, will be sufficient to meet our existing commitments and fund our operations for the next twelve months.

We have no material off balance sheet arrangements.

Analysis of Changes in Cash Flows

~~Analysis of Cash Flow Changes Between the Three Months Ended March 31, 2023, and 2022~~

~~The following table summarizes our cash flows for the periods indicated:~~

Three Months Ended March 31,
2023 2022 Change
Net cash provided by (used in) operating activities $ (3,341,466) $ (4,218,388) $ 876,922
Net cash provided by (used in) investing activities (13,738) (44,639,218) 44,625,480
Net cash provided by (used in) financing activities (3,587,526) 42,548,184 (46,135,710)
Net change in cash $ (6,942,730) $ (6,309,422) $ (633,308)


	Six Months Ended
	June 30, 2023		June 30, 2022		Change
Net cash flows used in operating activities	$	(4,193,054)	$	(7,628,238)	$	3,435,184
Net cash flows used in investing activities	(10,581,332)		(55,303,795)		44,722,463
Net cash flows provided by financing activities	6,581,875		64,129,099		(57,547,224)
Net (decrease) increase in cash and cash equivalents	$	(8,192,511)	$	1,197,066	$	(9,389,577)

Operating Activities. Net cash flows used in operating activities was ~~$3.3~~$4.2 million for the ~~three~~six months ended ~~March 31,~~June 30, 2023, compared to ~~$4.2~~$7.6 million used in operating activities for the ~~three~~six months ended ~~March 31,~~June 30, 2022. The ~~$0.9~~$3.4 million net ~~decrease~~increase in cash flows from operating activities was primarily due to ~~(1) lower cash outflows for general and administrative expenses for insurance and professional services related to organizing and scaling operations and (2)~~(i) lower cash outflows for operations and maintenance expenses related to major repairs and upgrades to the Scrubgrass Plant which occurred in ~~2022.~~2022, and (ii) lower cash outflows for general and administrative expenses related to professional services and insurance.

Investing Activities. Net cash flows used in investing activities was ~~$0.0~~$10.6 million for the ~~three~~six months ended ~~March 31,~~June 30, 2023, compared to ~~$44.6~~$55.3 million used in investing activities for the ~~three~~six months ended ~~March 31,~~June 30, 2022. The ~~$44.6~~$44.7 million ~~decrease~~net increase in ~~net~~ cash ~~used in~~flows from investing activities was primarily due to lower outflows for the purchase of property, plant and equipment. Significant cash outflows occurred during the ~~three~~six months ended ~~March 31,~~June 30, 2022, for the continued ramp up of cryptocurrency mining ~~operations.~~operations in the prior year.

Financing Activities. Net cash ~~used in~~flows provided by financing activities was ~~$3.6~~$6.6 million for the ~~three~~six months ended ~~March 31,~~June 30, 2023, compared to ~~$42.5~~$64.1 million provided by financing activities for the ~~three~~six months ended ~~March 31,~~June 30, 2022. The ~~$46.1~~$57.5 million net decrease in cash ~~provided by~~flows from financing activities was primarily due to ~~funding provided~~debt proceeds in 2022 from a ~~Whitehawk~~WhiteHawk promissory note and equipment ~~financings. See~~financings and higher repayments of debt and financed insurance premiums for the ~~equipment financing agreements discussed~~six months ended June 30, 2022, partially offset by proceeds in ~~Note 7 – Debt~~ in2023 from the ~~notes to our Condensed Consolidated Financial Statements.~~April 2023 Private Placement.

Debt Agreements

We have entered into various debt agreements used to purchase equipment to operate our business.

~~We entered into the WhiteHawk Financing Agreement on~~ Total net obligations under all debt agreements as of June 30, ~~2021 and amended the agreement on December 31, 2021 and March 28, 2022.~~ 2023, were $58.8 million (excluding financed insurance premiums).

WhiteHawk Credit Agreement

On October 27, 2022, we entered into the Credit Agreement with WhiteHawk to refinance an existing equipment financing agreement with WhiteHawk. Upon closing, the ~~WhiteHawk Financing Agreement, effectively terminating the WhiteHawk Financing Agreement. The~~ Credit Agreement ~~consists~~consisted of $35.1 million in term loans and a $23.0 million ~~Delayed Draw Facility (as defined therein). Such loans~~in additional commitments. The Credit Agreement requires equal monthly amortization payments resulting in full amortization at maturity. The Credit Agreement has customary representations, warranties and covenants including

restrictions on indebtedness, liens, restricted payments and dividends, investments, asset sales and similar covenants and contains customary events of default.

On February 6, 2023, we entered into the First Amendment in order to modify certain covenants and remove certain prepayment requirements contained therein. As a result of the First Amendment, amortization payments for the period from February 2023 through July 2024 are not required, with monthly amortization resuming July 31, 2024. Beginning June 30, 2023, following a five-month holiday, we will make monthly prepayments of the loan in an amount equal to 50% of its average daily cash balance (including cryptocurrencies) in excess of $7,500,000 for such month.

The borrowings under the ~~Delayed Draw Facility were~~Credit Agreement mature on October 26, 2025, and bear interest at a rate of either (i) the Secured Overnight Financing Rate ("SOFR") plus 10% or (ii) a reference rate equal to the greater of (x) 3%, (y) the federal funds rate plus 0.5% and (z) the term SOFR rate plus 1%, plus 9%. Amounts drawn on the Credit Agreement are subject to a prepayment premium such that the lenders thereunder achieve a 20% return on invested capital. We also issued a stock purchase warrant to WhiteHawk in conjunction with the closing ~~date~~ of the Credit ~~Agreement. As~~Agreement, which provides for the purchase of ~~March 31, 2023, the amount owed~~an additional 400,000 shares of Class A common stock at an exercise price of $0.10 per share. Borrowings under the ~~debt agreements totaled $54.4 million. For additional information, see~~ Credit Agreement may also be accelerated in certain circumstances.

Convertible Note ~~7 – Debt~~ ~~in the notes to our Condensed Consolidated Financial Statements.~~

~~Total net obligations under all debt agreements as of March 31, 2023, were $59.2 million (excluding finance insurance premiums).~~

~~Amended May 2022 Notes~~Exchange

On May 15, 2022, we issued $33.75 million aggregate principal amount of May 2022 Notes to the purchasers thereto, bearing an interest rate of 10.00% per annum (in arrears) and a maturity date of May 15, 2024. On August 16, 2022, we entered into an agreement with the Purchasers, whereby we agreed to amend the terms of the May 2022 Notes (the "Amended May 2022 Notes") such that an aggregate of $11.25 million of the outstanding principal under the May 2022 Notes was exchanged for the amended and restated warrant agreement pursuant to which the strike price of the aggregate ~~6,318,000~~631,800 May 2022 Warrants was reduced from ~~$2.50~~$25.00 to ~~$0.01.~~$0.10. After giving effect to the principal reduction under the Amended May 2022 Notes, subsequent payments were due to the Purchasers on the fifteenth (15th) day of each of November 2022, December 2022, January 2023, and February 2023. We generally had the option to make each such payment (A) in cash or (B) in shares of common stock, at a twenty percent (20%) discount to the average of the daily VWAPs for each of the twenty (20) consecutive trading days preceding the payment date. Amounts due under the May 2022 Notes were subsequently terminated in exchange for shares of the Series C Preferred Stock. See “—Recent Developments — Exchange Transaction” for additional information.

~~Equipment Purchase and Financing Transactions~~

~~MinerVa Semiconductor Corp~~

On April 2, 2021, the Company entered into the MinerVa Purchase Agreement for the acquisition of 15,000 of their MV7 ASIC SHA256 model cryptocurrency miner equipment (miners) with a total terahash to be delivered equal to 1.5 million terahash (total terahash). The price per miner was $4,892.50 for an aggregate purchase price of $73,387,500 to be paid in installments. The first installment equal to 60% of the purchase price, or $44,032,500, was paid on April 2, 2021, and an additional payment of 20% of the purchase price, or $14,677,500, was paid June 2, 2021. As of March 31, 2023, there are no remaining deposits owed. As a result, an impairment totaling $12,228,742 was recorded in the first quarter of 2022. Furthermore, in the fourth quarter of 2022, the difference between the fair value of the MinerVa equipment deposits and the carrying value resulted in the Company recording an additional impairment charge of $5,120,000.

In December 2021, the Company extended the deadline for delivery of the MinerVa miners to April 2022. In March 2022, MinerVa was again unable to meet its delivery date and had only delivered approximately 3,350 of the 15,000 miners. As of March 31, 2023, MinerVa had delivered, refunded cash, or swapped into deliveries of industry-leading miners of equivalent value to approximately 12,700 of the 15,000 miners. The aggregate purchase price does not include shipping costs, which are the responsibility of the Company and shall be determined at which time the miners are ready for shipment. While the Company continues to engage in discussions with MinerVa on the delivery of the remaining miners, it does not know when the remaining miners will be delivered, if at all. On July 18, 2022, the Company provided written notice of dispute to MinerVa pursuant to the MinerVa Purchase Agreement obligating the Company and MinerVa to work together in good faith towards a resolution for a period of sixty (60) days. In accordance with the MinerVa Purchase Agreement, if no settlement has been reached after sixty (60) days, Stronghold Inc. may end discussions and declare an

impasse and adhere to the dispute resolution provisions of the MinerVa Purchase Agreement. As the 60-day period has now expired, the Company is evaluating all available remedies under the MinerVa Purchase Agreement.

~~WhiteHawk Refinancing Agreement~~

On October 27, 2022, the Company entered into the Credit Agreement with WhiteHawk to refinance an existing financing agreement with WhiteHawk, effectively terminating the preexisting financing agreement. Upon closing, the Credit Agreement consisted of $35.1 million in term loans and $23.0 million in additional commitments.

The financing pursuant to the Credit Agreement (such financing, the “WhiteHawk Refinancing Agreement”) was entered into by Stronghold LLC as Borrower (the “Borrower”) and is secured by substantially all of the assets of the Company and its subsidiaries and is guaranteed by the Company and each of its material subsidiaries. The WhiteHawk Refinancing Agreement requires equal monthly amortization payments resulting in full amortization at maturity. The WhiteHawk Refinancing Agreement has customary representations, warranties and covenants including restrictions on indebtedness, liens, restricted payments and dividends, investments, asset sales and similar covenants and contains customary events of default.

On February 6, 2023, the Company, Stronghold LLC, as borrower, their subsidiaries and WhiteHawk Capital, as collateral agent and administrative agent, and the other lenders thereto, entered into the First Amendment in order to modify certain covenants and remove certain prepayment requirements contained therein. As a result of the First Amendment, amortization payments for the period from February 2023 through July 2024 will not be required, with monthly amortization resuming July 31, 2024. Beginning June 30, 2023, following a five-month holiday, Stronghold LLC will make monthly prepayments of the loan in an amount equal to 50% of its average daily cash balance (including cryptocurrencies) in excess of $7,500,000 for such month. The First Amendment also modifies the financial covenants to (i) in the case of the requirement of the Company to maintain a leverage ratio no greater than 4.00:1.00, such covenant will not be tested until the fiscal quarter ending September 30, 2024, and (ii) in the case of the minimum liquidity covenant, modified to require minimum liquidity at any time to be not less than: (A) until March 31, 2024, $2,500,000; (B) during the period beginning April 1, 2024, through and including December 31, 2024, $5,000,000; and (C) from and after January 1, 2025, $7,500,000. The Company was in compliance with all applicable covenants under the WhiteHawk Refinancing Agreement as of March 31, 2023.

The borrowings under the WhiteHawk Refinancing Agreement mature on October 26, 2025, and bear interest at a rate of either (i) the Secured Overnight Financing Rate ("SOFR") plus 10% or (ii) a reference rate equal to the greater of (x) 3%, (y) the federal funds rate plus 0.5% and (y) the term SOFR rate plus 1%, plus 9%. Amounts drawn on the WhiteHawk Refinancing Agreement are subject to a prepayment premium such that the lenders thereunder achieve a 20% return on invested capital. The Company also issued a stock purchase warrant to WhiteHawk in conjunction with the closing of the WhiteHawk Refinancing Agreement, which provides for the purchase of an additional 4,000,000 shares of Class A common stock at an exercise price of $0.01 per share. Borrowings under the WhiteHawk Refinancing Agreement may also be accelerated in certain circumstances.

~~Convertible Note Exchange~~

On December 30, 2022, ~~the Company~~we entered into ~~an exchange agreement~~the Exchange Agreement with the ~~holders (the “Holders”)~~Purchasers of the Amended May 2022 Notes, providing for the exchange of such Amended May 2022 Notes (the “Exchange Transaction”) for shares of ~~the Company’s~~our newly-created Series C Preferred Stock, par value $0.0001 per share. On February 20, 2023, the Exchange Transaction was consummated, and the Amended May 2022 Notes were deemed paid in full. Approximately $16.9 million of principal amount of debt was extinguished in exchange for the issuances of the shares of Series C Preferred Stock. As a result of this transaction, ~~the Company~~we incurred a loss on debt extinguishment of approximately $29 million during the first quarter of 2023.

Bruce & Merrilees Promissory Note

On March 28, 2023, we entered into a settlement agreement (the “B&M Settlement”) with our electrical contractor, Bruce & Merrilees Electric Co. (“B&M”). Pursuant to the B&M Settlement, B&M agreed to eliminate an approximately $11.4 million outstanding payable in exchange for a promissory note in the amount of $3,500,000 (the "B&M Note") and a stock purchase warrant for the ~~three months ended March 31, 2023.~~right to purchase 300,000 shares of our Class A common stock (the "B&M Warrant"). The B&M Note has no definitive payment schedule or term. Pursuant to the B&M Settlement, B&M released 10 3000kva transformers to us and fully cancelled 90 transformers remaining under a pre-existing order with a third-party supplier. The terms of the B&M Settlement included a mutual release of all claims.

Pursuant to the B&M Note, the first $500,000 of the principal amount of the loan shall be payable in four equal monthly installments of $125,000 beginning on April 30, 2023, so long as (i) no default or event of default has occurred or is occurring under the Credit Agreement and (ii) no PIK Option (as such term is defined in the Credit Agreement) has been elected. The principal amount under the B&M Note bears interest at seven and one-half percent (7.5%). As of June 30, 2023, we paid $375,000 of principal pursuant to the B&M Note, and as of August 7, 2023, the first $500,000 of the principal amount due in 2023 pursuant to the B&M Note has been fully repaid.

Tax Receivable Agreement

The TRA generally provides for the payment by Stronghold Inc. to the TRA Holders of 85% of the net cash savings, if any, in U.S. federal, state and local income tax and franchise tax (computed using the estimated impact of state and local taxes) that Stronghold Inc. actually realizes (or is deemed to realize in certain circumstances) as a result of (i) certain increases in tax basis that occur as a result of Stronghold Inc.’s acquisition (or deemed acquisition for U.S. federal income tax

purposes) of all or a portion of such holder’s Stronghold LLC Units pursuant to an exercise of Redemption Right or the Call Right and (ii) imputed interest deemed to be paid by Stronghold Inc. as a result of, and additional tax basis arising from, any payments Stronghold Inc. makes under the TRA. Stronghold Inc. will retain the remaining net cash savings, if any. The TRA generally provides for payments to be made as Stronghold Inc. realizes actual cash tax savings from the tax

benefits covered by the TRA. However, the TRA provides that if Stronghold Inc. elects to terminate the TRA early (or it is terminated early due to Stronghold Inc.’s failure to honor a material obligation thereunder or due to certain mergers, asset sales, other forms of business combinations or other changes of control), Stronghold Inc. is required to make an immediate payment equal to the present value of the future payments it would be required to make if it realized deemed tax savings pursuant to the TRA (determined by applying a discount rate equal to one-year LIBOR (or an agreed successor rate, if applicable) plus 100 basis points, and using numerous assumptions to determine deemed tax savings), and such early termination payment is expected to be substantial and may exceed the future tax benefits realized by Stronghold Inc.

The actual timing and amount of any payments that may be made under the TRA are unknown at this time and will vary based on a number of factors. However, Stronghold Inc. expects that the payments that it will be required to make to the TRA Holders (or their permitted assignees) in connection with the TRA will be substantial. Any payments made by Stronghold Inc. to the TRA Holders (or their permitted assignees) under the TRA will generally reduce the amount of cash that might have otherwise been available to Stronghold Inc. or Stronghold LLC. To the extent Stronghold LLC has available cash and subject to the terms of any current or future debt or other agreements, the Stronghold LLC Agreement will require Stronghold LLC to make cash distributions to holders of Stronghold LLC Units, including Stronghold Inc., in an amount sufficient to allow Stronghold Inc. and Q Power to pay its taxes and to make payments under the TRA. Stronghold Inc. generally expects Stronghold LLC to fund such distributions out of available cash. However, except in cases where Stronghold Inc. elects to terminate the TRA early, the TRA is terminated early due to certain mergers or other changes of control or Stronghold Inc. has available cash but fails to make payments when due, generally Stronghold Inc. may defer payments due under the TRA if it does not have available cash to satisfy its payment obligations under the TRA or if its contractual obligations limit its ability to make these payments. Any such deferred payments under the TRA generally will accrue interest at the rate provided for in the TRA, and such interest may significantly exceed Stronghold Inc.’s other costs of capital. If Stronghold Inc. experiences a change of control (as defined under the TRA, which includes certain mergers, asset sales and other forms of business combinations), and in certain other circumstances, payments under the TRA may be accelerated and/or significantly exceed the actual benefits, if any, Stronghold Inc. realizes in respect of the tax attributes subject to the TRA. In the case of such an acceleration in connection with a change of control, where applicable, Stronghold Inc. generally expects the accelerated payments due under the TRA to be funded out of the proceeds of the change of control transaction giving rise to such acceleration, which could have a significant impact on our ability to consummate a change of control or reduce the proceeds received by our stockholders in connection with a change of control. However, Stronghold Inc. may be required to fund such payment from other sources, and as a result, any early termination of the TRA could have a substantial negative impact on our liquidity or financial condition.

Recent Accounting Pronouncements

For information with respect to recent accounting pronouncements, see Note 1 – Basis of Presentation in the notes to our Condensed Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act, as amended (the "Exchange Act") as of the end of the period covered by this report. Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, the Company's management,

4144

including the Chief Executive Officer and Chief Financial Officer, concluded that its disclosure controls and procedures were effective as of ~~March 31,~~June 30, 2023.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)) during the quarter ended ~~March 31,~~June 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II - Other Information

Item 1. Legal Proceedings

Information regarding this Item is contained in Note 10 – Commitments and Contingencies in the notes to the Condensed Consolidated Financial Statements.

Item 1A. Risk Factors

There are no material changes to the Risk Factors contained in Item 1A to Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits


Exhibit Number						Description
3.1						Second Amended and Restated Certificate of Incorporation of Stronghold Digital Mining, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-40931) filed on October 25, 2021).
3.2						Amended and Restated Bylaws of Stronghold Digital Mining, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-40931) filed on October 25, 2021).
3.3						Certificate of Designations of the Series C Convertible Preferred Stock of Stronghold Digital Mining, Inc., effective February 20, 2023, filed with the Secretary of State of the State of Delaware ~~and effective February 20, 2023~~ (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-40931) filed on February 24, 2023).
3.4						Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of Stronghold Digital Mining, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K (File No. 001-40931) filed on May 19, 2023.
4.1						Form of Warrant, dated April 21, 2023 (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File No. 001-40931) filed on April 24, 2023).
4.2						Pre-funded Warrant, dated April 21, 2023, by and between Stronghold Digital Mining, Inc. and Armistice Capital Master Fund Ltd. (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K (File No. 001-40931) filed on April 24, 2023).
10.1						First Amendment to Credit Agreement, dated as of February 6, 2023, by and among Stronghold Digital Mining, Inc. as Holdings and a Guarantor, Stronghold Digital Mining Holdings, LLC as Borrower, each subsidiary of the Borrower listed as a Guarantor therein, WhiteHawk Finance LLC and/or its affiliates or designees and the other lenders from time-to-time party thereto as Lenders and WhiteHawk Capital Partners LP, as Collateral Agent and Administrative Agent (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-40931) filed on February 7, 2023).
~~10.2~~						Registration Rights Agreement, dated as of February 20, 2023, by and among Stronghold Digital Mining, Inc., Adage Capital Partners, LP, Continental General Insurance Company and Parallaxes Capital Opportunity Fund IV, L.P. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-40931) filed on February 24, 2023).
~~10.3 †~~						Indemnification Agreement, dated March 7, 2023, by and between Stronghold Digital Mining, Inc. and Thomas Doherty (incorporated by reference to Exhibit 10.58 to the Registrant’s Annual Report on Form 10-K (File No. 001-40931) filed on April 3, 2023).
~~10.4~~						Board Observer Agreement, dated March 27, 2023, by and between Stronghold Digital Mining, Inc. and WhiteHawk Capital Partners LP. (incorporated by reference to Exhibit 10.59 to the Registrant’s Annual Report on Form 10-K (File No. 001-40931) filed on April 3, 2023).
~~10.5~~						Joinder to Tax Receivable Agreement, dated March 14, 2023, by and among Stronghold Digital Mining, Inc., Q Power LLC and Gregory A. Beard as Agent (incorporated by reference to Exhibit 10.60 to the Registrant’s Annual Report on Form 10-K (File No. 001-40931) filed on April 3, 2023).
~~10.6~~						Settlement Agreement and Mutual Release, dated as of March 28, 2023, by and among Stronghold Digital Mining, Inc., Stronghold Digital Mining Holdings, LLC and Bruce-Merrilees Electric Co. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-40931) filed on April 3, 2023).
~~10.7~~						~~Promissory Note, dated as of March 28, 2023, between Stronghold Digital Mining Holdings, LLC and Bruce-Merrilees Electric Co.(incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-40931) filed on April 3, 2023).~~
~~10.8~~						~~Stock Purchase Warrant, dated as of March 28, 2023, between Stronghold Digital Mining, Inc. and Bruce-Merrilees Electric Co.~~ ~~(incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File No. 001-40931) filed on April 3, 2023).~~
~~10.9~~						Subordination Agreement, dated as of March 28, 2023, between WhiteHawk Capital Partners LP, Bruce-Merrilees Electric Co., Stronghold Digital Mining, Inc., Stronghold Digital Mining Holdings, LLC as Borrower, and each subsidiary of the Borrower listed therein (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K (File No. 001-40931) filed on April 3, 2023).
~~10.10~~						Second Amendment to Credit Agreement, dated as of March 28, 2023, by and among Stronghold Digital Mining, Inc. as Holdings and a Guarantor, Stronghold Digital Mining Holdings, LLC as Borrower, each subsidiary of the Borrower listed as a Guarantor therein, WhiteHawk Finance LLC and/or its affiliates or designees and the other lenders from time-to-time party thereto as Lenders and WhiteHawk Capital Partners LP, as Collateral Agent and Administrative Agent (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K (File No. 001-40931) filed on April 3, 2023).
~~10.11~~ ¥						Securities Purchase Agreement, dated April 20, 2023, by and between Stronghold Digital Mining, Inc. and Armistice Capital Master Fund Ltd., together with a schedule identifying a substantially identical agreement between Stronghold Digital Mining, Inc. and Gregory A. Beard (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-40931) filed on April 24, 2023).
~~10.12~~10.2						Registration Rights Agreement, dated April 21, 2023, by and between Stronghold Digital Mining, Inc. and Armistice Capital Master Fund Ltd. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-40931) filed on April 24, 2023).


10.13 † *						~~Restricted Stock Unit Grant Agreement, dated as of March 15, 2023, by and between Stronghold Digital Mining, Inc. and Gregory A. Beard.~~
10.14 †*						~~Restricted Stock Unit Grant Agreement, dated as of March 15, 2023, by and between Stronghold Digital Mining, Inc. and Matthew J. Smith.~~
10.15 *10.3						Amendment to Securities Purchase Agreement, dated April 20, 2023, by and between Stronghold Digital Mining, Inc. and Armistice Capital Master Fund ~~Ltd.~~Ltd (incorporated by reference to Exhibit 10.15 to the Registrant 's Quarterly Report on Form 10-Q (File No. 001-4093 1) filed on May 12, 2023).
10.16 *10.4						Amendment to Securities Purchase Agreement, dated April 20, 2023, by and between Stronghold Digital Mining, Inc. and Gregory A. ~~Beard.~~Beard (incorporated by reference to Exhibit 10.16 to the Registrant 's Quarterly Report on F orm 10-Q (File No. 001-40931) filed on May 12, 2023).
31.1 *						Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31.2 *						Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
32.1 **						Section 1350 Certification of Chief Executive Officer.
32.2 **						Section 1350 Certification of Chief Financial Officer.
101.INS(a)						Inline XBRL Instance Document.
101.SCH(a)						Inline XBRL Schema Document.
101.CAL(a)						Inline XBRL Calculation Linkbase Document.
101.DEF(a)						Inline XBRL Definition Linkbase Document.
101.LAB(a)						Inline XBRL Label Linkbase Document.
101.PRE(a)						Inline XBRL Presentation Linkbase Document.
104						Cover Page Interactive Data File (embedded within the Inline XBRL document).

* Filed herewith.

** Furnished herewith.

† Indicates a management contract or compensatory plan or arrangement.

¥ Certain schedules and exhibits to this agreement have been omitted in accordance with Item 601(a)(5) of
Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request.

4547

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.

Date: ~~May 12,~~August 10, 2023 STRONGHOLD DIGITAL MINING, INC.

(registrant)

By: /s/ Matthew J. Smith

Matthew J. Smith

Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)

4648


			Page No.

Part I	Financial Information		2
	Item 1.	Financial Statements	2
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2628
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4144
	Item 4.	Controls and Procedures	4144
Part II	Other Information		4346
	Item 1.	Legal Proceedings	4346
	Item 1A.	Risk Factors	4346
	Item 2.	Unregistered Sales of Equity and Use of Proceeds	4346
	Item 3.	Defaults Upon Senior Securities	4346
	Item 4.	Mine Safety Disclosures	4346
	Item 5.	Other Information	4346
	Item 6.	Exhibits	87