STRONGHOLD DIGITAL MINING, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

[ad_1] <div><pre> Besides as in any other case indicated or required by the context, all references on this prospectus to the "Firm," "we," "us" or "our" relate to Stronghold Digital Mining, Inc. ("Stronghold Inc.") and its consolidated subsidiaries following the Reorganization.

The next dialogue and evaluation of our monetary situation and outcomes of operations must be learn at the side of our consolidated monetary statements and associated notes and different monetary data showing on this Type 10-Okay. A few of the data contained on this dialogue and evaluation or set forth elsewhere on this Type 10-Okay, together with data with respect to our plans, expectations and technique for our enterprise, and operations, consists of forward-looking statements inside the that means of the federal securities legal guidelines. For a whole dialogue of forward-looking statements, see part above entitled "Cautionary Assertion Concerning Ahead-Wanting Statements." Sure dangers might trigger precise outcomes, efficiency or achievements to vary materially from these expressed or implied by the next dialogue and evaluation. Components which will trigger precise outcomes to vary materially from present expectations embody, amongst different issues, these described below the heading "Danger Components" and mentioned elsewhere on this Type 10-Okay.

</pre>Overview<pre>

Stronghold Digital Mining, Inc. ("Stronghold Inc.," the "Firm," "we," "us," or "our") was integrated as a Delaware company on March 19, 2021. We're a low-cost, environmentally useful, vertically built-in crypto asset mining firm presently targeted on mining Bitcoin with environmental remediation and reclamation providers. We wholly personal and function two coal refuse energy technology services that we have now upgraded: (i) our first reclamation facility positioned on a 650-acre web site in Scrubgrass Township, Venango County, Pennsylvania, which we acquired the remaining curiosity of in April 2021 and has the capability to generate roughly 83.5 megawatts ("MW") of electrical energy (the "Scrubgrass Plant") and (ii) a facility positioned close to Nesquehoning, Pennsylvania, which we acquired in November 2021 and which has the capability to generate roughly 80 MW of electrical energy (the "Panther Creek Plant"), every of which is as an Various Power System as a result of coal refuse is assessed below Pennsylvania regulation as a Tier II Various Power Supply (large-scale hydropower can be categorised on this tier). We're dedicated to producing our power and managing our property sustainably, and we consider that we're one of many first vertically built-in crypto asset mining corporations with a give attention to environmentally useful operations.

We consider that our built-in mannequin of proudly owning our personal energy vegetation and Bitcoin mining knowledge heart operations helps us to supply Bitcoin at a price that's engaging versus the value of Bitcoin, and customarily beneath the prevailing market worth of energy that lots of our friends should pay and will should pay within the future during times of unsure or elevated energy pricing. Because of the environmental profit ensuing from the remediation of the websites from which the waste coal utilized by our two energy technology services is eliminated, we additionally qualify for Tier II renewable power tax credit ("RECs") in Pennsylvania. These RECs are presently valued at roughly $18.00 per megawatt hour ("MWh") and assist scale back our web value of energy. We consider that our skill to make the most of RECs in decreasing our web value of energy additional differentiates us from our public firm friends that buy energy from third get together sources or import energy from the grid and that would not have entry to RECs or different comparable tax credit. Ought to energy costs weaken to a stage that's beneath the Firm's value to produce energy, we have now the flexibility to buy energy from the PJM grid to make sure that we're producing Bitcoin on the lowest attainable value. Conversely, we're capable of promote energy to the PJM grid as a substitute of utilizing the facility to supply Bitcoin, as we have now lately carried out, on an opportunistic foundation, when energy income exceed Bitcoin mining income. We function as a market participant by means of PJM Interconnection, a Regional Transmission Group ("RTO") that coordinates the motion of wholesale electrical energy. Our skill to promote power within the wholesale technology market within the PJM RTO supplies us with the flexibility to optimize between promoting energy to the grid, and mining for Bitcoin. We additionally consider that proudly owning our personal energy supply makes us a extra engaging associate to crypto asset mining gear purveyors. We intend to leverage these aggressive benefits to proceed to develop our enterprise by means of the opportunistic acquisition of further energy producing property and miners

We anticipate that our web value of energy, making an allowance for RECs and waste coal tax credit that we obtain, shall be roughly $45.00 to $50.00 per MWh in the primary quarter of 2023 and thereafter. This $45.00 to $50.00 per MWh corresponds to a price per Bitcoin of $12,000 to $13,500 with fashionable miners and assuming a community hash charge of roughly 285 exahash per second ("EH/s"). We consider this value to mine is engaging versus the value of Bitcoin and usually beneath the prevailing market worth of energy that lots of our publicly traded friends who interact in Bitcoin mining, who don't generate their very own energy however as a substitute should buy it. For reference, per Bloomberg, as of March 24, 2022, the estimated value to acquire electrical energy over the ahead 24-month interval primarily based on the ahead energy worth curve for six main pricing factors (Electrical Reliability Council of Texas ("ERCOT") North, ERCOT West, Mid-continent Impartial 58 --------------------------------------------------------------------------------</pre>System Operator ("MISO") Illinois, MISO Indiana, PJM East, and PJM West) is roughly $52 per MWh, to which our anticipated value of roughly $45.00 to $50.00 per MWh compares favorably.<pre>

As of March 28, 2023, we function greater than 29,500 Bitcoin miners with hash charge capability of roughly 2.6 EH/s. Of those Bitcoin miners, greater than 25,000 are wholly owned and never topic to a revenue share element with hash charge capability of roughly 2.2 EH/s. We host the remaining roughly 4,500 Bitcoin miners with hash charge capability of roughly 420 petahash per second ("PH/s"). As of March 28, 2023, we anticipate to obtain a further roughly 0.2 EH/s associated to the acquisition settlement we entered into with MinerVa Semiconductor Corp. ("MinerVa") dated April 2, 2021 (the "MinerVa Buy Settlement"), representing 15% of the contracted hash charge. We consider that the remaining MinerVa miners can be found to be shipped, however they haven't but been scheduled for supply, and we have no idea when they are going to be acquired, if in any respect We're actively evaluating incremental alternatives, representing over 2.5 EH/s, to fill our remaining knowledge heart slots. Whereas no assurances will be made that we are going to obtain the remaining MinerVa miners or be capable of consummate any of those transactions, we consider that we will fill our present 4 EH/s of information heart capability later this yr.

As we produce Bitcoin by means of our mining operations, we'll from time-to-time change Bitcoins for fiat forex primarily based on our inner money administration coverage. We intend to carry sufficient fiat forex or hedge sufficient of our Bitcoin publicity to cowl our projected near-term fiat forex wants, together with liabilities and anticipated bills and capital expenditures. In figuring out our fiat forex wants, we'll assess market situations and evaluation our monetary forecast. We safeguard and maintain personal our digital property by using storage options supplied by Anchorage Digital Financial institution ("Anchorage"), which require multi-factor authentication and make the most of cold and warm storage. Whereas we're assured within the safety of our digital property, we're evaluating further measures to supply further safety.

</pre>ReorganizationOn April 1, 2021, we effected the company reorganization described in Word 1 - Enterprise Mixtures within the notes to our consolidated monetary statements.Traits and Different Components Impacting Our EfficiencyBasic Digital Asset Market Situations<pre>

The costs of cryptocurrencies, together with Bitcoin, have skilled substantial volatility.For instance, the value of Bitcoin ranged from a low of roughly $29,000 to a excessive of roughly $69,000 throughout 2021 and ranged from roughly $16,000 to roughly $48,000 all through 2022. Throughout 2022 and extra lately in 2023, quite a lot of corporations within the crypto property {industry} have declared chapter, together with Core Scientific, Celsius Community LLC, Voyager Digital, Three Arrows Capital, BlockFi, FTX, and Genesis Holdco. Such bankruptcies have contributed, at the very least partly, to additional worth decreases in Bitcoin, a lack of confidence within the individuals of the digital asset ecosystem and destructive publicity surrounding digital property extra broadly. So far, apart from the final lower within the worth of Bitcoin and in our and our friends inventory worth that could be not directly attributable to the bankruptcies within the crypto property {industry}, we have now not been not directly or immediately materially impacted by such bankruptcies. As of the date hereof, we have now no direct or materials contractual relationship with any firm within the crypto property {industry} that has skilled a chapter. Moreover, there was no affect on our internet hosting settlement or relationship with Foundry Digital, LLC ("Foundry") or buying and selling actions performed with Genesis World Buying and selling, Inc. ("Genesis Buying and selling"), an entity regulated by the New York Division of Monetary Providers and the SEC, that engages within the buying and selling of our mined Bitcoin. The internet hosting settlement is performing in keeping with our expectations, and on February 6, 2023, we entered into a brand new internet hosting settlement to switch the present internet hosting settlement which settlement, amongst different issues, prolonged the settlement time period to 2 years with no unilateral early termination choice and made amendments to sure revenue sharing parts. The latest chapter of Genesis Holdco, which is affiliated with the mother or father entity of Foundry and Genesis Buying and selling, has not materially impacted the unique or presently present internet hosting association, nor has it impacted buying and selling actions with Genesis Buying and selling. Moreover, we have now had no direct publicity to Celsius Community LLC, First Republic Financial institution, FTX Buying and selling Ltd., Signature Financial institution, Silicon Valley Financial institution, or Silvergate Capital Company. We proceed to conduct diligence, together with into liquidity or insolvency points, on third-parties within the crypto asset house with whom we have now potential or ongoing relationships. Whereas we have now not been materially impacted by any liquidity or insolvency points with such third events so far, there is no such thing as a assure that our counterparties won't expertise liquidity or insolvency points within the future.

We safeguard and maintain personal our digital property, together with the Bitcoin that we mine, by using storage options supplied by Anchorage, which requires multi-factor authentication. Whereas we're assured within the safety of our digital property held by Anchorage, given the broader market situations, there can be no assurance that different crypto asset market individuals, together with Anchorage as our custodian, won't finally be impacted. Additional, given the present situations in 59 --------------------------------------------------------------------------------

the digital property ecosystem, we're liquidating our mined Bitcoin typically, and at a number of factors each week by means of Anchorage. We proceed to observe the digital property {industry} as an entire, though it's not attainable at the moment to foretell all the dangers stemming from these occasions which will outcome to us, our service suppliers, our counterparties, and the broader {industry} as an entire. We can not present any assurance that we are going to not be materially impacted sooner or later by bankruptcies of individuals within the crypto asset house. See "-Crypto Asset Mining Associated Dangers- Our crypto property could also be topic to loss, injury, theft or restriction on entry. Additional, digital asset exchanges on which crypto property commerce are comparatively new and largely unregulated, and thus could also be uncovered to fraud and failure. Incorrect or fraudulent cryptocurrency transactions could also be irreversible" for extra data.

</pre>COVID-19 and Provide Chain Constraints<pre>

The coronavirus ("COVID-19") world pandemic has resulted and is prone to proceed to lead to important nationwide and world financial disruption, which can adversely have an effect on our enterprise. Amongst different issues, the COVID-19 pandemic has brought on provide chain disruptions which will have lasting impacts. Moreover, the world provide chain for Bitcoin miners is presently additional constrained as a result of unprecedented demand coupled with a worldwide scarcity of mining gear and mining gear components. Primarily based on our present assessments, nevertheless, we don't anticipate any materials affect on long-term growth, operations, or liquidity as a result of COVID-19. Nevertheless, we're actively monitoring this example and the attainable results on its monetary situation, liquidity, operations, suppliers, and {industry}.

</pre>Scrubgrass Plant and Knowledge Middle<pre>

Through the fourth quarter of 2021 and persevering with into the second and third quarter of 2022, the Scrubgrass Plant had downtime that was higher than anticipated, pushed largely by mechanical failures. The upgrades and upkeep that had been needed took longer and had been extra intensive than initially anticipated. Moreover, throughout the first half of 2022, larger than anticipated necessities from PJM Interconnection LLC ("PJM") resulted in unplanned and prolonged outages of our mining operations on the Scrubgrass Plant, diverting capability away from our mining operations at a time that was not economical for our enterprise technique. These diversions of energy away from our mining operations throughout the first and second quarters had a cloth hostile impact on our enterprise, monetary situation and outcomes of operations. The Scrubgrass Plant additionally skilled larger than anticipated value capping, because the results of its function as a capability useful resource, from PJM which obligated the Scrubgrass Plant to produce energy to the PJM grid at pre-set costs in an effort to stabilize PJM grid pricing. Beginning in June, Scrubgrass Plant was now not categorised as a capability useful resource, and is now an power useful resource, which permits the plant to promote energy to the grid at market costs.

Beginning within the third quarter of 2022, the Scrubgrass Plant performed its deliberate upkeep outage that lasted for about two weeks from the tip of September into early October, throughout which era it didn't generate energy. Through the outage, administration undertook a radical evaluation of plant-level profitability and recognized alternatives for fast value reductions together with improved gas buying, headcount reductions and optimization, and stock and upkeep planning enhancements. Given seasonally low energy costs in October, and a few further desired upkeep aims, administration saved the plant offline whereas it applied the associated fee discount program and improved the gas combine by means of accelerated deliveries of low-cost gas, after which returned Scrubgrass to service in late October. Following the outage, the Scrubgrass Plant has demonstrated the flexibility to run at baseload output ranges, as anticipated. Through the outage, the Scrubgrass Knowledge Middle imported energy from the grid to help operations.

</pre>Panther Creek Plant and Knowledge Middle<pre>

Through the second quarter of 2022, the Panther Creek Plant's mining operations had been offline for ten days as a result of failure of a switchgear and the necessity to supply, ship and set up a brand new piece of kit, inflicting ten days of no mining income technology on the facility and leading to an estimated lack of roughly $1.4 million. The operation of our energy technology services, data expertise programs and different property and conduct of different actions topics us to quite a lot of dangers, together with the breakdown or failure of gear, accidents, safety breaches, viruses or outages affecting data expertise programs, labor disputes, obsolescence, supply/transportation issues and disruptions of gas provide, failure to obtain spare components in a well timed method, and efficiency beneath anticipated ranges.

As beforehand disclosed on the Firm's Present Report on Type 8-Okay dated July 25, 2022, the Panther Creek Plant skilled roughly 8.5 days of unplanned downtime within the month of June from broken transmission strains brought on by a storm, and different plant upkeep points. The Firm estimated the monetary affect of the June outages to be misplaced income of $1.8 million and a web earnings affect of $1.4 million.

</pre>Within the third quarter of 2022, the Panther Creek Plant accomplished its deliberate upkeep outage which lasted for about two weeks, throughout which era it didn't generate energy. The outage went as deliberate, and the plant was<pre> 60 --------------------------------------------------------------------------------</pre>restored to service in October. Through the outage, the Panther Creek Knowledge Middle imported energy from the grid to help operations.Bitcoin Worth Volatility<pre>

The market worth of Bitcoin has traditionally and lately been unstable. Since the IPO, the value of Bitcoin has dropped over 70%, leading to an hostile impact on our outcomes of operations, liquidity and technique, and leading to elevated credit score pressures on the cryptocurrency {industry}. Our working outcomes depend upon the worth of Bitcoin as a result of it's the solely crypto asset we presently mine.

We can not precisely predict the long run market worth of Bitcoin and, as such, we can not precisely predict potential hostile results, together with whether or not we'll report impairment of the worth of our Bitcoin property. The longer term worth of Bitcoin will have an effect on the income from our operations, and any future impairment of the worth of the Bitcoin we mine and maintain for our account could be reported in our consolidated monetary statements and outcomes of operations as costs in opposition to web earnings, which might have a cloth hostile impact in the marketplace worth for our securities.

Current Developments </pre>Bruce and Merrilees Settlement Settlement<pre>

On March 28, 2023, the Firm and Stronghold LLC entered right into a Settlement Settlement (the "B&M Settlement") with its electrical contractor, Bruce - Merrilees Electrical Co. ("B&M"). Pursuant to the B&M Settlement, B&M eradicated an estimated $11.4 million excellent payable in change for a Promissory Word within the quantity of $3,500,000 (the "B&M Word") and a Inventory Buy Warrant for the best to buy from the Firm 3,000,000 shares of Class A Frequent Inventory (the B&M Warrant").

Pursuant to the Settlement Settlement, B&M launched ten (10) 3000kva transformers to the Firm and absolutely cancelled ninety (90) transformers remaining below a pre-existing order with a third-party provider. The phrases of the Settlement Settlement embody a mutual launch of all pre-existing claims.

Pursuant to the B&M Word, the primary $500,000 of the principal quantity of the mortgage shall be payable in 4 equal month-to-month installments of $125,000 starting on April 30, 2023, as long as (i) no default or occasion of default has occurred or is occurring below the Credit score Settlement (as outlined beneath) and (ii) no PIK Choice (as such time period is outlined within the First Modification, as outlined beneath) has been elected by the Firm. The principal quantity below the B&M Word bears curiosity at seven and one-half % (7.5%). Pursuant to the B&M Warrant, the Firm agreed to enter right into a registration rights settlement with B&M for the shares underlying the warrants no later than April 4, 2023.

Simultaneous with the Settlement Settlement, the Firm and every of its subsidiaries entered right into a Subordination Settlement with B&M and WhiteHawk Capital Companions LP ("Whitehawk Capital") pursuant to which all obligations, liabilities and indebtedness of each nature of the Firm and every of its subsidiaries owed to B&M pursuant to the B&M Word, Settlement Settlement and in any other case shall be subordinate and topic in proper and time of fee, to the prior fee of filled with the Firm's obligation to WhiteHawk pursuant to the Credit score Settlement.

Change Transaction

On December 30, 2022, the Firm entered into an change settlement (the "Change Settlement") with the holders (the "Purchasers") of the Might 2022 Notes (as outlined beneath) whereby the Might 2022 Notes had been to be exchanged for shares of a brand new sequence of convertible most popular inventory (the "Collection C Most well-liked Inventory") that, amongst different issues, will convert into shares of Frequent Inventory or pre-funded warrants that could be exercised for shares of Class A typical inventory ("Pre-funded Warrants"), at a conversion worth of $0.40 per share. The Change Settlement closed on February 20, 2023. Pursuant to the Change Settlement, the Purchasers acquired an combination 23,102 shares of the Collection C Most well-liked Inventory in change for the cancellation of an combination $17,893,750 of principal and accrued curiosity, representing all the quantities owed to the Purchasers below the Might 2022 Notes. On February 20, 2023, one Purchaser transformed 1,530 shares of the Collection C Most well-liked Inventory to three,825,000 shares of the Firm's Class A typical inventory. On February 20, 2023, one Purchaser transformed 1,530 shares of the Collection C Most well-liked Inventory to three,825,000 shares of the Firm's Class A typical inventory. The rights and preferences of the Collection C Most well-liked Inventory are designated in a certificates of designation (the "Certificates of Designation"), and the Firm supplied sure registration rights to the Purchasers. 61 --------------------------------------------------------------------------------</pre>Second WhiteHawk Modification<pre>

On March 28, 2022, Tools LLC and WhiteHawk Finance LLC ("WhiteHawk") amended the WhiteHawk Financing Settlement (as outlined beneath) for a second time (the "Second WhiteHawk Modification") to change the collateral below the gear financing settlement dated June 30, 2021, by and between Stronghold LLC and WhiteHawk (the "WhiteHawk Financing Settlement"). Pursuant to the Second WhiteHawk Modification, (i) the roughly 11,700 remaining miners below the MinerVa Buy Settlement had been exchanged as collateral for extra miners acquired by us from different suppliers and (ii) WhiteHawk agreed to lend to us an further quantity to not exceed $25.0 million to finance sure beforehand bought Bitcoin miners and associated gear (the "Second Complete Advance"). Pursuant to the Second WhiteHawk Modification, Tools, LLC paid an modification payment within the quantity of $275,414.40 and a closing payment with respect to the Second Complete Advance of $500,000. Along with the bought Bitcoin miners and associated gear, Panther Creek and Scrubgrass every agreed to a destructive pledge of the Panther Creek Plant and Scrubgrass Plant, respectively, and assured the WhiteHawk Financing Settlement. Every of the destructive pledge and the warranty by Panther Creek and Scrubgrass shall be launched upon fee in filled with the Second Complete Advance, no matter whether or not the Complete Advance stays excellent. In conjunction with the Second WhiteHawk Modification, we issued a warrant to WhiteHawk to buy 125,000 shares of Class A typical inventory, topic to sure anti-dilution and different adjustment provisions as described within the warrant settlement, at an train worth of $0.01 per share (the "Second WhiteHawk Warrant"). The Second WhiteHawk Warrant expires on March 28, 2032.

</pre>MinerVa<pre>

On April 2, 2021, we entered into a purchase order settlement with MinerVa (the "MinerVa Buy Settlement") for the acquisition of 15,000 of their MV7 ASIC SHA256 mannequin cryptocurrency miners, with a complete hash charge capability of 1.5 exahash per second to be delivered. In December 2021, we prolonged the deadline for supply of the MinerVa miners to April 2022. Because of continued delays in deliveries, an impairment of roughly $12 million was acknowledged on March 31, 2022. Because of market situations, a further impairment of roughly $5 million was acknowledged on December 31, 2022. On July 18, 2022, the Firm supplied written discover of dispute to MinerVa pursuant to the MinerVa Buy Settlement obligating the Firm and MinerVa to work collectively in good religion in the direction of a decision for a interval of sixty (60) days. As of December 31, 2022, and March 28, 2023, MinerVa had delivered worth to Stronghold roughly equal to roughly 1,070 PH/s and roughly 1,270 PH/s, respectively, of the 1,500 PH/s within the type of MinerVa miners, refunded money, and different {industry} main miners. Now we have continued to obtain MinerVa miners throughout the first quarter of 2023 and anticipate to obtain the remaining MinerVa miners, however we have no idea when they are going to be acquired, if in any respect.

</pre>WhiteHawk Refinancing SettlementOn August 16, 2022, we entered right into a dedication letter (the "Dedication Letter") with WhiteHawk to supply for dedicated financing to refinance the WhiteHawk Financing Settlement and supply as much as $20 million in further commitments for an combination mortgage to not exceed $60.0 million.<pre>

On October 27, 2022, we entered right into a secured credit score settlement (the "Credit score Settlement") with WhiteHawk to refinance the WhiteHawk Financing Settlement, successfully terminating the WhiteHawk Financing Settlement. The Credit score Settlement consists of $35.1 million in time period loans and $23.0 million in further commitments (such further commitments, the "Delayed Draw Facility"). Such loans below the Delayed Draw Facility had been drawn on the time limit of the Credit score Settlement. The Credit score Settlement and Delayed Draw Facility collectively diminished month-to-month principal funds and added roughly $21 million of money to the Firm's steadiness sheet following the Firm's draw down on the complete quantity of the Delayed Draw Facility. The complete quantity of the WhiteHawk Financing Settlement has been drawn as of the date hereof.

The borrowings below the WhiteHawk Refinancing Settlement mature on October 26, 2025 and bear curiosity at a charge of both (i) the Secured In a single day Financing Price ("SOFR") plus 10% or (ii) a reference charge equal to the higher of (x) 3%, (y) the federal funds charge plus 0.50% and (y) the Time period SOFR charge plus 1%, plus 9%. The mortgage below the Delayed Draw 62 --------------------------------------------------------------------------------

Facility was issued with 3% closing payment on the drawn quantity, paid when such quantity was drawn. Quantities drawn on the WhiteHawk Refinancing Settlement are topic to a prepayment premium such that the lenders thereunder obtain a 20% return on invested capital. The Firm additionally issued a inventory buy warrant to WhiteHawk at the side of the closing of the WhiteHawk Refinancing Settlement, which supplies for the acquisition of a further 4,000,000 shares of Class A typical inventory at an train worth of $0.01 per share.

</pre>WhiteHawk Credit score Settlement Modification<pre>

On February 6, 2023, the Firm, Stronghold LLC, as borrower, their subsidiaries and WhiteHawk Capital Companions LP, as collateral agent and administrative agent, and the opposite lenders thereto, entered into an modification to the Credit score Settlement (the "First Modification") in an effort to modify sure covenants and take away sure prepayment necessities contained therein. All capitalized phrases used however not outlined herein have the meanings assigned within the First Modification. Following the First Modification, Stronghold LLC shall be permitted to pay curiosity in type in every month that its common each day money steadiness (together with cryptocurrencies) is lower than $5,000,000, as much as a most of six elections throughout the lifetime of the Credit score Settlement. On account of the First Modification, amortization funds for the interval from February 2023 by means of July 2024 won't be required, with month-to-month amortization resuming July 31, 2024. Starting June 30, 2023, following a five-month vacation, Stronghold LLC will make month-to-month prepayments of the mortgage in an quantity equal to 50% of its common each day money steadiness (together with cryptocurrencies) in extra of $7,500,000 for such month. The First Modification additionally modifies the monetary covenants to (i) within the case of the requirement of the Firm to take care of a leverage ratio no higher than 4.00:1.00, such covenant won't be examined till the fiscal quarter ending September 30, 2024 and (ii) within the case of the minimal liquidity covenant, modified to require minimal liquidity at any time to be not lower than: (A) till March 31, 2024, $2,500,000; (B) throughout the interval starting April 1, 2024 by means of and together with December 31, 2024, $5,000,000; and (C) from and after January 1, 2025, $7,500,000. The typical month-to-month minimal liquidity requirement has been eliminated completely. The First Modification required the Firm to supply a finances, to be permitted by the required lenders, and to resolve all claims of and quantities payable to B&M in a way passable to the required lenders by February 28, 2023.

Through the time period of the Credit score Settlement, the executive agent (on the course of the required lenders) can have the best to designate a board observer to attend conferences of Board and all committees thereof. Such individual won't be entitled to vote on or consent to any issues introduced to the Board or any committees thereof. Such observer perhaps excluded from sure conferences or discussions in restricted circumstances. The Firm will reimburse the observer for its cheap out-of-pocket bills incurred in reference to attending any conferences, however not one of the lenders or such observer will obtain any further compensation or remuneration for such providers.

Additional, the Firm agreed to nominate a further impartial director that within reason passable to the required lenders to its Board to serve till the Firm's subsequent annual assembly, and to appoint such individual for election at its subsequent annual assembly. Additional, the failure of the Sponsor, which incorporates Q Energy LLC (which is managed by Greg Beard, the Chairman and Chief Govt Officer of the Firm), to vote for such individual as a director will represent an occasion of default below the Credit score Settlement. On March 7, 2023, the Board appointed Thomas Doherty to the Board.

</pre>Second Modification to Credit score Settlement<pre>

On March 28, 2023, the Firm, Stronghold LLC, as borrower, their subsidiaries and WhiteHawk Capital, as collateral agent and administrative agent, and the different lenders thereto, entered into the Second Modification to Credit score Settlement (the "Second Modification"). All capitalized phrases used however not outlined herein have the meanings assigned in and pursuant to the Second Modification. Pursuant to the Second Modification, amongst different objects, the phrases Permitted Indebtedness, Subordinated Indebtedness and Materials Contracts had been amended to incorporate and account for the B&M Paperwork and the Firm's obligations thereunder.

</pre>Might 2022 Non-public Placement and Amendments<pre>

On Might 15, 2022, we entered right into a be aware and warrant buy settlement (the "Buy Settlement"), by and among the many Firm and the purchasers thereto (collectively, the "Purchasers"), whereby we agreed to problem and promote to Purchasers, and Purchasers agreed to buy from the Firm, (i) $33,750,000 combination principal quantity of 10.00% unsecured convertible promissory notes (the "Might 2022 Notes") and (ii) warrants (the "Might 2022 Warrants") representing the proper to buy as much as 6,318,000 shares of Class A Frequent Inventory, of the Firm with an train worth per share equal to $2.50, on the phrases and topic to the situations set forth within the Buy Settlement (collectively, the "Might 2022 Non-public Placement"). The Might 2022 Notes and the Might 2022 Warrants had been bought for combination consideration of $27.0 million. 63 --------------------------------------------------------------------------------

In reference to the Might 2022 Non-public Placement, the Might 2022 Warrants had been issued pursuant to a Warrant Settlement, dated as of Might 15, 2022. The Might 2022 Warrants are topic to necessary cashless train provisions and have sure anti-dilution provisions. The Might 2022 Warrants shall be exercisable for a five-year interval from the closing.

On August 16, 2022, the Firm entered into an modification to the Buy Settlement, whereby the Firm agreed to amend the Buy Settlement such that $11.25 million of the excellent principal has been exchanged for the Purchaser's execution of an amended and restated warrant settlement pursuant to which the strike worth of the 6,318,000 Might 2022 Warrants was diminished from $2.50 to $0.01. After giving impact to the principal discount and amended and restated warrants, the Firm was to proceed to make subsequent month-to-month, funds to the Purchasers on the fifteenth (fifteenth) day of every of November 2022, December 2022, January 2023, and February 2023. The Firm was capable of elect to pay every such fee (A) in money or (B) in shares of Frequent Inventory, in every case, at a twenty % (20%) low cost to the common of the each day VWAPs for every of the twenty (20) consecutive buying and selling days previous the fee date.

On December 30, 2022, the Firm entered into the Change Settlement with the Purchasers, which closed on February 20, 2023. Pursuant to the Change Settlement, the Purchasers acquired an combination 23,102 shares of the Collection C Most well-liked Inventory in change for the cancellation of an combination $17,893,750 of principal and accrued curiosity, representing all the quantities owed to the Word holders below the Notes. See "-Change Transaction" above for extra data.

</pre>McClymonds Provide & Transit Firm, Inc. and DTA, L.P. vs Scrubgrass Producing Firm, L.P.<pre>

On Might 9, 2022, an award within the quantity of $5.0 million plus curiosity computed as of Might 15, 2022, within the quantity of $0.8 million was issued in favor of the McClymonds Provide & Transit Firm, Inc. within the beforehand disclosed dispute over a trucking contract between the claimant and our subsidiary. The 2 managing members of Q Energy, LLC, our major Class V shareholder, have agreed to and begun to pay the complete quantity of the award such that there shall be no impact on the monetary situation of the Firm.

</pre>September 2022 Non-public Placement<pre>

On September 13, 2022, we entered into Securities Buy Agreements (the "Armistice Buy Agreements") with Armistice Capital Grasp Fund Ltd. ("Armistice") and Greg Beard, our Chairman and Chief Govt Officer, for the buy and sale of two,274,350 and 602,409 shares, respectively, of Class A frequent inventory, par worth $0.0001 per share at a purchase order worth of $1.60 and $1.66, respectively, and warrants to buy an combination of 5,602,409 shares of Class A typical inventory, at an preliminary train worth of $1.75 per share (topic to sure changes) (the "September 2022 Non-public Placement"). Topic to sure possession limitations, such warrants are exercisable upon issuance and shall be exercisable for 5 and a half years commencing upon the date of issuance. Armistice additionally bought pre-funded warrants to buy 2,725,650 shares of Class A typical inventory (the "Pre-funded Warrants") at a buy worth of $1.60 per Pre-funded Warrant. The Pre-Funded Warrants have an train worth of $0.0001 per warrant share. The transaction closed on September 19, 2022. The gross proceeds, earlier than deducting providing bills, from the sale of such securities was roughly $9.0 million.

Pursuant to the Armistice Buy Settlement, we entered right into a registration rights settlement with Armistice (the "Armistice Registration Rights Settlement"), and subsequently filed a registration assertion overlaying the resale of all Registrable Securities (as outlined within the Armistice Registration Rights Settlement).

Topic to sure exceptions, till six months after the Efficient Date, we may even be prohibited from effecting or getting into into an settlement to impact any issuance involving a variable charge transaction.

</pre>NYDIG Asset Buy Settlement<pre>

On August 16, 2022, the Firm, Stronghold LLC, Stronghold Digital Mining LLC, a Delaware restricted legal responsibility firm ("SD Mining") and Stronghold Digital Mining BT, LLC, a Delaware restricted legal responsibility firm ("SD Mining BT", and along with SD Mining, the "APA Sellers" and, along with the Firm and Stronghold LLC, the "APA Vendor Events"), entered into an Asset Buy Settlement (the "Asset Buy Settlement") with NYDIG ABL LLC, a Delaware restricted legal responsibility firm previously often called Arctos Credit score, LLC ("NYDIG"), and The Provident Financial institution, a Massachusetts financial savings financial institution ("BankProv" and along with NYDIG, "Purchasers" and every, a "Purchaser").

Pursuant to the June 25, 2021, $34,481,700 grasp gear financing settlement with an affiliate of NYDIG (the "Arctos/NYDIG Financing Settlement" and the Second NYDIG Financing Settlement (collectively, the "NYDIG Agreements"), sure miners had been pledged as collateral below such agreements (and along with sure associated 64 --------------------------------------------------------------------------------

agreements to buy miners, the "APA Collateral"). Below the Asset Buy Settlement, the APA Vendor Events agreed to promote, and the Purchasers (or their respective designee) agreed to buy, the APA Collateral in a non-public disposition in change for the forgiveness, discount and launch of all principal, curiosity, and charges owing below every of the NYDIG Agreements (collectively, the "NYDIG Debt"). Following (i) supply of the APA Collateral to the Purchasers or their designees pursuant to a grasp invoice of sale and (ii) a subsequent inspection interval of as much as 14 days (which can be prolonged as much as seven further days), upon acceptance of the APA Collateral, the associated portion of the NYDIG Debt shall be assigned to the APA Sellers and cancelled pursuant to the phrases of the Asset Buy Settlement (every, a "Settlement").

Between September 30, 2022, and October 13, 2022, the APA Vendor Events accomplished the settlement, pursuant to the grasp invoice of sale, of six tranches of APA Collateral to BankProv and NYDIG in change for the extinguishment of an combination of $65.3 million of principal below the NYDIG Debt and associated curiosity. On October 26, 2022, the APA Vendor Events accomplished the switch of the seventh and closing tranche of the APA Collateral to NYDIG pursuant to the grasp invoice of sale in change for the extinguishment of $2.1 million of principal below the NYDIG Debt and associated curiosity (the "Ultimate Settlement"). Following the Ultimate Settlement, the combination quantity of principal below the NYDIG Debt extinguished is $67.4 million, the whole quantity of the NYDIG Debt, and it'll due to this fact now not be mirrored on our steadiness sheet. The NYDIG Agreements had been terminated concurrently with the Ultimate Settlement.

</pre>Northern Knowledge<pre>

On August 17, 2021, Stronghold LLC entered into an settlement with Northern Knowledge PA, LLC ("Northern Knowledge") whereby Northern Knowledge was to assemble and function a colocation knowledge heart facility positioned on the Scrubgrass Plant (the "Internet hosting Settlement"), the first enterprise function of which was to supply internet hosting providers and help the cryptocurrency miners that we have now bought however not but acquired completely from Northern Knowledge. On March 28, 2022, we restructured the Internet hosting Settlement to acquire a further 2,675 miners at value of $37.5 per terahash (to be paid 5 months after supply) and quickly diminished the revenue share for Northern Knowledge whereas incorporating efficiency thresholds till the information heart build-out is full. On August 10, 2022, the Firm and Northern Knowledge terminated the availability of the restructured Internet hosting Settlement associated to the extra 2,675 miners and the Firm shall neither make fee for such further miners nor get hold of title to such further miners. Confer with Word 27 - Internet hosting Providers Settlement within the notes to our consolidated monetary statements.

On September 30, 2022, the Firm entered right into a settlement settlement with Northern Knowledge (the "Settlement Settlement") whereby the Internet hosting Settlement was mutually terminated. Pursuant to the Settlement Settlement, for a time period of two years till October 1, 2024, the Firm has the best to lease from Northern Knowledge for its unique use, entry, and operation of (i) 24 Northern Knowledge manufactured pods able to supporting roughly 550 Bitcoin miners every for an combination quantity of roughly 13,200 out there slots and (ii) 4 Strongboxes that the Firm beforehand bought to Northern Knowledge able to supporting roughly 264 Bitcoin miners every for an combination of roughly 1,056 mining slots for $1,000 yearly. Following the Settlement Settlement, no future income share shall be relevant for miners within the Northern Knowledge pods or Strongboxes, and the Firm will obtain 100% of the income generated by Bitcoin miners within the Northern Knowledge pods and Strongboxes. On the finish of the two-year time period of the Settlement Settlement, the Firm has the choice, however not the duty, to buy the Northern Knowledge pods and Strongboxes for an quantity between $2 million and $6 million primarily based on the prevailing hash worth on the time, web of a most of $1.5 million of expenditures that the Firm has the choice to make use of to improve the Northern Knowledge pods all through the two-year time period.

Pursuant to the Settlement Settlement, the Firm paid to Northern Knowledge an combination quantity of $4.5 million. The Firm recorded the settlement prices of $4.5 million in September 2022, partially offset by the elimination of roughly $2.6 million payable to Northern Knowledge. The online affect of $1.9 million was recorded as operations and upkeep expense on the consolidated assertion of operations for the yr ended December 31, 2022.

</pre>Nasdaq Continued Itemizing Deficiency<pre>

As disclosed in our Type 8-Okay submitting on December 6, 2022, on November 30, 2022, we acquired a written notification from the Nasdaq Inventory Market LLC notifying us that, primarily based upon the closing bid worth of the Firm's Class A typical inventory, for the final 30 consecutive enterprise days, the Class A typical inventory didn't meet the minimal bid worth of $1.00 per share required by Nasdaq Itemizing Rule 5450(a)(1), initiating an automated 180 calendar-day grace interval for the Firm to regain compliance. Pursuant to the Nasdaq Itemizing Rule 5810(c)(3)(A), we have now been granted a 180 calendar day compliance interval, or till Might 29, 2023, to regain compliance with the minimal bid worth requirement. Through the compliance interval, our shares of Class A typical inventory will proceed to be listed and traded on the Nasdaq World Market. 65 --------------------------------------------------------------------------------

The Firm will regain compliance with the minimal bid worth requirement if at any time earlier than Might 29, 2023, the bid worth for our Class A typical inventory closes at or above $1.00 per share for no less than 10 consecutive enterprise days.

As disclosed in our Type 8-Okay submitting on January 13, 2023, on January 9, 2023, stockholders holding a majority of our issued and excellent Class A typical inventory and Class V frequent inventory entitled to vote on such issues took motion by written consent to authorize our board of administrators to impact a reverse inventory cut up in its discretion with a ratio in a variety from and together with one-for-two (1:2) as much as one-for-ten (1:10) at any time on or earlier than June 30, 2023 (the "Reverse Inventory Cut up").

If we don't regain compliance inside the allotted compliance interval, together with any extensions that could be granted by Nasdaq, Nasdaq will present discover that the Firm's shares of Class A typical inventory shall be topic to delisting. At such time, we might enchantment the delisting willpower to a hearings panel. We intend to proceed to observe the bid worth ranges for the frequent inventory and can take into account applicable options to realize compliance inside the preliminary 180 calendar-day compliance interval, together with, amongst different issues, the Reverse Inventory Cut up. There will be no assurance, nevertheless, that we will accomplish that.

</pre>Important Accounting Insurance policies and Important Estimates<pre>

The preparation of economic statements in conformity with accounting ideas usually accepted in the USA of America ("GAAP") requires administration to make estimates and assumptions about future occasions that have an effect on the quantities reported within the consolidated monetary statements and accompanying notes. Future occasions and their results can't be decided with absolute certainty. Due to this fact, the willpower of estimates requires the train of judgment. Precise outcomes inevitably will differ from these estimates, and such variations could also be materials to the consolidated monetary statements. Probably the most important accounting estimates inherent within the preparation of our consolidated monetary statements embody estimates related to income recognition, property, plant and gear (together with the helpful lives and recoverability of long-lived property), intangible property, stock-based compensation, and earnings taxes. Our monetary place, outcomes of operations and money flows are impacted by the accounting insurance policies we have now adopted. In an effort to get a full understanding of our consolidated monetary statements, one will need to have a transparent understanding of the accounting insurance policies employed.

</pre>A abstract of our essential accounting insurance policies follows:Truthful Worth Measurements<pre>

The Firm measures at truthful worth sure of its monetary and non-financial property and liabilities through the use of a good worth hierarchy that prioritizes the inputs to valuation methods used to measure truthful worth. Truthful worth is the worth that might be acquired to promote an asset or paid to switch a legal responsibility in an orderly transaction between market individuals on the measurement date, basically an exit worth, primarily based on the very best and greatest use of the asset or legal responsibility. The degrees of the truthful worth hierarchy are:

Degree 1: Observable inputs equivalent to quoted market costs in lively markets for equivalent property or liabilities; Degree 2: Observable market-based inputs or unobservable inputs which are corroborated by market knowledge; and Degree 3: Unobservable inputs for which there's little or no market knowledge, which require using the reporting entity's personal assumptions.

</pre>A monetary instrument's stage inside the truthful worth hierarchy relies on the lowest stage of any enter that's important to the truthful worth measurement.Property, Plant and Tools<pre>

Property, plant and gear are recorded at value. Expenditures for main additions and enhancements are capitalized, and minor replacements, upkeep and repairs are charged to bills as incurred. The Firm information all property related to the cryptocurrency mining operations at value. These property are comprised of storage trailers and the associated electrical parts. When property, plant and gear are retired or in any other case disposed of, the associated fee and amassed depreciation are faraway from the accounts, and any ensuing acquire or loss is included within the consolidated statements of operations. Depreciation is acknowledged over the remaining estimated helpful lives ("EUL") of the associated property utilizing the straight-line methodology.

important and the Firm can fairly estimate the unique value of the element being changed, the Firm will write-off the changed element and capitalize the price of the alternative. The element shall be depreciated over the lesser of the EUL of the element or the remaining EUL of the Facility.

Together with ASC 360, Property, Plant, and Tools, the Firm evaluations long-lived property for impairment at any time when occasions or modifications in circumstances point out that the carrying quantity of an asset might not be recoverable. Recoverability of a long-lived asset or asset group to be held and used is measured by a comparability of the carrying quantity of the long-lived asset or asset group to undiscounted future money flows anticipated to be generated by the long-lived asset or asset group. The components thought-about by administration in performing this evaluation embody present working outcomes, developments and prospects, the way by which the asset is used, and the results of obsolescence, demand, competitors, and different financial components. If such an asset or asset group is taken into account to be impaired, the impairment to be acknowledged is measured by the quantity by which the carrying quantity of the long-lived asset or asset group exceeds its truthful worth. Primarily based on the Firm's evaluation, no impairment indicators existed as of December 31, 2021; nevertheless, impairment indicators existed all through the present yr and as of December 31, 2022, that resulted in impairments on miner property of $40,683,112 for the yr ended December 31, 2022.

</pre>Bitcoin Mining Rigs<pre>

Administration has assessed the premise of depreciation of the Firm's Bitcoin mining rigs used to confirm digital forex transactions and generate digital currencies and believes they need to be depreciated over a three-year interval. The charge at which the Firm generates digital property and, due to this fact, consumes the financial advantages of its transaction verification servers, is influenced by a variety of components together with the next:

1.The complexity of the transaction verification course of which is pushed by the algorithms contained inside the Bitcoin open supply software program; 2.The final availability of applicable pc processing capability on a world foundation (generally referred to within the {industry} as hash charge capability); and 3.Technological obsolescence reflecting speedy growth within the transaction verification server {industry} such that extra lately developed {hardware} is extra economically environment friendly to run when it comes to digital property generated as a operate of working prices, primarily energy prices (i.e., the velocity of {hardware} evolution within the {industry} is such that later {hardware} fashions usually have quicker processing capability mixed with decrease working prices and a decrease value of buy).

The Firm operates in an rising {industry} for which restricted knowledge is on the market to make estimates of the helpful financial lives of specialised gear. Administration has decided that three years greatest displays the present anticipated helpful lifetime of its Bitcoin miners. This evaluation takes into consideration the availability of historic knowledge and administration's expectations relating to the course of the {industry} together with potential modifications in expertise. Administration evaluations this estimate yearly and can revise such estimate as and when knowledge turns into out there.

To the extent that any of the assumptions underlying administration's estimate of helpful life for its Bitcoin mining rigs are topic to revision in a future reporting interval, both because of modifications in circumstances or by means of the availability of higher portions of information, the estimated helpful life might change and have a potential affect on depreciation expense and the carrying quantities of those property.

Income Recognition

The Firm acknowledges income below ASC 606, Income from Contracts with Prospects. The core precept of this income commonplace is that an organization ought to acknowledge income to depict the switch of promised items or providers to prospects in an quantity that displays the consideration to which the corporate expects to be entitled in change for these items or providers. The next 5 steps are utilized to realize that core precept:

1.Step 1: Establish the contract with the client; 2.Step 2: Establish the efficiency obligations within the contract; 3.Step 3: Decide the transaction worth; 4.Step 4: Allocate the transaction worth to the efficiency obligations within the contract; and 5.Step 5: Acknowledge income when the corporate satisfies the efficiency obligations.

standards are met: (1) the client can profit from the great or service both by itself or along with different assets which are available to the buyer (i.e., the great or service is able to being distinct); and (2) the entity's promise to switch the great or service to the client is individually identifiable from different guarantees within the contract (i.e., the promise to switch the great or service is distinct inside the context of the contract).

If an excellent or service just isn't distinct, the great or service is mixed with different promised items or providers till a bundle of products or providers is recognized that's distinct.

The transaction worth is the quantity of consideration to which an entity expects to be entitled in change for transferring promised items or providers to a buyer. The consideration promised in a contract with a buyer might embody mounted quantities, variable quantities or each.

</pre>When figuring out the transaction worth, an entity should take into account the results of all the following:<pre>

•Variable consideration; •Constraining estimates of variable consideration; •The existence of a major financing element within the contract; •Non-cash consideration; and •Consideration payable to a buyer.

Variable consideration is included within the transaction worth solely to the extent that it's possible {that a} important reversal within the quantity of cumulative income acknowledged won't happen when the uncertainty related to the variable consideration is subsequently resolved. The transaction worth is allotted to every efficiency obligation on a relative standalone promoting worth foundation. The transaction worth allotted to every efficiency obligation is acknowledged when that efficiency obligation is happy, at a cut-off date or over time as applicable.

There may be presently no particular definitive steerage below GAAP or various accounting framework for the accounting for cryptocurrencies acknowledged as income or held, and administration has exercised important judgment in figuring out the suitable accounting therapy. Within the occasion authoritative steerage is enacted by the Monetary Accounting Requirements Board (the "FASB"), the Firm could also be required to alter its insurance policies, which might have an impact on the Firm's consolidated monetary statements.

</pre>Truthful worth of the digital asset awards acquired is decided utilizing the quoted worth of the associated cryptocurrency on the time of receipt.The Firm's insurance policies with respect to its income streams are detailed beneath.Power Income<pre>

The Firm operates as a market participant by means of PJM Interconnection, a Regional Transmission Group ("RTO") that coordinates the motion of wholesale electrical energy. The Firm sells power within the wholesale technology market within the PJM RTO. Power revenues are delivered as a sequence of distinct items which are considerably the identical and have the identical sample of switch to the client over time and are, due to this fact, accounted for as a definite efficiency obligation. Power income is acknowledged over time as power volumes are generated and delivered to the RTO (which is contemporaneous with technology), utilizing the output methodology for measuring progress of satisfaction of the efficiency obligation. The Firm applies the bill sensible expedient in recognizing power income. Below the bill sensible expedient, power income is acknowledged primarily based on the invoiced quantity which is taken into account equal to the worth supplied to the client for the Firm's efficiency obligation accomplished so far.

Previous to June 2022, the Scrubgrass and Panther Creek Vegetation had been dedicated as "capability assets" by means of the annual Base Residual Public sale ("BRA") course of. On this course of, a generator agrees to help the PJM capability market, and if referred to as upon, is required to ship its energy to the market and obtain a capped promoting worth primarily based on pricing printed within the day forward market. In return for this dedicated capability that's deliverable on demand to help the reliability of the PJM grid, turbines obtain further Capability Income on a month-to-month foundation. Because the mining alternative grew for Stronghold, being a capability useful resource more and more prevented the Firm from having the ability to persistently energy its mining operation when PJM referred to as for the capability. Starting in June of 2022, Stronghold withdrew from its capability dedication and each vegetation grew to become "power assets" capable of promote energy to the grid within the real-time, location marginal pricing, or "LMP," market or use that energy in its knowledge facilities. 68 --------------------------------------------------------------------------------</pre>Reactive power energy is supplied to take care of a steady voltage stage. Income from reactive energy is acknowledged ratably over time because the Firm stands prepared to supply it if referred to as upon by the PJM RTO.Capability Income<pre>

Previous to June 2022, the Firm supplied capability to a buyer by means of participation in capability auctions held by the PJM RTO. Capability revenues are a sequence of distinct efficiency obligations which are considerably the identical and have the identical sample of switch to the client over time and are, due to this fact, accounted for as a definite efficiency obligation. The transaction worth for capability is market-based and constitutes the standalone promoting worth. As capability represents the Firm's stand-ready obligation, capability income is acknowledged because the efficiency obligation is happy ratably over time, on a month-to-month foundation, because the Firm stands prepared equally all through the interval to ship energy to the PJM RTO if referred to as upon. The Firm applies the bill sensible expedient in recognizing capability income. Below the bill sensible expedient, capability income is acknowledged primarily based on the invoiced quantity which is thought-about equal to the worth supplied to the client for the Firm's efficiency obligation accomplished so far. Penalties could also be assessed by the PJM RTO in opposition to technology services if the ability just isn't out there throughout the capability interval. The penalties assessed by the PJM RTO, if any, are recorded as a discount to capability income when incurred.

</pre>Bitcoin Mining<pre>

The Firm has entered into digital asset mining swimming pools by executing contracts, as amended now and again, with the mining pool operators to supply computing energy to the mining pool. The contracts are terminable at any time by both get together, and the Firm's enforceable proper to compensation solely begins when the Firm supplies computing energy to the mining pool operator. In change for offering computing energy, the Firm is entitled to a fractional share of the mounted cryptocurrency award the mining pool operator receives (much less digital asset transaction charges to the mining pool operator that are recorded as a discount to cryptocurrency mining revenues), for efficiently including a block to the blockchain. The phrases of the settlement present that neither get together can dispute settlement phrases after thirty-five days following settlement. The Firm's fractional share relies on the proportion of computing energy the Firm contributed to the mining pool operator to the entire computing energy contributed by all mining pool individuals in fixing the present algorithm.

Offering cryptocurrency mining computing energy in digital asset transaction verification providers is an output of the Firm's peculiar actions. The provision of offering such computing energy is the one efficiency obligation within the Firm's contracts with mining pool operators. The transaction consideration the Firm receives, if any, is non-cash consideration, which the Firm measures at truthful worth on the date acquired, which isn't materially completely different than the truthful worth at contract inception or the time the Firm has earned the award from the swimming pools. The consideration is all variable. As a result of it just isn't possible {that a} important reversal of cumulative income won't happen, the consideration is constrained till the mining pool operator efficiently locations a block (by being the primary to resolve an algorithm) and the Firm receives affirmation of the consideration it should obtain, at which time income is acknowledged. There is no such thing as a important financing element in these transactions.

Truthful worth of the cryptocurrency award acquired is decided utilizing the quoted worth of the associated cryptocurrency on the time of receipt. There may be presently no particular definitive steerage below GAAP or various accounting framework for the accounting for cryptocurrencies acknowledged as income or held, and administration has exercised important judgment in figuring out the suitable accounting therapy. Within the occasion authoritative steerage is enacted by the FASB, the Firm could also be required to alter its insurance policies, which might have an impact on the Firm's consolidated monetary statements.

</pre>Mining Internet hosting<pre>

The Firm has entered into buyer internet hosting contracts whereby the Firm supplies electrical energy to cryptocurrency mining prospects, and the purchasers pay a acknowledged quantity per MWh ("Contract Capability"). This quantity is paid month-to-month prematurely. Quantities utilized in extra of the Contract Capability are billed primarily based upon calculated formulation as contained within the contracts. If any shortfalls happen to as a result of outages, make-whole fee provisions contained within the contracts are used to offset the billings to the client which prevented them from cryptocurrency mining. Superior funds and buyer deposits are recorded as contract liabilities within the consolidated steadiness sheets.

</pre>Inventory-Primarily based Compensation<pre> 69 --------------------------------------------------------------------------------</pre>For equity-classified awards, compensation expense is acknowledged over the requisite service interval primarily based on the computed truthful worth on the grant date of the award. Fairness-classified awards embody the issuance of inventory choices, restricted inventory items ("RSUs") and efficiency share items ("PSUs").Notes Payable<pre>

The Firm information notes payable web of any reductions or premiums. Reductions and premiums are amortized as curiosity expense or earnings over the lifetime of the be aware in such a method as to lead to a continuing charge of curiosity when utilized to the quantity excellent at the start of any given interval.

</pre>Warrants<pre>

Accounting for warrants consists of an preliminary evaluation of whether or not the warrants qualify as debt or fairness. For warrants that meet the definition of debt devices, the Firm information the warrant liabilities at truthful worth as of the steadiness sheet date and acknowledges modifications within the balances, over the comparative durations of both the issuance date or the final reporting date, as a part of modifications in truthful worth of warrant liabilities inside different earnings (expense). For warrants that meet the definition of fairness devices, the Firm information the warrants at truthful worth as of the measurement date inside stockholders' fairness (deficit).

Earnings Taxes

The Firm accounts for earnings taxes below the asset and legal responsibility methodology, in which deferred earnings tax property and liabilities are acknowledged for the long run tax penalties attributable to variations between the monetary assertion carrying quantities of present property and liabilities and their respective tax bases and for working loss and tax credit score carry forwards. Deferred earnings tax property and liabilities are measured utilizing enacted tax charges anticipated to use to taxable earnings within the years by which these short-term variations are anticipated to be recovered or settled. The impact of a change in tax charges on deferred earnings tax property and liabilities is acknowledged in operations within the interval that consists of the enactment date. A valuation allowance is required when it's "extra doubtless than not" that deferred earnings tax property won't be realized after contemplating all optimistic and destructive proof out there. Primarily based on the Firm's analysis and utility of ASC 740, Earnings Taxes ("ASC 740"), the Firm has decided that its deferred earnings tax property will not be "extra doubtless than not" to be realized, and due to this fact, as of December 31, 2022, the Firm has recorded a valuation allowance in opposition to the online deferred earnings tax property of the Firm. Components contributing to this evaluation included the Firm's cumulative and present losses, in addition to the analysis of different sources of earnings as outlined in ASC 740 and potential limitations imposed by Inside Income Code ("IRC") Part 382 on the utilization of tax losses.

The accounting for deferred earnings tax property and liabilities is commonly primarily based on assumptions which are topic to important judgment by administration. These assumptions are reviewed and adjusted as details and circumstances change. The Firm continues to judge the chance of the realizability of its deferred earnings tax property, and whereas the valuation allowance stays in place, the Firm expects to report no deferred earnings tax expense or profit. Materials modifications to the Firm's earnings tax accruals might happen sooner or later primarily based on the potential for earnings tax audits, modifications in laws or decision of pending issues.

</pre>Publish IPO Taxation and Public Firm Prices<pre>

Stronghold LLC is and has been organized as a pass-through entity for U.S. federal earnings tax functions and is due to this fact not topic to entity-level U.S. federal earnings taxes. Stronghold Inc. was integrated as a Delaware company on March 19, 2021, and due to this fact is topic to U.S. federal earnings taxes and state and native taxes on the prevailing company earnings tax charges, together with with respect to its allocable share of any taxable earnings of Stronghold LLC. In addition to tax bills, Stronghold Inc. additionally incurs bills associated to its operations, plus fee obligations below the Tax Receivable Settlement entered into between the Firm, Q Energy LLC ("Q Energy") and an agent named by Q Energy, dated April 1, 2021 (the "TRA"), that are anticipated to be important. Moreover, on March 14, 2023, we executed a joinder settlement with an further holder (along with Q Energy, the "TRA Holders") who thereby grew to become a celebration to the TRA. To the extent Stronghold LLC has out there money and topic to the phrases of any present or future debt devices, the Fifth Amended and Restated Restricted Legal responsibility Firm Settlement of Stronghold LLC, as amended from time to time (the "Stronghold LLC Settlement") requires Stronghold LLC to make money distributions to holders of Stronghold LLC Models ("Stronghold Unit Holders"), together with Stronghold Inc. and Q Energy, in an quantity enough to permit Stronghold Inc. to pay its taxes and to make funds below the TRA. In addition, the Stronghold LLC Settlement requires Stronghold LLC to make non-pro rata funds to Stronghold Inc. to reimburse it for its company and different overhead bills, which 70 --------------------------------------------------------------------------------</pre>funds will not be handled as distributions below the Stronghold LLC Settlement. See "Tax Receivable Settlement" herein for extra data.<pre>

As well as, we have now incurred, and anticipate to proceed to incur incremental, non-recurring prices associated to our transition to a publicly traded company, together with the prices of the IPO and the prices related to the preliminary implementation of our inner management evaluations and testing pursuant to Part 404 of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"). Now we have additionally incurred, and anticipate to proceed to incur further important and recurring bills as a publicly traded company, together with prices related to compliance below the Securities Change Act of 1934, as amended, (the "Change Act"), annual and quarterly experiences to frequent stockholders, registrar and switch agent charges, nationwide inventory change charges, audit charges, incremental director and officer legal responsibility insurance coverage prices and director and officer compensation. Our consolidated monetary statements following the IPO will proceed to replicate the affect of those bills.

</pre>Components Affecting Comparability of Our Future Outcomes of Operations to Our Historic Outcomes of OperationsOur historic monetary outcomes mentioned beneath might not be corresponding to our future monetary outcomes for the explanations described beneath.<pre>

Stronghold Inc. is topic to U.S. federal, state and native earnings taxes as a company. Our accounting predecessor was handled as a partnership for U.S. federal earnings tax functions, and as such, was usually not topic to U.S. federal earnings tax on the entity stage. Moderately, the tax legal responsibility with respect to its taxable earnings was handed by means of to its members. Accordingly, the monetary knowledge attributable to our predecessor incorporates no provision for U.S. federal earnings taxes or earnings taxes in any state or locality. Because of cumulative and present losses in addition to an analysis of different sources of earnings as outlined in ASC 740, administration has decided that the utilization of our deferred tax property just isn't extra doubtless than not, and due to this fact we have now recorded a valuation allowance in opposition to our web deferred tax property. Administration continues to judge the chance of the Firm using its deferred taxes, and whereas the valuation allowance stays in place, we anticipate to report no deferred earnings tax expense or profit. Ought to the valuation allowance now not be required, the 21% statutory federal earnings tax charge in addition to state and native earnings taxes at their respective charges will apply to earnings allotted to Stronghold Inc.

As we additional implement controls, processes and infrastructure relevant to corporations with publicly traded fairness securities, it's doubtless that we are going to incur further promoting, basic and administrative bills relative to historic durations. Our future outcomes will depend upon our skill to effectively handle our consolidated operations and execute our enterprise technique.

</pre>As we proceed to accumulate miners and make the most of our energy producing property to energy such miners, we anticipate {that a} higher proportion of our income and bills will relate to crypto asset mining.<pre>

As beforehand mentioned within the Important Accounting Insurance policies part, the preparation of economic statements in conformity with GAAP requires administration to make estimates and assumptions about future occasions that have an effect on the quantities reported within the consolidated monetary statements and accompanying notes. Future occasions and their results can't be decided with absolute certainty. Due to this fact, the willpower of estimates requires the train of judgment. Precise outcomes inevitably will differ from these estimates, and such variations could also be materials to the consolidated monetary statements. Probably the most important accounting estimates inherent within the preparation of our consolidated monetary statements embody estimates related to income recognition, property, plant and gear (together with the helpful lives and recoverability of long-lived property), intangible property, stock-based compensation, and earnings taxes. Our monetary place, outcomes of operations and money flows are impacted by the accounting insurance policies we have now adopted. In an effort to get a full understanding of our consolidated monetary statements, one will need to have a transparent understanding of the accounting insurance policies employed.

</pre>Outcomes of OperationsHighlights of our consolidated outcomes of operations for the twelve months ended December 31, 2022, in comparison with the twelve months ended December 31, 2021, embody:Working Income<pre>

Income elevated $75.1 million for the twelve months ended December 31, 2022, as in comparison with the identical interval in 2021, primarily as a result of a $46.3 million improve in cryptocurrency mining income from deploying further miners, and a $29.3 million improve in power income pushed by larger prevailing market charges per MW and better MW technology as a 71 --------------------------------------------------------------------------------

results of the November 2021 Panther Creek Acquisition. Capability income additionally elevated $1.2 million as a result of Panther Creek Acquisition. In 2022, we realized a profit of roughly $200,000 from a mix of incremental income and prevented disposal prices by way of gross sales of the useful use ash. Ash is an ancillary enterprise income stream that we anticipate to develop additional and notice a advantage of at the very least $1 million throughout 2023.

</pre>Working Bills<pre>

Complete working bills elevated $200.4 million for twelve months ended December 31, 20222, as in comparison with the identical interval in 2021, primarily pushed by (1) a $41.5 million improve in operations and upkeep expense pushed by main upkeep prices and labor on the Scrubgrass Plant related to rising plant uptime, larger prices because of the November 2021 Panther Creek Acquisition, and the ramp up of cryptocurrency mining operations together with larger lease bills for our internet hosting providers settlement, (2) a $40.7 million improve in impairment cost on miner property attributable to the decline within the worth of Bitcoin, (3) a $39.6 million improve in depreciation and amortization primarily from deploying further miners and transformers, (4) a $29.5 million improve typically and administrative bills as a result of authorized {and professional} charges, insurance coverage prices, and compensation as we proceed to arrange and scale operations, (5) a $15.6 million improve in gas bills pushed by larger MW technology and elevated gas supply prices from larger diesel costs, and a $17.3 million impairment on gear deposits for MinerVa miners mentioned in Word 4 - Tools Deposits And Miner Gross sales and Word 8 - Commitments And Contingencies. Impairments on digital currencies of $8.3 million had been primarily attributed to the June decline within the worth of Bitcoin. In March 2022 and December 2022, the Firm evaluated the MinerVa gear deposits for impairment and decided an impairment cost of $17.3 million primarily based on lack of miner supply per settlement and decline in truthful worth.

</pre>Different Earnings (Expense)<pre>

Complete different earnings (expense) decreased $42.7 million for the twelve months ended December 31, 2022, as in comparison with the identical interval in 2021, primarily pushed by (1) the strategic choice to promote roughly 26 thousand miners below an Asset Buy Settlement that resulted in a $40.5 million loss on debt extinguishment mentioned in Word 6 - Debt, (2) a $9.3 million improve in curiosity expense on further financing agreements used to fund the expansion of cryptocurrency operations, and (3) a $2.2 million lower within the truthful worth of the convertible be aware mentioned in Word 29 - Non-public Placements within the notes to our consolidated monetary statements. These decreases had been partially offset by a $5.4 million change in truthful worth of warrant liabilities and a $3.6 million improve from a change in worth of the ahead sale spinoff. See Word 6 - Debt and Word 13 - Warrants within the notes to our consolidated monetary statements for additional data on financing agreements. 72 --------------------------------------------------------------------------------</pre>Phase OutcomesThe beneath presents summarized outcomes for our operations for the 2 reporting segments: Power Operations and Cryptocurrency Operations.<pre> Twelve months ended December 31, 2022 2021 $ Change Working Revenues Power Operations $ 46,809,665 $ 16,123,067 $ 30,686,598 Cryptocurrency Operations 59,223,437 14,792,070 44,431,367 Complete Working Revenues $ 106,033,102 $ 30,915,137 $ 75,117,965

Internet Working Earnings/(Loss) Power Operations $ (38,992,034) $ (17,237,107) $ (21,754,927) Cryptocurrency Operations $ (108,274,121) (4,767,358) (103,506,763) Internet Working Earnings/(Loss) $ (147,266,155) $ (22,004,465) $ (125,261,690) Different Earnings, web (a) (47,905,812) (5,250,864) $ (42,654,948) Internet Loss $ (195,171,967) $ (27,255,329) $ (167,916,638)

Depreciation and Amortization Power Operations $ (5,189,071) $ (1,305,402) $ (3,883,669) Cryptocurrency Operations (42,046,273) (6,302,319) (35,743,954) Complete Depreciation & Amortization $ (47,235,344) $ (7,607,721) $ (39,627,623)

Curiosity Expense Power Operations $ (100,775) $ (80,866) $ (19,909) Cryptocurrency Operations (13,810,233) (4,541,789) (9,268,444) Complete Curiosity Expense $ (13,911,008) $ (4,622,655) $ (9,288,353)

(a)We don't allocate different earnings, web for phase reporting functions. Quantity is proven as a reconciling merchandise between web working earnings/(losses) and consolidated earnings earlier than taxes. Confer with our consolidated assertion of operations for the twelve months ended December 31, 2022, and 2021, for additional particulars. 73 --------------------------------------------------------------------------------</pre>Power Operations PhaseTwelve months ended December 31,<pre> 2022 2021 $ Change

OPERATING REVENUES Power $ 41,194,237 $ 11,870,817 $ 29,323,420 Capability $ 5,469,648 $ 4,238,921 $ 1,230,727 Different $ 145,780 $ 13,329 $ 132,451 Complete working revenues $ 46,809,665 $ 16,123,067 $ 30,686,598

OPERATING EXPENSES Gasoline - web of crypto phase subsidy1 $ 16,578,974 $ 10,626,393 $ 5,952,581 Operations and upkeep $ 45,416,970 $ 14,440,664 $ 30,976,306 Basic and administrative $ 1,399,071 $ 1,450,166 $ (51,095) Depreciation and amortization $ 5,189,071 $ 1,305,402 $ 3,883,669 Complete working bills $ 68,584,086 $ 27,822,625 $ 40,761,461 NET OPERATING LOSS EXCLUDING CORPORATE OVERHEAD $ (21,774,421) $ (11,699,558) $ (10,074,863) Company overhead $ 17,217,614 $ 5,537,550 $ 11,680,064 NET OPERATING LOSS $ (38,992,035) $ (17,237,108) $ (21,754,927)

INTEREST EXPENSE $ (100,775) $ (80,866) $ (19,909)

1 Cryptocurrency operations consumed $12.2 million and $2.5 million of electrical energy generated by the Power Operations phase for the twelve months ended December 31, 2022, and December 31, 2021, respectively. For phase reporting, this intercompany electrical cost is recorded as a contra-expense to offset gas prices inside the Power Operations phase.

</pre>Working Revenues<pre>

Complete working revenues elevated by $30.7 million for the twelve-month interval ended December 31, 2022, as in comparison with the identical interval in 2021, primarily due to a $29.3 million improve in power income pushed by larger prevailing market charges per MW and better MW technology. Capability income elevated $1.2 million ensuing from the November 2021 Panther Creek Acquisition.

Efficient June 1, 2022, by means of Might 31, 2024, each vegetation strategically diminished their publicity to the capability markets, and the ensuing cost-capping and operational necessities within the day forward market by PJM. The Firm selected to be an power useful resource after reaching its Regulation A certification, which is able to scale back month-to-month capability income and the frequency with which the vegetation shall be mandated to promote energy at non-market charges, in change for the chance to promote energy to the grid at prevailing market charges, which administration expects will greater than make up for misplaced capability income. This additionally provides our vegetation the skill to supply quick response power to the grid in the actual time market when wanted with out having to adjust to day forward energy commitments. Over the course of 2022, the PJM grid has seen stronger across the clock costs, and stronger each day "peak" costs suggesting tight provide and demand grid situations. When excessive energy costs name for extra electrical energy to be equipped by our vegetation, and people costs are in extra of Bitcoin-equivalent energy costs, the Firm might shut off its knowledge heart Bitcoin mining load in an effort to promote energy to the grid. The Firm believes that this integration ought to permit it to optimize for each Income in addition to grid help over time.

Full plant energy utilization is perfect for our income development because it additionally drives the next quantity of Tier II RECs, waste coal tax credit, and useful use ash gross sales, in addition to the elevated electrical energy provide for the crypto asset operations.

</pre>Working Bills<pre>

Working bills elevated $40.8 million for the twelve months ended December 31, 2022, as in comparison with the identical interval in 2021, primarily as a result of incremental operations and gas bills related to working the Panther Creek Plant after its November 2021 acquisition. Operations and upkeep expense elevated $31.0 million primarily pushed by payroll, main upkeep and improve expenditures. Gasoline bills elevated $6.0 million primarily as a result of larger MW technology ensuing from the November 2021 Panther Creek Acquisition and elevated gas supply prices from 74 --------------------------------------------------------------------------------

larger diesel costs, partially offset by larger prices being allotted to the Cryptocurrency Phase as a result of larger electrical consumption for bitcoin mining operations, and higher REC gross sales. REC gross sales of $10.0 million and $1.7 million had been acknowledged as contra-expense to offset gas bills for the twelve months ended December 31, 2022, and December 31, 2021, respectively. Depreciation and amortization expense elevated $3.9 million primarily as a result of Panther Creek Acquisition.

Company overhead elevated $11.7 million primarily as a result of larger authorized and skilled charges, administrators' and officers' legal responsibility insurance coverage, and payroll bills, which have been allotted to the 2 segments utilizing a "fair-share" of revenues strategy, the place the income for the phase is split by the entire mixed revenues of the segments and is then multiplied by the shared basic and administrative prices for the mixed segments.

</pre>Cryptocurrency Operations Phase<pre>

Twelve </pre>months ended December 31,<pre> 2022 2021 $ Change

OPERATING REVENUES Cryptocurrency mining $ 58,763,565 $ 12,494,581 $ 46,268,984 Cryptocurrency internet hosting 459,872 2,297,489 (1,837,617) Complete working revenues $ 59,223,437 $ </pre>14,792,070 $ 44,431,367<pre>

OPERATING EXPENSES Electrical energy - bought from power phase 12,201,136 2,516,683 9,684,453 Operations and upkeep 11,613,219 1,052,100 10,561,119 Basic and administrative 692,074 2,181,018 (1,488,944) Impairments on digital currencies 8,339,660 1,870,274 6,469,386 Impairments on gear deposits 17,348,742 - 17,348,742 Impairments on miner property 40,683,112 - 40,683,112 Realized acquire on sale of digital currencies (1,102,220) - (1,102,220) Loss on disposal of mounted property 2,511,262 - 2,511,262 Realized loss on sale of miner property 8,012,248 - 8,012,248 Depreciation and amortization 42,046,273 6,302,319 35,743,954 Complete working bills $ 142,345,506 $ 13,922,394 $ 128,423,112 NET OPERATING LOSS EXCLUDING CORPORATE OVERHEAD (83,122,069) 869,676 (83,991,745) Company Overhead 25,152,051 5,786,892 19,365,159 NET OPERATING INCOME/(LOSS) $ (108,274,120) $ (4,917,216) $ (103,356,904)

INTEREST EXPENSE $ (13,810,233) $ (4,541,789) $ (9,268,444)

Working Revenues

Complete working revenues elevated by $44.4 million for the twelve months ended December 31, 2022, as in comparison with the identical interval in 2021, primarily as a result of elevated cryptocurrency mining income because of buying and deploying further miners all through 2021 and 2022. The elevated amount of miners elevated whole hash charges and Bitcoin awards. Cryptocurrency internet hosting income decreased by $1.8 million as a result of strategic termination of a number of agreements of generated energy gross sales to crypto asset mining prospects for which we had been offering internet hosting providers.

</pre>Working Bills<pre>

Working bills elevated by $128.4 million for the twelve months ended December 31, 2022, as in comparison with the identical interval in 2021, primarily as a result of (1) a $40.7 million impairment on miner property, (2) a $35.7 million improve in depreciation and amortization ensuing from the deployment of miners and infrastructure property, (3) a $17.3 million impairment on gear deposits for MinerVa miners, (4) a $10.6 million improve in Operations and upkeep due to $4.5 million of lease expense and settlement bills from the Northern Knowledge Internet hosting Settlement mentioned in Word 27 - Internet hosting Providers Settlement, and elevated miner upkeep and components prices, (5) a $9.7 million improve in intercompany 75 --------------------------------------------------------------------------------

electrical costs associated to the ramp up of cryptocurrency mining operations, (6) a $8.0 million Realized loss on sale of miner property as mentioned in Word 4 - Tools Deposits And Miner Gross sales within the notes to our consolidated monetary statements, and (7) a $6.5 million improve in Impairments on digital currencies primarily associated to the June 2022 lower in Bitcoin pricing.

Company overhead elevated by $19.4 million primarily as a result of larger authorized and skilled charges, administrators' and officers' legal responsibility insurance coverage, and payroll bills, which have been allotted to the 2 segments utilizing a "fair-share" of revenues strategy, the place the income for the phase is split by the entire mixed revenues of the segments and is then multiplied by the shared basic and administrative prices for the mixed segments.

</pre>Impairments on digital currencies<pre>

The crypto spot market is unstable and might have a destructive affect on the mark-to-market of our digital currencies as of the ending steadiness sheet reporting date. Because of this, a $8.3 million impairment cost was acknowledged as a results of the destructive impacts from the crypto coin spot market declines in opposition to the held crypto coin inventories not but transformed to money. As of December 31, 2022, the Firm held on its steadiness sheet roughly 6 Bitcoin and the spot market worth of Bitcoin was $16,548 per Yahoo Finance.

</pre>Curiosity Expense<pre>

Curiosity expense elevated $9.3 million for the twelve months ended December 31, 2022, as in comparison with the identical interval in 2021, primarily as a result of excellent borrowings from our WhiteHawk promissory notes throughout 2022, attracts in opposition to the Arctos/NYDIG Financing Agreements throughout, and accrued curiosity from the Might 2022 Non-public Placement.

</pre>Liquidity and Capital SourcesOverview<pre>

Stronghold Inc. is a holding firm with no operations and is the only real managing member of Stronghold LLC. Our principal asset consists of items of Stronghold LLC. Our earnings and money flows and talent to satisfy any debt obligations will depend upon the money flows ensuing from the operations of our working subsidiaries, and the fee of distributions to us by such subsidiaries.

Our money wants are primarily for development by means of acquisitions, capital expenditures, working capital to help gear financing and the acquisition of further miners and basic working bills. Now we have incurred and will proceed to incur important bills in servicing and sustaining our energy technology services. If we had been to accumulate further services within the future, capital expenditures might embody enhancements, upkeep, and construct out prices related to equipping such services to deal with miners to mine Bitcoin.

Now we have traditionally relied on funds from fairness issuances, gear financings, and income from gross sales of Bitcoin and energy generated at our energy vegetation to supply for our liquidity wants. Throughout 2021 and the primary quarter of 2022, we acquired $63.2 million (web of mortgage charges and debt issuance prices) in proceeds from the financing agreements with WhiteHawk and NYDIG, web proceeds of $131.5 million from the IPO, web proceeds of $96.8 million from two personal placements of convertible most popular securities, and a further $25.0 million from WhiteHawk because of the Second WhiteHawk Modification. Moreover, on Might 15, 2022, we acquired $33.8 million (web of mortgage charges and debt issuance prices) pursuant to the Might 2022 Non-public Placement, and on September 13, 2022, we acquired roughly $9.0 million pursuant to the September PIPE. Please see "-Current Developments - WhiteHawk Refinancing Settlement" for extra data relating to our Credit score Settlement with WhiteHawk. Please see "-Debt Agreements - Tools Financing Transactions" for extra data relating to our financing preparations. These money sources supplied further brief and long-term liquidity to help our operations in fiscal yr 2021 and 2022.

As of December 31, 2022, and March 28, 2023, we had roughly $13.4 million and $8.8 million, respectively, of money, money equivalents and Bitcoin on our steadiness sheet, which included 6 Bitcoin and 39 Bitcoin, respectively.

If our money flows from operations proceed to fall in need of makes use of of capital, we might have to hunt further sources of capital to fund our short-term and long-term capital wants. We might additional promote property or search potential further debt or fairness financing to fund our short-term and long-term wants. Additional, the phrases of the Credit score Settlement and September 2022 Non-public Placement comprise sure restrictions, together with upkeep of sure monetary and liquidity 76 --------------------------------------------------------------------------------

ratios and minimums, and sure restrictions on future issuances of fairness and debt. If we're unable to lift further capital, there's a threat that we might default on our obligations and might be required to discontinue or considerably scale back the scope of our operations, together with by means of the sale of our property, if no different technique of financing choices can be found.

Operations haven't but established a constant report of overlaying our working bills and we incurred a web lack of $195.2 million for the twelve months ended December 31, 2022, and an amassed deficit of $240.4 million as of December 31, 2022. We skilled quite a lot of beforehand disclosed setbacks and surprising challenges, together with a longer-than-expected and persevering with delay of the MinerVa miners and longer than anticipated downtime at our Scrubgrass Plant for upkeep, the Panther Creek Plant's mining operations shutdown in April 2022 and the outages of our mining operations as a result of larger than anticipated necessities from PJM. On account of the delay in supply of the MinerVa miners, we had been vulnerable to defaulting on our obligations below the WhiteHawk debt facility as a result of these miners had been to be supplied as collateral to WhiteHawk by April 30, 2022. Pursuant to the Second WhiteHawk Modification, the MinerVa miners had been exchanged for collateral for extra miners acquired by the Firm. Because of the delay, we decided an impairment cost totaling $12.2 million that was acknowledged on March 31, 2022. We spent roughly $5.1 million in fiscal yr 2021 on upkeep and restore prices on the Scrubgrass Plant, and a further $7 million in 2022 on main repairs and upgrades, primarily throughout the deliberate upkeep outage that occurred starting in September 2022.

Taking into consideration the Bitmain sale, different miner gross sales, September PIPE, NYDIG Debt extinguishment, the Foundry Internet hosting Settlement and transactions subsequent to December 31, 2022, which embody the WhiteHawk Credit score Settlement Modification and the Change Settlement, we consider our liquidity place, mixed with anticipated enhancements in working money flows, shall be enough to satisfy our present commitments and fund our operations for the following twelve months.

</pre>Money FlowsEvaluation of Money Move Adjustments Between the Twelve Months Ended December 31, 2022, and 2021The next desk summarizes our money flows for the durations indicated:<pre>

Twelve </pre>Months Ended December 31,<pre> 2022 2021 Change (in 1000's) Internet money supplied by (utilized in) working actions $ (27,154.5) $ </pre> (5,080.4) $ (22,074.2) Internet money supplied by (utilized in) investing actions $ (71,578.4) $ (257,602.8)<pre> 186,024.4 </pre>Internet money supplied by (utilized in) financing actions $ 80,239.5 $<pre> 294,170.1 (213,930.6) Internet change in money $ (18,493.4) $ 31,486.9 $ (49,980.3)

</pre>Working Actions<pre>

Internet money utilized in working actions was $27.2 million for the twelve months ended December 31, 2022, in comparison with $5.1 million of web money utilized in working actions for the twelve months ended December 31, 2021. The $22.1 million web lower in money from working actions was primarily pushed by (1) a 2021 money profit from a rise in accounts payable, (2) larger money outflows in 2022 for will increase in operations and upkeep bills associated to main repairs and upgrades to the vegetation, and (3) will increase typically and administrative bills from larger authorized {and professional} charges, insurance coverage prices, and compensation as we proceed to arrange and scale operations. Curiosity expense elevated for a similar interval pushed by incremental borrowings mentioned in Word 6 - Debt within the notes to our consolidated monetary statements. These will increase in money paid had been partially offset by larger proceeds from the sale of digital currencies and better power income after the acquisition of the Panther Creek Plant.

</pre>Investing Actions<pre>

Internet money utilized in investing actions was $71.6 million for the twelve months ended December 31, 2022, in comparison with $257.6 million utilized in investing actions for the twelve months ended December 31, 2021. The $186.0 million lower in web money utilized in investing actions was primarily attributable to decrease outflows for gear deposits and the acquisition of property, plant and gear for the continued ramp up of cryptocurrency mining operations. These investments require important deposits to be made with gear distributors as commitments for future deliveries of miners and cryptocurrency mining infrastructure. Money outflows had been partially offset by the sale of a few of our unproductive, extra or not-in-use property. See Word 4 - Tools Deposits And Miner Gross sales. 77 --------------------------------------------------------------------------------</pre>Financing Actions<pre>

Internet money supplied by financing actions was $80.2 million for the twelve months ended December 31, 2022, in comparison with $294.2 million supplied by financing actions for the twelve months ended December 31, 2021. The numerous lower of $213.9 million in money supplied by financing actions was primarily as a result of 2021 receipt of $131.5 million in proceeds from the preliminary public providing (web of transaction charges) and decrease proceeds from personal placements in 2022 as in comparison with the $96.8 million (web of transaction charges) from our personal placement fairness raises of Collection A Inventory and Collection B Inventory. These decreases had been partially offset by larger proceeds from debt, web of issuance prices, partially offset by money outflows for funds on debt. See the IPO, promissory be aware, gear financing agreements and convertible be aware mentioned in Word 26 - Preliminary Public Providing, Word 6 - Debt and Word 13 - Warrants and Word 29 - Non-public Placements.

</pre>Debt AgreementsNow we have entered into varied debt agreements used to buy gear to function our enterprise.<pre>

We entered into the WhiteHawk Financing Settlement on June 30, 2021, and amended the settlement on December 31, 2021, and March 28, 2022. On October 27, 2022, we entered into the Credit score Settlement with WhiteHawk to refinance the WhiteHawk Financing Settlement, successfully terminating the WhiteHawk Financing Settlement. The Credit score Settlement consists of $35.1 million in time period loans and a $23.0 Delayed Draw Facility. Such loans below the Delayed Draw Facility had been drawn on the time limit of the Credit score Settlement. As of December 31, 2022, the quantity owed below the debt agreements totaled $56.1 million. For added data, see Word 6 - Debt within the notes to our consolidated monetary statements.

4 attracts in opposition to the Arctos/NYDIG Financing Settlement totaled $37.3 million secured by our gear contract commitments for future miner deliveries. The quantity owed below the debt agreements was cancelled pursuant to the phrases of the Asset Buy Settlement in October 2022. For added data, see Word 6 - Debt within the notes to our consolidated monetary statements.

Three attracts in opposition to the Second NYDIG Financing Settlement totaled $54.0 million secured by our gear contract commitments for future miner deliveries. The quantity owed below the debt agreements was cancelled pursuant to the phrases of the Asset Buy Settlement in October 2022. For added data, see Word 6 - Debt within the notes to our consolidated monetary statements.

</pre>Complete web obligations below all debt agreements as of December 31, 2022, had been $74.4 million (excluding financed insurance coverage premiums).Amended Might 2022 Notes<pre>

On Might 15, 2022, we issued $33.75 million combination principal quantity of Might 2022 Notes to the Purchasers (the "Might 2022 Notes"), bearing an rate of interest of 10.00% every year (in arrears) and a maturity date of Might 15, 2024. On August 16, 2022, we entered into an settlement with the Purchasers, whereby we agreed to amend the phrases of the Might 2022 Notes such that an combination of $11.25 million of the excellent principal below the Might 2022 Notes was exchanged for the amended and restated warrant settlement pursuant to which the strike worth of the combination 6,318,000 Might 2022 Warrants was diminished from $2.50 to $0.01. After giving impact to the principal discount below the as amended Might 2022 Notes, subsequent funds had been as a result of Purchasers on the fifteenth (fifteenth) day of every of November 2022, December 2022, January 2023, and February 2023. We usually had the choice to make every such fee (A) in money or (B) in shares of frequent inventory, at a twenty % (20%) low cost to the common of the each day VWAPs for every of the twenty (20) consecutive buying and selling days previous the fee date. Quantities due below the Might 2022 Notes had been subsequently terminated in change for shares of the Collection C Most well-liked Inventory. See "-Current Developments - Change Transaction" for extra data.

</pre>Tools Buy and Financing TransactionsMinerVa Semiconductor Corp<pre>

On April 2, 2021, the Firm entered into a purchase order settlement (the "MinerVa Buy Settlement") with MinerVa for the acquisition of 15,000 of their MV7 ASIC SHA256 mannequin cryptocurrency miner gear (miners) with a complete terahash to be delivered equal to 1.5 million terahash (whole terahash). The worth per miner was $4,892.50 for an combination buy worth of $73,387,500 to be paid in installments. The primary installment equal to 60% of the acquisition worth, or 78 --------------------------------------------------------------------------------

$44,032,500, was paid on April 2, 2021, and a further fee of 20% of the buy worth, or $14,677,500, was paid June 2, 2021. As of December 31, 2022, there aren't any remaining deposits owed.

In December 2021, the Firm prolonged the deadline for supply of the MinerVa miners to April 2022. In March 2022, MinerVa was once more unable to satisfy its supply date and has solely delivered roughly 3,200 of the 15,000 miners. Because of this, an impairment totaling $12,228,742 was recorded within the first quarter of 2022. Moreover, within the fourth quarter of 2022, the distinction between the truthful worth of the MinerVa gear deposits and the carrying worth resulted within the Firm recording a further impairment cost of $5,120,000.

As of December 31, 2022, MinerVa had delivered, refunded money, or swapped into deliveries of industry-leading miners of equal worth to roughly 10,700 of the 15,000 miners. The combination buy worth doesn't embody transport prices, that are the accountability of the Firm and shall be decided at which era the miners are prepared for cargo. Whereas the Firm continues to have interaction in discussions with MinerVa on the supply of the remaining miners, it doesn't know when the remaining miners shall be delivered, if in any respect. On July 18, 2022, the Firm supplied written discover of dispute to MinerVa pursuant to the MinerVa Buy Settlement obligating the Firm and MinerVa to work collectively in good religion in the direction of a decision for a interval of sixty (60) days. In accordance with the MinerVa Buy Settlement, if no settlement has been reached after sixty (60) days, Stronghold might finish discussions and declare an deadlock and cling to the dispute decision provisions of the MinerVa Buy Settlement. Because the 60-day interval has now expired, the Firm is evaluating all out there treatments below the MinerVa Buy Settlement.

</pre>WhiteHawk Refinancing Settlement<pre>

On October 27, 2022, the Firm entered right into a secured credit score settlement (the "Credit score Settlement") with WhiteHawk to refinance the WhiteHawk Financing Settlement, successfully terminating the WhiteHawk Financing Settlement. The Credit score Settlement consists of $35.1 million in time period loans and $23.0 million in further commitments (such further commitments, the "Delayed Draw Facility"). Such loans below the Delayed Draw Facility had been drawn on the closing date of the Credit score Settlement.

The financing pursuant to the Credit score Settlement (such financing, the "WhiteHawk Refinancing Settlement") was entered into by Stronghold LLC as Borrower (the "Borrower") and is secured by considerably all the property of the Firm and its subsidiaries and is assured by the Firm and every of its materials subsidiaries. The WhiteHawk Refinancing Settlement requires equal month-to-month amortization funds leading to full amortization at maturity. The WhiteHawk Refinancing Settlement has customary representations, warranties and covenants together with restrictions on indebtedness, liens, restricted funds and dividends, investments, asset gross sales and comparable covenants and incorporates customary occasions of default. The WhiteHawk Refinancing Settlement incorporates a covenant requiring the Borrower and its subsidiaries to take care of a minimal (x) of $7.5 million of liquidity always, (y) a minimal liquidity of $10 million of common each day liquidity for every calendar month (rising to $20 million starting July 01, 2023) and (z) a most whole leverage ratio covenant of (i) 7.5:1.0 for the quarter ending December 31, 2022, (ii) 5.0:1.0 for the quarter ending March 31, 2023, (iii) 4.0:1.0 for the quarter ending June 30, 2023, and (iv) 4.0:1.0 for every quarter ending thereafter.

The borrowings below the WhiteHawk Refinancing Settlement mature on October 26, 2025, and bear curiosity at a charge of both (i) the Secured In a single day Financing Price ("SOFR") plus 10% or (ii) a reference charge equal to the higher of (x) 3%, (y) the federal funds charge plus 0.5% and (y) the Time period SOFR charge plus 1%, plus 9%. The mortgage below the Delayed Draw Facility was issued with a 3% closing payment on the drawn quantity, paid when such quantity was drawn on the time limit of the Credit score Settlement. Quantities drawn on the WhiteHawk Refinancing Settlement are topic to a prepayment premium such that the lenders thereunder obtain a 20% return on invested capital. The Firm additionally issued a inventory buy warrant to WhiteHawk at the side of the closing of the WhiteHawk Refinancing Settlement, which supplies for the acquisition of a further 4,000,000 shares of Class A typical inventory at an train worth of $0.01 per share. Borrowings below the WhiteHawk Refinancing Settlement can also be accelerated in sure circumstances.

the minimal liquidity covenant, modified to require minimal liquidity at any time to be not lower than: (A) till March 31, 2024, $2,500,000; (B) throughout the interval starting April 1, 2024, by means of and together with December 31, 2024, $5,000,000; and (C) from and after January 1, 2025, $7,500,000. The Firm was in compliance with all relevant covenants below the WhiteHawk Refinancing Settlement as of December 31, 2022.

</pre>Convertible Word Change<pre>

On December 30, 2022, the Firm entered into an change settlement with the holders (the "Holders") of the Firm's Amended and Restated 10% Notes (the "Notes"), offering for the change of the Notes (the "Change Transaction") for shares of the Firm's newly-created Collection C Convertible Most well-liked Inventory, par worth $0.0001 per share (the "Collection C Most well-liked Inventory"). On February 20, 2023, the Change Transaction was consummated, and the Notes had been paid in full. Roughly $16.9 million of principal quantity of debt was extinguished in change for the issuances of the shares of Collection C Most well-liked Inventory.

</pre>Tax Receivable Settlement<pre>

The TRA usually supplies for the fee by Stronghold Inc. to the TRA Holders of 85% of the online money financial savings, if any, in U.S. federal, state and native earnings tax and franchise tax (computed utilizing the estimated affect of state and native taxes) that Stronghold Inc. really realizes (or is deemed to comprehend in sure circumstances) because of (i) sure will increase in tax foundation that happen because of Stronghold Inc.'s acquisition (or deemed acquisition for U.S. federal earnings tax functions) of all or a portion of such holder's Stronghold LLC Models pursuant to an train of Redemption Proper or the Name Proper and (ii) imputed curiosity deemed to be paid by Stronghold Inc. because of this of, and extra tax foundation arising from, any funds Stronghold Inc. makes below the TRA. Stronghold Inc. will retain the remaining web money financial savings, if any. The TRA usually supplies for funds to be made as Stronghold Inc. realizes precise money tax financial savings from the tax advantages lined by the TRA. Nevertheless, the TRA supplies that if Stronghold Inc. elects to terminate the TRA early (or it's terminated early as a result of Stronghold Inc.'s failure to honor a materials obligation thereunder or as a result of sure mergers, asset gross sales, different types of enterprise mixtures or different modifications of management), Stronghold Inc. is required to make a direct fee equal to the current worth of the long run funds it could be required to make if it realized deemed tax financial savings pursuant to the TRA (decided by making use of a reduction charge equal to one-year LIBOR (or an agreed successor charge, if relevant) plus 100 foundation factors, and utilizing quite a few assumptions to find out deemed tax financial savings), and such early termination fee is predicted to be substantial and will exceed the long run tax advantages realized by Stronghold Inc.

The precise timing and quantity of any funds that could be made below the TRA are unknown at the moment and can differ primarily based on quite a lot of components. Nevertheless, Stronghold Inc. expects that the funds that it will likely be required to make to the TRA Holders (or their permitted assignees) in reference to the TRA will be substantial. Any funds made by Stronghold Inc. to the TRA Holders (or their permitted assignees) below the TRA will usually scale back the quantity of money which may have in any other case been out there to Stronghold Inc. or Stronghold LLC. To the extent Stronghold LLC has out there money and topic to the phrases of any present or future debt or different agreements, the Stronghold LLC Settlement would require Stronghold LLC to make money distributions to holders of Stronghold LLC Models, together with Stronghold Inc., in an quantity enough to permit Stronghold Inc. and Q Energy to pay its taxes and to make funds below the TRA. Stronghold Inc. usually expects Stronghold LLC to fund such distributions out of obtainable money. Nevertheless, besides in circumstances the place Stronghold Inc. elects to terminate the TRA early, the TRA is terminated early as a result of sure mergers or different modifications of management or Stronghold Inc. has out there money however fails to make funds when due, usually Stronghold Inc. might defer funds due below the TRA if it doesn't have out there money to fulfill its fee obligations below the TRA or if its contractual obligations restrict its skill to make these funds. Any such deferred funds below the TRA usually will accrue curiosity on the charge supplied for within the TRA, and such curiosity might considerably exceed Stronghold Inc.'s different prices of capital. If Stronghold Inc. experiences a change of management (as outlined below the TRA, which incorporates sure mergers, asset gross sales and different types of enterprise mixtures), and in sure different circumstances, funds below the TRA could also be accelerated and/or considerably exceed the precise advantages, if any, Stronghold Inc. realizes in respect of the tax attributes topic to the TRA. Within the case of such an acceleration in reference to a change of management, the place relevant, Stronghold Inc. usually expects the accelerated funds due below the TRA to be funded out of the proceeds of the change of management transaction giving rise to such acceleration, which might have a major affect on our skill to consummate a change of management or scale back the proceeds acquired by our stockholders in reference to a change of management. Nevertheless, Stronghold Inc. could also be required to fund such fee from different sources, and because of this, any early termination of the TRA might have a considerable destructive affect on our liquidity or monetary situation. 80 --------------------------------------------------------------------------------</pre>Current Accounting Pronouncements<pre>

For data with respect to latest accounting pronouncements, see Word 2 - Nature Of Operations And Important Accounting Insurance policies within the notes to our consolidated monetary statements.

</pre>Off Steadiness Sheet PreparationsNow we have no materials off steadiness sheet preparations.Merchandise 7A. Quantitative and Qualitative Disclosures About Market DangerNot relevant.Merchandise 8. Monetary Statements and Supplementary Knowledge<pre> Web page Report of Impartial Registered Public Accounting Agency (PCAOB ID 1013) 81

Consolidated Steadiness Sheets 83

Consolidated Assertion s of Operations 84

Consolidated Assertion s of Stockholders' Fairness (Deficit) 85

Consolidated Statements of Money Flows 87

Notes to Consolidated Monetary Statements 88

</pre>Administration's Report on Monetary Statements and Practices<pre>

The accompanying consolidated monetary statements of the Firm had been ready by Administration, which is liable for their integrity and objectivity. The statements had been ready in accordance with U.S. usually accepted accounting ideas and embody quantities which are primarily based on Administration's greatest judgments and estimates. The opposite monetary data included within the 10-Okay is constant with that within the consolidated monetary statements.

Administration additionally acknowledges its accountability for conducting the Firm's affairs in keeping with the very best requirements of non-public and company conduct. This accountability is characterised and mirrored in key coverage statements issued now and again relating to, amongst different issues, conduct of its enterprise actions inside the legal guidelines of host international locations by which the Firm operates and doubtlessly conflicting exterior enterprise pursuits of its staff. The Firm maintains a scientific program to evaluate compliance with these insurance policies.

</pre>Report of Impartial Registered Public Accounting Agency<pre>

Shareholders and Board of Administrators Stronghold Digital Mining, Inc. New York, New York

</pre>Opinion on the Consolidated Monetary Statements<pre>

Now we have audited the accompanying consolidated steadiness sheets of Stronghold Digital Mining, Inc. and subsidiaries (the "Firm" and successor to Scrubgrass Producing Firm, L.P. and Stronghold Digital Mining, LLC) as of December 31, 2022, and 2021, the associated consolidated statements of operations, stockholders' fairness (deficit), and money flows for the years then ended, and the associated notes (collectively known as the "consolidated monetary statements"). In our opinion, the consolidated monetary statements current pretty, in all materials respects, the monetary place of the Firm at December 31, 2022, and 2021, and the outcomes of its operations and its money flows for the years then ended, in conformity with accounting ideas usually accepted in the USA of America.

Foundation for Opinion

These consolidated monetary statements are the accountability of the Firm's administration. Our accountability is to specific an opinion on the Firm's consolidated monetary statements primarily based on our audits. We're a public accounting agency registered with the Public Firm Accounting Oversight Board (United States) ("PCAOB") and are required to be 81 --------------------------------------------------------------------------------</pre>impartial with respect to the Firm in accordance with the U.S. federal securities legal guidelines and the relevant guidelines and rules of the Securities and Change Fee and the PCAOB.<pre>

We performed our audits in accordance with the requirements of the PCAOB. These requirements require that we plan and carry out the audit to acquire cheap assurance about whether or not the consolidated monetary statements are freed from materials misstatement, whether or not as a result of error or fraud. The Firm just isn't required to have, nor had been we engaged to carry out, an audit of its inner management over monetary reporting. As a part of our audits we're required to get hold of an understanding of inner management over monetary reporting however not for the aim of expressing an opinion on the effectiveness of the Firm's inner management over monetary reporting. Accordingly, we categorical no such opinion.

Our audits included performing procedures to evaluate the dangers of fabric misstatement of the consolidated monetary statements, whether or not as a result of error or fraud, and performing procedures that reply to these dangers. Such procedures included analyzing, on a take a look at foundation, proof relating to the quantities and disclosures within the consolidated monetary statements. Our audits additionally included evaluating the accounting ideas used and important estimates made by administration, in addition to evaluating the general presentation of the consolidated monetary statements. We consider that our audits present an affordable foundation for our opinion.

</pre>Now we have served because the Firm's auditor since 2021.<pre>

/s/ Urish Popeck & Co., LLC Pittsburgh, PA March 31, 2023 82 --------------------------------------------------------------------------------

STRONGHOLD DIGITAL MINING, INC. CONSOLIDATED BALANCE SHEETS

December 31, 2022 December 31, 2021

ASSETS: Money and money equivalents $ 13,296,703 $ 31,790,115 Digital currencies 109,827 7,718,221 Digital currencies, restricted - 2,699,644 Accounts receivable 10,837,126 2,111,855 Due from associated events 73,122 - Pay as you go insurance coverage 4,877,935 6,301,701 Stock 4,471,657 3,372,254 Different present property 1,975,300 661,640 Complete present property 35,641,670 54,655,430 Tools deposits 10,081,307 130,999,398 Property, plant and gear, web 167,204,681 166,657,155 Land 1,748,440 1,748,440 Highway bond 211,958 211,958 Working lease right-of-use property 1,719,037 - Safety deposits 348,888 348,888 TOTAL ASSETS $ 216,955,981 $ 354,621,269 LIABILITIES: Present portion of long-term debt, web of reductions and issuance charges 17,422,546 45,799,651 Present portion of working lease liabilities 593,063 - Financed insurance coverage premiums 4,587,935 4,299,721 Ahead sale contract - 7,116,488 Accounts payable 27,540,317 28,650,659 Because of associated events 1,375,049 1,430,660 Accrued liabilities 8,893,248 5,053,957 Complete present liabilities 60,412,158 92,351,136 Asset retirement obligation 1,023,524 973,948 Contract liabilities 351,490 187,835 Lengthy-term working lease liabilities 1,230,001 - Paycheck Safety Program Mortgage - 841,670 Warrant liabilities 2,131,959 - Lengthy-term debt, web of reductions and issuance charges 57,027,118 18,378,841 Complete liabilities 122,176,250 112,733,430 COMMITMENTS AND CONTINGENCIES (NOTE 8) REDEEMABLE COMMON STOCK: Frequent Inventory - Class V; $0.0001 par worth; 34,560,000 shares licensed and 26,057,600 and 27,057,600 shares issued and excellent as of December 31, 2022, and 2021, respectively. 11,754,587 301,052,617 Complete redeemable frequent inventory 11,754,587 301,052,617 </pre>STOCKHOLDERS' EQUITY (DEFICIT): Noncontrolling Collection A redeemable and convertible most popular inventory; $0.0001 par worth; $5,000,000 combination liquidation worth; 0 and 1,152,000 shares issued and excellent as of December 31, 2022, and 2021, respectively.<pre> - 37,670,161 </pre>Frequent Inventory - Class A; $0.0001 par worth; 685,440,000 shares licensed; 31,710,217 and 20,016,067 shares issued and excellent as of December 31, 2022, and 2021, respectively.<pre> 3,171 2,002 Gathered deficits (240,443,302) (338,709,688) Extra paid-in capital 323,465,275 241,872,747 Complete stockholders' fairness (deficit) 83,025,144 (59,164,778) </pre>Complete redeemable frequent inventory and stockholders' fairness (deficit) 94,779,731<pre> 241,887,839 </pre>TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)<pre> $ </pre>216,955,981 $ 354,621,269 The accompanying notes are an integral a part of these consolidated monetary<pre> statements. 83 --------------------------------------------------------------------------------

STRONGHOLD DIGITAL MINING, INC. CONSOLIDATED STATEMENTS OF OPERATIONS

For the years ended December 31, 2022 December 31, 2021

OPERATING REVENUES: Cryptocurrency mining $ 58,763,565 $ 12,494,581 Power 41,194,237 11,870,817 Capability 5,469,648 4,238,921 Cryptocurrency internet hosting 459,872 2,297,489 Different 145,780 13,329 Complete working revenues 106,033,102 30,915,137 OPERATING EXPENSES: Gasoline 28,780,110 13,143,076 Operations and upkeep 57,030,189 15,492,763 Basic and administrative 44,460,810 14,955,626 Impairments on digital currencies 8,339,660 1,870,274 Impairments on gear deposits 17,348,742 - Impairments on miner property 40,683,112 - Realized acquire on sale of digital currencies (1,102,220) (149,858) Loss on disposal of mounted property 2,511,262 - Realized loss on sale of miner property 8,012,248 - Depreciation and amortization 47,235,344 7,607,721 Complete working bills 253,299,257 52,919,602 NET OPERATING LOSS (147,266,155) (22,004,465) OTHER INCOME (EXPENSE): Curiosity expense (13,911,008) (4,622,655) Loss on debt extinguishment (40,517,707) - Achieve on extinguishment of PPP mortgage 841,670 638,800 Adjustments in truthful worth of warrant liabilities 4,226,171 (1,143,809) Realized acquire on sale of spinoff contract 90,953 - Adjustments in truthful worth of ahead sale spinoff 3,435,639 (116,488) Adjustments in truthful worth of convertible be aware (2,167,500) - Different 95,970 (6,712) Complete different earnings (expense) (47,905,812) (5,250,864) NET LOSS $ (195,171,967) $ (27,255,329) NET LOSS attributable to predecessor (1/1/21-3/31/21) - (238,948) NET LOSS attributable to noncontrolling curiosity (105,910,737) (15,803,234) NET LOSS attributable to Stronghold Digital Mining, Inc $ </pre> (89,261,230) $ (11,213,147) NET LOSS attributable to Class A typical shareholders(1) Fundamental<pre> $ (3.45) $ (2.03) Diluted $ (3.45) $ (2.03) Weighted common variety of Class A typical shares excellent(1) Fundamental 25,849,048 5,518,752 Diluted 25,849,048 5,518,752

(1) Fundamental and diluted web loss per share of Class A typical inventory is introduced just for the interval after the Firm's Reorganization Transactions. See Word 1 - Enterprise Mixtures for an outline of the Reorganization Transactions. See Word 16 - Earnings (Loss) Per Share for the calculation of web loss per share.

</pre> The accompanying notes are an integral a part of these consolidated monetary<pre> statements. 84 --------------------------------------------------------------------------------</pre><pre> STRONGHOLD DIGITAL MINING, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

Yr ended December 31, 2021 Noncontrolling Redeemable Most well-liked Frequent A Extra Restricted Basic Collection A Gathered Paid-in Stockholders' Companions Companions Shares Quantity Shares Quantity Deficit Capital Fairness (Deficit) Steadiness - January 1, 2021 $ (1,336,784) $ (2,710,323) - $ - - $ - $ - $ - $ (4,047,107) Internet loss attributable to legacy companions (71,687) (167,261) - - - - - - </pre> (238,948)<pre> Steadiness previous to the reorganization on April 1, 2021 (1,408,471) (2,877,584) - - - - - - (4,286,055) Impact of reorganizations Opco formation and contributions - 2,877,584 - - - - - - </pre> 2,877,584<pre> Aspen Scrubgrass Participant, LLC ("Olympus") contribution 1,408,471 - - - - - (1,408,471) - - Buyout of Aspen Curiosity - - - - - (7,000,000) 4,999,942 (2,000,058) Transformed to Class A typical shares - - - - 576,000 58 - - 58 Change of frequent items for Class A frequent shares - - - - 14,400 1 - - 1 Frequent inventory issued as a part of debt financing - - - - 126,273 12 - 1,389,887 </pre> 1,389,899<pre> Warrants issued as a part of debt financing - - - - - - - 1,999,396 </pre> 1,999,396<pre> Conversion of Collection A convertible redeemable most popular items to frequent inventory - - - - 9,792,000 979 - 77,823,388 </pre> 77,824,369<pre> Conversion of Collection B convertible redeemable most popular items to frequent inventory - - - - 1,816,994 182 - 18,182,739 </pre> 18,182,921<pre> Most redemption proper valuation [Common V Units] - - - - - - (303,930,195) - </pre> (303,930,195)<pre> Issuance of Collection A convertible redeemable most popular items - - 1,152,000 38,315,520 - - - - </pre> 38,315,520<pre> Internet losses for the 9 months ended December 31, 2021 - - - - - - (11,213,147) - (11,213,147) Internet losses attributable to noncontrolling curiosity - - - (645,359) - - (15,157,875) - (15,803,234) Internet proceeds from preliminary public providing, web of providing prices - - - - 7,690,400 769 - 131,537,789 </pre> 131,538,558<pre> Warrants issued and excellent - - - - - - - 1,924,281 1,924,281 Inventory-based compensation - - - - - - - 4,015,324 4,015,324 Steadiness - December 31, 2021 $ - $ - 1,152,000 $ 37,670,161 20,016,067 $ 2,002 $ (338,709,688) $ 241,872,747 $ (59,164,778)

85</pre><pre>--------------------------------------------------------------------------------</pre><pre> Yr ended December 31, 2022 Noncontrolling Redeemable Most well-liked Frequent A Extra Stockholders' Collection A Gathered Paid-in Fairness Shares Quantity Shares Quantity Deficit Capital (Deficit) Steadiness - January 1, 2022 1,152,000 $ 37,670,161 20,016,067 $ 2,002 $ </pre>(338,709,688) $ 241,872,747 $ (59,164,778) Internet loss attributable to Stronghold Digital Mining, Inc.<pre> - - - - (89,261,230) - (89,261,230) Internet loss attributable to noncontrolling curiosity - (4,140,324) - - (101,770,413) - (105,910,737) Most redemption proper valuation [Common V Units] - - - - 289,298,029 - 289,298,029 Vesting of restricted inventory items - - 241,067 24 - (24) - Issuance of frequent inventory - September PIPE - - 2,876,759 288 - 2,241,022 2,241,310 Warrants issued and excellent - - - - - 26,894,078 26,894,078 McClymonds arbitration award - paid by Q Energy - - - - - 5,038,122 5,038,122 Inventory-based compensation - - - - - 13,890,350 13,890,350 Exercised warrants - - 6,424,324 642 - (642) - Redemption of Collection A convertible most popular shares (1,152,000) (33,529,837) 1,152,000 115 - 33,529,722 - Redemption of Class V shares - - 1,000,000 100 (100) - Steadiness - December 31, 2022 - $ - 31,710,217 $ 3,171 $ (240,443,302) $ 323,465,275 $ 83,025,144

</pre> The accompanying notes are an integral a part of these consolidated monetary<pre> statements. 86 --------------------------------------------------------------------------------</pre><pre> STRONGHOLD DIGITAL MINING, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31, 2022 December 31, 2021

CASH FLOWS FROM OPERATING ACTIVITIES: Internet loss $ (195,171,967) $ (27,255,329) Changes to reconcile web loss to money flows from working actions: Depreciation and amortization 47,235,344 7,607,721 Accretion of asset retirement obligation 49,576 - Achieve on extinguishment of PPP mortgage (841,670) (638,800) Realized acquire on sale of derivatives (90,953) - Loss on disposal of mounted property 2,511,262 - Write-off of unhealthy money owed - 244,924 Realized loss on sale of miner property 8,012,248 - Amortization of debt issuance prices 2,935,795 1,404,732 Inventory-based compensation 13,890,350 4,015,324 Loss on debt extinguishment 40,517,707 - Impairments on gear deposits 17,348,742 - Impairments on miner property 40,683,112 - Adjustments in truthful worth of warrant liabilities (4,226,171) 1,143,809 Adjustments in truthful worth of ahead sale spinoff (3,435,639) 116,488 Ahead sale contract prepayment 970,000 - Adjustments in truthful worth of convertible be aware 2,167,500 - Different 2,217,458 - (Enhance) lower in digital currencies: Mining income (58,763,565) (12,494,581) Internet proceeds from gross sales of digital currencies 56,172,048 434,529 Impairments on digital currencies 8,339,660 1,870,274 (Enhance) lower in property: Accounts receivable (8,725,271) (1,176,239) Pay as you go insurance coverage 6,908,215 588,808 Due from associated events (5,671) 302,973 Stock (1,099,402) (1,417,689) Different property (603,963) (2,619,911) Enhance (lower) in liabilities: Accounts payable (3,093,265) 17,395,556 Because of associated events (55,611) 268,182 Accrued liabilities (180,943) 4,981,013 Different liabilities, together with contract liabilities (819,461) 147,835 NET CASH FLOWS USED IN OPERATING ACTIVITIES (27,154,535) (5,080,381) CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Panther Creek, web of money acquired - (3,914,362) Buy of land - (21,439) Buy of reclamation bond - (26,712) Proceeds from sale of kit deposits 13,013,974 - Purchases of property, plant and gear (70,935,935) (122,640,861) Tools buy deposits - web of future commitments (13,656,428) (130,999,398) NET CASH FLOWS USED IN INVESTING ACTIVITIES (71,578,389) (257,602,772) CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of debt (76,119,454) (16,283,900) Repayments of financed insurance coverage premiums (4,598,592) (2,590,788) Proceeds from debt, web of issuance prices paid in money 152,358,118 - Proceeds from promissory be aware - 39,100,000 Proceeds from gear financing settlement - 41,435,466 Proceeds from gear financed - 517,465 Proceeds from PPP mortgage - 841,670 </pre>Proceeds from personal placements, web of issuance prices paid in money<pre> 8,599,440 96,786,629 Preliminary Public Providing proceeds, web of charges - 131,537,789 Repayments of EIDL mortgage - (150,000) Repayments of related-party debt - (2,024,250) Buyout of Aspen Curiosity - (2,000,000) Ahead sale contract prepayment - 7,000,000 NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 80,239,512 294,170,081 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (18,493,412) 31,486,928 CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 31,790,115 303,187 CASH AND CASH EQUIVALENTS - END OF PERIOD $ </pre>13,296,703 $ 31,790,115 The accompanying notes are an integral a part of these consolidated monetary<pre> statements. 87 --------------------------------------------------------------------------------

STRONGHOLD DIGITAL MINING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</pre>NOTE 1 - BUSINESS COMBINATIONSReorganizationStronghold Digital Mining, Inc. ("Stronghold Inc." or the "Firm") was integrated as a Delaware company on March 19, 2021. On April 1, 2021, contemporaneously with the Collection A Non-public Placement (as outlined beneath), Stronghold Inc. underwent a company reorganization pursuant to a Grasp Transaction Settlement, which shall be referred to herein because the "Reorganization."<pre>

Instantly previous to the Reorganization, Q Energy LLC ("Q Energy") immediately held all the fairness pursuits in Stronghold Digital Mining LLC ("SDM"), and not directly held 70% of the restricted associate pursuits, and all the basic associate pursuits, in Scrubgrass Reclamation Firm, L.P. (f/okay/a Scrubgrass Producing Firm, L.P.) ("Scrubgrass LP"), by means of wholly-owned subsidiaries EIF Scrubgrass LLC ("EIF Scrubgrass"), Falcon Energy LLC ("Falcon") and Scrubgrass Energy LLC. Aspen Scrubgrass Participant, LLC ("Aspen") held the remaining 30% of the restricted associate pursuits in Scrubgrass LP (the "Aspen Curiosity"). Scrubgrass LP is a Delaware restricted partnership initially fashioned on December 1, 1990, below the identify of Scrubgrass Producing Firm, L.P. SDM is a Delaware restricted legal responsibility firm initially fashioned on February 12, 2020, below the identify Stronghold Energy LLC ("Stronghold Energy").

On April 1, 2021, Stronghold Inc. entered right into a Collection A Most well-liked Inventory Buy Settlement pursuant to which Stronghold Inc. issued and bought 9,792,000 shares of Collection A Convertible Redeemable Most well-liked Inventory (the "Collection A Most well-liked Inventory") in a non-public providing (the "Collection A Non-public Placement"), at a worth of $8.68 per share, to numerous accredited people in reliance upon exemptions from registration pursuant to Part 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act"), and Regulation D thereunder for combination consideration of roughly $85.0 million. In reference to the Collection A Non-public Placement, the Firm incurred roughly $6.3 million in charges and $631,897 as debt issuance prices for warrants issued as a part of the Collection A Non-public Placement.

Contemporaneously with the Reorganization, Stronghold Inc. acquired the Aspen Curiosity utilizing 576,000 shares of newly issued Collection A Most well-liked Inventory and $2,000,000 from a portion of the proceeds from the Collection A Non-public Placement. The acquisition of the Aspen Curiosity was for a complete consideration of $7,000,000 that consisted of the $2,000,000 in money plus a valuation of $5,000,000 for the 576,000 shares of the Collection A Most well-liked Inventory on the issuance per share worth of $8.68 and are categorised as everlasting fairness and never topic to necessary redemptions as outlined in Stronghold Inc.'s certificates of incorporation, as amended (the "Constitution"). Pursuant to the Reorganization, Q Energy contributed all of its possession pursuits in EIF Scrubgrass, Falcon and SDM to Stronghold Digital Mining Holdings LLC ("Stronghold LLC") in change for 27,072,000 Class A typical items of Stronghold LLC ("Stronghold LLC Models"). Stronghold Inc. contributed money (utilizing the remaining proceeds from the Collection A Non-public Placement, web of charges, bills and quantities paid to Aspen), 27,072,000 shares of Class V frequent inventory of Stronghold Inc. and the Aspen Curiosity to Stronghold LLC in change for 10,368,000 most popular items of Stronghold LLC, and Stronghold LLC instantly thereafter distributed the 27,072,000 shares of Class V frequent inventory to Q Energy. As well as, efficient as of April 1, 2021, Stronghold Inc. acquired 14,400 Stronghold LLC Models held by Q Energy (together with an equal variety of shares of Class V frequent inventory) in change for 14,400 newly issued shares of Class A typical inventory.

On account of the Reorganization, the acquisition of the Aspen Curiosity and the acquisition of Stronghold LLC Models by Stronghold Inc. mentioned above, (a) Q Energy acquired and retained 27,057,600 Stronghold LLC Models, 14,400 shares of Class A typical inventory of Stronghold Inc. and 27,057,600 shares of Class V frequent inventory of Stronghold Inc., successfully giving Q Energy roughly 69% of the voting energy of Stronghold Inc. and roughly 69% of the financial curiosity in Stronghold LLC, (b) Stronghold Inc. acquired 10,368,000 most popular items of Stronghold LLC and 14,400 Stronghold LLC Models, successfully giving Stronghold Inc. roughly 31% of the financial curiosity in Stronghold LLC, (c) Stronghold Inc. grew to become the only real managing member of Stronghold LLC and is liable for all operational, administration and administrative selections regarding Stronghold LLC's enterprise and consolidates monetary outcomes of Stronghold LLC and its subsidiaries, (d) Stronghold Inc. grew to become a holding firm whose solely materials asset consists of membership pursuits in Stronghold LLC, and (e) Stronghold LLC immediately or not directly owns all the excellent fairness pursuits within the subsidiaries by means of which the Firm operates its property, together with Scrubgrass LP and SDM.

</pre>On Might 14, 2021, the Firm accomplished a non-public placement of shares of the Firm's Collection B Convertible Redeemable Most well-liked Inventory of Stronghold Inc. (the "Collection B Most well-liked Inventory," and, along with the Collection A Most well-liked<pre> 88 --------------------------------------------------------------------------------

Inventory, the "Most well-liked Inventory") (the "Collection B Non-public Placement," and, collectively with the Collection A Non-public Placement, the "Non-public Placements"). The phrases of the Collection B Most well-liked Inventory are considerably just like the Collection A Most well-liked Inventory, apart from variations within the acknowledged worth of such shares within the occasion of any voluntary or involuntary liquidation, dissolution or winding up of the Firm or sure deemed liquidation occasions. In reference to the Collection B Non-public Placement, the Firm bought 1,817,035 shares of its Collection B Most well-liked Inventory for an combination buy worth of $20.0 million. The Firm additionally incurred roughly $1.6 million in charges and bills and $148,575 as debt issuance prices for warrants issued as a part of the Collection B Non-public Placement.

Pursuant to the phrases of the Most well-liked Inventory, on (i) the date {that a} registration assertion registering the shares of Class A typical inventory issuable upon the conversion of the Most well-liked Inventory is said efficient by the U.S. Securities and Change Fee (the "SEC") or (ii) the date on which a "Important Transaction Occasion" happens, as outlined within the Firm's second amended and restated certificates of incorporation, such shares of Most well-liked Inventory will robotically convert into shares of Class A typical inventory of Stronghold Inc. on a one-to-one foundation, topic to sure changes as set forth within the Constitution. Correspondingly, pursuant to the Second Amended and Restated Restricted Legal responsibility Firm Settlement of Stronghold LLC, as amended from time to time (the "Stronghold LLC Settlement"), most popular items in Stronghold LLC robotically convert into Stronghold LLC Models on a one-to-one foundation below like circumstances (topic to corresponding changes). On October 19, 2021, the registration assertion registering the shares of Class A typical inventory issuable upon conversion of the Most well-liked Inventory was declared efficient by the SEC, and all the excellent shares of Most well-liked Inventory transformed into shares of Class A typical inventory at the moment. Correspondingly, all the most popular items in Stronghold LLC transformed into Stronghold LLC Models.

On June 29, 2021, Stronghold LLC fashioned Stronghold Digital Mining Tools, LLC ("Tools LLC"). On October 27, 2021, Stronghold Digital Mining Working, LLC ("Working LLC") fashioned Stronghold Digital Mining BT, LLC ("Digital Mining BT"). On December 10, 2021, Working LLC fashioned Stronghold Digital Mining TH, LLC ("TH LLC").

Previous to the Reorganization

Previous to the Reorganization on April 1, 2021, Scrubgrass Producing Firm, L.P. ("Scrubgrass") existed as a Delaware restricted partnership fashioned on December 1, 1990. Q Energy LLC existed as a multi-member restricted legal responsibility firm and not directly held restricted and basic associate pursuits of Scrubgrass. Moreover, Aspen, a wholly-owned subsidiary of Olympus Energy, LLC (collectively with its associates "Olympus"), was a restricted associate of Scrubgrass.

Scrubgrass had two subsidiaries: (1) Clearfield Properties, Inc. ("Clearfield"), which was fashioned for the aim of buying a 175-acre web site in Clearfield County, Pennsylvania, and buying entry to sure coal materials; and (2) Leesburg Properties, Inc. ("Leesburg"), which was fashioned for the aim of buying entry rights to sure waste coal websites. Leesburg was a dormant entity as of December 31, 2022, and 2021.

Pursuant to an fairness Project and Assumption settlement dated September 24, 2020, Q Energy assigned a 50%-member curiosity to a second particular person. As a outcome, two people had been the only real members of Q Energy. Stronghold Energy was established on February 12, 2020, as a Delaware restricted legal responsibility firm and is 100% owned by Q Energy. Stronghold Energy was created to pursue alternatives involving cryptocurrency mining in addition to offering internet hosting providers for third-party miners.

</pre>Scrubgrass and Stronghold Energy had been below frequent management previous to the Reorganization on April 1, 2021, and consolidated monetary statements reported as of December 31, 2020, and are included within the consolidated statements of operations for the years ended December 31, 2022, and 2021.NOTE 2 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES<pre>

In most situations, Stronghold Inc. and its subsidiaries will collectively be known as the "Firm" if a dialogue applies to all. The place it might not apply to all, then every firm, described as itself, shall be particularly famous.

</pre>Nature of Operations<pre>

The Firm operates as a qualifying cogeneration facility ("Facility") below the provisions of the Public Utilities Regulatory Insurance policies Act of 1978 and sells its electrical energy into the PJM Interconnection Service provider Market ("PJM") below an Skilled Providers Settlement ("PSA") with Custom-made Power Options, Ltd. ("CES"), efficient July 27, 2022. Below the PSA, CES agreed to behave because the unique supplier of providers for the advantage of the Firm associated to interfacing with PJM, together with dealing with each day advertising, power scheduling, telemetry, capability administration, reporting and different associated providers for our Panther Creek and Scrubgrass Vegetation. The time period of the settlement is 2 years, and then 89 --------------------------------------------------------------------------------

will prolong robotically on an annual foundation until terminated by both get together with 60 days written (or digital) discover previous to time period finish. For these providers, CES costs every plant a variety of $500 to $5,500/month per service, relying on the service. The Firm's major gas supply is waste coal which is supplied by varied third events. Waste coal tax credit are earned by the Firm by producing electrical energy using coal refuse.

The Firm can be a vertically-integrated digital forex mining enterprise. The Firm buys and maintains a fleet of digital or cryptocurrency mining gear and the required infrastructure, supplies energy to 3rd get together digital forex miners below favorable Energy Buy Settlement ("PPA") agreements, and sells power as a service provider energy producer and receives capability funds from PJM for making its power out there to the grid. The digital forex mining operations are of their early levels, and digital currencies and power pricing mining economics are unstable and topic to uncertainty. The Firm's present technique will proceed to reveal it to the quite a few dangers and volatility related to the digital mining and energy technology sectors, together with fluctuating Bitcoin-to-U.S.-Greenback costs, the prices and availability of miners, the variety of market individuals mining Bitcoin, the provision of different energy technology services to develop operations, and regulatory modifications.

</pre>Foundation of Presentation<pre>

The consolidated monetary statements have been ready in accordance with present accounting ideas usually accepted in the USA of America ("GAAP"), below the foundations and rules of the U.S. Securities and Change Fee (the "SEC"). As well as, sure reclassifications of quantities beforehand reported have been made to the accompanying consolidated monetary statements in an effort to conform to present presentation. Moreover, since there aren't any variations between web earnings (loss) and complete earnings (loss), all references to complete earnings (loss) have been excluded from the consolidated monetary statements.

</pre>Use of Estimates<pre>

The preparation of economic statements in conformity with GAAP requires administration to make estimates and assumptions that have an effect on the reported quantities of property and liabilities, disclosure of contingent liabilities as of the date of the monetary statements, and the reported quantities of revenues and bills throughout the reporting interval. Precise outcomes might differ from these estimates.

</pre>Money and Money Equivalents<pre>

Money and money equivalents include short-term, highly-liquid investments with unique maturities of three months or much less. The Firm maintains its money in non-interest bearing accounts which are insured by the Federal Deposit Insurance coverage Company as much as $250,000. The Firm's deposits might, now and again, exceed the $250,000 restrict; nevertheless, administration believes that there is no such thing as a uncommon threat current, because the Firm locations its money with monetary establishments that administration considers to be of top of the range.

</pre>As of December 31, 2022, money and money equivalents consists of $900,000 of restricted money, which represents a steady bond rather than $400,000 to mitigate charges charged by customs brokerage corporations related to importing miners and a $500,000 letter of credit score required to finance the Firm's director and officer insurance coverage coverage.Digital Currencies<pre>

Digital currencies are included within the consolidated steadiness sheets as present property and are thought-about an intangible asset with an indefinite helpful life. Digital currencies are recorded at value much less any impairment. At the moment, Bitcoin is the one cryptocurrency the Firm mines or holds in materials quantities.

Cryptocurrencies held are accounted for as intangible property with indefinite helpful lives. An intangible asset with an indefinite helpful life just isn't amortized however assessed for impairment yearly, or extra often, when occasions or modifications in circumstances happen indicating that it's extra doubtless than not that the indefinite-lived asset is impaired. Impairment exists when the carrying quantity exceeds its truthful worth, which is measured utilizing the quoted worth of the cryptocurrency on the time its truthful worth is being measured. In testing for impairment, the Firm has the choice to first carry out a qualitative evaluation to find out whether or not it's extra doubtless than not that an impairment exists. If it is decided that it's not extra doubtless than not that an impairment exists, a quantitative impairment take a look at just isn't needed. Nevertheless, usually, the Firm's qualitative evaluation signifies impairment when the quoted worth of the cryptocurrency subsequently falls beneath its carrying quantity, and the Firm is required to carry out a quantitative impairment take a look at. To the extent an impairment loss is acknowledged, the loss establishes the brand new value foundation of the asset. Subsequent reversal of impairment losses just isn't permitted. The Firm carried out an impairment take a look at on its digital currencies as of December 31, 2022, and 2021, 90 --------------------------------------------------------------------------------</pre>and acknowledged impairments losses of $8,339,660 and $1,870,274 for the years ended December 31, 2022, and 2021, respectively.The next desk presents the actions of the digital currencies for the years ended December 31, 2022, and 2021:<pre>

December 31, 2022 December 31, 2021

Digital currencies at starting of yr $ 10,417,865 $ 228,087 Additions of digital currencies 58,763,565 12,494,581 Realized acquire on sale of digital currencies 1,102,220 149,858 Impairment losses (8,339,660) (1,870,274) Proceeds from sale of digital currencies (57,274,268) (584,387) Collateral bought to shut spinoff (Word 25) (4,559,895) - Digital currencies at finish of yr $ </pre>109,827 $ 10,417,865As of December 31, 2021, the Firm held an combination quantity of digital currencies of $10,417,865 that was comprised of restricted and unrestricted Bitcoin. Of that quantity, $2,699,644 and $7,718,221 was restricted and unrestricted, respectively.Accounts Receivable<pre>

Accounts receivable are acknowledged on the quantity administration expects to gather from balances excellent at interval finish. An allowance for uncertain accounts is supplied when needed and relies upon administration's analysis of excellent accounts receivable at interval finish. The potential threat is restricted to the quantity recorded within the consolidated monetary statements. For the years ended December 31, 2022, and 2021, excellent buyer balances totaling $0 and $244,924, respectively, had been thought-about not collectable and written off to unhealthy debt expense. No additional allowance for uncertain accounts was thought-about needed as of December 31, 2022, and 2021.

</pre>Stock<pre>

Waste coal, gas oil and limestone are valued on the decrease of common value or web realizable worth and consists of all associated transportation and dealing with prices. The Firm performs periodic assessments to find out the existence of out of date, slow-moving and unusable stock and information needed provisions to scale back such inventories to web realizable worth.

</pre>Spinoff Contracts<pre>

In accordance with steerage on accounting for spinoff devices and hedging actions, all derivatives must be acknowledged at truthful worth. Derivatives or any portion thereof, that aren't designated as, and efficient as, hedges should be adjusted to truthful worth by means of earnings. Spinoff contracts are categorised as both property or liabilities on the consolidated steadiness sheets. Sure contracts that require bodily supply might qualify for and be designated as regular purchases and regular gross sales. Such contracts are accounted for on an accrual foundation.

The Firm makes use of spinoff devices to mitigate its publicity to numerous power commodity market dangers. The Firm doesn't enter into any spinoff contracts or comparable preparations for speculative or buying and selling functions. The Firm will, at instances, promote its ahead unhedged electrical energy capability to stabilize its future working margins. As of December 31, 2022, and 2021, there had been no open power commodity derivatives excellent.

The Firm additionally makes use of spinoff devices to mitigate the dangers of Bitcoin market pricing volatility. The Firm entered right into a variable pay as you go ahead sale contract that mitigated Bitcoin market pricing volatility dangers between a high and low collar of Bitcoin market costs throughout the contract time period. This contract settled in September 2022. The contract met the definition of a spinoff transaction pursuant to steerage below ASC 815, Derivatives and Hedging, and was thought-about a compound spinoff instrument which was required to be introduced at truthful worth topic to remeasurement every reporting interval. The modifications in truthful worth had been recorded as modifications in truthful worth of ahead sale spinoff within the consolidated statements of operations. Confer with Word 25 - Variable Pay as you go Ahead Gross sales Contract Spinoff. As of December 31, 2022, there have been no spinoff contracts open. 91 --------------------------------------------------------------------------------</pre>Truthful Worth Measurements<pre>

The Firm's depreciation relies on its Facility being thought-about a single property unit. Sure parts of the Facility might require alternative or overhaul a number of instances over its estimated life. Prices related to overhauls are recorded as an expense within the interval incurred. Nevertheless, in situations the place a alternative of a Facility element is important and the Firm can fairly estimate the unique value of the element being changed, the Firm will write-off the changed element and capitalize the price of the alternative. The element shall be depreciated over the lesser of the EUL of the element or the remaining EUL of the Facility.

</pre>Bitcoin Mining Rigs<pre>

1.The complexity of the transaction verification course of which is pushed by the algorithms contained inside the Bitcoin open supply software program; 2.The final availability of applicable pc processing capability on a world foundation (generally referred to within the {industry} as hash charge capability); and 3.Technological obsolescence reflecting speedy growth within the transaction verification server {industry} such that extra lately developed {hardware} is extra economically environment friendly to run when it comes to digital property generated as a operate of working prices, primarily energy prices (i.e., the velocity of {hardware} evolution within the {industry} is such that 92 --------------------------------------------------------------------------------</pre>later {hardware} fashions usually have quicker processing capability mixed with decrease working prices and a decrease value of buy).<pre>

To the extent that any of the assumptions underlying administration's estimate of helpful life for its transaction verification servers are topic to revision in a future reporting interval, both because of modifications in circumstances or by means of the provision of higher portions of information, the estimated helpful life might change and have a potential affect on depreciation expense and the carrying quantities of those property.

</pre>Asset Retirement Obligations<pre>

Asset retirement obligations, together with these conditioned on future occasions, are recorded at truthful worth within the interval by which they're incurred, if an affordable estimate of truthful worth will be made. The related asset retirement prices are capitalized as a part of the carrying quantity of the associated long-lived asset in the identical interval. In every subsequent interval, the legal responsibility is accreted to its current worth, and the capitalized value is depreciated over the EUL of the long-lived asset. If the asset retirement obligation is settled for apart from the carrying quantity of the legal responsibility, the Firm acknowledges a acquire or loss on settlement. The Firm's asset retirement obligation represents the associated fee the Firm would incur to carry out environmental clean-up or dismantle sure parts of the Facility.

</pre>Proper-of-Use Property<pre>

A right-of-use ("ROU") asset represents the best to make use of an underlying asset for the time period of the lease, and the corresponding legal responsibility represents an obligation to make periodic funds arising from the lease. A willpower of whether or not an association features a lease is made on the inception of the association. ROU property and liabilities are acknowledged on the consolidated steadiness sheets, on the graduation date of the lease, in an quantity equal to the current worth of the lease funds over the time period of the lease calculated utilizing the rate of interest implicit within the lease association or, if not recognized, the Firm's incremental borrowing charge. The current worth of a ROU asset additionally consists of any lease funds made previous to graduation of the lease and excludes any lease incentives acquired or to be acquired below the association. The lease time period consists of choices to increase or terminate the lease when it's fairly sure that such choices shall be exercised. Working leases which have unique phrases of lower than 12 months, inclusive of choices to increase which are fairly sure to be exercised, are categorised as short-term leases and will not be acknowledged on the consolidated steadiness sheet.

ROU property are recorded as noncurrent property on the consolidated steadiness sheets. The corresponding liabilities are recorded as an working lease legal responsibility, both present or noncurrent, as relevant, on the consolidated steadiness sheets. Working lease prices are acknowledged on a straight-line foundation over the lease time period inside operations and upkeep or basic and administrative bills primarily based on using the associated ROU asset.

</pre>Income Recognition<pre>

In an effort to determine the efficiency obligations in a contract with a buyer, an organization should assess the promised items or providers within the contract and determine every promised good or service that's distinct. Per ASC 606, a efficiency obligation meets the definition of a "distinct" good or service (or bundle of products or providers) if each of the next standards are met: (1) the buyer can profit from the great or service both by itself or along with different assets which are available to the client (i.e., the great or service is able to being distinct); and (2) the entity's promise 93 --------------------------------------------------------------------------------</pre>to switch the great or service to the client is individually identifiable from different guarantees within the contract (i.e., the promise to switch the great or service is distinct inside the context of the contract).<pre>

If an excellent or service just isn't distinct, the great or service is mixed with different promised items or providers till a bundle of products or providers is recognized that's distinct.

</pre>When figuring out the transaction worth, an entity should take into account the results of all the following:<pre>

</pre>Reactive power energy is supplied to take care of a steady voltage stage. Income from reactive energy is acknowledged ratably over time because the Firm stands prepared to supply it if referred to as upon by the PJM RTO.<pre> 94 --------------------------------------------------------------------------------</pre>Capability Income<pre>

</pre>Bitcoin Mining<pre>

</pre>Mining Internet hosting<pre>

</pre>Waste Coal Tax Credit<pre>

Waste coal tax credit are issued by the Commonwealth of Pennsylvania. Amenities that generate electrical energy through the use of coal refuse for energy technology, management acid gases for emission management and use the ash produced to reclaim mining-affected websites are eligible for such credit. Proceeds associated to those credit are recorded upon money receipt and accounted for as a discount to gas prices inside working bills. For the years ended December 31, 2022, and 2021, waste coal tax credit diminished gas bills within the consolidated statements of operations by $1,836,823 and $53,443, respectively. 95 --------------------------------------------------------------------------------</pre>Renewable Power Credit ("RECs")<pre>

The Firm makes use of coal refuse, which is assessed as a Tier II Various Power Supply below Pennsylvania regulation, to supply power to promote to the open market ("the grid"). A 3rd get together acts because the benefactor, on behalf of the Firm, within the open market and is invoiced as RECs are realized. These credit are acknowledged as a contra-expense inside working bills to offset the gas prices incurred to supply this refuse.

Beginning late in 2021, and for the yr ended December 31, 2022, the Firm considerably elevated using coal refuse because the plant elevated megawatt capability. The plant was comparatively dormant throughout the comparative yr ended December 31, 2021. Because of this, the Firm's utilization of coal refuse considerably elevated. RECs offset in opposition to the prices of gas working prices had been $9,960,655 and $1,736,071 for the years ended December 31, 2022, and 2021, respectively.

</pre>Waste Ash Gross sales<pre>

The Firm sells fly ash and scrubber materials collected, that are by-products from its coal refuse reclamation used as gas. The Firm realized waste ash gross sales of $51,453 and $0 for the years ended December 31, 2022, and 2021, respectively, which has been recorded as different working revenues within the consolidated statements of operations.

</pre>Inventory-Primarily based CompensationFor equity-classified awards, compensation expense is acknowledged over the requisite service interval primarily based on the computed truthful worth on the grant date of the award. Fairness-classified awards embody the issuance of inventory choices, restricted inventory items ("RSUs") and efficiency share items ("PSUs").Notes Payable<pre>

</pre>Warrants<pre>

Phase Data

Working segments are outlined as parts of an enterprise for which separate monetary data is evaluated commonly by the chief working choice maker ("CODM"). The function of the CODM is to make selections about allocating assets and assessing efficiency. The Firm's operations are primarily based on its Power Operations and Cryptocurrency Operations and, due to this fact, the Firm has concluded that its enterprise operates in two working segments. The CODM evaluations monetary data introduced on every of those two working segments for functions of allocating assets and evaluating monetary efficiency. The Firm's chief government officer has been recognized as its CODM. The Firm's two working segments are additionally its reportable segments: Power Operations and Cryptocurrency Operations.

Frequent Inventory - Class V

The Firm accounts for the 45.1% curiosity represented by the Class V frequent inventory exterior of everlasting fairness because of sure redemption rights held by the holders which are exterior the management of the Firm. As such, the Firm adjusts the Frequent Inventory - Class V to its most redemption quantity on the steadiness sheet date, if larger than the carrying quantity. The redemption quantity is primarily based on a third-party valuation methodology of the Firm's Class A typical inventory on the finish of the reporting interval. Adjustments within the redemption worth are acknowledged instantly as they happen, as if the tip of the reporting interval was additionally the redemption date for the instrument, with an offsetting entry to amassed deficit.

For every share of Class V frequent inventory excellent, there's a corresponding excellent Class A typical unit of Stronghold LLC. The redemption of any share of Class V frequent inventory could be accompanied by a concurrent 96 --------------------------------------------------------------------------------

redemption of the corresponding Class A typical unit of Stronghold LLC, such that each the share of Class V frequent inventory and the corresponding Class A typical unit of Stronghold LLC are redeemed as a mixed unit in change for both a single share of Class A typical inventory or money of equal worth primarily based on the truthful worth of the Class A typical inventory on the time of the redemption. For accounting functions, the worth of the Class A typical items of Stronghold LLC is attributed to the corresponding shares of Class V frequent inventory on the consolidated steadiness sheet as of December 31, 2022.

</pre>Internet Earnings (Loss) Per Share<pre>

Fundamental earnings (loss) per share of frequent inventory ("EPS") is computed by dividing web earnings (loss) by the weighted common variety of Class A shares of frequent inventory excellent or shares topic to train for a nominal worth throughout the interval. Diluted EPS displays the potential dilution that would happen if securities, or different contracts to problem frequent inventory, had been exercised or transformed into frequent inventory or resulted within the issuance of frequent inventory that then shared within the earnings of the entity. For the reason that Firm incurred a web loss for the years ended December 31, 2022, and 2021, primary and diluted web loss per share are the identical for the years then ended.

</pre>Earnings TaxesReorganization<pre>

Upon completion of the Reorganization, the Firm is organized as an "Up-C" construction by which considerably all the property and enterprise of the consolidated Firm are held by Stronghold Inc. by means of its subsidiaries, and the Firm's direct property largely consist of money and investments in subsidiaries. For earnings tax functions, the portion of the Firm's earnings allocable to Stronghold Inc. is topic to company earnings tax charges on the federal and state ranges. Due to this fact, the earnings taxes recorded previous to the Reorganization will not be consultant of the earnings taxes after the Reorganization.

ASC 740 additionally clarifies the accounting for uncertainty in earnings taxes acknowledged in an enterprise's monetary statements and prescribes a recognition threshold and measurement course of for monetary assertion recognition and measurement of a tax place taken or anticipated to be taken in a tax return. For these advantages to be acknowledged, a tax place have to be "extra doubtless than not" to be sustained upon examination by taxing authorities. Primarily based on its analysis, the Firm has concluded that there aren't any important unsure tax positions requiring recognition within the Firm's consolidated monetary statements. The premise of tax positions utilized to the Firm's tax provisions considerably adjust to all relevant federal and state rules. The Firm acknowledges the respective taxing authorities might take opposite positions primarily based on their interpretation of the regulation. A tax place efficiently challenged by a taxing authority might lead to an adjustment to the Firm's provision or profit for earnings taxes within the interval by which a closing willpower is made. As of December 31, 2022, the Firm's tax years ended December 31, 2018, by means of the present yr are open for potential examination by taxing authorities. 97 --------------------------------------------------------------------------------

Sure of Stronghold Inc.'s subsidiaries are structured as flow-through entities, and due to this fact, the taxable earnings or lack of such subsidiaries is included within the earnings tax returns of the companions, together with Stronghold Inc. Software of ASC 740 to those entities leads to no recognition of federal or state earnings taxes on the entity stage. The portion of such subsidiaries' actions which are allocable to the Firm will improve the Firm's taxable earnings or loss and be accounted for below ASC 740 by the Firm.

</pre>Previous to the Reorganization<pre>

Scrubgrass and Stronghold LLC had been structured as a restricted partnership and restricted legal responsibility firm, respectively; due to this fact, the taxable earnings or loss of the Firm is included within the earnings tax returns of the person companions. Accordingly, no recognition has been given to federal or state earnings taxes in the accompanying consolidated monetary statements.

Two of Scrubgrass' subsidiaries, Clearfield and Leesburg, are firms for federal and state earnings tax functions. Earnings taxes attributable to Clearfield and Leesburg are supplied primarily based on the asset and legal responsibility methodology of accounting pursuant to ASC 740, each previous to and subsequent to the Reorganization. Below this methodology, deferred earnings tax property and liabilities are acknowledged for the anticipated future tax penalties of short-term variations between the carrying quantities and the tax bases of property and liabilities. Deferred earnings tax property are diminished by a valuation allowance when, within the opinion of administration, it's extra doubtless than not that some portion or all the deferred earnings tax asset won't be realized. Clearfield and Leesburg haven't recorded any short-term variations leading to both a deferred earnings tax asset or legal responsibility as of December 31, 2022, or 2021.

</pre>Just lately Carried out Accounting Pronouncements<pre>

As an "rising development firm" ("EGC"), the Jumpstart Our Enterprise Startups Act ("JOBS Act") permits us to delay adoption of latest or revised accounting pronouncements relevant to public corporations till such pronouncements are made relevant to non-public corporations. Now we have elected to make use of this prolonged transition interval below the JOBS Act. The adoption dates mentioned beneath replicate this election.

In February 2016, the FASB issued ASU 2016-02, Leases ("Subject 842"), which supersedes ASC Subject 840, Leases. Subject 842 requires lessees to acknowledge a lease legal responsibility and a lease asset on its steadiness sheet for all leases, together with working leases, with a time period higher than 12 months. Subject 842 additionally expands the required quantitative and qualitative disclosures surrounding leases. The brand new steerage has been utilized utilizing a modified retrospective transition strategy for leases present at, or entered into after, the start of the earliest comparative interval introduced within the monetary statements. Subject 842 additionally supplied an election for sensible expedients which allows an entity (i) to not reassess whether or not any expired or present contracts contained leases; (ii) to carry ahead the present lease classification; (iii) to not reassess preliminary direct prices related to present leases; (iv) to not separate non-lease parts from lease parts and as a substitute accounted for all parts as a single lease element; (v) and to not apply the provisions of Subject 842 to short-term leases. An working lease ROU asset and working lease legal responsibility equal to the current worth of lease funds of $1,871,241 was recorded as of January 1, 2022. Confer with Word 17 - Working Lease ROU Property And Liabilities for the required disclosures.

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Different Choices (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Personal Fairness (Subtopic 815-40), to simplify the accounting for sure monetary devices. ASU 2020-06 eliminates the present fashions that require separation of useful conversion and money conversion options from convertible devices and simplifies the spinoff scope exception steerage pertaining to fairness classification of contracts in an entity's personal fairness. The new commonplace additionally introduces further disclosures for convertible debt and freestanding devices which are listed to and settled in an entity's personal fairness. ASU 2020-06 amends the diluted earnings per share steerage, together with the requirement to make use of the if-converted methodology for all convertible devices. ASU 2020-06 grew to become efficient on January 1, 2022. The Firm adopted ASU 2020-06 efficient January 1, 2022, however the adoption of ASU 2020-06 didn't have an affect on the Firm's consolidated monetary statements.

In Might 2021, the FASB issued ASU 2021-04, Issuer's Accounting for Sure Modifications or Exchanges of Freestanding Fairness-Categorised Written Name Choices, to make clear the accounting for modifications or exchanges of equity-classified warrants. This ASU grew to become efficient for all entities for fiscal years starting after December 15, 2021, together with interim durations inside these fiscal years. The FASB issued ASU 2021-04 to determine a principles-based recognition framework in keeping with the substance of the modification transaction. The framework applies to freestanding written name choices, equivalent to warrants, that had been and stay equity-classified by the issuer after the modification and will not be within the scope of different steerage. For instance, the framework doesn't apply to warrants which are modified to compensate for 98 --------------------------------------------------------------------------------</pre>items or providers inside the scope of Subject 718. The framework applies no matter whether or not the modification is thru an modification to the present phrases or issuance of a alternative warrant. Accordingly, the provisions launched below ASU 2021-04 had been relevant to the Firm throughout the yr ending December 31, 2022, and particularly to the amended Might 2022 Warrants.Just lately Issued Accounting Pronouncements<pre>

In September 2016, the FASB issued ASU 2016-13, Monetary Devices - Credit score Losses, which provides a brand new impairment mannequin, often called the present anticipated credit score loss ("CECL") mannequin, that's primarily based on anticipated losses relatively than incurred losses. Below the brand new steerage, an entity acknowledges an allowance for its estimate of anticipated credit score losses on the preliminary recognition of an in-scope monetary instrument and applies it to most debt devices, commerce receivables, lease receivables, monetary assure contracts, and different mortgage commitments. The CECL mannequin doesn't have a minimal threshold for recognition of impairment losses and entities might want to measure anticipated credit score losses on property that have a low threat of loss. For the reason that Firm meets the definition of a Smaller Reporting Firm, as outlined by the SEC, the brand new steerage turns into efficient for fiscal years starting after December 15, 2022. The Firm doesn't anticipate the new steerage to have a major affect on its consolidated monetary statements.

NOTE 3 - INVENTORY </pre>Stock consisted of the next parts as of:<pre> December 31, 2022 December 31, 2021

Waste coal $ 4,147,369 $ 3,238,383 Gasoline oil 143,592 94,913 Limestone 180,696 38,958 Stock $ 4,471,657 $ 3,372,254

</pre>NOTE 4 - EQUIPMENT DEPOSITS AND MINER SALES<pre>

Tools deposits characterize contractual agreements with distributors to ship and set up miners at future dates. The next particulars the seller, miner mannequin, miner depend, and anticipated supply month(s).

In March 2022, the Firm evaluated the MinerVa Semiconductor Corp ("MinerVa") gear deposits for impairment below the provisions of ASC 360, Property, Plant and Tools. On account of the analysis, the Firm decided an indicator for impairment was current below ASC 360-10-35-21. The Firm undertook a take a look at for recoverability below ASC 360-10-35-29 and an additional truthful worth evaluation in accordance with ASC 820, Truthful Worth Measurement. The distinction between the truthful worth of the MinerVa gear deposits and the carrying worth resulted within the Firm recording an impairment cost of $12,228,742 within the first quarter of 2022 and a further $5,120,000 within the fourth quarter of 2022, as summarized within the desk beneath. 99 --------------------------------------------------------------------------------

The next desk particulars the entire gear deposits of $10,081,307 as of December 31, 2022:

Complete Transferred to Tools Vendor Mannequin Rely Supply Timeframe Commitments Unpaid PP&E [A] Impairment Offered Deposits MinerVa MinerVa [B] MV7 15,000 Oct '21 - TBD $ 68,887,550 $ - $ (32,756,302) $ (17,348,742) $ (8,701,199) $ 10,081,307 Bitmain Antminer Cryptech S19j 2,400 Nov '21 - Oct '22 12,656,835 - (12,656,835) - - MicroBT WhatsMiner Northern Knowledge M30S & M30S+ 9,900 Oct '21 - Jan '22 22,061,852 - (22,061,852) - - </pre> Bitmain Applied sciences Bitmain Antminer<pre> Restricted [C] S19j Professional 10,200 Apr '22 - Dec '22 60,814,500 (4,218,000) (23,951,500) - (32,645,000) - </pre> Bitmain Applied sciences Bitmain Antminer<pre> Restricted [D] S19 XP 1,800 Jul '22 - Dec '22 19,530,000 (6,961,500) - - (12,568,500) - MicroBT WhatsMiner </pre> Northern Knowledge PA. LLC M30S & M30S+ 4,280 Jan '22 - Jun '22 11,340,374<pre> - (11,340,374) - - - Totals 43,580 </pre> $ 195,291,111 $ (11,179,500) $ (102,766,863) $ (17,348,742) $ (53,914,699) $ 10,081,307<pre>

[A] Miners which are delivered and bodily positioned in service are transferred to a hard and fast asset account on the respective unit worth as outlined within the settlement. [B] Confer with Word 8 - Commitments And Contingencies for a $4,499,980 refund that diminished the entire commitments to $68,887,550. [C] The dedication for the excellent unpaid steadiness was transferred upon the closing of the Asset Buy Settlement described in Word 6 - Debt. [D] The miner buy contract was bought in Might 2022 for $5,638,500, and a loss of $6,930,000 was recorded as a realized loss on sale of miner property inside the consolidated assertion of operations for the yr ended December 31, 2022. The dedication for the excellent unpaid steadiness was transferred upon the closing of this sale.

Miner Gross sales

Through the second quarter of 2022, the Firm entered into a number of miner gross sales agreements with a number of patrons. The Firm beforehand disclosed its effort to optimize its Bitcoin miner fleet and bought 3,425 miners (roughly 411 PH/s) with a historic carrying worth of $21,857,028, or $50.70 per TH/s. The Firm acknowledged a realized loss on sale of miner property of $8,012,248 throughout the second quarter of 2022. The loss was recorded as a realized loss on sale of miner property on the consolidated assertion of operations. The varied patrons took over the remaining installment funds upon switch of the contract, relieving the Firm of the excellent buy obligation.

Through the third quarter of 2022, the Firm consensually returned roughly 26,000 Bitcoin miners (roughly 18,700 of which had been plugged in and working previous to supply) to NYDIG and BankProv, and the associated debt was cancelled pursuant to the phrases of the Asset Buy Settlement. See Word 6 - Debt for additional dialogue of the Asset Buy Settlement.

</pre>Bitmain Applied sciences Restricted Buy Settlement<pre>

On October 28, 2021, we entered into the primary of two Non-Mounted Worth Gross sales and Buy Agreements with Bitmain (the "First Bitmain Settlement"). Below the First Bitmain Settlement, Stronghold bought roughly 12,000 Bitmain Antminer S19j Professional miners, with hash charge capability of 1.2 EH/s, to be delivered between April 2022 and September 2022, for an combination buy worth of $75,000,000. On August 16, 2022, Stronghold entered into the Asset Buy Settlement and bought the miners related to the First Bitmain Settlement to the Purchasers. Earlier than promoting these miners, the Firm had paid roughly $57 million below the First Bitmain Settlement and had put in roughly 4,500 out of the 12,000 miners.

On November 16, 2021, the Firm entered right into a second Non-Mounted Worth Gross sales and Buy Settlement with Bitmain (the "Second Bitmain Settlement"). Below the Second Bitmain Settlement, Stronghold bought roughly 1,800 Bitmain Antminer S19 XP miners, with hash charge capability of roughly 0.3 EH/s, to be delivered between July 2022 100 --------------------------------------------------------------------------------

and December 2022, for an combination buy worth of $19,350,000. On Might 13, 2022, Stronghold entered into a purchase order order to switch the Second Bitmain Settlement to Cryptech Options, Inc. ("Cryptech") for a complete worth of $12,600,000, together with a $5,638,500 fee to the Firm together with a switch of the accountability of the long run funds to Cryptech. Earlier than transferring the Second Bitmain Settlement to Cryptech, Stronghold had paid roughly $13 million below the Second Bitmain Settlement and had acquired not one of the miners.

</pre>NOTE 5 - PROPERTY, PLANT AND EQUIPMENTProperty, plant and gear consisted of the next as of:<pre> Helpful Lives (Years) December 31, 2022 December 31, 2021 Electrical plant 10 - 60 </pre> $ 66,295,809 $ 66,153,985 Strongboxes and energy transformers<pre> 8 - 30 52,318,704 7,489,472 Equipment and gear 5 - 20 18,131,977 12,015,811 Rolling inventory 5 - 7 261,000 261,000 Cryptocurrency machines and powering provides 2 - 3 81,945,396 78,505,675 Laptop {hardware} and software program 2 - 5 17,196 56,620 Automobiles and trailers 2 - 7 659,133 155,564 Development in progress Not Depreciable 19,553,826 36,067,776 Asset retirement value 10 - 30 580,452 580,452 239,763,493 201,286,355 Gathered depreciation and amortization (72,558,812) (34,629,200) Property, plant, and gear, web </pre> $ 167,204,681 $ 166,657,155<pre>

Development in progress consists of varied tasks to construct out the cryptocurrency machine energy infrastructure and isn't depreciable till the asset is taken into account in service and efficiently powers and runs the hooked up cryptocurrency machines. Completion of those tasks can have varied rollouts of energized remodeled containers and are designed to calibrate energy from the plant to the container that homes a number of cryptocurrency machines. At the moment, the steadiness of $19,553,826 as of December 31, 2022, represents open contracts for future tasks.

Depreciation and amortization expense charged to operations was $47,235,344 and $7,607,721 for the years ended December 31, 2022, and 2021, respectively, together with depreciation of property below finance leases of $406,411 and $290,805 for the years ended December 31, 2022, and 2021, respectively. On account of impairment assessments carried out on the underlying asset teams all through 2022, in accordance with ASC 360, Property, Plant and Tools, the Firm acknowledged impairments on miner property of $40,683,112 for the yr ended December 31, 2022.

</pre>The gross worth of property below finance leases and the associated amassed amortization approximated $2,890,665 and 1,758,629 as of December 31, 2022, respectively, and $2,108,280 and $1,352,218 as of December 31, 2021, respectively.<pre> 101 --------------------------------------------------------------------------------</pre>NOTE 6 - DEBT<pre>

Debt consisted of the next as of December 31, 2022, and December 31, 2021:

December 31, December 31, 2022 2021 $66,076 mortgage, with curiosity at 5.55% due July 2021 $ - $ 3,054 $75,000 mortgage, with curiosity at 12.67% due April 2021. - 7,312 $499,520 mortgage, with curiosity at 2.49% due December 2023. 124,023 232,337 $499,895 mortgage, with curiosity at 2.95% due July 2023. 121,470 246,720 $212,675 mortgage, with curiosity at 6.75% due October 2022. - 103,857 $517,465 mortgage, with curiosity at 4.78% due October 2024. 339,428 490,600 $585,476 mortgage, with curiosity at 4.99% due November, 2025. 513,334 - $431,825 mortgage, with curiosity at 7.60% due April 2024. 121,460 204,833 $40,000,000 mortgage, with curiosity at 10.00% due June 2023. - [A] 28,149,998 $25,000,000 mortgage, with curiosity at 10.00%, due March 2024. - [B] - </pre>$58,149,411 mortgage, with curiosity at 10.00% plus SOFR, due October 2025.<pre> 56,114,249 [C] - $10,641,362 mortgage, with curiosity at 10.00% due June 2023. - [D] 7,546,542 $14,077,800 mortgage, with curiosity at 10.00% due June 2023. </pre> - [E] 9,982,551 $17,984,000 most advance mortgage, with curiosity at 9.99% due December 2023. - [F] 9,891,200 $17,984,000 most advance mortgage, with curiosity at 9.99% due December 2023. - [G] 7,319,488 $17,984,000 most advance mortgage, with curiosity at 9.99% due December 2023.<pre> - [H] - </pre>$33,750,000 Convertible Word, with curiosity at 10.00% due Might 2024.<pre> 16,812,500 [I] - $92,381 mortgage, with curiosity at 1.49% due April 2026. 79,249 - $64,136 mortgage, with curiosity at 11.85% due Might 2024. 39,056 - $196,909 mortgage, with curiosity at 6.49% due Might 2024. 184,895 - Complete excellent borrowings $ 74,449,664 $ 64,178,492

</pre>Present portion of long-term debt, web of reductions and issuance charges<pre> 17,422,546 45,799,651 Lengthy-term debt, web of reductions and issuance charges $ 57,027,118 $ 18,378,841

[A] WhiteHawk Promissory Word settlement with a time period of 24 months. On December 31, 2021, the Firm amended the WhiteHawk Financing Settlement (as outlined beneath, the "WhiteHawk Modification") to increase the ultimate MinerVa supply date from December 31, 2021, to April 30, 2022. Pursuant to the WhiteHawk Modification, Tools paid an modification payment within the quantity of $250,000 to WhiteHawk Finance LLC ("WhiteHawk"), which had been included in deferred debt issuance prices. This debt was successfully extinguished as of October 27, 2022. See further particulars beneath. [B] WhiteHawk Promissory Word settlement with a time period of 24 months. Pursuant to the Second WhiteHawk Modification, Tools LLC paid an modification payment within the quantity of $275,414 and a closing payment of $500,000 to WhiteHawk, which had been included in deferred debt issuance prices. This debt was successfully extinguished as of October 27, 2022. See further particulars beneath. [C] On October 27, 2022, the Firm entered right into a secured Credit score Settlement with WhiteHawk to refinance the WhiteHawk Financing Settlement, successfully terminating the WhiteHawk Financing Settlement. The Credit score Settlement consists of $35.1 million in time period loans and a $23.0 million Delayed Draw Facility. The borrowings below the WhiteHawk Refinancing Settlement mature on October 26, 2025. The mortgage below the Delayed Draw Facility was issued with a 3% closing payment on the drawn quantity, paid when such quantity was drawn on the time limit of the Credit score Settlement. [D] Arctos/NYDIG Financing Settlement [loan #1] with a time period of 24 months. This debt tranche was extinguished as of September 30, 2022. [E] Arctos/NYDIG Financing Settlement [loan #2] with a time period of 24 months. This debt tranche was extinguished as of September 30, 2022. [F] Second NYDIG Financing Settlement (as outlined beneath) with a time period of 24 months. This debt tranche was extinguished as of September 30, 2022. [G] Second NYDIG Financing Settlement with a time period of 24 months. This debt tranche was extinguished as of December 31, 2022. [H] Second NYDIG Financing Settlement with a time period of 24 months. This debt tranche was extinguished as of December 31, 2022. [I] Convertible Word with a time period of 24 months.

</pre>Extinguishment of NYDIG Financing AgreementsOn August 16, 2022, the Firm, Stronghold LLC, SDM and Stronghold Digital Mining BT, LLC, a Delaware restricted legal responsibility firm ("Digital Mining BT" and, along with SDM, the "APA Sellers" and, along with the Firm and Stronghold LLC, the "APA Vendor Events"), entered into an Asset Buy Settlement (the "Asset Buy Settlement")<pre> 102 --------------------------------------------------------------------------------</pre>with NYDIG, previously often called Arctos Credit score, LLC, and The Provident Financial institution, a Massachusetts financial savings financial institution ("BankProv" and, along with NYDIG, "Purchasers" and every, a "Purchaser").<pre>

Pursuant to the grasp gear financing settlement entered into between SDM and Arctos Credit score, LLC ("Arctos" now often called "NYDIG") on June 25, 2021 (the "Arctos/NYDIG Financing Settlement"), and the grasp gear financing settlement entered into between Digital Mining BT and NYDIG on December 15, 2021 (the "Second NYDIG Financing Settlement" and along with the Arctos/NYDIG Financing Settlement, the "NYDIG Financing Agreements"), sure miners had been pledged as collateral below such agreements (and along with sure associated agreements to buy miners, the "APA Collateral"). Below the Asset Buy Settlement, the APA Vendor Events agreed to promote, and the Purchasers (or their respective designee) agreed to buy, the APA Collateral in a non-public disposition in change for the forgiveness, discount and launch of all principal, curiosity and charges owing below every of the NYDIG Agreements (collectively, the "NYDIG Debt"). The Sellers agreed to scrub, service, package deal, ship, and ship the APA Collateral and to bear the prices related to such actions. Following (i) supply of the APA Collateral to the Purchasers or their designees pursuant to a grasp invoice of sale and (ii) a subsequent inspection interval of as much as 14 days (which can be prolonged as much as seven further days), upon acceptance of the APA Collateral, the associated portion of the NYDIG Debt was to be assigned to the Sellers and cancelled pursuant to the phrases of the Asset Buy Settlement (every, a "Settlement").

On account of this transaction, the Firm incurred a loss on debt extinguishment of $19,475,514 within the third quarter of 2022, comprising a loss on debt extinguishment of $15,316,510 and an impairment on property held on the market of $4,159,004. As of September 30, 2022, three of the seven tranches of the NYDIG Debt had been extinguished at the side of the sale of the related miners and was recorded as a loss on debt extinguishment. The remaining 4 tranches of the NYDIG Debt, totaling $39,998,415 (excluding deferred debt issuance prices and reductions), had been extinguished in October 2022.

</pre>WhiteHawk Refinancing Settlement<pre>

In accordance with ASC 470, Debt, the transaction famous above was decided to be an extinguishment of the present debt and an issuance of latest debt. As a outcome, the Firm recorded a loss on debt extinguishment of $7,661,682 within the consolidated assertion of operations for the yr ended December 31, 2022, together with $2,796,084 for the write-off of deferred financing charges associated to the extinguished debt and $1,115,000 of latest charges paid to WhiteHawk. The remaining lack of $3,750,598 resulted from recording the brand new debt at truthful worth, primarily for the inventory buy warrant issued to WhiteHawk described above. 103 --------------------------------------------------------------------------------

On February 6, 2023, the Firm, Stronghold LLC, as borrower, their subsidiaries and WhiteHawk Capital Companions LP, as collateral agent and administrative agent, and the opposite lenders thereto, entered into an modification to the Credit score Settlement (the "First Modification") in an effort to modify sure covenants and take away sure prepayment necessities contained therein. As a results of the First Modification, amortization funds for the interval from February 2023 by means of July 2024 won't be required, with month-to-month amortization resuming July 31, 2024. Starting June 30, 2023, following a five-month vacation, Stronghold LLC will make month-to-month prepayments of the mortgage in an quantity equal to 50% of its common each day money steadiness (together with cryptocurrencies) in extra of $7,500,000 for such month. The First Modification additionally modifies the monetary covenants to (i) within the case of the requirement of the Firm to take care of a leverage ratio no higher than 4.00:1.00, such covenant won't be examined till the fiscal quarter ending September 30, 2024, and (ii) within the case of the minimal liquidity covenant, modified to require minimal liquidity at any time to be not lower than: (A) till March 31, 2024, $2,500,000; (B) throughout the interval starting April 1, 2024, by means of and together with December 31, 2024, $5,000,000; and (C) from and after January 1, 2025, $7,500,000. The Firm was in compliance with all relevant covenants below the WhiteHawk Refinancing Settlement as of December 31, 2022.

</pre>Convertible Word Change<pre>

On February 20, 2023, in reference to the consummation of the Change Transaction, the Firm entered right into a Registration Rights Settlement with the Holders (the "Registration Rights Settlement") whereby it agreed to, amongst different issues, (i) file inside two enterprise days following the submitting of the Firm's Annual Report on Type 10-Okay for the fiscal yr ended December 31, 2022, a resale registration assertion (the "Resale Registration Assertion") with the Securities and Change Fee overlaying all shares of the Firm's Class A typical inventory, par worth $0.0001 per share (the "Frequent Inventory") issuable upon conversion of the Collection C Most well-liked Inventory or upon train of the pre-funded warrants that could also be issued in lieu of Frequent Inventory upon conversion of the Collection C Most well-liked Inventory (the "Pre-funded Warrants"), and (ii) to trigger the Resale Registration Assertion to develop into efficient inside the timeframes specified within the Registration Rights Settlement.

</pre>Future scheduled maturities on the excellent borrowings for every of the following 5 years as of December 31, 2022, are as follows:<pre> Years ending December 31: 2023 $ 17,422,546 2024 10,024,636 2025 46,992,601 2026 9,881 2027 - $ 74,449,664

NOTE 7 - CONCENTRATIONS

Credit score threat is the danger of loss the Firm would incur if counterparties fail to carry out their contractual obligations (together with accounts receivable). The Firm primarily conducts enterprise with counterparties within the cryptocurrency mining and power {industry}. This focus of counterparties might affect the Firm's total publicity to credit score threat, both positively or negatively, in that its counterparties could also be equally affected by modifications in financial, regulatory or different situations. The Firm mitigates potential credit score losses by dealing, the place sensible, with counterparties which are rated at funding grade by a significant credit score company or have a historical past of dependable efficiency inside the cryptocurrency mining and power {industry}.

Monetary devices which doubtlessly expose the Firm to concentrations of credit score threat consist primarily of money and accounts receivable. Money and money equivalents typically exceed federally insured limits. The Firm's important credit score threat is primarily concentrated with CES. CES accounted for 28% of our power operations phase revenues for the 104 --------------------------------------------------------------------------------

yr ended December 31, 2022. Over the course of 2022, the Firm transitioned completely to CES from DEBM, and it expects that they are going to characterize roughly 100% of our power phase income in 2023. CES accounted for about 100% of the Firm's accounts receivable steadiness as of December 31, 2022, and 2021, together with roughly $5.1 million CES expects to obtain from PJM on the Firm's behalf, and ahead to the Firm upon receipt.

For the yr ended December 31, 2022, and 2021, the Firm bought 17% and 30% of coal from two associated events, respectively. See Word 9 - Associated-Social gathering Transactions for additional data.

</pre>NOTE 8 - COMMITMENTS AND CONTINGENCIESCommitments:<pre>

As disclosed in Word 4 - Tools Deposits And Miner Gross sales, the Firm has entered into varied gear contracts to buy miners. Most of those contracts required a share of deposits upfront and subsequent future funds to cowl the contracted buy worth of the gear. Particulars of the excellent buy settlement with MinerVa are summarized beneath.

</pre>MinerVa Semiconductor Corp<pre>

On April 2, 2021, the Firm entered into a purchase order settlement (the "MinerVa Buy Settlement") with MinerVa for the acquisition of 15,000 of their MV7 ASIC SHA256 mannequin cryptocurrency miner gear (miners) with a complete terahash to be delivered equal to 1.5 million terahash (whole terahash). The worth per miner was $4,892.50 for an combination buy worth of $73,387,500 to be paid in installments. The primary installment equal to 60% of the acquisition worth, or $44,032,500, was paid on April 2, 2021, and a further fee of 20% of the buy worth, or $14,677,500, was paid on June 2, 2021. As of December 31, 2022, there have been no remaining deposits owed.

</pre>Contingencies:Authorized Proceedings<pre>

The Firm experiences routine litigation within the regular course of enterprise. Administration is of the opinion that none of this routine litigation can have a materials hostile impact on the Firm's reported monetary place or outcomes of operations.

</pre>McClymonds Provide & Transit Firm, Inc. and DTA, L.P. vs. Scrubgrass Producing Firm, L.P.<pre>

On January 31, 2020, McClymonds Provide and Transit Firm, Inc. ("McClymonds") made a Demand for Arbitration, as required by the phrases of the Transportation Settlement between it and the Scrubgrass dated April 8, 2013 (the "Settlement"). In its demand, McClymonds alleged damages within the quantity of $5,042,350 for failure to pay McClymonds for providers. On February 18, 2020, Scrubgrass submitted its answering assertion denying the declare of McClymonds in its entirety. On March 31, 2020, Scrubgrass submitted its counterclaim in opposition to McClymonds within the quantity of $6,747,328 as 105 --------------------------------------------------------------------------------

the results of McClymonds' failure to ship gas as required below the phrases of the Settlement. Hearings had been held from January 31, 2022, to February 3, 2022. On Might 9, 2022, an award within the quantity of $5.0 million plus curiosity of roughly $0.8 million was issued in favor of the McClymonds Provide & Transit. The 2 managing members of Q Energy, LLC, have agreed to and begun to pay the complete quantity of the award such that there shall be no impact on the monetary situation of the Firm. The managing members of Q Energy LLC have executed a binding doc to pay the complete quantity of the award. McClymonds shall don't have any recourse to the Firm with respect to the award.

</pre>Allegheny Mineral Company v. Scrubgrass Producing Firm, L.P., Butler County Courtroom of Frequent Pleas, No. AD 19-11039<pre>

In November 2019, Allegheny Mineral filed swimsuit in opposition to the Firm in search of fee of roughly $1,200,000 in excellent invoices. In response, the Firm filed counterclaims in opposition to Allegheny Mineral asserting breach of contract, breach of categorical and implied warranties, and fraud within the quantity of $1,300,000. After unsuccessful mediation in August 2020, the events once more tried to mediate the case on October 26, 2022, which led to a mutual settlement to settlement phrases of a $300,000 money fee, and a provide settlement for limestone. Topic to completion of the settlement phrases, this matter has been stayed in Butler County Courtroom and the excellent litigation has been terminated.

</pre>FERC Issues<pre>

On November 19, 2021, Scrubgrass acquired a discover of breach from PJM Interconnection, LLC alleging that Scrubgrass breached Interconnection Service Settlement - No. 1795 (the "ISA") by failing to supply advance discover to PJM Interconnection, LLC and Mid-Atlantic Interstate Transmission, LLC ("MAIT") pursuant to ISA, Appendix 2, part 3, of modifications made to the Scrubgrass Plant. On December 16, 2021, Scrubgrass responded to the discover of breach and respectfully disagreed that the ISA had been breached. On January 7, 2022, Scrubgrass participated in an data gathering assembly with representatives from PJM relating to the discover of breach and Scrubgrass continues to work with PJM relating to the dispute, together with conducting a needed research settlement with respect to the Scrubgrass Plant. On January 20, 2022, the Firm despatched PJM a letter relating to the set up of a resistive computational load financial institution on the Panther Creek Plant. On March 1, 2022, the Firm executed a needed research settlement with respect to the Panther Creek Plant. On Might 11, 2022, the Division of Investigations of the FERC Workplace of Enforcement ("OE") knowledgeable the Firm that the Workplace of Enforcement is conducting a private preliminary investigation regarding Scrubgrass' compliance with varied points of the PJM tariff. The OE requested that the Firm present sure data and paperwork regarding Scrubgrass' operations by June 10, 2022. On July 13, 2022, after being granted an extension to reply by the OE, the Firm submitted a formal response to the OE's request. For the reason that Firm submitted its formal response to the OE's request, the Firm has had additional discussions with the OE relating to the Firm's formal response. The OE's investigation relating to potential situations of non-compliance is continuous. The Firm doesn't consider the PJM discover of breach, the Panther Creek needed research settlement, or the preliminary investigation by the OE can have a cloth hostile impact on the Firm's reported monetary place or outcomes of operations though the Firm can not predict with certainty the ultimate consequence of those proceedings.

</pre>Winter v. Stronghold Digital Mining Inc., et al., U.S District Courtroom for the Southern District of New York<pre>

On April 14, 2022, the Firm, and sure of our present and former administrators, officers and underwriters had been named in a putative class motion grievance filed in the USA District Courtroom for the Southern District of New York. In the grievance, the plaintiffs allege that the Firm made deceptive statements and/or didn't disclose materials details in violation of Part 11 of the Securities Act, 15 U.S.C. §77k and Part 15 of the Securities Act, concerning the Firm's enterprise, operations, and prospects within the Firm's registration assertion on Type S-1 associated to its preliminary public providing, and when subsequent disclosures had been made relating to these operational points when the Firm introduced its fourth quarter and full yr 2021 monetary outcomes, the Firm's inventory worth fell, inflicting important losses and damages. As aid, the plaintiffs are in search of, amongst different issues, compensatory damages. On August 4, 2022, co-lead plaintiffs had been appointed. On October 18, 2022, the Plaintiffs filed an amended grievance. On December 19, 2022, the Firm filed a Movement to Dismiss. On February 17, 2023, the plaintiffs filed an opposition to the defendant's movement to dismiss. On March 20, 2023, the Firm filed a reply temporary in additional help of its movement to dismiss. We can not predict when the courtroom will rule on our movement. The defendants consider the allegations within the preliminary grievance are with out advantage and intend to defend the swimsuit vigorously. 106 --------------------------------------------------------------------------------</pre>NOTE 9 - RELATED-PARTY TRANSACTIONSWaste Coal Settlement<pre>

The Firm is obligated below a Waste Coal Settlement (the "WCA") to take minimal annual supply of 200,000 tons of waste coal so long as there's a enough amount of waste coal that meets the Common High quality Traits (as outlined within the WCA). Below the phrases of the WCA, the Firm just isn't charged for the waste coal itself however is charged a $6.07 per ton base dealing with payment because it is obligated to mine, course of, load, and in any other case deal with the waste coal for itself and likewise for different prospects of Coal Valley Gross sales, LLC ("CVS") from the Russellton web site particularly. The Firm can be obligated to unload and correctly get rid of ash on the Russellton web site. The Firm is charged a diminished dealing with payment of $1.00 per ton for any tons in extra of the minimal take of 200,000 tons. The Firm is the designated operator on the Russellton web site and, due to this fact, is liable for complying with all state and federal necessities and rules.

The Firm purchases coal from Coal Valley Properties, LLC, a single-member restricted legal responsibility firm which is completely owned by one particular person who has possession in Q Energy, and from CVS. CVS is a single-member restricted legal responsibility firm which is owned by a coal reclamation partnership of which an proprietor of Q Energy has a direct and an oblique curiosity within the partnership of 16.26%.

The Firm expensed $733,458 and $303,500 for the years ended December 31, 2022, and 2021, respectively, related to coal purchases from CVS, which is included in gas expense within the consolidated statements of operations. See the composition of the as a result of associated events steadiness as of December 31, 2022, and 2021, beneath.

</pre>Gasoline Service and Helpful Use Settlement<pre>

The Firm has a Gasoline Service and Helpful Use Settlement ("FBUA") with Northampton Gasoline Provide Firm, Inc. ("NFS"), a wholly-owned subsidiary of Olympus Energy. The Firm buys gas from and sends ash to NFS, for the mutual advantage of each services, below the phrases and charges established within the FBUA. The FBUA expires December 31, 2023. The Firm expensed $3,121,423 and $163,412 for the years ended December 31, 2022, and 2021, respectively, which is included in gas expense within the consolidated statements of operations. See the composition of the as a result of associated events steadiness as of December 31, 2022, and 2021, beneath.

</pre>Gasoline purchases below these agreements for the years ended December 31, 2022, and December 31, 2021, had been as follows:<pre>

December 31, 2022 December 31, 2021 Coal Purchases: Northampton Gasoline Provide Firm, Inc. $ 3,121,423 $ 163,412 Coal Valley Gross sales, LLC 733,458 934,916 Complete $ 3,854,881 $ 1,098,328

Gasoline Administration Agreements </pre>Panther Creek Gasoline Providers LLC<pre>

Efficient August 1, 2012, the Firm entered into the Gasoline Administration Settlement (the "Gasoline Settlement") with Panther Creek Gasoline Providers LLC, a wholly-owned subsidiary of Olympus Providers LLC which, in flip, is a wholly-owned subsidiary of Olympus Energy LLC. Below the Gasoline Settlement, Panther Creek Gasoline Providers LLC supplies the Firm with operations and upkeep providers with respect to the Facility. The Firm reimburses Panther Creek Power Providers LLC for precise wages and salaries. The Firm expensed $1,697,850 and $303,500 for the years ended December 31, 2022, and 2021, respectively, which is included in operations and upkeep expense within the consolidated statements of operations. See the composition of the as a result of associated events steadiness as of December 31, 2022, and 2021, beneath.

Scrubgrass Gasoline Providers LLC

Efficient February 1, 2022, the Firm entered into the Gasoline Administration Settlement (the "Scrubgrass Gasoline Settlement") with Scrubgrass Gasoline Providers LLC, a wholly-owned subsidiary of Olympus Providers LLC, which, in flip, is an entirely owned subsidiary of Olympus Energy LLC. Below the Scrubgrass Gasoline Settlement, Scrubgrass Gasoline Providers LLC 107 --------------------------------------------------------------------------------

supplies the Firm with operations and upkeep providers with respect to the Facility. The Firm reimburses Scrubgrass Power Providers LLC for precise wages and salaries. The Firm expensed $780,410 for the yr ended December 31, 2022, which is included in operations and upkeep expense within the consolidated assertion of operations. See the composition of the as a result of associated events steadiness as of December 31, 2022, and 2021, beneath.

</pre>O&M AgreementsOlympus Energy LLC<pre>

On November 2, 2021, Stronghold LLC entered into an Operations, Upkeep and Ancillary Providers Settlement (the "Omnibus Providers Settlement") with Olympus Stronghold Providers, LLC ("Olympus Stronghold Providers"), whereby Olympus Stronghold Providers presently supplies sure operations and upkeep providers to Stronghold LLC and presently employs sure personnel to function the Panther Creek Plant and the Scrubgrass Plant. Stronghold LLC reimburses Olympus Stronghold Providers for these prices incurred by Olympus Stronghold Providers and permitted by Stronghold LLC in the midst of offering providers below the Omnibus Providers Settlement, together with payroll and advantages prices and insurance coverage prices. The fabric prices incurred by Olympus Stronghold Providers shall be permitted by Stronghold LLC. From November 2, 2021, till October 1, 2023, Stronghold LLC additionally agreed to pay Olympus Stronghold Providers a administration payment on the charge of $1,000,000 per yr, payable month-to-month for providers supplied at every of the Panther Creek Plant and Scrubgrass Plant, and a further one-time mobilization payment of $150,000 upon the efficient date of the Omnibus Providers Settlement, which was deferred till 2023. Efficient October 1, 2022, Stronghold LLC started paying Olympus Stronghold Providers a administration payment for the Panther Creek Plant within the quantity of $500,000 per yr, payable month-to-month for providers supplied on the Panther Creek Plant. It is a discount of $500,000 from the $1,000,000 per yr administration payment that the Firm was beforehand scheduled to pay Olympus Stronghold Providers. The Firm expensed $1,086,649 and $129,735 for the years ended December 31, 2022, and 2021, respectively, which incorporates the month-to-month administration charges plus reimbursable prices incurred by Olympus Stronghold Providers for payroll, advantages and insurance coverage. See the composition of the as a result of associated events steadiness as of December 31, 2022, and 2021, beneath.

</pre>Panther Creek Power Providers LLC<pre>

Efficient August 2, 2021, the Firm entered into the Operations and Upkeep Settlement (the "O&M Settlement") with Panther Creek Power Providers LLC, a wholly-owned subsidiary of Olympus Providers LLC which, in flip, is a wholly-owned subsidiary of Olympus Energy LLC. Below the O&M Settlement, Panther Creek Power Providers LLC supplies the Firm with operations and upkeep providers with respect to the Facility. The Firm reimburses Panther Creek Power Providers LLC for precise wages and salaries. The Firm additionally agreed to pay a administration payment of $175,000 per working yr, which is payable month-to-month, and is adjusted by the patron worth index on every anniversary of the efficient date. The Firm expensed $3,877,338 and $1,027,860 for the years ended December 31, 2022, and 2021, respectively, which incorporates the month-to-month administration charges plus reimbursable prices incurred by Olympus Stronghold Providers for payroll, advantages and insurance coverage. See the composition of the as a result of associated events steadiness as of December 31, 2022, and 2021, beneath.

In reference to the fairness contribution settlement, efficient July 9, 2021 (the "Fairness Contribution Settlement"), the Firm entered into the Amended and Restated Operations and Upkeep Settlement (the "Amended O&M Settlement") with Panther Creek Power Providers LLC. Below the Amended O&M Settlement, the administration payment is $250,000 for the twelve-month interval following the efficient date and $325,000 per yr thereafter. The efficient date of the Amended O&M Settlement was the time limit of the Fairness Contribution Settlement.

</pre>Scrubgrass Power Providers LLC<pre>

Efficient February 1, 2022, the Firm entered into the Operations and Upkeep Settlement (the "Scrubgrass O&M Settlement") with Scrubgrass Power Providers LLC, a wholly-owned subsidiary of Olympus Providers LLC which, in flip, is a wholly-owned subsidiary of Olympus Energy LLC. Below the Scrubgrass O&M Settlement, Scrubgrass Power Providers LLC supplies the Firm with operations and upkeep providers with respect to the Facility. The Firm reimburses Scrubgrass Power Providers LLC for precise wages and salaries. The Firm additionally agreed to pay a administration payment of $175,000 per working yr, which is payable month-to-month, and is adjusted by the patron worth index on every anniversary date of the efficient date. The Firm expensed $6,476,968 for the yr ended December 31, 2022, which incorporates the month-to-month administration charges plus reimbursable prices incurred by Olympus Stronghold Providers for payroll, advantages and insurance coverage. See the composition of the as a result of associated events steadiness as of December 31, 2022, and 2021, beneath. 108 --------------------------------------------------------------------------------

In reference to the Fairness Contribution Settlement efficient July 9, 2021, the Firm entered into the Amended and Restated Operations and Upkeep Settlement (the "Scrubgrass Amended O&M Settlement") with Scrubgrass Power Providers LLC. Below the Scrubgrass Amended O&M Settlement, the administration payment is $250,000 for the twelve-month interval following the efficient date and $325,000 per yr thereafter. The efficient date of the Scrubgrass Amended O&M Settlement was the time limit of the Fairness Contribution Settlement.

</pre>Efficient October 1, 2022, Stronghold LLC now not pays Olympus Stronghold Providers a administration payment for the Scrubgrass Plant.Administration Providers Settlement<pre>

On Might 10, 2021, a brand new administration and advisory settlement was entered into between Q Energy and William Spence (the "Spence Settlement"). In consideration of marketing consultant's efficiency of the providers thereunder, Q Energy can pay Mr. Spence a payment on the charge of $50,000 per full calendar month (pro-rated for partial months) that Mr. Spence supplies providers thereunder, payable in arrears. The earlier settlement requiring month-to-month funds of $25,000 was terminated. Q Energy won't be chargeable for every other funds to Mr. Spence together with, however not restricted to, any value or bills incurred by Mr. Spence in the midst of performing his obligations thereunder. Below the Spence Settlement, the Firm made whole funds of $550,000 and $600,000 for the years ended December 31, 2022, and 2021, respectively.

Quantities as a result of associated events as of December 31, 2022, and 2021, had been as follows:

December 31, December 31, 2022 2021 Because of associated events: Coal Valley Properties, LLC $ 134,452 $ 134,452 Q Energy LLC 500,000 500,000 Coal Valley Gross sales, LLC - 202,334 Panther Creek Power Providers LLC 10,687 94,434 Panther Creek Gasoline Providers LLC 53,482 47,967 Northampton Producing Gasoline Provide Firm, Inc. 594,039 321,738 Olympus Energy LLC and different subsidiaries 78,302 129,735 Scrubgrass Power Providers LLC 4,087 - Scrubgrass Gasoline Providers LLC - - Totals $ 1,375,049 $ 1,430,660

Lastly, for the yr ended December 31, 2021, the Firm paid $69,000 to Beard Aviation LLC for varied company-related enterprise journeys. There have been no such funds throughout the yr ended December 31, 2022. Beard Aviation LLC is owned by Greg Beard, the Chief Govt Officer ("CEO") of the Firm.

</pre>NOTE 10 - PAYCHECK PROTECTION PROGRAM AND ECONOMIC INJURY DISASTER LOANS<pre>

On March 16, 2021, the Firm acquired a spherical two Paycheck Safety Program ("PPP") mortgage within the quantity of $841,670 that accrues curiosity at 1% per yr and matures on the fifth anniversary of the date of the be aware. In January 2021, the Firm was granted aid as forgiveness for the spherical one PPP mortgage within the quantity of $638,800. On Might 25, 2022, the Firm was granted aid as forgiveness for the second spherical PPP mortgage within the quantity of $841,670.

</pre>On June 8, 2021, the Firm repaid the Financial Harm Catastrophe Mortgage ("EIDL"), acquired on March 31, 2020, within the quantity of $150,000.NOTE 11 - SEGMENT REPORTING<pre>

Working segments are outlined as parts of an enterprise about which separate monetary data is on the market that's evaluated commonly in deciding how one can allocate assets and assess efficiency. The Firm's CEO is the chief working choice maker. The Firm features in two working segments, Power Operations and Cryptocurrency Operations, about which separate monetary data is on the market as follows: 109 --------------------------------------------------------------------------------

Reportable phase outcomes for the years ended December 31, 2022, and 2021, had been as follows:

December 31, 2022 December 31, 2021

OPERATING REVENUES: Power Operations $ 46,809,665 $ 16,123,067 Cryptocurrency Operations 59,223,437 14,792,070 Complete working revenues $ 106,033,102 $ 30,915,137 NET OPERATING LOSS: Power Operations $ (38,992,034) $ (17,237,107) Cryptocurrency Operations (108,274,121) (4,767,358) Complete web working (loss) earnings $ (147,266,155) $ (22,004,465) OTHER EXPENSE [A] (47,905,812) (5,250,864) NET LOSS $ (195,171,967) $ (27,255,329)

DEPRECIATION AND AMORTIZATION: Power Operations $ (5,189,071) $ </pre>(1,305,402)<pre> Cryptocurrency Operations (42,046,273) </pre>(6,302,319)<pre> Complete depreciation and amortization $ (47,235,344) $ (7,607,721) INTEREST EXPENSE: Power Operations $ (100,775) $ (80,866) Cryptocurrency Operations (13,810,233) (4,541,789) Complete curiosity expense $ (13,911,008) $ (4,622,655) CAPITAL EXPENDITURES: Power Operations $ 1,735,392 $ 48,384 Cryptocurrency Operations 79,295,111 168,385,858 Complete capital expenditures $ 81,030,503 $ 168,434,242

[A] The Firm doesn't functions. Quantity is proven earnings/(losses) and consolidated consolidated statements of ---------------------------------- 31, 2022, and 2021, are introduced Power Operations Money and money equivalents $ 693,805 Digital currencies Accounts receivable 10,628,570 Due from associated events Pay as you go insurance coverage Stock 4,471,657 Different present property Tools deposits - Property, plant and gear, web 45,645,205 Land 1,748,440 Highway bond Working lease right-of-use property 1,045,365 Safety deposits 348,888 $ 67,305,978 allocate different earnings (expense) for phase reporting as a reconciling merchandise between web working earnings earlier than taxes. Confer with the accompanying operations for additional particulars. 110 ----------------------------------------------</pre>Complete property by power operations and cryptocurrency operations as of December within the desk beneath.<pre> December 31, 2022 December 31, 2021 Cryptocurrency Power Cryptocurrency Operations Complete Operations Operations Complete $ 12,602,898 $ 13,296,703 $ 714,019 $ 31,076,096 $ 31,790,115 - 109,827 109,827 - 10,417,865 10,417,865 208,556 10,837,126 256,103 1,855,752 2,111,855 73,122 - 73,122 - - - 2,438,968 2,438,968 4,877,935 3,150,851 3,150,851 6,301,701 - 4,471,657 3,372,254 - 3,372,254 - 1,975,300 1,975,300 - 661,640 661,640 10,081,307 10,081,307 - 130,999,398 130,999,398 121,559,476 167,204,681 49,009,509 117,647,646 166,657,155 - 1,748,440 1,748,440 - 1,748,440 211,958 - 211,958 211,958 - 211,958 673,672 1,719,037 - - - - 348,888 348,888 - 348,888 $ 149,650,004 $ 216,955,981 $ 58,812,022 $ 295,809,248 $ 354,621,269

</pre>NOTE 12 - STOCK-BASED COMPENSATION<pre>

On October 19, 2021, the board of administrators of the Firm (the "Board") and the stockholders of the Firm permitted a brand new long-term incentive plan (the "New LTIP") for workers, consultants and administrators. The New LTIP supplies for the grant of choices (together with incentive inventory choices and non-qualified inventory choices), inventory appreciation rights, restricted inventory items ("RSUs"), dividend equivalents, different stock-based awards, and substitute awards meant to align the pursuits of service suppliers, together with our named government officers, with these of our stockholders. Pursuant to the New LTIP, the remaining shares of Class A typical inventory below the LTIP that was efficient April 28, 2021, that had been reserved and out there for supply, had been assumed and reserved for issuance below the New LTIP. As well as, the New LTIP raised the combination variety of shares of frequent inventory that could be issued or used for reference functions or with respect to which awards could also be granted below the plan to not exceed 4,752,000 shares. As of October 19, 2021, the Firm now grants all equity-based awards below the New LTIP.

The Board is duly licensed to manage the New LTIP. The Firm accounts for share-based fee awards exchanged for providers on the estimated grant date truthful worth of the award.

Inventory choices issued below the Firm's New LTIP are granted with an train worth at least the market worth of the Firm's inventory on the date of grant and expire as much as ten years from the date of the grant. The Firm accounts for share-based fee awards exchanged for providers on the estimated grant date truthful worth of the award. Inventory choices issued below the LTIP had been granted with an train worth equal to the truthful market worth of the Firm's inventory, as decided as regards to third-party valuations as of the date of choice grants, and expire as much as ten years from the date of grant. Choices granted below the New LTIP and the LTIP vest over varied phrases.

RSUs are topic to restrictions on transferability, threat of forfeiture and different restrictions imposed by the Compensation Committee of the Board (the "Committee"). Settlement of vested RSUs will happen upon vesting or upon expiration of the deferral interval specified for such RSUs by the Committee (or, if permitted by the Committee, as elected by the participant). RSUs could also be settled in money or quite a lot of shares of inventory (or a mix of the 2), as decided by the Committee on the date of grant or thereafter. 111 --------------------------------------------------------------------------------</pre>Inventory-Primarily based Compensation<pre>

Inventory-based compensation expense, together with share-based bills related to non-employee administrators, was $13,890,350 and $4,015,324 for the years ended December 31, 2022, and 2021, respectively, and is included typically and administrative expense within the consolidated statements of operations. There is no such thing as a tax profit associated to inventory compensation expense as a result of Firm having a full valuation allowance recorded in opposition to its deferred earnings tax property as of December 31, 2022.

</pre>The Firm acknowledged whole stock-based compensation expense for the years ended December 31, 2022, and 2021, from the next classes:<pre> December 31, 2022 December 31, 2021 Restricted inventory awards below the Plan 3,592,641 </pre> 172,800<pre> Inventory choice awards below the Plan 10,297,709 </pre>3,842,524<pre> Complete stock-based compensation $ 13,890,350 $ 4,015,324

Inventory Choices

The next are the weighted-average assumptions utilized in calculating the truthful worth of the entire inventory choices granted throughout 2022 utilizing the Black-Scholes methodology. December 31, 2022 December 31, 2021 Weighted-average truthful worth of choices granted $ 10.21 $ 7.64 Anticipated volatility 125.85 % 128.14 % Anticipated life (in years) 5.81 5.77 Danger-free rate of interest 1.69 % 0.93 % Anticipated dividend yield 0 % 0 %

Anticipated Volatility - The Firm estimates its anticipated inventory volatility primarily based on the historic volatility of a publicly traded set of peer corporations, because the Firm doesn't presently have enough historical past for the volatility of its personal inventory.

</pre>Anticipated Time period - The anticipated time period of choices represents the interval that the Firm's stock-based awards are anticipated to be excellent primarily based on the simplified methodology, which is the half-life from vesting to the tip of the contractual time period.<pre>

Danger-Free Curiosity Price - The Firm bases the risk-free rate of interest on the implied yield out there on U.S. Treasury zero-coupon points with an equal remaining time period.

Anticipated Dividend Yield - The Firm has by no means declared or paid any money dividends on its frequent shares and doesn't plan to pay money dividends within the foreseeable future and, due to this fact, makes use of an anticipated dividend yield of zero in its valuation fashions.

</pre>The Firm elected to account for forfeited awards as they happen, as permitted by ASU 2016-09.<pre>

As of December 31, 2022, the entire future compensation expense associated to unvested choices not but acknowledged within the consolidated statements of operations was roughly $13,466,789, and the weighted-average interval over which these awards are anticipated to be acknowledged is roughly 1.61 years. 112 --------------------------------------------------------------------------------</pre>The next desk summarizes the Firm's inventory choice exercise for the years ended December 31, 2022, and 2021.<pre> Weighted- Weighted- Common Common Mixture Quantity Train Contractual Intrinsic of Shares Worth Time period Worth Excellent at January 1, 2021 - $ - - $ - Granted 3,379,083 8.91 9.61 - Exercised - - - - Cancelled/forfeited - - - - Excellent at December 31, 2021 3,379,083 $ 8.91 9.61 $ 30,906,003 Granted 205,964 10.61 9.11 - Exercised - - - - Cancelled/forfeited (35,000) 18.06 8.68 - Excellent at December 31, 2022 3,550,047 9.03 9.00 - Shares vested and anticipated to vest 3,550,047 $ 9.03 8.62 $ - Exercisable as of December 31, 2022 1,721,821 $ 9.06 8.60 $ -

RSUs </pre>The next desk summarizes the Firm's RSU exercise for the years ended December 31, 2022, and 2021.<pre>

Quantity Weighted-Common Grant of Shares Date Truthful Worth Unvested at January 1, 2021 - $ - Vested - - Granted 60,737 11.10 Forfeited - - Unvested at December 31, 2021 60,737 $ 11.10 Vested (319,959) 5.36 Granted 1,687,111 3.76 Forfeited (8,358) 3.88 Unvested at December 31, 2022 1,419,531 $ 4.35

The worth of RSUs are measured primarily based on their truthful worth on the date of grant and amortized over their respective vesting durations. As of December 31, 2022, whole future compensation expense associated to unvested RSUs not but acknowledged in the consolidated statements of operations was roughly $3,881,290, and the weighted-average vesting interval over which these awards are anticipated to be acknowledged is roughly 1.79 years.

</pre>Non-employee Administrators Compensation CoverageOn January 10, 2022, the Committee formally adopted the beforehand permitted Non-Worker Director Compensation Coverage ("Coverage"), efficient October 19, 2021. The Coverage included the next:<pre>

•An preliminary fairness grant of 10,000 inventory choices; •An annual retainer equal to $100,000, to be paid in fully-vested shares of the firm's Class A typical inventory on a quarterly foundation in arrears; •As soon as a non-employee director obtains exposures to the Firm's Class A typical inventory of $500,000 or higher, a director might select to obtain the annual retainer in USD or every other forex (together with Bitcoin); and •Reimbursement for journey bills and different cheap out-of-pocket bills.

The Firm paid compensation to the non-employee administrators of $275,843 throughout 2022, of which $200,843 is included inside basic and administrative expense in the consolidated assertion of operations for the yr ended December 31, 113 --------------------------------------------------------------------------------</pre>2022, after reversing an accrual of $75,000 as of December 31, 2021. By comparability, no compensation was paid to the non-employee administrators throughout 2021.<pre>

NOTE 13 - WARRANTS

</pre>The next desk summarizes excellent warrants as of December 31, 2022, and 2021, and exercise for the years then ended.<pre> Variety of Warrants Excellent as of January 1, 2021 - Issued 297,795 Exercised - </pre>Excellent as of December 31, 2021 297,795 Issued<pre> 21,393,561 Exercised (5,816,250) </pre>Excellent as of December 31, 2022 15,875,106Might 2022 Non-public Placement<pre>

On Might 15, 2022, the Firm entered right into a be aware and warrant buy settlement, by and among the many Firm and the purchasers thereto, whereby the Firm agreed to problem and promote (i) $33,750,000 combination principal quantity of 10.00% unsecured convertible promissory notes and (ii) warrants representing the best to buy as much as 6,318,000 shares of Class A typical inventory, of the Firm with an train worth per share equal to $2.50. The promissory notes and warrants had been bought for combination consideration of $27.0 million.

On August 16, 2022, the Firm amended the be aware and warrant buy settlement, such that $11.25 million of the excellent principal was exchanged for the execution of an amended and restated warrant settlement pursuant to which the strike worth of the 6,318,000 warrants was diminished from $2.50 to $0.01. Confer with Word 29 - Non-public Placements for extra particulars.

On November 15, 2022, the Firm elected to problem a further 3,243,416 of warrants (in lieu of money) for the November 2022 convertible be aware amortization fee. Subsequently, throughout the fourth quarter of 2022, the convertible be aware holders exercised 6,424,324 of the excellent warrants.

</pre>September 2022 Non-public Placement<pre>

On September 13, 2022, the Firm entered into Securities Buy Agreements with Armistice Capital Grasp Fund Ltd. and Greg Beard, the Firm's Chairman and Chief Govt Officer, for the acquisition and sale of Class A typical inventory and warrants. Confer with Word 29 - Non-public Placements for extra particulars. As a part of the transaction, Armistice bought the pre-funded warrants for 2,725,650 shares of Class A typical inventory at a purchase order worth of $1.60 per warrant. The pre-funded warrants have an train worth of $0.0001 per warrant share.

</pre>WhiteHawk Refinancing Settlement<pre>

As detailed in Word 6 - Debt, on October 27, 2022, the Firm entered into the Credit score Settlement with WhiteHawk to refinance the WhiteHawk Financing Settlement, successfully terminating the WhiteHawk Financing Settlement. Together with the closing of the WhiteHawk Refinancing Settlement, the Firm issued a inventory buy warrant to WhiteHawk, which supplies for the acquisition of a further 4,000,000 shares of Class A typical inventory at an train worth of $0.01 per share.

</pre>WhiteHawk Finance LLC<pre>

On June 30, 2021, Tools LLC entered right into a $40,000,000 promissory be aware with WhiteHawk. The be aware had a maturity date of June 23, 2023, however was successfully extinguished on October 27, 2022, when the Firm entered into the WhiteHawk Refinancing Settlement. Together with the promissory be aware, on June 30, 2021, Tools LLC additionally entered right into a inventory buy warrant settlement, the place Tools LLC issued 181,705 warrants to WhiteHawk Finance LLC to buy shares of Class A typical inventory of Tools LLC. 114 --------------------------------------------------------------------------------

On March 28, 2022, Tools LLC entered right into a $25,000,000 promissory be aware with WhiteHawk. The be aware had a maturity date of March 31, 2024, however was successfully extinguished on October 27, 2022, when the Firm entered into the WhiteHawk Refinancing Settlement. Together with the promissory be aware, on March 28, 2022, Tools LLC additionally entered right into a inventory buy warrant settlement, the place Tools LLC issued 125,000 warrants to WhiteHawk Finance LLC to buy shares of Class A typical inventory of Tools LLC.

</pre>B. Riley Securities, Inc.<pre>

On April 1, 2021, and Might 14, 2021, Stronghold Inc. entered right into a warrant settlement with American Inventory Switch & Belief Firm. B. Riley Securities, Inc. acted because the Firm's placement agent in reference to the Non-public Placements, and in connection therewith, the Firm issued B. Riley Securities, Inc. (i) a five-year warrant to buy as much as 97,920 shares of Collection A most popular inventory at a per share train worth of $8.68 and (ii) a five-year warrant to buy as much as 18,170 shares of Collection B most popular inventory at a per share train worth of $11.01.

</pre>NOTE 14 - REDEEMABLE COMMON STOCKNon-public Placements: Redeemable Frequent Inventory - Collection A and B<pre>

On April 1, 2021, the Firm entered right into a Collection A Most well-liked Inventory Buy Settlement pursuant to which the Firm issued and bought 9,792,000 shares of Collection A Most well-liked Inventory within the Collection A Non-public Placement, at a worth of $8.68 per share to numerous accredited people for combination consideration of roughly $85.0 million. In reference to the Collection A Non-public Placement, the Firm incurred roughly $6.3 million in charges and $631,897 as debt issuance prices for warrants issued as a part of the Collection A Non-public Placement.

Additional, pursuant to the Collection A Non-public Placement, the Firm, the buyers within the Collection A Non-public Placement and key holders entered right into a Proper of First Refusal Settlement ("ROFR Settlement"). Below the ROFR Settlement, the important thing holders agreed to grant a proper of first refusal to Stronghold Inc. to buy all or any portion of capital inventory of Stronghold Inc. held by a key holder or issued to a key holder after the date of the ROFR Settlement, not together with any shares of Collection A Most well-liked Inventory or frequent inventory issued or issuable upon conversion of the Collection A Most well-liked Inventory. The important thing holders additionally granted a proper of refusal to the buyers within the Collection A Non-public Placement to buy all or any eligible capital inventory not bought by the Firm pursuant to its proper of first refusal.

The ROFR Settlement additionally supplied sure co-sale rights to buyers within the Collection A Non-public Placement to take part in any sale or comparable switch of any shares of frequent inventory owned by a key holder or issued to a key holder after the Collection A Non-public Placement, on the phrases and situations laid out in a written discover from a key holder. The buyers, nevertheless, will not be obligated to take part in such gross sales or comparable transfers. The co-sale and rights of first refusal below the ROFR Settlement terminated when the Most well-liked Inventory transformed into shares of Class A typical inventory.

On Might 14, 2021, the Firm accomplished the Collection B Non-public Placement. The phrases of the Collection B Most well-liked Inventory had been considerably just like the Collection A Most well-liked Inventory, apart from variations within the acknowledged worth of such shares in the occasion of any voluntary or involuntary liquidation, dissolution or winding up of the Firm or sure deemed liquidation occasions. In reference to the Collection B Non-public Placement, the Firm bought 1,817,035 shares of its Collection B Most well-liked Inventory for an combination buy worth of roughly $20.0 million. In reference to the Collection B Non-public Placement, the Firm incurred roughly $1.6 million in charges and bills and $148,575 as debt issuance prices for warrants issued as a part of the Collection B Non-public Placement.

The Firm entered into registration rights agreements with the buyers in the Non-public Placements concurrently with the closing of every Non-public Placement, with sure submitting deadlines as outlined within the agreements.

On October 22, 2021 (the time limit of the IPO), the online proceeds from the 9,792,000 shares of the Collection A Most well-liked Inventory and the 1,816,994 shares of the Collection B Most well-liked Inventory had been transformed to shares of Class A typical inventory on a one-for-one share foundation at a par worth of $0.0001 per share. As of December 31, 2021, these shares had been now not reported as redeemable frequent inventory. 115 --------------------------------------------------------------------------------</pre>The next is a abstract of the Collection A and Collection B valuations and conversions to frequent fairness:<pre>

Collection A Collection B Proceeds $ 85,000,000 $ 20,000,305 Transaction charges: B. Riley Securities (5,100,000) (1,200,000) Authorized and submitting charges (1,226,990) (408,997) </pre>Debt issuance prices pertaining to inventory registration warrants - seek advice from Word 13<pre> (631,897) (148,575) Complete web redeemable frequent inventory $ 78,041,113 $ 18,242,733 Conversion to frequent Class A shares $ (78,041,113) $ (18,242,733) Remaining in web redeemable frequent inventory $ - $ -

Frequent Inventory - Class V

In reference to the Reorganization on April 1, 2021, Stronghold LLC instantly thereafter distributed the 27,072,000 shares of Class V frequent inventory to Q Energy. As well as, efficient as of April 1, 2021, Stronghold Inc. acquired 14,400 Stronghold LLC items held by Q Energy (together with an equal variety of shares of Class V frequent inventory) in change for 14,400 newly-issued shares of Class A typical inventory.

Class V frequent inventory represented 45.1% and 56.1% possession of Stronghold LLC, as of December 31, 2022, and December 31, 2021, respectively, granting the house owners of Q Energy financial rights and, as a holder, one vote on all issues to be voted on by our stockholders usually, and a redemption proper into Class A shares. Confer with Word 15 - Noncontrolling Pursuits for extra particulars.

The Firm classifies its Class V frequent inventory as redeemable frequent inventory in the accompanying consolidated steadiness sheets as, pursuant to the Stronghold LLC Settlement, the redemption rights of every unit held by Q Energy for both shares of Class A typical inventory or an equal amount of money just isn't solely inside the Firm's management. That is as a result of holders of the Class V frequent inventory collectively proudly owning a majority of the voting inventory of the Firm, which permits the holders of Class V frequent inventory to elect the members of the Board, together with these administrators who decide whether or not to make a money fee upon a Stronghold LLC unit holder's train of its redemption rights. Redeemable frequent inventory is recorded on the higher of the guide worth or redemption quantity from the date of the issuance, April 1, 2021, and the reporting date as of December 31, 2022.

The Firm recorded redeemable frequent inventory as introduced within the desk beneath. Frequent Class V Shares Quantity Steadiness - December 31, 2021 27,057,600 $ 301,052,617 Internet loss attributable to noncontrolling curiosity - (101,770,413) Most redemption proper valuation - (187,527,617) Redemption of Class V shares (1,000,000) - Steadiness - December 31, 2022 </pre> 26,057,600 $ 11,754,587NOTE 15 - NONCONTROLLING INTERESTS<pre>

The Firm is the only real managing member of Stronghold LLC and, because of this, consolidates the monetary outcomes of Stronghold LLC and experiences a noncontrolling curiosity representing the frequent items of Stronghold LLC held by Q Energy. Adjustments within the Firm's possession curiosity in Stronghold LLC, whereas the Firm retains its controlling curiosity, are accounted for as redeemable frequent inventory transactions. As such, future redemptions or direct exchanges of frequent items of Stronghold LLC by the persevering with fairness house owners will lead to modifications to the quantity recorded as noncontrolling 116 --------------------------------------------------------------------------------</pre>curiosity. Confer with Word 14 - Redeemable Frequent Inventory, which describes the redemption rights of the noncontrolling curiosity.<pre>

Class V frequent inventory represented 45.1% and 56.1% possession of Stronghold LLC, as of December 31, 2022, and 2021, respectively, granting the house owners of Q Energy financial rights and, as a holder, one vote on all issues to be voted on by our stockholders usually, and a redemption proper into Class A shares. Through the yr ended December 31, 2022, 1,000,000 shares of Class V frequent inventory held by Q Energy had been redeemed into Class A shares of frequent inventory.

</pre>The next summarizes the redeemable frequent inventory changes pertaining to the noncontrolling curiosity from April 1, 2021, by means of December 31, 2022:<pre> Class V Frequent Inventory Non permanent Fairness Excellent Truthful Worth Worth Changes Steadiness - April 1, 2021 (1) $ (2,877,584) Internet losses for the three months ended June 30, 2021 (2,235,219) Most redemption proper valuation (2) 27,057,600 $ 6.39 172,774,052 Steadiness - June 30, 2021 $ 167,661,249 </pre>Internet losses for the three months ended September 30, 2021<pre> (4,328,460) </pre>Adjustment of mezzanine fairness to redemption quantity (3)<pre> 27,057,600 $ 9.33 79,669,600 Steadiness - September 30, 2021 $ 243,002,389 </pre>Internet losses for the three months ended December 31, 2021<pre> (8,594,196) </pre>Adjustment of short-term fairness to redemption quantity (3)<pre> 27,057,600 $ 11.99 66,644,424 Steadiness - December 31, 2021 $ 301,052,617 Internet losses for the three months ended March 31, 2022 (18,125,837) </pre>Adjustment of short-term fairness to redemption quantity (3)<pre> 27,057,600 $ 7.72 (110,222,560) Steadiness - March 31, 2022 $ 172,704,220 Internet losses for the three months ended June 30, 2022 (22,576,255) </pre>Adjustment of short-term fairness to redemption quantity (3)<pre> 27,057,600 $ 1.75 (102,888,062) Steadiness - June 30, 2022 $ 47,239,903 </pre>Internet losses for the three months ended September 30, 2022<pre> (42,203,141) </pre>Adjustment of short-term fairness to redemption quantity (3)<pre> 27,057,600 $ 1.09 24,396,766 Steadiness - September 30, 2022 $ 29,433,528 </pre>Internet losses for the three months ended December 31, 2022<pre> (18,865,180) </pre>Adjustment of short-term fairness to redemption quantity (3)<pre> 26,057,600 $ 0.45 1,186,239 Steadiness - December 31, 2022 $ 11,754,587

(1) As of the date of reorganization - seek advice from Word 1 - Enterprise Mixtures. (2) Non permanent fairness adjustment primarily based on Class V frequent inventory excellent at issuance worth as of April 1, 2021. (3) Non permanent fairness adjustment primarily based on Class V frequent inventory excellent at truthful worth worth at every quarter finish, utilizing a 10-day variable weighted common worth ("VWAP") of buying and selling dates together with the time limit.

</pre>Frequent Models<pre>

The Firm is the only real managing member of Stronghold LLC and, because of this, consolidates the monetary outcomes of Stronghold LLC and experiences a noncontrolling curiosity representing the frequent items of Stronghold LLC held by Olympus Energy, LLC, plus a corresponding variety of Class V vote-only shares of frequent inventory. Olympus Energy, LLC can change these frequent items, together with corresponding shares of Class V frequent inventory, for shares of Class A typical inventory on a one-for-one foundation. Due to the Class V voting rights, the Firm has assessed the change proper as a "Redemption Proper" to trigger Stronghold LLC to purchase all or a portion of its Stronghold LLC Models for, at Stronghold LLC's election, one share of Stronghold Inc.'s Class A typical inventory at a redemption ratio of 1 share of Class A typical inventory for every Stronghold LLC Unit.

Frequent items represented 0% and a couple of.4% possession of Stronghold LLC as of December 31, 2022, and 2021, respectively, the place the unique house owners of Olympus Energy, LLC had financial rights and, as a holder, one vote on all issues to be voted on by our stockholders usually, and a redemption proper into Class A shares. Through the yr ended December 31, 2022, all 1,152,000 of frequent items held by Olympus Energy, LLC had been redeemed into Class A shares of frequent inventory. 117 --------------------------------------------------------------------------------</pre>The next summarizes the everlasting fairness changes pertaining to the noncontrolling curiosity from November 2, 2021 (date of issuance), by means of December 31, 2022:<pre>

Everlasting Fairness Changes Steadiness - November 2, 2021 (1) $ 38,315,520 Internet loss (645,359) Steadiness - December 31, 2021 $ 37,670,161 Internet loss (4,140,324) Redemption of Collection A convertible most popular shares </pre>(33,529,837)<pre> Steadiness - December 31, 2022 $ </pre> -(1) As of November 2, 2021, the date of issuance, 1,152,000 of Collection A Most well-liked items excellent at $33.26 per public buying and selling share worth (Nasdaq closing worth).NOTE 16 - EARNINGS (LOSS) PER SHARE<pre>

Fundamental EPS is computed by dividing the Firm's web earnings (loss) by the weighted common variety of Class A shares of frequent inventory excellent throughout the interval. Diluted EPS displays the potential dilution that would happen if securities or different contracts to problem frequent inventory had been exercised or transformed into frequent inventory or resulted within the issuance of frequent inventory that then shared within the earnings of the entity.

</pre>The next desk units forth reconciliations of the numerators and denominators used to compute primary and diluted web loss per share of Class A frequent inventory after the date of the reorganization on April 1, 2021.<pre> Yr Ended April 1 to December 31, 2022 December 31, 2021 Numerator: Internet loss (1) $ (195,171,967) $ (27,255,329) Much less: web loss attributable to predecessor (1/1/21-3/31/21) (238,948) Much less: web loss attributable to noncontrolling curiosity $ (105,910,737) $ (15,803,234) Internet loss attributable to Stronghold Digital Mining, Inc. $ (89,261,230) $ (11,213,147) Denominator: Weighted common variety of Class A typical shares excellent 25,849,048 5,518,752 Fundamental web loss per share $ (3.45) $ (2.03) Diluted web loss per share $ (3.45) $ (2.03)

(1)Fundamental and diluted earnings (loss) per share of Class A typical inventory is introduced just for the interval after the Firm's Reorganization Transactions. As such, web loss used within the calculation represents the loss throughout the yr ended December 31, 2021 (post-reorganization date of April 1, 2021, by means of December 31, 2021).

Securities that would doubtlessly dilute earnings (loss) per share sooner or later that weren't included within the computation of diluted web loss per share as of December 31, 2022, and 2021, as a result of their inclusion could be anti-dilutive, had been as follows: December 31, 2022 December 31, 2021 Inventory choices 1,721,821 - RSUs 319,959 - Warrants (excluding these with $0.01 train worth) 5,718,499 - Collection A most popular items not but exchanged for Frequent A shares - 1,152,000 Frequent V shares not but exchanged for Frequent A shares 26,057,600 27,057,600 Complete 33,817,879 28,209,600

</pre>Subsequent to December 31, 2022, warrant holders exercised a further 4,574,350 of warrants. Moreover, on February 20, 2023, as described in Word 6 - Debt, the Firm entered into the Change Transaction for shares of the<pre> 118 --------------------------------------------------------------------------------

newly-created Collection C Convertible Most well-liked Inventory. As of March 28, 2023, 1,530 items of Collection C Convertible Most well-liked Inventory had been transformed to three,825,000 of Class A typical shares.

</pre>NOTE 17 - OPERATING LEASE ROU ASSETS AND LIABILITIES<pre>

The Firm leases storage and workplace house, data expertise gear, and sure equipment and gear used within the operation of the Firm's coal refuse energy technology services.

Proper-of-use property related to working leases had been $1,719,037, web of amassed amortization of $464,845, within the consolidated steadiness sheet as of December 31, 2022.

</pre>The present and noncurrent parts of the Firm's working lease liabilities as of December 31, 2022, had been as follows:<pre> December 31, 2022 </pre>Present portion of working lease liabilities $ 593,063 Lengthy-term working lease liabilities<pre> 1,230,001 Complete working lease liabilities $ 1,823,064

</pre>Future working lease funds as of December 31, 2022, had been as follows:<pre>

2023 $ 768,175 2024 754,243 2025 448,198 2026 180,587 </pre>Complete working lease funds (undiscounted) 2,151,203 Much less: quantity representing curiosity<pre> (328,139) </pre>Complete working lease funds (discounted) $ 1,823,064<pre>

At December 31, 2022, the weighted-average remaining lease time period approximated 2.76 years, and the weighted-average low cost charge approximated 7.80%. Money paid for quantities included within the measurement of working lease liabilities totaled $712,143 for the yr ended December 31, 2022, and was categorised as working money flows within the consolidated assertion of money flows for the yr then ended.

</pre>NOTE 18 - ASPEN INTEREST ("OLYMPUS") BUYOUTOn April 1, 2021, the Firm, utilizing partly 576,000 shares of newly issued Collection A Most well-liked Inventory and partly proceeds from the Collection A Non-public Placement, acquired the Aspen Curiosity.<pre>

The full consideration was a mix of the newly issued Collection A Most well-liked Inventory valued on the issuance worth of $8.68 per share, or $5,000,000, plus an further $2,000,000 in money. A complete of $7,000,000 was handled as a buyout of the Companions' Deficits of the Restricted Accomplice (i.e., Aspen Curiosity) as of April 1, 2021.

</pre>The next desk particulars the Companions' Deficit of the Aspen Curiosity as of April 1, 2021:<pre> Restricted Companions Steadiness - December 31, 2020 $ (1,336,784) Internet loss - three months ended March 31, 2021 (71,687) Steadiness - April 1, 2021 $ (1,408,471)

119 --------------------------------------------------------------------------------</pre>NOTE 19 - SUPPLEMENTAL CASH AND NON-CASH INFORMATIONSupplemental disclosures of money circulation data for the years ended December 31, 2022, and 2021, had been as follows:<pre> December 31, 2022 December 31, 2021 Earnings tax funds $ - $ - Curiosity funds $ 9,636,505 $ 1,195,692

</pre>Supplemental non-cash investing and financing actions consisted of the following for the years ended December 31, 2022, and 2021:<pre> December 31, 2022 December 31, 2021 Tools financed with debt $ - $ 45,793,381 Purchases of property, plant and gear by means of finance leases 938,902 - </pre>Purchases of property, plant and gear included in accounts payable or accrued liabilities<pre> 6,614,671 - </pre>Working lease right-of-use property exchanged for lease liabilities <pre> 630,831 - Reclassifications from deposits to property, plant and gear 63,363,287 - McClymonds arbitration award - paid by Q Energy 5,038,122 - Convertible be aware fee by way of warrants 3,340,078 - Redemption of Collection A convertible most popular shares 33,529,837 - Return of miners to settle debt 39,008,651 - Issued as a part of financing: Warrants - WhiteHawk 1,150,000 1,999,396 Warrants - convertible be aware 6,604,881 - Frequent Class A shares - NYDIG - 1,389,888 </pre>Warrants issued as a part of inventory registrations - B.Riley Warrants <pre> - 780,472 </pre>Collection A redeemable and convertible most popular inventory - Aspen Curiosity buyout<pre> - 5,000,000 </pre>Collection A redeemable and convertible most popular inventory items - Panther Creek Acquisition<pre> - 38,315,520 Financed insurance coverage premiums 5,484,449 6,890,509

</pre>NOTE 20 - TAX RECEIVABLE AGREEMENT<pre>

The Firm entered right into a Tax Receivable Settlement ("TRA") with Q Energy and an agent named by Q Energy on April 1, 2021, (to which a further holder was subsequently joined as a further "TRA Holder" on March 14, 2023), pursuant to which the Firm can pay the TRA Holders 85% of the realized (or, in sure circumstances, deemed realized) money tax financial savings attributable to the tax foundation step-ups arising from taxable exchanges of items and sure different objects.

For the yr ended December 31, 2022, a taxable change of Stronghold LLC items, along with a corresponding variety of Class V frequent shares by Q Energy for Class A typical inventory of the Firm, resulted in changes to the tax foundation of Stronghold LLC's property. Such step-ups in tax foundation, which had been allotted to Stronghold Inc., are anticipated to extend Stronghold Inc.'s tax depreciation, amortization and/or different value restoration deductions, which can scale back the quantity of tax Stronghold Inc. would in any other case be required to pay in the long run. No money tax financial savings have been realized by Stronghold Inc. with respect to those foundation changes as a result of Firm's estimated taxable losses, and the belief of money tax financial savings sooner or later depends, in half, on estimates of enough future taxable earnings. As such, a deferred earnings tax asset has not been recorded as a result of sustaining a valuation allowance on the Firm's deferred tax property, and no legal responsibility has been recorded with respect to the TRA in mild of the relevant standards for accrual.

Estimating the quantity and timing of Stronghold Inc.'s realization of earnings tax advantages topic to the TRA is imprecise and unknown at the moment and can differ primarily based on quite a lot of components, together with when future redemptions really happen. Accordingly, the Firm has not recorded any deferred earnings tax asset or legal responsibility related to the TRA. 120 --------------------------------------------------------------------------------</pre>NOTE 21 - INCOME TAXES<pre>

Subsequent to the Firm's incorporation, the Firm and its indirectly-owned company subsidiaries, Clearfield and Leesburg, present for earnings taxes below the asset and legal responsibility methodology. Deferred earnings tax property and liabilities are decided primarily based on the distinction between the monetary assertion and tax foundation of property and liabilities - particularly for the Firm and its funding in Stronghold LLC - utilizing enacted earnings tax charges anticipated to be in impact throughout the yr by which the premise variations reverse. Valuation allowances are established when administration determines it's extra doubtless than not that some portion, or all, of the deferred earnings tax property won't be realized.

Previous to the Reorganization, Scrubgrass and Stronghold Energy had been structured as a restricted partnership and restricted legal responsibility firm, respectively. Due to this fact, any taxable earnings or loss was included within the earnings tax returns of the particular person house owners. Accordingly, no recognition has been given to federal or state earnings taxes within the Firm's monetary statements for the durations prior to the Reorganization.

For the years ended December 31, 2022, and 2021, the Firm's whole earnings tax provision (profit) of $0 differed from quantities computed by making use of the United States federal earnings tax charge to pre-tax loss for the interval primarily as a result of the online losses attributable to noncontrolling pursuits and as a result of sustaining a valuation allowance on the Firm's deferred earnings tax property.

</pre>The parts of the availability for earnings taxes for the years ended December 31, 2022, and 2021, had been as follows:<pre>

Yr ended </pre>December 31,<pre> 2022 2021 Present earnings tax provision (profit): Federal $ - $ - State - - Complete present earnings tax provision (profit) $ - $ - Deferred earnings tax provision (profit): Federal $ - $ - State - - Complete deferred earnings tax provision (profit) $ - $ - Complete earnings tax provision (profit) $ - </pre> $ -<pre>

The availability for earnings taxes differs from the quantities computed by making use of the United States federal earnings tax charge to pre-tax loss. A reconciliation of the statutory federal earnings tax quantity to the recorded earnings tax provision (profit) expense is detailed within the following desk. </pre> Yr ended December 31,<pre> 2022 2021 Earnings tax expense (profit) at 21% federal earnings tax charge $ (40,986,113) $ (5,723,619) Earnings attributable to the pre-incorporation interval - 50,179 Earnings attributable to nontaxable noncontrolling curiosity 22,241,255 3,318,679 State earnings tax expense (profit), web of federal tax impact (3,495,720) (752,955) Change in valuation allowance 20,934,443 2,756,486 Change in state earnings tax charge 1,430,670 - Different, web (124,535) 351,230 Complete earnings tax provision (profit) $ </pre> - $ -Important parts of the Firm's deferred earnings tax property and liabilities as of December 31, 2022, and 2021, had been as follows:<pre> 121 --------------------------------------------------------------------------------

Yr ended December </pre>31,<pre> 2022 </pre>2021Internet working loss and different carryforwards $ 25,852,100 $ 6,243,820 Funding in Stronghold LLC<pre> 15,068,075 </pre>3,999,780<pre> Complete deferred earnings tax property $ 40,920,175 $ </pre>10,243,600<pre> Valuation allowance (40,920,175) </pre>(10,243,600)<pre> Internet deferred earnings tax property $ - $ </pre> -Internet deferred earnings tax property (liabilities) $ - $ -<pre>

As of December 31, 2022, and 2021, the Firm and its subsidiaries had no web deferred earnings tax property or liabilities. Subsequent to the Firm's Reorganization in 2021, deferred taxes are supplied on the distinction between the Firm's foundation for monetary reporting functions and foundation for federal earnings tax functions in its funding in Stronghold LLC.

On July 8, 2022, the state of Pennsylvania enacted HB 1342 (Act 53), which features a gradual discount to the state company earnings tax charge to 4.99% over the 2023 by means of 2031 interval. The Firm thought-about the affect of this laws within the interval of enactment and diminished the gross quantity of its Pennsylvania deferred earnings tax property to keep in mind the diminished statutory charge. There was no affect to deferred earnings tax expense or web deferred earnings tax property as a result of valuation allowance in opposition to the Firm's deferred earnings tax property.

As of December 31, 2022, no deferred earnings tax asset or legal responsibility has been recorded with respect to the Firm's TRA with Q Energy and different events thereto as a result of any basis-step generated by an change that triggers quantities doubtlessly owed by the Firm below the TRA (i.e., the redemption of Stronghold LLC items for shares of Class A typical inventory or money) could be a element of a deferred earnings tax asset no more doubtless than to not be realized, as mentioned additional beneath. The Firm has not but realized money tax financial savings with respect to foundation step-ups ensuing from any change, as a result of Firm's estimated taxable losses.

As of December 31, 2022, the Firm had federal web working loss and curiosity expense carryforwards of roughly $113.8 million, which can be carried ahead indefinitely to offset future taxable earnings, and state web working loss carryforwards of roughly $43.2 million expiring in 2041 if not used. The Firm incurred a tax web working loss in 2022 due principally to Stronghold LLC's tax deductions for accelerated depreciation, along with its pre-tax loss. As of December 31, 2022, the Firm didn't have any unsure tax positions requiring recognition in its consolidated monetary statements. The 2021 and 2022 tax years for the Firm and the 2018 by means of 2022 tax years for Clearfield and Leesburg stay open to potential examination by tax authorities.

As of December 31, 2022, and 2021, the Firm had a valuation allowance of roughly $40.9 million and $10.2 million, respectively, associated to deferred earnings tax property the Firm doesn't consider are extra doubtless than to not be realized. The willpower to report a valuation allowance was primarily based on administration's evaluation of all out there proof, each optimistic and destructive, supporting realizability of the Firm's web working losses and different deferred earnings tax property, as required by ASC 740. Components contributing to this evaluation included the Firm's cumulative and present losses, in addition to the analysis of different sources of earnings as outlined in ASC 740. As well as, as of December 31, 2022, the Firm decided that it sustained an possession change as outlined by IRC Part 382, which topics the Firm's pre-change web working losses and different carryforwards to annual limitation. Typically, the quantity of the limitation is the same as the worth of the corporate's inventory instantly previous to the possession change multiplied by an rate of interest, known as the long-term tax-exempt charge, periodically promulgated by the IRS. The Firm estimates that the quantity of its losses generated previous to the possession change that could be used yearly subsequent to the change is roughly $2.1 million. Such annual restrict might considerably affect the timing of utilization of the Firm's federal and state losses and different carryforwards.

The Firm continues to judge the chance of the utilization of its deferred earnings tax property, and, whereas the valuation allowance stays in place, the Firm expects to report no deferred earnings tax expense or profit. In mild of the standards below ASC 740 for recognizing the tax advantage of deferred earnings tax property, the Firm maintained a valuation allowance in opposition to its federal and state deferred earnings tax property as of December 31, 2022, and 2021. 122 --------------------------------------------------------------------------------</pre>NOTE 22 - PREPAID INSURANCE<pre>

As of December 31, 2022, and 2021, the Firm had an unamortized pay as you go insurance coverage steadiness of $4,877,935 and $6,301,701, respectively. The unamortized steadiness as of December 31, 2022, consisted of $4,080,241 to cowl administrators and officers insurance coverage, together with company reimbursement ("D&O Coverage"), and varied industrial property and threat coverages totaling $797,694. Efficient October 20, 2022, the D&O Coverage was renewed for 12 months. Confer with Word 28 - Financed Insurance coverage Premiums for disclosure of the annual premiums and financing particulars. The Firm's industrial property and threat coverages differ in coverage time period expirations and are renewable on an annual foundation.

</pre>NOTE 23 - ACCRUED LIABILITIESDifferent accrued liabilities consisted of the next as of December 31, 2022, and 2021:<pre> December 31, 2022 December 31, 2021 Accrued authorized {and professional} charges $ 1,439,544 $ 1,457,727

Accrued curiosity 1,343,085 79,267 Accrued gross sales and use tax 5,150,659 2,609,664

Different 959,960 907,299

Complete accrued liabilities $ 8,893,248 $ 5,053,957

NOTE 24 - ACQUISITION

On July 9, 2021, the Firm entered into a purchase order settlement with Panther Creek Reclamation Holdings, LLC ("Panther Creek Reclamation"), a subsidiary of Olympus (the "Panther Creek Acquisition") to accumulate all the property of Panther Creek Energy Working LLC ("Panther Creek"), comprised primarily of a coal refuse reclamation facility with 80 MW of web electrical energy technology capability positioned close to Nesquehoning, Pennsylvania (the "Panther Creek Plant"). Stronghold Inc. accomplished the Panther Creek Acquisition on November 2, 2021. The consideration for the Panther Creek Plant was roughly $3.0 million in money ($2.192 million after deducting 50% of land closing prices agreed to be cut up with the vendor) and 1,152,000 Stronghold LLC items, along with a corresponding variety of shares of Class V frequent inventory. Pursuant to the Redemption Proper (as outlined herein), every Stronghold LLC unit, mixed with a corresponding share of Class V frequent inventory, could also be redeemed for one share of Class A typical inventory (or money, in sure situations).

Moreover, on November 5, 2021, the Firm entered right into a Registration Rights Settlement with Panther Creek Reclamation, whereby the Firm agreed to register the 1,152,000 shares of Class A typical inventory that could be acquired upon the Panther Creek Redemption. In November 2022, these shares had been redeemed for Class A typical inventory. Confer with Word 15 - Noncontrolling Pursuits for additional particulars.

The transaction was analyzed in accordance with ASC 805, Enterprise Mixtures, to first decide whether or not the acquired property constituted a enterprise. If considerably all the truthful worth of the gross property acquired is concentrated in a single identifiable asset or group of comparable identifiable property, the acquired property don't represent a enterprise. If the property acquired will not be a enterprise, then the reporting entity ought to report the transaction as an asset acquisition in accordance with ASC 805-50 (utilizing the associated fee accumulation mannequin, relatively than the truthful worth mannequin that applies to enterprise mixtures).

</pre>The next steps had been carried out to find out whether or not considerably all the truthful worth of the gross property acquired was concentrated in a single identifiable asset or group of comparable identifiable property:Step 1. Mix the identifiable property right into a single identifiable asset. The Firm concluded that not one of the property certified for mixture right into a single identifiable asset per ASC 805-10-55-5B.Step 2. Mix the property into comparable property. The Firm concluded that none of the property certified for mixture as comparable property below ASC 805-10-55-5C.<pre>

Step 3. Measure the truthful worth of the gross property acquired. The Firm concluded that the gross property acquired included consideration transferred in extra of the truthful worth of the online identifiable property acquired (i.e., goodwill in a 123 --------------------------------------------------------------------------------</pre>enterprise mixture), however it didn't embody goodwill ensuing from the results of deferred earnings tax liabilities, money and money equivalents or deferred earnings tax property.<pre>

Step 4. Decide whether or not considerably all the truthful worth of the gross property acquired is concentrated in a single identifiable asset or group of comparable identifiable property. The Firm in contrast the truthful worth of the one identifiable asset (or group of comparable property) to the truthful worth of the gross property acquired.

Primarily based on the above evaluation, considerably all the truthful worth of the gross property acquired was concentrated in a single identifiable asset or group of comparable identifiable property. Because of this, the transaction met the display screen take a look at as outlined in ASC 805-10-55-5A by means of 55-5C and was handled as an asset acquisition.

</pre>The next represented the truthful worth of the identifiable property and liabilities as of the acquisition date of November 2, 2021:The acquisition worth allocation was as follows (in 1000's): Money and money equivalents<pre> $ 491 Accounts receivable - commerce 831 Prepaids and different present property 429 Supplies and provides 1,559 Land and Rights of Means 1,727 Property, plant and gear 43,782 Accounts payable (2,943) Accrued bills (298) Because of associated events (73) Complete identifiable property and liabilities $ 45,505 Complete buy consideration (1) $ 45,505

(1) The $45.5 million buy worth consideration consisted of $38.316 million truthful worth of 1,152,000 Collection A redeemable most popular items (registered for public sale), $2.192 million in money (web of fifty% of land closing prices $0.808 million), $0.501 million in asset retirement obligations, $0.218 million in assumed notes payable, $0.613 million in buy associated authorized and skilled charges, and $3.665 million associated to the settlement of varied present relationship payables (partially offset by receivables).

</pre>NOTE 25 - VARIABLE PREPAID FORWARD SALES CONTRACT DERIVATIVE<pre>

On December 15, 2021, the Firm entered right into a Ahead Sale with NYDIG Buying and selling offering for the sale of 250 Bitcoin (the "Offered Bitcoin") at a flooring worth of $28,000 per Bitcoin (such sale, the "Ahead Sale"). Pursuant to the Ahead Sale, NYDIG Buying and selling paid the Firm $7.0 million, an quantity equal to the ground worth per Bitcoin (the "Preliminary Sale Worth") on December 16, 2021, instances the 250 Bitcoin supplied on the market.

</pre>On March 16, 2022, the Firm executed further choice transactions. The online impact of these transactions was to regulate the capped closing sale worth to $50,000 from $85,500 per Bitcoin, leading to $970,000 of proceeds to the Firm.<pre>

On July 27, 2022, the Firm exited the Variable Pay as you go Ahead Gross sales Contract Spinoff with NYDIG Buying and selling. Because of this, the Firm delivered the restricted digital property beforehand pledged as collateral to NYDIG Buying and selling. In return, the Firm acquired $220,000 of money and was relieved of its spinoff legal responsibility. For the years ended December 31, 2022, and 2021, the Firm acknowledged a acquire (loss) from modifications within the truthful worth of the ahead sale spinoff of $3,435,639 and $(116,488), respectively.

On September 24, 2022, the Ahead Sale was settled and Offered Bitcoin was bought to NYDIG Buying and selling at a worth equal to the market worth for Bitcoin on September 23, 2022, much less the Preliminary Sale Worth of $7.0 million, topic to a capped closing sale worth of $85,500 per Bitcoin.

On account of the embedded worth flooring and cap mechanisms, this transaction was thought-about a compound spinoff instrument topic to truthful worth remeasurement every reporting interval. To find out the truthful worth, the Firm used a Black-Scholes choice pricing mannequin to evaluate the mixed web worth of the embedded name and put options. The Firm 124 --------------------------------------------------------------------------------

didn't formally designate this instrument as a hedge, and as such, modifications in the truthful worth of the compound spinoff instrument had been recorded as "modifications in truthful worth of ahead sale spinoff" inside different earnings (expense) within the consolidated statements of operations.

</pre>NOTE 26 - INITIAL PUBLIC OFFERING<pre>

On October 19, 2021, by unanimous written consent, the Board and a newly-formed Pricing Committee permitted the issuance and sale of the Firm's Class A typical inventory, par worth $0.0001 per share, in an preliminary public providing (the "IPO") to be underwritten by a bunch of underwriters to be named within the underwriting settlement dated October 19, 2021, by and among the many Firm and B. Riley Securities, Inc. and Cowen and Firm, LLC, as representatives of the opposite underwriters named therein (the "Underwriting Settlement"). The Board unanimously permitted the issuance and sale by the Firm within the IPO of as much as 7,690,400 shares of Class A typical inventory (which included 6,687,305 agency shares and as much as 1,003,095 shares of Class A typical Inventory that could be issued and bought to cowl over allotments, if any) by means of the Underwriters, for a worth to the general public per share of $19.00, much less underwriting reductions and commissions of $1.33 per share, as extra absolutely set forth within the Underwriting Settlement. Complete web proceeds raised, after deducting underwriting reductions and commissions and estimated providing bills, had been $131.5 million.

</pre>NOTE 27 - HOSTING SERVICES AGREEMENT<pre>

On August 17, 2021, Stronghold LLC entered right into a Internet hosting Providers Settlement with Northern Knowledge PA, LLC ("Northern Knowledge") whereby Northern Knowledge agreed to assemble and function a colocation knowledge heart facility positioned on the Scrubgrass Plant (as outlined beneath) (the "Internet hosting Settlement"), the first enterprise function of which was to supply internet hosting providers and help cryptocurrency miners. In October 2021, the ultimate deposit owed to Northern Knowledge was paid, and Northern Knowledge started to ship the 9,900 miners dedicated within the {Hardware} and Buy Settlement dated April 14, 2021. On March 28, 2022, the Firm restructured the Internet hosting Settlement to acquire a further 2,675 miners at a price of $37.5 per terahash (to be paid 5 months after supply) and quickly diminished the revenue share for Northern Knowledge whereas incorporating efficiency thresholds till the information heart build-out was full. On August 10, 2022, the Firm and Northern Knowledge terminated the availability of the restructured Internet hosting Settlement associated to the extra 2,675 miners. As a outcome, the Firm neither made fee for such further miners nor obtained title to such further miners.

The Firm decided the association with Northern Knowledge met the definition of a lease below Subject 842 and likewise decided the correct accounting for this lease. The corporate recorded lease expense associated to the variable funds for Northern Knowledge's revenue share as Bitcoins are mined every interval. As soon as operational, after deducting an quantity equal to $0.027 per kilowatt hour for the precise energy used, 65% of all cryptocurrency income generated by the miners in Northern Knowledge's pods had been payable to the Firm, and 35% of all cryptocurrency income generated by the miners had been payable to Northern Knowledge or its designee and recorded as a lease expense.

On September 30, 2022, the Firm entered right into a settlement settlement with Northern Knowledge (the "Settlement Settlement") whereby the Internet hosting Settlement was mutually terminated. Pursuant to the Settlement Settlement, for a time period of two years till October 1, 2024, the Firm has the best to lease from Northern Knowledge for its unique use, entry and operation of (i) 24 Northern Knowledge manufactured pods able to supporting roughly 550 Bitcoin miners every for an combination quantity of roughly 13,200 out there slots and (ii) 4 Strongboxes that the Firm beforehand bought to Northern Knowledge able to supporting roughly 264 Bitcoin miners every for an combination of roughly 1,056 mining slots for $1,000 yearly. Following the Settlement Settlement, the income share is now not relevant for miners within the Northern Knowledge pods or Strongboxes, and the Firm now receives 100% of the income generated by Bitcoin miners within the Northern Knowledge pods and Strongboxes. On the finish of the two-year time period of the Settlement Settlement, the Firm has the choice, however not the duty, to buy the Northern Knowledge pods and Strongboxes for an quantity between $2 million and $6 million primarily based on the prevailing hash worth on the time, web of a most of $1.5 million of expenditures that the Firm has the choice to make use of to improve the Northern Knowledge pods all through the two-year time period.

Pursuant to the Settlement Settlement, the Firm can pay Northern Knowledge an combination quantity of $4.5 million as follows: (i) $2.5 million to Northern Knowledge not later than October 3, 2022, which quantity was paid to Northern Knowledge in full on October, 3, 2022; (ii) $1.0 million to Northern Knowledge not later than October 31, 2022, which quantity was paid to Northern Knowledge in full on October 31, 2022; and (iii) $1.0 million to Northern Knowledge not later than November 30, 2022, which quantity was paid to Northern Knowledge in full on November 30, 2022. The Firm recorded the settlement prices of $4.5 million in September 2022, partially offset by the elimination of roughly $2.6 million of payables to Northern Knowledge. The online 125 --------------------------------------------------------------------------------</pre>affect of $1.9 million was recorded as operations and upkeep expense on the consolidated assertion of operations for the yr ended December 31, 2022.NOTE 28 - FINANCED INSURANCE PREMIUMSEfficient October 20, 2022, the Firm renewed its director and officer insurance coverage coverage for a further 12 months with annual premiums totaling $5,484,449. On November 8, 2022, the Firm executed a Industrial Premium Finance Settlement with AFCO Premium Credit score LLC over a time period of 9 months, with an annual rate of interest of 9.460%, that financed the fee of the entire premiums owed. The settlement required a $750,000 down fee, with the remaining $4,734,449 plus curiosity to be paid over 9 months. As of December 31, 2022, the unpaid steadiness was $4,208,399.<pre>

Efficient September 10, 2022, the Firm entered right into a industrial property insurance coverage coverage with annual premiums totaling $367,493. The Firm executed a Industrial Premium Finance Settlement with AON Premium Finance, over a time period of eleven months, with an annual rate of interest of seven.460%, that financed the fee of the entire premiums owed. As of December 31, 2022, the unpaid steadiness was $246,487.

Efficient April 29, 2022, the Firm entered right into a industrial property insurance coverage coverage with annual premiums totaling $523,076. The Firm executed a Industrial Premium Finance Settlement with AFCO Premium Credit score LLC, over a time period of 11 months, with an annual rate of interest of 5.99%, that financed the fee of the entire premiums owed. The settlement required a $44,793 down fee, with the remaining $478,283 plus curiosity to be paid over eleven months. As of December 31, 2022, the unpaid steadiness was $133,049.

NOTE 29 - PRIVATE PLACEMENTS

Might 2022 Non-public Placement

On Might 15, 2022, the Firm entered right into a be aware and warrant buy settlement (the "Buy Settlement"), by and among the many Firm and the purchasers thereto (collectively, the "Purchasers"), whereby the Firm agreed to problem and promote to Purchasers, and Purchasers agreed to buy from the Firm, (i) $33,750,000 combination principal quantity of 10.00% unsecured convertible promissory notes (the "Might 2022 Notes") and (ii) warrants (the "Might 2022 Warrants") representing the best to buy as much as 6,318,000 shares of Class A frequent inventory, of the Firm with an train worth per share equal to $2.50, on the phrases and topic to the situations set forth within the Buy Settlement (collectively, the "2022 Non-public Placement"). The Buy Settlement contained representations and warranties by the Firm and the Purchasers which are customary for transactions of this sort. The Might 2022 Notes and the Might 2022 Warrants had been bought for combination consideration of $27.0 million.

In reference to the 2022 Non-public Placement, the Firm undertook to negotiate with the Purchasers and to file a certificates of designation ("Collection C Most well-liked Certificates of Designation") with the State of Delaware, following the closing of the 2022 Non-public Placement, for the phrases of a brand new sequence of most popular inventory (the "Collection C Most well-liked Inventory").

In reference to the 2022 Non-public Placement, the Might 2022 Warrants had been issued pursuant to the Warrant Settlement. The Might 2022 Warrants are topic to necessary cashless train provisions and have sure anti-dilution provisions. The Might 2022 Warrants are exercisable for a five-year interval from the closing.

The issuance of the Might 2022 Notes was inside the scope of ASC 480-10 and, due to this fact, was initially measured at truthful worth (in keeping with ASC 480-10-30-7). Moreover, below the steerage supplied by ASC 815-40-15-7, the Firm decided that the Might 2022 Warrants had been listed to the Firm's inventory. Because of this, the Might 2022 Warrants had been initially recorded at their truthful worth inside fairness. The Might 2022 Notes had been valued utilizing the gross yield methodology below the earnings strategy. As of the issuance date of Might 15, 2022, a calibration evaluation was carried out by again fixing the implied yield related with the Might 2022 Notes, such that the entire worth of the Might 2022 Notes and the Might 2022 Warrants equaled the acquisition quantity. The calibrated yield was then rolled ahead for modifications to the risk-free charge and option-adjusted spreads to the August 16, 2022, valuation date to worth the Might 2022 Notes.

On August 16, 2022, the Firm entered into the Buy Settlement Modification, by and among the many Firm and the Purchasers, whereby the Firm agreed to amend the Buy Settlement such that $11.25 million of the excellent principal was exchanged for the Purchaser's execution of an amended and restated warrant settlement pursuant to which the strike worth of the 6,318,000 of Might 2022 Warrants was diminished from $2.50 to $0.01. On account of the discount of the warrant strike worth, the Firm recorded a loss on extinguishment of $13,380,511. After giving impact to the principal 126 --------------------------------------------------------------------------------

discount and amended and restated warrants, the Firm was to proceed to make subsequent month-to-month, funds to the Purchasers on the fifteenth (fifteenth) day of every of November 2022, December 2022, January 2023, and February 2023. The Firm was capable of elect to pay every such fee (A) in money or (B) in shares of Frequent Inventory, in every case, at a twenty % (20%) low cost to the common of the each day VWAPs for every of the twenty (20) consecutive buying and selling days previous the fee date.

As described in Word 6 - Debt, on December 30, 2022, the Firm entered into an change settlement with the Holders of the Firm's Notes, offering for the change of the Notes for shares of the Firm's newly-created Collection C Most well-liked Inventory. On February 20, 2023, the Change Transaction was consummated, and the Notes had been paid in full and terminated in change for the issuances of the shares of Collection C Most well-liked Inventory.

</pre>September 2022 Non-public Placement<pre>

On September 13, 2022, the Firm entered into Securities Buy Agreements (the "Buy Agreements") with Armistice Capital Grasp Fund Ltd. ("Armistice") and Greg Beard, the Firm's Chairman and Chief Govt Officer (along with Armistice, the "September PIPE Purchasers"), for the acquisition and sale of two,274,350 and 602,409 shares, respectively, of Class A typical inventory, par worth $0.0001 per share at a purchase order worth of $1.60 and $1.66, respectively, and warrants to buy an combination of 5,602,409 shares of Class A typical inventory, at an preliminary train worth of $1.75 per share (topic to sure changes). Topic to sure possession limitations, such warrants had been exercisable upon issuance and shall be exercisable for 5 and a half years commencing on the date of issuance. Armistice additionally bought the pre-funded warrants for two,725,650 shares of Class A typical inventory (the "Pre-Funded Warrants") at a purchase order worth of $1.60 per Pre-Funded Warrant. The Pre-Funded Warrants have an train worth of $0.0001 per warrant share. The transaction closed on September 19, 2022. The gross proceeds from the sale of such securities, earlier than deducting providing bills, was roughly $9.0 million.

The warrant liabilities are topic to remeasurement at every steadiness sheet date, and any change in truthful worth is acknowledged as "modifications in truthful worth of warrant liabilities" within the consolidated statements of operations. The truthful worth of the warrant liabilities was estimated as of December 31, 2022, utilizing a Black-Scholes mannequin with important inputs as follows:

December 31, 2022 Anticipated volatility 130.9 % Anticipated life (in years) 5.5 Danger-free rate of interest 4.0 % Anticipated dividend yield 0 % Truthful worth $ 2,131,959

NOTE 30 - SUBSEQUENT EVENTS

On February 6, 2023, Stronghold entered right into a two-year internet hosting settlement with Foundry Digital LLC, changing the earlier internet hosting settlement entered into on November 7, 2022. The brand new Foundry internet hosting settlement covers the identical Bitcoin mining rigs because the prior internet hosting settlement, representing roughly 4500 miners with whole hash charge capability of roughly 420 PH/s. Pursuant to the new Foundry internet hosting settlement, Foundry will take part absolutely within the Firm's vertically built-in enterprise mannequin on the Panther Creek Plant.

On March 28, 2023, the Firm and Stronghold LLC entered right into a Settlement Settlement (the "B&M Settlement") with its electrical contractor, Bruce & Merrilees Electrical Co. ("B&M"). Pursuant to the B&M Settlement, B&M agreed to get rid of an roughly $11.4 million excellent payable in change for a Promissory Word within the quantity of $3.5 million (the "B&M Word") and a Inventory Buy Warrant for the best to buy from the Firm 3,000,000 shares of Class A Frequent Inventory (the B&M Warrant"). The B&M be aware has no definitive fee schedule or time period. Pursuant to the Settlement Settlement, B&M launched ten (10) 3000kva transformers to the Firm and absolutely cancelled ninety (90) transformers remaining below a pre-existing order with a third-party provider. The phrases of the Settlement Settlement included a mutual launch of all claims. Pursuant to the B&M Warrant, the Firm agreed to enter right into a registration rights settlement with B&M for the shares underlying the B&M warrants no later than April 4, 2023. Simultaneous with the Settlement Settlement, the Firm and every of its subsidiaries entered right into a Subordination Settlement with B&M and WhiteHawk Capital Companions LP ("WhiteHawk Capital") pursuant to which all obligations, liabilities and indebtedness of each nature of the Firm and every of its subsidiaries owed to B&M pursuant to the 127 --------------------------------------------------------------------------------</pre>B&M Word, Settlement Settlement and in any other case shall be subordinate and topic in proper and time of fee, to the prior fee of filled with the Firm's obligation to WhiteHawk pursuant to the Credit score Settlement.© Edgar On-line, supply Glimpses</div> [ad_2] <a href="https://www.marketscreener.com/amp/quote/stock/STRONGHOLD-DIGITAL-MINING-128408809/news/STRONGHOLD-DIGITAL-MINING-INC-Management-s-Discussion-and-Analysis-of-Financial-Condition-and-Res-43413330/">Source link </a>