Note: all data as of 11/10/23 unless otherwise noted; all figures approximated Forward-Looking Statements The information, financial projections and other estimates contained herein contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and future guidance with respect to the anticipated future performance of the Company and its potential carbon capture initiative. Such financial projection, guidance, and estimates are as to future events and are not t ...

[Part I - Financial Information](index=2&type=section&id=Part%20I%20-%20Financial%20Information) [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, with detailed notes for the periods ended September 30, 2023, and December 31, 2022 [Condensed Consolidated Balance Sheets](index=3&type=section&id=CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) Condensed Consolidated Balance Sheets (September 30, 2023 vs. December 31, 2022) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :----------------------------------- | :----------- | :----------- | | **ASSETS:** | | | | Cash and cash equivalents | $4,979,299 | $13,296,703 | | Digital currencies | $641,999 | $109,827 | | Total current assets | $12,328,660 | $35,641,670 | | Property, plant and equipment, net | $156,481,678 | $167,204,681 | | TOTAL ASSETS | $172,828,351 | $216,955,981 | | **LIABILITIES:** | | | | Total current liabilities | $28,272,500 | $60,412,158 | | Total liabilities | $93,883,506 | $122,176,250 | | **EQUITY:** | | | | Total stockholders' equity | $68,381,568 | $83,025,144 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) Condensed Consolidated Statements of Operations (Three Months Ended Sep 30, 2023 vs. 2022) | Metric | Sep 30, 2023 | Sep 30, 2022 | | :----------------------------------- | :----------- | :----------- | | Total operating revenues | $17,726,957 | $26,366,649 | | Total operating expenses | $37,431,893 | $65,546,206 | | NET OPERATING LOSS | $(19,704,936) | $(39,179,557) | | Total other income (expense) | $(2,606,977) | $(36,040,813) | | NET LOSS | $(22,311,913) | $(75,220,370) | | NET LOSS attributable to Stronghold Digital Mining, Inc. | $(17,123,186) | $(31,220,215) | | Basic EPS | $(2.26) | $(12.67) | Condensed Consolidated Statements of Operations (Nine Months Ended Sep 30, 2023 vs. 2022) | Metric | Sep 30, 2023 | Sep 30, 2022 | | :----------------------------------- | :----------- | :----------- | | Total operating revenues | $53,226,913 | $85,488,242 | | Total operating expenses | $103,127,493 | $193,137,102 | | NET OPERATING LOSS | $(49,900,580) | $(107,648,860) | | Total other income (expense) | $(30,764,024) | $(40,116,500) | | NET LOSS | $(80,664,604) | $(147,765,360) | | NET LOSS attributable to Stronghold Digital Mining, Inc. | $(54,000,873) | $(61,330,013) | | Basic EPS | $(8.93) | $(28.17) | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20STOCKHOLDERS'%20EQUITY) - Net loss attributable to Stronghold Digital Mining, Inc. for the three months ended September 30, 2023, was **$(17,123,186)**, and for the nine months ended September 30, 2023, was **$(54,000,873)**[14](index=14&type=chunk)[18](index=18&type=chunk) - Additional paid-in capital increased from **$323,468,129** as of January 1, 2023, to **$389,507,374** as of September 30, 2023, driven by equity issuances including stock-based compensation, warrants, and ATM Agreement proceeds[18](index=18&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) Condensed Consolidated Statements of Cash Flows (Nine Months Ended Sep 30, 2023 vs. 2022) | Metric | Sep 30, 2023 | Sep 30, 2022 | | :----------------------------------- | :----------- | :----------- | | Net cash flows used in operating activities | $(7,064,082) | $(14,656,547) | | Net cash flows used in investing activities | $(14,743,269) | $(67,864,070) | | Net cash flows provided by financing activities | $13,489,947 | $67,454,013 | | Net decrease in cash and cash equivalents | $(8,317,404) | $(15,066,604) | | Cash and cash equivalents - End of Period | $4,979,299 | $16,723,511 | [Note 1 – Basis of Presentation](index=10&type=section&id=NOTE%201%20%E2%80%93%20BASIS%20OF%20PRESENTATION) - The Company operates in two business segments: Energy Operations and Cryptocurrency Operations, consistent with how the chief operating decision maker evaluates financial performance[24](index=24&type=chunk) - A **1-for-10 reverse stock split** of Class A and Class V common stock was effected on May 15, 2023, with all share and per share amounts retroactively adjusted[30](index=30&type=chunk) - The Company reclassified imported power charges from netting against energy revenue to fuel expenses in Q1 2023, with prior periods restated, having no impact on net operating income, EPS, or equity[32](index=32&type=chunk) [Note 2 – Digital Currencies](index=12&type=section&id=NOTE%202%20%E2%80%93%20DIGITAL%20CURRENCIES) - As of September 30, 2023, the Company held **$641,999** in unrestricted Bitcoin[36](index=36&type=chunk) Digital Currencies Changes (Three & Nine Months Ended Sep 30, 2023 vs. 2022) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Digital currencies at beginning of period | $1,429,653 | $5,131,987 | $109,827 | $10,417,865 | | Additions of digital currencies | $15,069,008 | $12,283,695 | $43,778,958 | $50,715,424 | | Impairment losses | $(357,411) | $(465,651) | $(683,241) | $(8,176,868) | | Proceeds from sale of digital currencies | $(15,630,957) | $(10,388,828) | $(43,288,684) | $(47,146,328) | | Digital currencies at end of period | $641,999 | $2,186,704 | $641,999 | $2,186,704 | - Impairment losses on digital currencies were **$357,411** for the three months ended September 30, 2023 (down from $465,651 YoY), and **$683,241** for the nine months ended September 30, 2023 (down significantly from $8,176,868 YoY)[36](index=36&type=chunk) [Note 3 – Inventory](index=12&type=section&id=NOTE%203%20%E2%80%93%20INVENTORY) Inventory Components (September 30, 2023 vs. December 31, 2022) | Component | Sep 30, 2023 | Dec 31, 2022 | | :---------- | :----------- | :----------- | | Waste coal | $2,977,652 | $4,147,369 | | Fuel oil | $85,049 | $143,592 | | Limestone | $80,583 | $180,696 | | Total Inventory | $3,143,284 | $4,471,657 | [Note 4 – Equipment Deposits](index=12&type=section&id=NOTE%204%20%E2%80%93%20EQUIPMENT%20DEPOSITS) - The Company impaired the remaining MinerVa equipment deposits balance of **$5,422,338** during Q3 2023 due to expected non-delivery and ongoing legal action[41](index=41&type=chunk)[43](index=43&type=chunk) - Total equipment deposits were **$0** as of September 30, 2023, reflecting transfers to PP&E, impairments, and sales[45](index=45&type=chunk) [Note 5 – Property, Plant and Equipment](index=14&type=section&id=NOTE%205%20%E2%80%93%20PROPERTY,%20PLANT%20AND%20EQUIPMENT) Property, Plant and Equipment, Net (September 30, 2023 vs. December 31, 2022) | Category | Sep 30, 2023 | Dec 31, 2022 | | :----------------------------------- | :----------- | :----------- | | Electric plant | $66,836,615 | $66,295,809 | | Cryptocurrency machines and powering supplies | $101,687,166 | $81,945,396 | | Construction in progress | $10,781,505 | $19,553,826 | | Property, plant and equipment, net | $156,481,678 | $167,204,681 | - Depreciation and amortization expense decreased to **$9,667,213** for the three months ended September 30, 2023 (from $12,247,245 YoY) and to **$26,025,021** for the nine months ended September 30, 2023 (from $37,234,126 YoY)[47](index=47&type=chunk)[48](index=48&type=chunk) [Note 6 – Accrued Liabilities](index=15&type=section&id=NOTE%206%20%E2%80%93%20ACCRUED%20LIABILITIES) Accrued Liabilities (September 30, 2023 vs. December 31, 2022) | Category | Sep 30, 2023 | Dec 31, 2022 | | :----------------------------------- | :----------- | :----------- | | Accrued legal and professional fees | $528,757 | $1,439,544 | | Accrued sales and use tax | $5,659,897 | $5,150,659 | | Accrued plant utilities and fuel | $2,166,459 | $0 | | Total Accrued liabilities | $9,638,819 | $8,893,248 | [Note 7 – Debt](index=15&type=section&id=NOTE%207%20%E2%80%93%20DEBT) Total Outstanding Borrowings (September 30, 2023 vs. December 31, 2022) | Category | Sep 30, 2023 | Dec 31, 2022 | | :----------------------------------- | :----------- | :----------- | | $58,149,411 Credit Agreement (WhiteHawk) | $54,239,946 | $56,114,249 | | $33,750,000 Convertible Note | $0 | $16,812,500 | | $3,500,000 Promissory Note (B&M) | $3,000,000 | $0 | | $1,184,935 Promissory Note (Canaan) | $1,066,442 | $0 | | Total outstanding borrowings | $59,308,457 | $74,449,664 | | Current portion of long-term debt | $1,654,634 | $17,422,546 | | Long-term debt, net | $57,653,823 | $57,027,118 | - The Company entered into a secured credit agreement with WhiteHawk Finance LLC in October 2022, which was amended in February 2023 to modify covenants and prepayment requirements, including a loan prepayment of **$250,000** during Q3 2023[52](index=52&type=chunk)[54](index=54&type=chunk)[56](index=56&type=chunk) - Approximately **$16.9 million** of convertible note debt was extinguished in Q1 2023 in exchange for Series C Preferred Stock, resulting in a **$29 million** loss on debt extinguishment[58](index=58&type=chunk) - A settlement with Bruce & Merrilees Electric Co. in March 2023 eliminated an **$11.4 million** payable in exchange for a **$3.5 million** promissory note and a stock purchase warrant[60](index=60&type=chunk) - The Company purchased **2,000 A1346 Bitcoin miners** from Canaan Inc. in July 2023 for **$2,962,337**, financed partly by a **$1,184,935** interest-free promissory note[62](index=62&type=chunk)[63](index=63&type=chunk) [Note 8 – Related Party Transactions](index=18&type=section&id=NOTE%208%20%E2%80%93%20RELATED%20PARTY%20TRANSACTIONS) - The Company has a Waste Coal Agreement with Coal Valley Sales, LLC (CVS) and Coal Valley Properties, LLC, incurring a **$6.07 per ton** base handling fee for waste coal[64](index=64&type=chunk)[65](index=65&type=chunk) - Expenses for coal purchases from CVS were **$195,161** for Q3 2023 (down from $278,208 YoY) and **$495,161** for the nine months ended September 30, 2023 (down from $581,708 YoY)[66](index=66&type=chunk) - The Company expensed **$324,925** for Q3 2023 (down from $1,304,752 YoY) and **$2,406,726** for the nine months ended September 30, 2023 (up from $2,225,864 YoY) under the Fuel Service and Beneficial Use Agreement with Northampton Fuel Supply Company, Inc[67](index=67&type=chunk) Amounts Due to Related Parties (September 30, 2023 vs. December 31, 2022) | Related Party | Sep 30, 2023 | Dec 31, 2022 | | :----------------------------------- | :----------- | :----------- | | Coal Valley Properties, LLC | $0 | $134,452 | | Q Power LLC | $20,119 | $500,000 | | Coal Valley Sales, LLC | $68,172 | $0 | | Northampton Generating Fuel Supply Company, Inc. | $363,076 | $594,039 | | Total Due to related parties | $451,367 | $1,375,049 | [Note 9 – Concentrations](index=20&type=section&id=NOTE%209%20%E2%80%93%20CONCENTRATIONS) - The Company's significant credit risk is primarily concentrated with Customized Energy Solutions (CES), which accounted for approximately **100%** of energy operations segment revenues for the three and nine months ended September 30, 2023[83](index=83&type=chunk) - The Company recorded decreases in accounts receivable of **$724,756** (Q3 2023) and **$1,867,506** (YTD Q3 2023) related to expected reduced bonus payments from PJM[83](index=83&type=chunk) - The Company purchased **9%** and **17%** of coal from two related parties for the three and nine months ended September 30, 2023, respectively[84](index=84&type=chunk) [Note 10 – Commitments and Contingencies](index=21&type=section&id=NOTE%2010%20%E2%80%93%20COMMITMENTS%20AND%20CONTINGENCIES) - The Company is pursuing legal action against MinerVa Semiconductor Corp for breach of contract related to the MinerVa Purchase Agreement, having filed a Statement of Claim in Calgary, Alberta on October 31, 2023[88](index=88&type=chunk)[101](index=101&type=chunk) - A **$5.0 million** arbitration award plus interest was issued against Scrubgrass Generating Company, L.P. in May 2022, but the full amount is being paid by Q Power, with no effect on the Company's financial condition[91](index=91&type=chunk) - The Company is involved in ongoing discussions with PJM and FERC regarding compliance and potential issues related to computational load banks, but does not believe these will have a material adverse effect[93](index=93&type=chunk)[94](index=94&type=chunk) - The Company is a nominal defendant in consolidated shareholder derivative actions alleging breach of fiduciary duties, which it intends to vigorously defend[97](index=97&type=chunk) [Note 11 – Redeemable Common Stock](index=23&type=section&id=NOTE%2011%20%E2%80%93%20REDEEMABLE%20COMMON%20STOCK) - Class V common stock represented **23.4%** ownership of Stronghold LLC as of September 30, 2023, down from **45.1%** as of December 31, 2022[102](index=102&type=chunk)[108](index=108&type=chunk) - Redeemable common stock is recorded at the greater of book value or redemption amount, with a balance of **$10,563,277** as of September 30, 2023[104](index=104&type=chunk)[106](index=106&type=chunk) [Note 12 – Noncontrolling Interests](index=24&type=section&id=NOTE%2012%20%E2%80%93%20NONCONTROLLING%20INTERESTS) - The Company consolidates Stronghold LLC's financial results and reports a noncontrolling interest for common units held by Q Power, which decreased from **45.1%** to **23.4%** ownership of Stronghold LLC from December 31, 2022, to September 30, 2023[107](index=107&type=chunk)[108](index=108&type=chunk) [Note 13 – Stock-Based Compensation](index=24&type=section&id=NOTE%2013%20%E2%80%93%20STOCK-BASED%20COMPENSATION) Stock-Based Compensation Expense (Three & Nine Months Ended Sep 30, 2023 vs. 2022) | Period | 2023 | 2022 | | :----------------------------------- | :----------- | :----------- | | Three Months Ended Sep 30 | $787,811 | $3,377,499 | | Nine Months Ended Sep 30 | $7,603,859 | $9,123,124 | - Executive officers were granted **272,500 restricted stock units** in March 2023 in exchange for cancelled stock options and performance share units[110](index=110&type=chunk) [Note 14 – Warrants](index=25&type=section&id=NOTE%2014%20%E2%80%93%20WARRANTS) Outstanding Warrants (September 30, 2023) | Status | Number of Warrants | | :----------------------------------- | :----------------- | | Outstanding as of December 31, 2022 | 1,587,511 | | Issued | 1,803,347 | | Exercised | (1,610,580) | | Outstanding as of September 30, 2023 | 1,780,278 | - The Company issued a stock purchase warrant to Bruce & Merrilees Electric Co. for **300,000 Class A common shares**, of which **200,000** were exercised by September 30, 2023[114](index=114&type=chunk) - Warrants from the May 2022 Private Placement and September 2022 Private Placement saw significant exercises and strike price adjustments during the nine months ended September 30, 2023[117](index=117&type=chunk)[119](index=119&type=chunk) - The April 2023 Private Placement included warrants for **1,000,000 shares** of Class A common stock, with **433,340 pre-funded warrants** exercised by September 30, 2023[120](index=120&type=chunk)[121](index=121&type=chunk) [Note 15 – Equity Issuances](index=26&type=section&id=NOTE%2015%20%E2%80%93%20EQUITY%20ISSUANCES) - The May 2022 Private Placement involved **$33.75 million** in convertible promissory notes and warrants for **631,800 Class A shares**, with a subsequent amendment reducing the warrant strike price from **$25.00 to $0.10**[122](index=122&type=chunk)[126](index=126&type=chunk) - The Series C Convertible Preferred Stock was issued in February 2023, exchanging **$17,893,750** of principal and accrued interest from the May 2022 Notes for **23,102 shares** of Series C Preferred Stock[127](index=127&type=chunk)[128](index=128&type=chunk) - The September 2022 Private Placement raised approximately **$9.0 million** gross proceeds through the sale of Class A common stock and warrants, with warrant strike prices adjusted to **$10.10 per share** in April 2023[129](index=129&type=chunk)[134](index=134&type=chunk) - The April 2023 Private Placement raised approximately **$10.0 million** gross proceeds from an institutional investor and CEO Greg Beard, involving Class A common stock and warrants[131](index=131&type=chunk)[132](index=132&type=chunk) - Under the ATM Agreement, the Company sold **1,278,906 ATM Shares** for approximately **$8.9 million** gross proceeds (net **$8.6 million**) during the nine months ended September 30, 2023[138](index=138&type=chunk) [Note 16 – Segment Reporting](index=29&type=section&id=NOTE%2016%20%E2%80%93%20SEGMENT%20REPORTING) Operating Revenues by Segment (Three & Nine Months Ended Sep 30, 2023 vs. 2022) | Segment | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Energy Operations | $1,252,688 | $13,989,675 | $6,266,851 | $34,490,491 | | Cryptocurrency Operations | $16,474,269 | $12,376,974 | $46,960,062 | $50,997,751 | | Total operating revenues | $17,726,957 | $26,366,649 | $53,226,913 | $85,488,242 | Net Operating Loss by Segment (Three & Nine Months Ended Sep 30, 2023 vs. 2022) | Segment | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Energy Operations | $(9,685,721) | $(16,086,915) | $(29,864,794) | $(39,862,217) | | Cryptocurrency Operations | $(10,019,215) | $(23,092,642) | $(20,035,786) | $(67,786,643) | | Total net operating loss | $(19,704,936) | $(39,179,557) | $(49,900,580) | $(107,648,860) | [Note 17 – Earnings (Loss) Per Share](index=29&type=section&id=NOTE%2017%20%E2%80%93%20EARNINGS%20(LOSS)%20PER%20SHARE) Net Loss Per Share (Three & Nine Months Ended Sep 30, 2023 vs. 2022) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net loss attributable to Stronghold Digital Mining, Inc. | $(17,123,186) | $(31,220,215) | $(54,000,873) | $(61,330,013) | | Weighted average Class A common shares outstanding | 7,569,511 | 2,463,163 | 6,047,891 | 2,177,206 | | Basic net loss per share | $(2.26) | $(12.67) | $(8.93) | $(28.17) | | Diluted net loss per share | $(2.26) | $(12.67) | $(8.93) | $(28.17) | - Securities that could potentially dilute EPS were excluded from diluted loss per share computation as their inclusion would be anti-dilutive[144](index=144&type=chunk) [Note 18 – Income Taxes](index=31&type=section&id=NOTE%2018%20%E2%80%93%20INCOME%20TAXES) - The provision for income taxes was **zero** for the three and nine months ended September 30, 2023 and 2022, due to pre-tax losses attributable to noncontrolling interest and a full valuation allowance against deferred income tax assets[149](index=149&type=chunk)[150](index=150&type=chunk) - The Company has a Tax Receivable Agreement (TRA) with Q Power and an additional holder, obligating it to pay **85%** of realized cash tax savings from tax basis step-ups, but no liability has been recorded due to estimated taxable losses and a valuation allowance[146](index=146&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk) [Note 19 – Supplemental Cash and Non-Cash Information](index=32&type=section&id=NOTE%2019%20%E2%80%93%20SUPPLEMENTAL%20CASH%20AND%20NON-CASH%20INFORMATION) Supplemental Cash Flow Information (Nine Months Ended Sep 30, 2023 vs. 2022) | Metric | Sep 30, 2023 | Sep 30, 2022 | | :----------------------------------- | :----------- | :----------- | | Income tax payments | $0 | $0 | | Interest payments | $7,054,387 | $7,346,038 | - Significant non-cash investing and financing activities for the nine months ended September 30, 2023, included **$1,184,935** in equipment financed with debt, **$8,882,914** in warrants issued, and the extinguishment of a convertible note (**$16,812,500**) and accrued interest (**$655,500**) for Series C Preferred Stock[152](index=152&type=chunk) [Note 20 – Fair Value](index=32&type=section&id=NOTE%2020%20%E2%80%93%20FAIR%20VALUE) - The fair values of cash, accounts receivable, prepaid expenses, accounts payable, contract liabilities, and accrued expenses approximate their carrying values due to their short-term nature[154](index=154&type=chunk) - As of September 30, 2023, the estimated fair value of the Company's Bitcoin holdings was approximately **$654,314**, based on a market price of **$27,004 per Bitcoin**[156](index=156&type=chunk) [Note 21 – Subsequent Events](index=33&type=section&id=NOTE%2021%20%E2%80%93%20SUBSEQUENT%20EVENTS) - On October 13, 2023, Stronghold entered into a Managed Services Agreement with Frontier Outpost 8, LLC for monitoring, operating, and maintaining its data centers, with a monthly service fee of **$410,000** for the first three months and potential Class A common stock shares based on 'Uptime' metrics[157](index=157&type=chunk)[158](index=158&type=chunk) - On November 13, 2023, the Company consummated the Series D Exchange Transaction, issuing **15,582 shares** of Series D Convertible Preferred Stock to Adage Capital Partners, LP in exchange for all of its Series C Preferred Stock, expected to result in approximately **6.5% accretion** for stockholders[159](index=159&type=chunk) - The Panther Creek Plant experienced a planned **15-day outage** starting October 28, 2023, which was shortened due to PJM grid import constraints, with hash rate fully restored by November 9, 2023[161](index=161&type=chunk) [Cautionary Statement Regarding Forward-Looking Statements](index=34&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) This section highlights that the report contains forward-looking statements, subject to numerous risks and uncertainties, and should not be relied upon as predictions of future events - Forward-looking statements are identified by terms like 'believes,' 'expects,' 'may,' 'will,' 'should,' 'seeks,' 'intends,' 'plans,' 'estimates,' or 'anticipates'[163](index=163&type=chunk) - Key risks include dependence on Bitcoin price, ability to raise capital, global economic/political conditions, crypto asset industry volatility, regulatory changes, and operational challenges of power generation facilities[164](index=164&type=chunk)[165](index=165&type=chunk) - The Company disclaims any duty to update forward-looking statements beyond the report date, except as required by law[168](index=168&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=36&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides a detailed analysis of the Company's financial condition and operations, including its business model, recent developments, market trends, and liquidity [Overview of the Business](index=36&type=section&id=Overview%20of%20the%20Business) - Stronghold Digital Mining, Inc. is a low-cost, environmentally beneficial, vertically integrated crypto asset mining company focused on Bitcoin mining and environmental remediation[172](index=172&type=chunk) - The Company owns and operates two coal refuse power generation facilities (Scrubgrass Plant and Panther Creek Plant) with a combined capacity of approximately **163.5 MW**, which qualify as Tier II Alternative Energy Systems[172](index=172&type=chunk) - The integrated model allows for Bitcoin production at an attractive cost, leveraging Tier II renewable energy tax credits (RECs) valued at over **$27 per MWh** to reduce net power costs[173](index=173&type=chunk) [Carbon Capture Initiative](index=36&type=section&id=Carbon%20Capture%20Initiative) - The Company launched the first phase of its carbon capture project at the Scrubgrass Plant on November 10, 2023, utilizing beneficial use ash to bond with carbon dioxide[174](index=174&type=chunk) - Lab tests demonstrated potential to capture approximately **12% CO2 by weight of ash**, implying a potential to capture **100,000 tons of CO2 per year** from the plants' combined **800,000-900,000 tons of ash**[175](index=175&type=chunk)[176](index=176&type=chunk) - The scaled project is estimated to cost **$50 to $125 per annual ton of CO2 capture capacity**, with monetization of credits in private markets expected as early as 2024, and exploration of Section 45Q tax credits for 2025 or 2026[175](index=175&type=chunk)[176](index=176&type=chunk) [Bitcoin Mining](index=37&type=section&id=Bitcoin%20Mining) - As of November 10, 2023, the Company owns or hosts over **42,000 Bitcoin miners** with a hash rate capacity exceeding **4.1 EH/s**, including approximately **32,000 wholly owned miners (3.1 EH/s)** and over **10,000 hosted miners (1.0 EH/s)**[177](index=177&type=chunk) - The Company's operating results depend on Bitcoin's value, and it does not plan regular Bitcoin trading or hedging, assessing fiat currency needs based on market conditions and financial forecasts[179](index=179&type=chunk) - Digital assets are safeguarded using Anchorage Digital Bank's storage solutions, requiring multi-factor authentication and utilizing cold and hot storage[179](index=179&type=chunk) [Recent Developments](index=38&type=section&id=Recent%20Developments) - The Company entered into an At-The-Market (ATM) offering agreement in May 2023 to sell up to **$15.0 million** in Class A common stock, selling **1,278,906 shares** for approximately **$8.6 million** net proceeds by September 30, 2023[181](index=181&type=chunk)[184](index=184&type=chunk) - In April 2023, the Company entered a two-year hosting agreement with Canaan Inc. for **4,000 Bitcoin miners (400 PH/s)** and subsequently purchased an additional **2,000 A1346 Bitcoin miners** in July 2023, installed at the Panther Creek Plant[185](index=185&type=chunk)[186](index=186&type=chunk) - The Company acquired **5,000 MicroBT WhatsMiner M50 miners** in April 2023, and an additional **1,135 M50/M50S miners** in July 2023, all received and installed as planned[187](index=187&type=chunk)[188](index=188&type=chunk)[189](index=189&type=chunk)[190](index=190&type=chunk) - The Series D Exchange Transaction was consummated on November 13, 2023, exchanging Series C Preferred Stock for newly created Series D Convertible Preferred Stock, expected to result in approximately **6.5% accretion** for stockholders[192](index=192&type=chunk) - The Company filed a Statement of Claim against MinerVa for breach of contract on October 31, 2023, after continued delays in miner deliveries[194](index=194&type=chunk) - A Managed Services Agreement was signed with Frontier Outpost 8, LLC on October 13, 2023, for data center operations, including a monthly service fee and potential Class A common stock awards based on uptime[195](index=195&type=chunk)[196](index=196&type=chunk)[197](index=197&type=chunk) [Trends and Other Factors Impacting Our Performance](index=40&type=section&id=Trends%20and%20Other%20Factors%20Impacting%20Our%20Performance) - The crypto asset industry has experienced bankruptcies (e.g., Core Scientific, FTX), contributing to Bitcoin price volatility and loss of confidence, though Stronghold has not been directly materially impacted[198](index=198&type=chunk)[199](index=199&type=chunk) - Bitcoin price volatility remains a key factor, with prices ranging from **$17,000 to $37,000** year-to-date as of November 10, 2023, impacting revenue and potential impairment of Bitcoin assets[200](index=200&type=chunk)[201](index=201&type=chunk) - Bitcoin network hash rate has increased to **447 EH/s** as of October 30, 2023, leading to increased competition for block awards[202](index=202&type=chunk)[203](index=203&type=chunk) - Hash price (revenue per terahash per day) was **$0.07** on October 30, 2023, with transaction fees averaging **8.2%** of block subsidy in Q2 2023, and increasing to **10.2%** month-to-date in November[204](index=204&type=chunk)[205](index=205&type=chunk) - The Scrubgrass Plant experienced an unplanned outage in September 2023, which was extended for maintenance, but the data center returned to full operations after seven days, achieving an all-time-high hash rate of approximately **3.5 EH/s**[207](index=207&type=chunk) [Critical Accounting Policies and Significant Estimates](index=42&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Estimates) - The Company's critical accounting policies and significant estimates, as summarized in its Annual Report on Form 10-K for the year ended December 31, 2022, remain unchanged[209](index=209&type=chunk) [Post IPO Taxation and Public Company Costs](index=42&type=section&id=Post%20IPO%20Taxation%20and%20Public%20Company%20Costs) - Stronghold Inc. is subject to U.S. federal, state, and local income taxes, while its subsidiary Stronghold LLC is a pass-through entity[210](index=210&type=chunk) - The Company incurs significant expenses related to its operations, payment obligations under the Tax Receivable Agreement (TRA), and incremental costs associated with being a publicly traded corporation[210](index=210&type=chunk)[211](index=211&type=chunk) [Factors Affecting Comparability of Our Future Results of Operations to Our Historical Results of Operations](index=42&type=section&id=Factors%20Affecting%20Comparability%20of%20Our%20Future%20Results%20of%20Operations%20to%20Our%20Historical%20Results%20of%20Operations) - Future financial results may not be comparable to historical results due to Stronghold Inc.'s corporate tax structure (unlike its partnership predecessor) and increased selling, general, and administrative expenses as a public company[213](index=213&type=chunk)[215](index=215&type=chunk) - The Company has a valuation allowance against its net deferred income tax assets due to cumulative and current losses, expecting no deferred income tax expense or benefit while the allowance remains[214](index=214&type=chunk) - A greater proportion of revenue and expenses are anticipated to relate to crypto asset mining as the Company acquires more miners and utilizes its power generating assets[216](index=216&type=chunk) [Consolidated Results of Operations](index=44&type=section&id=Consolidated%20Results%20of%20Operations) Consolidated Operating Revenues (Three & Nine Months Ended Sep 30, 2023 vs. 2022) | Revenue Type | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Cryptocurrency mining | $12,684,894 | $12,283,695 | $37,764,990 | $50,715,424 | | Energy | $1,210,811 | $13,071,894 | $4,682,590 | $29,807,512 | | Cryptocurrency hosting | $3,789,375 | $93,279 | $9,195,072 | $282,327 | | Total operating revenues | $17,726,957 | $26,366,649 | $53,226,913 | $85,488,242 | - Total operating revenues decreased by **$8.6 million** for Q3 2023 (YoY) due to an **$11.9 million** decrease in energy revenues, partially offset by a **$3.7 million** increase in cryptocurrency hosting revenues[220](index=220&type=chunk) - Total operating revenues decreased by **$32.3 million** for the nine months ended September 30, 2023 (YoY), primarily due to a **$25.1 million** decrease in energy revenues and a **$13.0 million** decrease in cryptocurrency mining revenue, partially offset by an **$8.9 million** increase in cryptocurrency hosting revenues[221](index=221&type=chunk) Consolidated Operating Expenses (Three & Nine Months Ended Sep 30, 2023 vs. 2022) | Expense Type | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Fuel | $8,556,626 | $10,084,466 | $22,262,141 | $29,292,616 | | Operations and maintenance | $6,961,060 | $19,528,088 | $24,206,080 | $47,449,177 | | General and administrative | $6,598,951 | $11,334,212 | $25,145,444 | $32,848,291 | | Depreciation and amortization | $9,667,213 | $12,247,245 | $26,025,021 | $37,234,126 | | Impairments on miner assets | $0 | $11,610,000 | $0 | $16,600,000 | | Impairments on equipment deposits | $5,422,338 | $0 | $5,422,338 | $12,228,742 | | Total operating expenses | $37,431,893 | $65,546,206 | $103,127,493 | $193,137,102 | - Total operating expenses decreased by **$28.1 million** for Q3 2023 (YoY), driven by lower operations and maintenance, general and administrative, and depreciation expenses, and the absence of miner asset impairments seen in 2022[223](index=223&type=chunk) - Total operating expenses decreased by **$90.0 million** for the nine months ended September 30, 2023 (YoY), primarily due to significant reductions in operations and maintenance, depreciation, miner asset impairments, and digital currency impairments[224](index=224&type=chunk) - Total other income (expense) increased by **$33.4 million** for Q3 2023 (YoY), primarily due to a **$28.7 million** loss on debt extinguishment and a **$4.2 million** impairment on assets held for sale in 2022[225](index=225&type=chunk) - Total other income (expense) increased by **$9.4 million** for the nine months ended September 30, 2023 (YoY), driven by a higher gain from changes in fair value of warrant liabilities and a decrease in interest expense[226](index=226&type=chunk) [Segment Results](index=47&type=section&id=Segment%20Results) [Energy Operations Segment](index=47&type=section&id=Energy%20Operations%20Segment) Energy Operations Segment Revenues (Three & Nine Months Ended Sep 30, 2023 vs. 2022) | Revenue Type | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Energy | $1,210,811 | $13,071,894 | $4,682,590 | $29,807,512 | | Capacity | $0 | $878,610 | $1,442,067 | $4,591,038 | | Total operating revenues | $1,252,688 | $13,989,675 | $6,266,851 | $34,490,491 | - Energy Operations total operating revenues decreased by **$12.7 million** for Q3 2023 (YoY) and **$28.2 million** for the nine months ended September 30, 2023 (YoY), primarily due to lower energy revenues from prevailing market prices and increased self-generated electricity consumption for crypto operations[231](index=231&type=chunk)[232](index=232&type=chunk) - The segment strategically reduced exposure to capacity markets, opting to be an energy resource after RegA certification, aiming to optimize revenue through market rate power sales and grid support[233](index=233&type=chunk) - Total operating expenses decreased by **$14.0 million** for Q3 2023 (YoY) and **$28.6 million** for the nine months ended September 30, 2023 (YoY), mainly due to improved plant stability, one-time upgrades in 2022, and higher proceeds from REC sales[235](index=235&type=chunk)[237](index=237&type=chunk) [Cryptocurrency Operations Segment](index=50&type=section&id=Cryptocurrency%20Operations%20Segment) Cryptocurrency Operations Segment Revenues (Three & Nine Months Ended Sep 30, 2023 vs. 2022) | Revenue Type | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Cryptocurrency mining | $12,684,894 | $12,283,695 | $37,764,990 | $50,715,424 | | Cryptocurrency hosting | $3,789,375 | $93,279 | $9,195,072 | $282,327 | | Total operating revenues | $16,474,269 | $12,376,974 | $46,960,062 | $50,997,751 | - Cryptocurrency Operations total operating revenues increased by **$4.1 million** for Q3 2023 (YoY) due to increased cryptocurrency hosting revenues from the Foundry Hosting Agreement and Canaan Bitcoin Mining Agreement[240](index=240&type=chunk) - Total operating revenues decreased by **$4.0 million** for the nine months ended September 30, 2023 (YoY), primarily due to lower cryptocurrency mining revenues from a higher global network hash rate and lower Bitcoin prices, partially offset by an **$8.9 million** increase in hosting revenues[241](index=241&type=chunk) - Total operating expenses decreased by **$8.7 million** for Q3 2023 (YoY) and **$52.3 million** for the nine months ended September 30, 2023 (YoY), driven by the absence of miner asset impairments, lower depreciation, and reduced operations and maintenance expenses[242](index=242&type=chunk)[244](index=244&type=chunk) - Impairments on digital currencies decreased significantly to **$0.7 million** for the nine months ended September 30, 2023, compared to **$8.2 million** in the prior year, reflecting an upward trend in Bitcoin prices[247](index=247&type=chunk) - Interest expense decreased by **$3.8 million** for the nine months ended September 30, 2023 (YoY), primarily due to lower debt from extinguishments[248](index=248&type=chunk) [Liquidity and Capital Resources](index=52&type=section&id=Liquidity%20and%20Capital%20Resources) - The Company's cash needs are primarily for growth through acquisitions, capital expenditures, working capital for equipment financing, miner purchases, and general operating expenses[250](index=250&type=chunk) - As of September 30, 2023, and November 10, 2023, the Company had approximately **$5.6 million** and **$5.2 million**, respectively, in cash and cash equivalents and Bitcoin[252](index=252&type=chunk) - The Company incurred net losses of **$22.3 million** (Q3 2023) and **$80.7 million** (YTD Q3 2023), with an accumulated deficit of **$321.1 million** as of September 30, 2023[255](index=255&type=chunk) - Liquidity, combined with expected improvements in operating cash flows, is believed to be sufficient to meet existing commitments and fund operations for the next twelve months[256](index=256&type=chunk) Changes in Cash Flows (Nine Months Ended Sep 30, 2023 vs. 2022) | Cash Flow Activity | Sep 30, 2023 | Sep 30, 2022 | Change | | :----------------------------------- | :----------- | :----------- | :----------- | | Net cash flows used in operating activities | $(7,064,082) | $(14,656,547) | $7,592,465 | | Net cash flows used in investing activities | $(14,743,269) | $(67,864,070) | $53,120,801 | | Net cash flows provided by financing activities | $13,489,947 | $67,454,013 | $(53,964,066) | | Net (decrease) increase in cash and cash equivalents | $(8,317,404) | $(15,066,604) | $6,749,200 | - Total net obligations under debt agreements were **$59.3 million** as of September 30, 2023[261](index=261&type=chunk) - The Tax Receivable Agreement (TRA) obligates Stronghold Inc. to pay TRA Holders **85%** of realized cash tax savings, with payments expected to be substantial and potentially impacting liquidity[270](index=270&type=chunk)[271](index=271&type=chunk) [Recent Accounting Pronouncements](index=55&type=section&id=Recent%20Accounting%20Pronouncements) - There have been no recently issued accounting pronouncements applicable to the Company[35](index=35&type=chunk)[272](index=272&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=46&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there are no quantitative and qualitative disclosures about market risk applicable to the Company for the reported period - The Company has no quantitative and qualitative disclosures about market risk to report[273](index=273&type=chunk) [Item 4. Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms that management evaluated the effectiveness of disclosure controls and procedures as of September 30, 2023, concluding they were effective with no material changes in internal control - The Company's disclosure controls and procedures were evaluated and deemed effective as of September 30, 2023[275](index=275&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2023[276](index=276&type=chunk) [Part II - Other Information](index=48&type=section&id=Part%20II%20-%20Other%20Information) [Item 1. Legal Proceedings](index=48&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 10 – Commitments and Contingencies in the financial statements for information regarding legal proceedings - Information on legal proceedings is detailed in Note 10 – Commitments and Contingencies[278](index=278&type=chunk) [Item 1A. Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) This section outlines new and updated risk factors, primarily focusing on the Company's carbon capture program, including monetization uncertainty and management experience - No material changes to risk factors previously disclosed in the 2022 Form 10-K, except for those detailed in this section[279](index=279&type=chunk) - Risks associated with the carbon capture program include uncertainty of monetization, potential for the program to be cash flow negative, inability to qualify for Section 45Q tax credits, and management's limited experience[280](index=280&type=chunk)[283](index=283&type=chunk)[284](index=284&type=chunk)[288](index=288&type=chunk) - Dependence on third-party consultants, contractors, and suppliers for carbon capture development poses risks of business interruptions, unsatisfactory performance, and supply limitations[289](index=289&type=chunk) - The Company faces competition from larger, more resourced companies in the carbon capture and sequestration industry, which may hinder its ability to expand and remain competitive[290](index=290&type=chunk) [Item 2. Unregistered Sales of Equity and Use of Proceeds](index=49&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20and%20Use%20of%20Proceeds) This section states that there were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds to report[292](index=292&type=chunk) [Item 3. Defaults Upon Senior Securities](index=49&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section indicates that there were no defaults upon senior securities during the reported period - No defaults upon senior securities to report[293](index=293&type=chunk) [Item 4. Mine Safety Disclosures](index=49&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable[294](index=294&type=chunk) [Item 5. Other Information](index=49&type=section&id=Item%205.%20Other%20Information) This section details the Series D Exchange Transaction, outlining the terms of the new Series D Preferred Stock, and confirms no Rule 10b5-1 trading plans were adopted - On November 13, 2023, the Company completed the Series D Exchange Transaction, issuing **15,582 shares** of Series D Preferred Stock in exchange for Series C Preferred Stock, expected to result in approximately **6.5% accretion** for stockholders[295](index=295&type=chunk) - The Series D Preferred Stock has a stated value of **$1,000 per share**, is convertible at **$5.38145 per share** into Class A common stock (subject to a **9.99% beneficial ownership limitation**), and automatically converts on February 20, 2028[298](index=298&type=chunk) - Series D Preferred Stock ranks senior to Class A and Class V common stock, on parity with Series C Preferred Stock, and generally has no voting rights or dividend entitlements[299](index=299&type=chunk)[300](index=300&type=chunk) - No Rule 10b5-1 trading plans were adopted, modified, or terminated by directors or officers during the quarter ended September 30, 2023[303](index=303&type=chunk) [Item 6. Exhibits](index=51&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including corporate documents, agreements, and certifications - Exhibits include the Certificate of Designation for Series D Convertible Preferred Stock, the Exchange Agreement for Series D Preferred Stock, and the related Registration Rights Agreement[305](index=305&type=chunk) - Certifications from the Chief Executive Officer and Chief Financial Officer (Rule 13a-14(a)/15d-14(a) and Section 1350) are filed/furnished[305](index=305&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Stronghold Digital Mining, Inc. (Mark One) (Exact name of registrant as specified in its charter) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Delaware 86-2759890 For the quarterly period ended June 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission file number: 001-40931 ( ...

Q2 2023 Performance & Guidance - Stronghold expects to achieve 4 EH/s of delivered hash rate capacity by 9/1/23, which is fully funded[6] - The company's 1H23 fixed costs (O&M and cash G&A) decreased by approximately $15 million, representing a 34% reduction compared to 1H22[6] - Stronghold anticipates having less than $50 million of principal debt outstanding by YE23, a decrease from nearly $150 million at 6/30/22[6] - The company mined 626 Bitcoins in Q2 2023[12, 29] Capital Efficiency & Investments - Since April 2023, Stronghold procured approximately 1.6 EH/s of hash rate capacity with an investment of only ~$15 million, equating to ~$10/T for ~110 TH/s miners[6] - The company spent approximately $12 million on 6,135 MicroBT miners with an average hash rate of 118 TH/s and efficiency of 28 J/T[16] - In Q2 2023, Stronghold purchased 2,000 miners and hosted 6,000 miners, with an average hash rate of 104 TH/s, efficiency of 31 J/T, and capital expenditure of approximately $3 million[24] Environmental Impact - Nearly 140,000 tons of coal refuse were removed from the local environment during Q2 2023[12, 41] - Approximately 81,000 tons of beneficial use ash were returned to remediate sites[41] Financials - Total revenue for the period was $18.2 million[41] - The company reported a net loss of $11.7 million[41, 43] - Adjusted EBITDA was a loss of $2.6 million[41, 43]

Stronghold Digital Mining, Inc. (NASDAQ:SDIG) Q2 2023 Earnings Conference Call August 10, 2023 10:00 AM ET Company Participants Alex Kovtun - Gateway Group Gregory Beard - Chairman, CEO & President Matthew Smith - CFO & Director Conference Call Participants Chase White - Compass Point Kevin Dede - H.C. Wainwright & Co. Operator Good morning, and welcome to Stronghold Digital Mining's conference call for the second quarter ended June 30, 2023. My name is Norma, and I'll be your operator this morning. Before ...

[Part I - Financial Information](index=3&type=section&id=Part%20I%20Financial%20Information) This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis of the company's financial condition and results of operations [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for **Stronghold Digital Mining, Inc.**, including the balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes explaining the company's nature of operations, accounting policies, and specific financial line items [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's financial position, detailing assets, liabilities, and equity as of March 31, 2023, and December 31, 2022 Condensed Consolidated Balance Sheets (as of March 31, 2023, and December 31, 2022) | Metric | March 31, 2023 | December 31, 2022 | | :----------------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $6,353,973 | $13,296,703 | | Digital currencies | $672,852 | $109,827 | | Total current assets | $21,440,709 | $35,641,670 | | Property, plant and equipment, net | $158,366,684 | $167,204,681 | | **TOTAL ASSETS** | **$189,120,417** | **$216,955,981** | | Total current liabilities | $27,988,442 | $60,412,158 | | Long-term debt, net | $58,208,207 | $57,027,118 | | **Total liabilities** | **$91,424,823** | **$122,176,250** | | Total redeemable common stock | $15,499,219 | $11,754,587 | | Total stockholders' equity | $82,196,375 | $83,025,144 | | **TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' EQUITY** | **$189,120,417** | **$216,955,981** | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section outlines the company's revenues, expenses, and net loss for the three months ended March 31, 2023, and 2022 Condensed Consolidated Statements of Operations (Three Months Ended March 31, 2023, and 2022) | Metric | March 31, 2023 | March 31, 2022 | | :------------------------------------------ | :------------- | :------------- | | Cryptocurrency mining revenue | $11,297,298 | $18,204,193 | | Energy revenue | $2,730,986 | $9,044,392 | | Cryptocurrency hosting revenue | $2,325,996 | $67,876 | | **Total operating revenues** | **$17,266,215** | **$29,381,650** | | Total operating expenses | $31,882,328 | $58,312,864 | | **NET OPERATING LOSS** | **$(14,616,113)** | **$(28,931,214)** | | Loss on debt extinguishment | $(28,960,947) | — | | **NET LOSS** | **$(46,660,562)** | **$(32,306,416)** | | NET LOSS attributable to Stronghold Digital Mining, Inc. | $(28,541,431) | $(13,408,778) | | Basic EPS | $(0.65) | $(0.66) | | Diluted EPS | $(0.65) | $(0.66) | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This section details changes in stockholders' equity, including net loss and stock issuances, for the three months ended March 31, 2023 Condensed Consolidated Statements of Stockholders' Equity (Three Months Ended March 31, 2023) | Metric | Amount | | :------------------------------------------ | :------------- | | Balance – January 1, 2023 (Stockholders' Equity) | $83,025,144 | | Net loss attributable to Stronghold Digital Mining, Inc. | $(28,541,431) | | Net loss attributable to noncontrolling interest | $(18,119,131) | | Maximum redemption right valuation [Common V Units] | $(3,744,632) | | Stock-based compensation | $2,449,324 | | Issuance of Series C convertible preferred stock | $45,386,946 | | Balance – March 31, 2023 (Stockholders' Equity) | $82,196,375 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2023, and 2022 Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31, 2023, and 2022) | Metric | March 31, 2023 | March 31, 2022 | | :------------------------------------------ | :------------- | :------------- | | Net cash flows used in operating activities | $(3,341,466) | $(4,218,388) | | Net cash flows used in investing activities | $(13,738) | $(44,639,218) | | Net cash flows (used in) provided by financing activities | $(3,587,526) | $42,548,184 | | Net decrease in cash and cash equivalents | $(6,942,730) | $(6,309,422) | | Cash and cash equivalents - beginning of period | $13,296,703 | $31,790,115 | | Cash and cash equivalents - end of period | $6,353,973 | $25,480,693 | [NATURE OF OPERATIONS](index=9&type=section&id=NATURE%20OF%20OPERATIONS) This section describes **Stronghold Digital Mining, Inc.'s** business as a vertically integrated crypto asset mining company with two power generation facilities - **Stronghold Digital Mining, Inc.** is a **vertically integrated crypto asset mining company** focused on **Bitcoin mining** and environmental remediation, operating two coal refuse power generation facilities (**Scrubgrass Plant** and **Panther Creek Plant**) in Pennsylvania[22](index=22&type=chunk) - The company operates in two business segments: Energy Operations and Cryptocurrency Operations[23](index=23&type=chunk) - Both power generation facilities qualify as **Tier II Alternative Energy Systems** under Pennsylvania law[22](index=22&type=chunk) [NOTE 1 – BASIS OF PRESENTATION](index=9&type=section&id=NOTE%201%20%E2%80%93%20BASIS%20OF%20PRESENTATION) This section details reclassifications of power charges and the adoption of new accounting standards, noting no material impact on financial statements - The Company reclassified imported power charges from netting against energy revenue to fuel expenses, with no impact on **net operating income**, **earnings per share**, or **equity**[30](index=30&type=chunk) - The adoption of ASU 2016-13 (CECL model) effective January 1, 2023, did not have an impact on the Company's **consolidated financial statements**[32](index=32&type=chunk) [NOTE 2 – DIGITAL CURRENCIES](index=10&type=section&id=NOTE%202%20%E2%80%93%20DIGITAL%20CURRENCIES) This section provides information on the company's **Bitcoin** holdings and changes in **digital currencies**, including additions, sales, and **impairment losses** - As of March 31, 2023, the Company held **$672,852** in **unrestricted Bitcoin**[34](index=34&type=chunk) Changes in Digital Currencies (Three Months Ended March 31, 2023, and 2022) | Metric | March 31, 2023 | March 31, 2022 | | :-------------------------------- | :------------- | :------------- | | Digital currencies at beginning of period | $109,827 | $10,417,865 | | Additions of digital currencies | $12,921,075 | $18,204,193 | | Realized gain on sale of digital currencies | $326,768 | $751,110 | | Impairment losses | $(71,477) | $(2,506,172) | | Proceeds from sale of digital currencies | $(12,613,341) | $(12,998,410) | | Digital currencies at end of period | $672,852 | $13,868,586 | [NOTE 3 – INVENTORY](index=12&type=section&id=NOTE%203%20%E2%80%93%20INVENTORY) This section details the composition of the company's inventory, including waste coal, fuel oil, and limestone Inventory Composition (as of March 31, 2023, and December 31, 2022) | Component | March 31, 2023 | December 31, 2022 | | :---------- | :------------- | :---------------- | | Waste coal | $4,267,308 | $4,147,369 | | Fuel oil | $60,913 | $143,592 | | Limestone | $372,611 | $180,696 | | **Total Inventory** | **$4,700,832** | **$4,471,657** | [NOTE 4 – EQUIPMENT DEPOSITS](index=12&type=section&id=NOTE%204%20%E2%80%93%20EQUIPMENT%20DEPOSITS) This section outlines **impairment charges** on **MinerVa** equipment deposits due to delivery delays and the status of contracted miner deliveries - The Company recorded **impairment charges** of **$12,228,742** in Q1 2022 and an additional **$5,120,000** in Q4 2022 on **MinerVa** equipment deposits due to delivery delays and fair value adjustments[38](index=38&type=chunk) - As of March 31, 2023, **MinerVa** had delivered, refunded cash, or swapped equivalent value for approximately **12,700** of the **15,000** contracted miners[77](index=77&type=chunk) Equipment Deposits (as of March 31, 2023) | Vendor | Model | Count | Total Commitments | Transferred to PP&E [A] | Impairment | Sold | Equipment Deposits | | :------- | :---------- | :---- | :---------------- | :-------------------- | :--------- | :--- | :----------------- | | MinerVa | MinerVa MV7 | 15,000 | $68,887,550 | $(37,415,271) | $(17,348,742) | $(8,701,199) | $5,422,338 | [NOTE 5 – PROPERTY, PLANT AND EQUIPMENT](index=12&type=section&id=NOTE%205%20%E2%80%93%20PROPERTY%2C%20PLANT%20AND%20EQUIPMENT) This section details the composition of **property, plant and equipment, net**, including electric plant and cryptocurrency machines, and associated **depreciation expense** Property, Plant and Equipment, Net (as of March 31, 2023, and December 31, 2022) | Component | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Electric plant | $66,490,600 | $66,295,809 | | Cryptocurrency machines and powering supplies | $86,481,239 | $81,945,396 | | Construction in progress | $11,099,409 | $19,553,826 | | **Property, plant and equipment, net** | **$158,366,684** | **$167,204,681** | - **Depreciation and amortization expense** was **$7,722,841** for the three months ended March 31, 2023, a decrease from **$12,319,581** in the prior year[41](index=41&type=chunk) [NOTE 6 – ACCRUED LIABILITIES](index=13&type=section&id=NOTE%206%20%E2%80%93%20ACCRUED%20LIABILITIES) This section presents the breakdown of **accrued liabilities**, including legal and professional fees, interest, and sales and use tax Accrued Liabilities (as of March 31, 2023, and December 31, 2022) | Component | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :---------------- | | Accrued legal and professional fees | $886,370 | $1,439,544 | | Accrued interest | $2,992 | $1,343,085 | | Accrued sales and use tax | $5,430,197 | $5,150,659 | | Other | $793,089 | $959,960 | | **Total Accrued Liabilities** | **$7,112,648** | **$8,893,248** | [NOTE 7 – DEBT](index=13&type=section&id=NOTE%207%20%E2%80%93%20DEBT) This section details the company's **total outstanding borrowings**, including the **WhiteHawk Credit Agreement** and the extinguishment of **convertible note** debt Total Outstanding Borrowings (as of March 31, 2023, and December 31, 2022) | Debt Type | March 31, 2023 | December 31, 2022 | | :---------------------------------------------------------------- | :------------- | :---------------- | | $58,149,411 Credit Agreement (WhiteHawk) | $54,370,570 | $56,114,249 | | $33,750,000 Convertible Note | — | $16,812,500 | | $3,500,000 Promissory Note (B&M) | $3,500,000 | — | | **Total outstanding borrowings** | **$59,203,352** | **$74,449,664** | - The **WhiteHawk Refinancing Agreement** was amended to suspend amortization payments from February 2023 through July 2024, with monthly prepayments resuming June 30, 2023, based on cash balance thresholds[48](index=48&type=chunk) - The Company extinguished approximately **$16.9 million** of **Convertible Note** debt in exchange for **Series C Preferred Stock**, resulting in a **$29 million loss on debt extinguishment** for Q1 2023[50](index=50&type=chunk) - A **$3,500,000 Promissory Note** was issued to Bruce & Merrilees Electric Co. to settle an approximately **$11.4 million** outstanding payable, along with a **stock purchase warrant** for **3,000,000 Class A common shares**[52](index=52&type=chunk) [NOTE 8 – RELATED-PARTY TRANSACTIONS](index=16&type=section&id=NOTE%208%20%E2%80%93%20RELATED-PARTY%20TRANSACTIONS) This section describes transactions with related parties, including **waste coal agreements**, fuel purchases, and management fees - The Company has a **Waste Coal Agreement** with Coal Valley Sales, LLC (CVS), incurring a **$6.07** per ton **base handling fee** for waste coal[54](index=54&type=chunk) - Expenses for fuel purchases from CVS were **$150,000** in Q1 2023 and **$303,500** in Q1 2022[56](index=56&type=chunk) - The Company has various **Fuel Management and O&M Agreements** with subsidiaries of Olympus Power LLC, incurring expenses for services and management fees[58](index=58&type=chunk)[59](index=59&type=chunk)[60](index=60&type=chunk)[61](index=61&type=chunk)[63](index=63&type=chunk) Amounts Due to Related Parties (as of March 31, 2023, and December 31, 2022) | Related Party | March 31, 2023 | December 31, 2022 | | :------------------------------------------ | :------------- | :---------------- | | Coal Valley Properties, LLC | $134,452 | $134,452 | | Q Power LLC | $500,000 | $500,000 | | Northampton Generating Fuel Supply Company, Inc. | $886,135 | $594,039 | | **Total Due to Related Parties** | **$1,612,515** | **$1,375,049** | [NOTE 9 – CONCENTRATIONS](index=18&type=section&id=NOTE%209%20%E2%80%93%20CONCENTRATIONS) This section highlights **significant credit risk** concentration with **Customized Energy Solutions** and coal purchases from related parties - The Company's **significant credit risk** is primarily concentrated with **Customized Energy Solutions** (CES), which accounted for **100%** of **energy operations segment revenues** and **accounts receivable** as of March 31, 2023[71](index=71&type=chunk)[72](index=72&type=chunk) - The Company purchased **19%** of coal from two related parties for the three months ended March 31, 2023, compared to **13%** in the prior year[73](index=73&type=chunk) [NOTE 10 – COMMITMENTS AND CONTINGENCIES](index=19&type=section&id=NOTE%2010%20%E2%80%93%20COMMITMENTS%20AND%20CONTINGENCIES) This section outlines significant commitments and contingencies, including miner delivery delays, arbitration awards, and ongoing legal proceedings - The **MinerVa Purchase Agreement** for **15,000** miners has experienced significant delivery delays, leading to **impairment charges** and ongoing dispute resolution efforts[75](index=75&type=chunk)[76](index=76&type=chunk)[77](index=77&type=chunk) - An **arbitration award** of **$5.0 million** plus interest was issued against **Scrubgrass**, but the managing members of **Q Power** have committed to pay the full amount, with no effect on the Company's financial condition[79](index=79&type=chunk)[80](index=80&type=chunk) - The Company settled a lawsuit with **Allegheny Mineral Corporation** for a **$300,000** cash payment and a limestone supply agreement[81](index=81&type=chunk) - The **FERC Office of Enforcement** is conducting a non-public preliminary investigation regarding **Scrubgrass'** compliance with the **PJM tariff**; the Company does not believe it will have a **material adverse effect**[82](index=82&type=chunk) - The Company is a defendant in a **putative class action lawsuit** (Winter v. **Stronghold Digital Mining Inc.**, et al.) and a complaint regarding **misappropriated firmware** in **Bitcoin** miners (Mark Grams v. Treis Blockchain, LLC, et al.), both of which it intends to vigorously defend[83](index=83&type=chunk)[84](index=84&type=chunk)[85](index=85&type=chunk) [NOTE 11 – REDEEMABLE COMMON STOCK](index=21&type=section&id=NOTE%2011%20%E2%80%93%20REDEEMABLE%20COMMON%20STOCK) This section describes **Class V common stock**, its ownership of **Stronghold LLC**, and its classification as **redeemable common stock** due to **redemption rights** - **Class V common stock**, held by **Q Power**, represented **38.8%** ownership of **Stronghold LLC** as of March 31, 2023, and includes **redemption rights** into **Class A shares**[86](index=86&type=chunk) - The **Class V common stock** is classified as **redeemable common stock** because the **redemption rights** are not solely within the Company's control[87](index=87&type=chunk) Redeemable Common Stock (as of March 31, 2023) | Metric | Shares | Amount | | :-------------------------------- | :------- | :------------- | | Balance - December 31, 2022 | 26,057,600 | $11,754,587 | | Net loss attributable to noncontrolling interest | — | $(18,119,131) | | Maximum redemption right valuation | — | $21,863,763 | | **Balance - March 31, 2023** | **26,057,600** | **$15,499,219** | [NOTE 12 – NONCONTROLLING INTERESTS](index=21&type=section&id=NOTE%2012%20%E2%80%93%20NONCONTROLLING%20INTERESTS) This section explains the consolidation of **Stronghold LLC** and the reporting of **noncontrolling interest** representing **Class V common units** held by **Q Power** - The Company consolidates the financial results of **Stronghold LLC** and reports a **noncontrolling interest** representing the common units of **Stronghold LLC** held by **Q Power**[90](index=90&type=chunk) - **Class V common stock** represented **38.8%** ownership of **Stronghold LLC** as of March 31, 2023[91](index=91&type=chunk) Noncontrolling Interest Adjustments (Three Months Ended March 31, 2023) | Metric | Class V Common Stock Outstanding | Fair Value Price | Temporary Equity Adjustments | | :------------------------------------------ | :------------------------------- | :--------------- | :--------------------------- | | Balance - December 31, 2022 | 26,057,600 | $0.45 | $11,754,587 | | Net loss for the three months ended March 31, 2023 | | | $(18,119,131) | | Adjustment of temporary equity to redemption amount | | | $21,863,763 | | **Balance - March 31, 2023** | **26,057,600** | **$0.59** | **$15,499,219** | [NOTE 13 – STOCK-BASED COMPENSATION](index=22&type=section&id=NOTE%2013%20%E2%80%93%20STOCK-BASED%20COMPENSATION) This section details **stock-based compensation expense** and the grant of **restricted stock units** to executive officers - **Stock-based compensation expense** was **$2,449,324** for the three months ended March 31, 2023, compared to **$2,592,995** in the prior year[92](index=92&type=chunk) - The Company granted **2,725,000 restricted stock units** to executive officers in exchange for cancelled stock options and performance share units, with no significant impact on Q1 2023 operations[93](index=93&type=chunk) [NOTE 14 – WARRANTS](index=22&type=section&id=NOTE%2014%20%E2%80%93%20WARRANTS) This section provides information on **outstanding warrants**, including those issued as part of the **B&M Settlement** and those exercised during Q1 2023 Outstanding Warrants (as of March 31, 2023) | Metric | Number of Warrants | | :-------------------------- | :----------------- | | Outstanding as of December 31, 2022 | 15,875,106 | | Issued | 3,000,000 | | Exercised | (5,002,650) | | **Outstanding as of March 31, 2023** | **13,872,456** | - The Company issued **3,000,000 stock purchase warrants** as part of the **B&M Settlement**[96](index=96&type=chunk) - During Q1 2023, **2,277,000 warrants** from the **May 2022 Private Placement** and **2,725,650 pre-funded warrants** from the **September 2022 Private Placement** were exercised[99](index=99&type=chunk)[101](index=101&type=chunk) - The **fair value of warrant liabilities** was estimated at **$2,846,548** as of March 31, 2023, using a Black-Scholes model[113](index=113&type=chunk) [NOTE 15 – PRIVATE PLACEMENTS](index=23&type=section&id=NOTE%2015%20%E2%80%93%20PRIVATE%20PLACEMENTS) This section details various **private placements**, including the **May 2022 Notes**, **Series C Preferred Stock** exchange, and subsequent **April 2023** financing activities - The **May 2022 Private Placement** involved the issuance of **$33.75 million** in **convertible promissory notes** and **warrants** for **6,318,000 Class A shares**, with the **strike price** later reduced to **$0.01** for **$11.25 million** of principal[104](index=104&type=chunk)[108](index=108&type=chunk) - The **Series C Convertible Preferred Stock** was issued in exchange for the **May 2022 Notes**, converting **$17,893,750** of principal and accrued interest into **23,102 shares of Series C Preferred Stock**[110](index=110&type=chunk)[111](index=111&type=chunk) - The **September 2022 Private Placement** raised approximately **$9.0 million** through the sale of **Class A common stock** and **warrants**, including **pre-funded warrants**[112](index=112&type=chunk) - The **April 2023 Private Placement** (subsequent event) raised **$10.0 million** from an institutional investor and CEO Greg Beard for **10,000,000 Class A shares** and **10,000,000 warrants**, and adjusted the **strike price** of **September 2022 warrants** to **$1.01**[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk) [NOTE 16 – SEGMENT REPORTING](index=25&type=section&id=NOTE%2016%20%E2%80%93%20SEGMENT%20REPORTING) This section presents **operating revenues** and **net operating loss** broken down by the Energy Operations and Cryptocurrency Operations segments Operating Revenues by Segment (Three Months Ended March 31, 2023, and 2022) | Segment | March 31, 2023 | March 31, 2022 | | :---------------------- | :------------- | :------------- | | Energy Operations | $3,642,921 | $11,109,581 | | Cryptocurrency Operations | $13,623,294 | $18,272,069 | | **Total operating revenues** | **$17,266,215** | **$29,381,650** | Net Operating Loss by Segment (Three Months Ended March 31, 2023, and 2022) | Segment | March 31, 2023 | March 31, 2022 | | :---------------------- | :------------- | :------------- | | Energy Operations | $(10,734,947) | $(12,097,125) | | Cryptocurrency Operations | $(3,881,166) | $(16,834,089) | | **Total net operating loss** | **$(14,616,113)** | **$(28,931,214)** | [NOTE 17 – EARNINGS (LOSS) PER SHARE](index=25&type=section&id=NOTE%2017%20%E2%80%93%20EARNINGS%20%28LOSS%29%20PER%20SHARE) This section provides basic and diluted **earnings per share** calculations, noting the exclusion of **anti-dilutive** securities Earnings (Loss) Per Share (Three Months Ended March 31, 2023, and 2022) | Metric | March 31, 2023 | March 31, 2022 | | :------------------------------------------ | :------------- | :------------- | | Net loss attributable to Stronghold Digital Mining, Inc. | $(28,541,431) | $(13,408,778) | | Weighted average number of Class A common shares outstanding | 43,756,137 | 20,206,103 | | Basic net loss per share | $(0.65) | $(0.66) | | Diluted net loss per share | $(0.65) | $(0.66) | - Securities that could potentially **dilute earnings per share**, including **53,930,000 shares of Series C Preferred Stock**, were excluded from diluted EPS calculation as their inclusion would be **anti-dilutive**[121](index=121&type=chunk) [NOTE 18 – INCOME TAXES](index=26&type=section&id=NOTE%2018%20%E2%80%93%20INCOME%20TAXES) This section discusses the **Tax Receivable Agreement**, the absence of **deferred tax assets**, and the **effective income tax rate** - The Company has a **Tax Receivable Agreement (TRA)** obligating it to pay **TRA Holders 85%** of realized cash **tax savings** from tax basis step-ups[123](index=123&type=chunk) - No **deferred income tax asset or liability** has been recorded for the **TRA** due to estimated taxable losses and a full **valuation allowance** against **deferred income tax assets**[124](index=124&type=chunk)[125](index=125&type=chunk) - The **effective income tax rate** was **zero** for the three months ended March 31, 2023, and 2022, primarily due to pre-tax losses attributable to noncontrolling interest and the **valuation allowance**[126](index=126&type=chunk) [NOTE 19 – SUPPLEMENTAL CASH AND NON-CASH INFORMATION](index=27&type=section&id=NOTE%2019%20%E2%80%93%20SUPPLEMENTAL%20CASH%20AND%20NON-CASH%20INFORMATION) This section provides **supplemental cash flow** details and significant **non-cash activities**, including **debt extinguishment** and **warrant** issuances Supplemental Cash Flow Information (Three Months Ended March 31, 2023, and 2022) | Metric | March 31, 2023 | March 31, 2022 | | :------------------ | :------------- | :------------- | | Interest payments | $2,222,350 | $837,174 | | Income tax payments | — | — | - Significant **non-cash activities** in Q1 2023 included **$4,658,970** in reclassifications from deposits to **property, plant and equipment**, the **extinguishment of $16,812,500 convertible note debt**, and the issuance of **$45,386,944 Series C convertible preferred stock**[128](index=128&type=chunk) - The **B&M Settlement** involved **non-cash transactions** including the issuance of **$1,739,882** in **warrants**, return of **$6,007,500** in transformers, issuance of a **$3,500,000 note**, and elimination of **$11,426,720** in **accounts payable**[128](index=128&type=chunk) [NOTE 20 – SUBSEQUENT EVENTS](index=27&type=section&id=NOTE%2020%20%E2%80%93%20SUBSEQUENT%20EVENTS) This section outlines key events occurring after the reporting period, including **private placements**, miner acquisitions, and a new hosting agreement - On April 20, 2023, the Company completed an **April 2023 Private Placement**, raising **$10.0 million** from an institutional investor and CEO Greg Beard for **10,000,000 Class A shares** and **10,000,000 warrants**, and adjusted the **strike price** of **September 2022 warrants** to **$1.01**[129](index=129&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk) - On April 20, 2023, **Stronghold Inc.** acquired **5,000 new MicroBT WhatsMiner M50 miners** (**600 PH/s**), expected to increase total delivered **hash rate capacity** by over **20%** to over **3.2 EH/s**[132](index=132&type=chunk)[134](index=134&type=chunk) - On April 27, 2023, the Company signed a two-year **hosting agreement** with **Canaan Inc.** for **4,000 Bitcoin miners** (**400 PH/s**), where **Stronghold Inc.** will receive **50%** of **Bitcoin mined** and **55%** of the **net cost of power**[135](index=135&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and results of operations for the three months ended March 31, 2023, compared to the same period in 2022. It covers the business model, recent developments, market trends, accounting policies, and a detailed analysis of revenues, expenses, and liquidity, highlighting the impact of **Bitcoin** price volatility and strategic financing activities [Overview of the Business](index=32&type=section&id=Overview%20of%20the%20Business) This section describes **Stronghold Digital Mining's vertically integrated model**, focusing on **low-cost Bitcoin production** and leveraging **renewable energy tax credits** - **Stronghold Digital Mining** operates a **vertically integrated model**, owning power plants and **Bitcoin mining** data centers, aiming for **low-cost Bitcoin production**[146](index=146&type=chunk) - The Company benefits from **Tier II renewable energy tax credits (RECs)** and **waste coal tax credits**, reducing its **net cost of power**[146](index=146&type=chunk) - **Net cost of power** reached **$45-$50 per MWh** by Q1 2023, with an expected average of **$40-$50 per MWh** for the rest of 2023, corresponding to a **Bitcoin mining cost** of approximately **$10,000 to $14,000**[147](index=147&type=chunk) - As of May 8, 2023, the Company operates over **31,000 Bitcoin miners** with a **hash rate capacity** of approximately **2.8 EH/s**, and expects to reach **4 EH/s data center capacity** by the end of Q3[149](index=149&type=chunk) [Bitcoin](index=33&type=section&id=Bitcoin) This section explains **Bitcoin** as a **decentralized digital currency**, the company's approach to selling **Bitcoin**, and its **digital asset** safeguarding practices - **Bitcoin** is a **decentralized digital currency** mined through a **proof-of-work consensus method**, rewarding miners with newly created **Bitcoins** and **transaction fees**[150](index=150&type=chunk) - The Company sells **Bitcoin** to support operations and strategic growth, but does not engage in regular trading or hedging activities[151](index=151&type=chunk) - **Digital assets** are safeguarded using **storage solutions** provided by **Anchorage Digital Bank**, requiring multi-factor authentication and utilizing cold and hot storage[151](index=151&type=chunk) [Recent Developments](index=33&type=section&id=Recent%20Developments) This section highlights recent strategic actions, including debt settlements, preferred stock exchanges, credit agreement amendments, and **Nasdaq** compliance efforts - The **Bruce and Merrilees Settlement Agreement** (March 28, 2023) eliminated an estimated **$11.4 million outstanding payable** in exchange for a **$3.5 million promissory note** and **warrants** for **3,000,000 Class A Common Stock shares**[152](index=152&type=chunk) - The **Series C Convertible Preferred Stock exchange** (February 20, 2023) converted **$17,893,750** of **May 2022 Notes principal and accrued interest** into **23,102 shares of Series C Preferred Stock**[156](index=156&type=chunk) - The **WhiteHawk Credit Agreement** was amended (February 6, 2023) to **modify covenants**, remove certain prepayment requirements, **suspend amortization payments** until July 2024, and require the appointment of an **independent director** (Thomas Doherty appointed March 7, 2023)[158](index=158&type=chunk)[161](index=161&type=chunk) - The Company received a **Nasdaq notification** on November 30, 2022, regarding non-compliance with the **minimum bid price requirement**, and stockholders authorized a **reverse stock split** to regain compliance[173](index=173&type=chunk)[175](index=175&type=chunk)[176](index=176&type=chunk) [Trends and Other Factors Impacting Our Performance](index=37&type=section&id=Trends%20and%20Other%20Factors%20Impacting%20Our%20Performance) This section discusses the volatility of **Bitcoin** prices, the increasing **network hash rate**, and the impact of **transaction fees** on company performance - The **market price of Bitcoin** has been **highly volatile**, ranging from approximately **$15,000 to $48,000** in 2022 and **$17,000 to $31,000** year-to-date as of May 8, 2023[177](index=177&type=chunk) - The **Bitcoin network hash rate** has increased to approximately **351 EH/s** as of May 4, 2023, intensifying **competition for block awards**[180](index=180&type=chunk) - **Hash price** (**revenue per terahash per day**) was **$0.084** on May 4, 2023, compared to an average year-to-date of **$0.075**[182](index=182&type=chunk) - **Bitcoin transaction fees**, which averaged ~**1.8%** of **block subsidy** from November 2021 to April 2023, rose sharply to ~**26%** from May 1-8, 2023[183](index=183&type=chunk) [Critical Accounting Policies and Significant Estimates](index=39&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Estimates) This section confirms that **critical accounting policies and significant estimates** remain consistent with the prior **annual report** - The Company's **critical accounting policies and significant estimates** remain unchanged from its **Annual Report on Form 10-K** for the year ended December 31, 2022[185](index=185&type=chunk) [Post IPO Taxation and Public Company Costs](index=39&type=section&id=Post%20IPO%20Taxation%20and%20Public%20Company%20Costs) This section addresses the company's tax obligations as a public entity, including **U.S. federal and state income taxes** and expenses related to the **Tax Receivable Agreement** - **Stronghold Inc.** is subject to **U.S. federal and state income taxes**, unlike its **pass-through predecessor**, and incurs **significant expenses** related to operations and **Tax Receivable Agreement (TRA) payments**[186](index=186&type=chunk) - **Stronghold LLC** makes **cash distributions** to **Stronghold Inc.** to cover its **tax obligations** and **TRA payments**, and non-pro rata payments for **corporate overhead expenses**[186](index=186&type=chunk) - The Company incurs additional **significant and recurring expenses** as a **publicly traded corporation**, including **compliance, reporting, and audit fees**[187](index=187&type=chunk) [Factors Affecting Comparability of Our Future Results of Operations to Our Historical Results of Operations](index=39&type=section&id=Factors%20Affecting%20Comparability%20of%20Our%20Future%20Results%20of%20Operations%20to%20Our%20Historical%20Results%20of%20Operations) This section outlines factors impacting future financial results, including changes in **corporate tax structure**, increased public company expenses, and growing **crypto asset mining** operations - **Stronghold Inc.'s corporate tax structure** (subject to federal, state, and local income taxes) differs from its **partnership predecessor**, impacting future financial results[189](index=189&type=chunk) - The Company anticipates increased **selling, general, and administrative expenses** as it implements controls and infrastructure applicable to publicly traded companies[190](index=190&type=chunk) - As the Company acquires more miners and utilizes its power assets, a greater proportion of its revenue and expenses will relate to **crypto asset mining**[191](index=191&type=chunk) [Results of Operations](index=40&type=section&id=Results%20of%20Operations) This section analyzes the decrease in **operating revenue** and expenses for Q1 2023, highlighting the impact of lower **cryptocurrency mining** and **energy revenues** - **Operating revenue decreased by $12.1 million** for Q1 2023 compared to Q1 2022, primarily due to a **$6.9 million decrease in cryptocurrency mining revenue** and a **$6.3 million decrease in energy revenue**[193](index=193&type=chunk) - **Total operating expenses decreased by $26.4 million** for Q1 2023 compared to Q1 2022, driven by lower **impairments on equipment deposits** (**$12.2 million**), **depreciation** (**$4.6 million**), and **general and administrative expenses** (**$3.0 million**)[194](index=194&type=chunk) - **Total other income (expense) decreased by $28.7 million** for Q1 2023 compared to Q1 2022, primarily due to a **$29 million loss on debt extinguishment**[195](index=195&type=chunk) [Segment Results](index=40&type=section&id=Segment%20Results%20%28MD%26A%29) This section provides a breakdown of **operating revenues** and **net operating loss** by the Energy Operations and Cryptocurrency Operations segments Operating Revenues by Segment (Three Months Ended March 31, 2023, and 2022) | Segment | March 31, 2023 | March 31, 2022 | | :---------------------- | :------------- | :------------- | | Energy Operations | $3,642,921 | $11,109,581 | | Cryptocurrency Operations | $13,623,294 | $18,272,069 | | **Total operating revenues** | **$17,266,215** | **$29,381,650** | Net Operating Loss by Segment (Three Months Ended March 31, 2023, and 2022) | Segment | March 31, 2023 | March 31, 2022 | | :---------------------- | :------------- | :------------- | | Energy Operations | $(10,734,947) | $(12,097,125) | | Cryptocurrency Operations | $(3,881,166) | $(16,834,089) | | **Total net operating loss** | **$(14,616,113)** | **$(28,931,214)** | [Energy Operations Segment](index=41&type=section&id=Energy%20Operations%20Segment%20%28MD%26A%29) This section details the decrease in energy **operating revenue** due to lower market rates and **capacity revenue**, offset by reduced fuel and operations expenses - **Total operating revenue for the Energy Operations segment decreased by $7.5 million** in Q1 2023, primarily due to a **$6.3 million decrease in energy revenue from lower market rates** and a **$1.2 million decrease in capacity revenue**[199](index=199&type=chunk) - The Company **strategically reduced its exposure to capacity markets** to optimize for **selling power to the grid** at prevailing market rates and providing **fast response energy**[200](index=200&type=chunk)[201](index=201&type=chunk) - **Total operating expenses decreased by $6.6 million**, driven by a **$4.8 million decrease in fuel expenses** (due to higher **REC sales**) and a **$2.9 million decrease in operations and maintenance expenses**[203](index=203&type=chunk) - **REC sales of $4.9 million** in Q1 2023 (vs. **$0.5 million** in Q1 2022) were recognized as a **contra-expense** to offset fuel costs[203](index=203&type=chunk) [Cryptocurrency Operations Segment](index=43&type=section&id=Cryptocurrency%20Operations%20Segment%20%28MD%26A%29) This section analyzes the decrease in **cryptocurrency operating revenues** due to lower **Bitcoin** prices and higher global **network hash rates**, partially offset by increased hosting revenue - **Total operating revenues for the Cryptocurrency Operations segment decreased by $4.6 million** in Q1 2023, primarily due to **lower cryptocurrency mining revenue** from **reduced Bitcoin prices** and **higher global network hash rates**, partially offset by a **$2.3 million increase in hosting revenue**[206](index=206&type=chunk) - **Total operating expenses decreased by $16.7 million**, mainly due to a **$12.2 million impairment on equipment deposits** in 2022, a **$4.7 million decrease in depreciation**, and a **$2.4 million decrease in digital currency impairments**[207](index=207&type=chunk) - **Intercompany electric charges increased by $2.2 million** due to the **ramp-up of cryptocurrency mining operations**[207](index=207&type=chunk) [Impairments on Digital Currencies](index=44&type=section&id=Impairments%20on%20Digital%20Currencies%20%28MD%26A%29) This section discusses the significant decrease in **impairment losses on digital currencies**, reflecting an upward trend in **Bitcoin** prices - **Impairment losses on digital currencies decreased significantly to $0.1 million** in Q1 2023 from **$2.5 million** in Q1 2022, reflecting an upward trend in **Bitcoin** prices[209](index=209&type=chunk) - As of March 31, 2023, the Company held approximately **24 Bitcoin** on its balance sheet, with a **spot market price of $28,478 per Bitcoin**[209](index=209&type=chunk) [Interest Expense](index=44&type=section&id=Interest%20Expense%20%28MD%26A%29) This section details the decrease in **interest expense** primarily due to lower debt following the extinguishment of master equipment financing agreements - **Interest expense decreased by $0.7 million** for Q1 2023 compared to Q1 2022, primarily due to **lower debt** resulting from the **extinguishment of master equipment financing agreements**[210](index=210&type=chunk) [Liquidity and Capital Resources](index=44&type=section&id=Liquidity%20and%20Capital%20Resources%20%28MD%26A%29) This section assesses the company's cash position, outstanding debt, **net loss**, and management's outlook on future **liquidity** and funding for operations - As of March 31, 2023, and May 8, 2023, the Company had approximately **$7.0 million** and **$8.0 million**, respectively, of **cash and cash equivalents and Bitcoin** on its balance sheet[214](index=214&type=chunk) - **Principal amount outstanding indebtedness** was **$59.8 million** as of March 31, 2023, and **$59.6 million** as of May 8, 2023[214](index=214&type=chunk) - The Company incurred a **net loss of $46.7 million** for Q1 2023 and an **accumulated deficit of $290.8 million** as of March 31, 2023[216](index=216&type=chunk) - Management believes its **liquidity position**, combined with expected improvements in **operating cash flows** and recent **financing activities** (**April 2023 Private Placement**, **MicroBT Miner Purchase**, **Canaan Bitcoin Mining Agreement**), will be sufficient to meet **existing commitments** and **fund operations** for the next twelve months[219](index=219&type=chunk) [Cash Flows](index=45&type=section&id=Cash%20Flows%20%28MD%26A%29) This section analyzes changes in **cash flows** from operating, investing, and financing activities, highlighting the impact of reduced capital expenditures and financing Cash Flow Changes (Three Months Ended March 31, 2023, and 2022) | Metric | March 31, 2023 | March 31, 2022 | Change | | :------------------------------------------ | :------------- | :------------- | :------- | | Net cash used in operating activities | $(3,341,466) | $(4,218,388) | $876,922 | | Net cash used in investing activities | $(13,738) | $(44,639,218) | $44,625,480 | | Net cash (used in) provided by financing activities | $(3,587,526) | $42,548,184 | $(46,135,710) | | Net change in cash | $(6,942,730) | $(6,309,422) | $(633,308) | - The **$0.9 million decrease in net cash used in operating activities** was primarily due to **lower cash outflows** for **general and administrative expenses and operations and maintenance**[221](index=221&type=chunk) - The **$44.6 million decrease in net cash used in investing activities** was due to **lower outflows for the purchase of property, plant and equipment** compared to the prior year's **ramp-up of cryptocurrency mining operations**[222](index=222&type=chunk) - The **$46.1 million net decrease in cash provided by financing activities** was due to **less funding from Whitehawk promissory notes and equipment financings** in 2023 compared to 2022[223](index=223&type=chunk) [Debt Agreements](index=46&type=section&id=Debt%20Agreements%20%28MD%26A%29) This section details the **WhiteHawk Credit Agreement** and the termination of **Amended May 2022 Notes** through an exchange for **Series C Preferred Stock** - The Company entered into the **WhiteHawk Credit Agreement** on October 27, 2022, refinancing an existing agreement, with **$54.4 million** owed as of March 31, 2023[225](index=225&type=chunk) - **Total net obligations under all debt agreements** were **$59.2 million** as of March 31, 2023[226](index=226&type=chunk) - The **Amended May 2022 Notes**, with an aggregate principal of **$33.75 million**, were subsequently terminated in exchange for shares of **Series C Preferred Stock**[227](index=227&type=chunk) [Equipment Purchase and Financing Transactions](index=46&type=section&id=Equipment%20Purchase%20and%20Financing%20Transactions%20%28MD%26A%29) This section discusses delivery delays and **impairment charges** related to the **MinerVa Purchase Agreement** and amendments to the **WhiteHawk Refinancing Agreement** - The **MinerVa Purchase Agreement** for **15,000** miners has experienced **significant delivery delays**, resulting in **impairment charges of $12.2 million** in Q1 2022 and **$5.12 million** in Q4 2022[228](index=228&type=chunk) - The **WhiteHawk Refinancing Agreement** was amended to **modify covenants and remove certain prepayment requirements**, including **suspending amortization payments** until July 2024[233](index=233&type=chunk) [Convertible Note Exchange](index=47&type=section&id=Convertible%20Note%20Exchange%20%28MD%26A%29) This section describes the exchange of **Amended May 2022 Notes** for **Series C Preferred Stock**, resulting in **debt extinguishment** and a significant loss - On February 20, 2023, the **Amended May 2022 Notes** were exchanged for **Series C Preferred Stock**, **extinguishing approximately $16.9 million of debt** and resulting in a **$29 million loss on debt extinguishment** for Q1 2023[235](index=235&type=chunk) [Tax Receivable Agreement](index=47&type=section&id=Tax%20Receivable%20Agreement%20%28MD%26A%29) This section explains the **Tax Receivable Agreement**, obligating the company to pay **85%** of tax savings from basis step-ups, with potential **liquidity** impacts - The **Tax Receivable Agreement (TRA)** obligates **Stronghold Inc.** to pay **TRA Holders 85%** of the **net cash savings from tax basis step-ups**[236](index=236&type=chunk) - **Payments under the TRA are expected to be substantial** and can be accelerated upon early termination or certain changes of control, potentially exceeding actual benefits and **significantly impacting liquidity**[237](index=237&type=chunk)[238](index=238&type=chunk) [Recent Accounting Pronouncements](index=48&type=section&id=Recent%20Accounting%20Pronouncements%20%28MD%26A%29) This section refers to **Note 1 – Basis of Presentation** for information regarding recent accounting pronouncements - Information regarding recent accounting pronouncements is provided in **Note 1 – Basis of Presentation**[239](index=239&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=48&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there are no applicable quantitative and qualitative disclosures about market risk for the Company - Not applicable[240](index=240&type=chunk) [Item 4. Controls and Procedures](index=48&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were effective as of March 31, 2023. There were no material changes in internal control over financial reporting during the quarter - **Disclosure controls and procedures were effective** as of March 31, 2023[242](index=242&type=chunk) - **No material changes in internal control over financial reporting** occurred during the quarter ended March 31, 2023[243](index=243&type=chunk) [Part II - Other Information](index=50&type=section&id=Part%20II%20Other%20Information) This section provides additional information including legal proceedings, risk factors, equity sales, defaults, mine safety, and a list of exhibits [Item 1. Legal Proceedings](index=50&type=section&id=Item%201.%20Legal%20Proceedings%20%28Part%20II%29) This section refers to **Note 10 – Commitments and Contingencies** for detailed information regarding legal proceedings - Information regarding legal proceedings is contained in **Note 10 – Commitments and Contingencies**[245](index=245&type=chunk) [Item 1A. Risk Factors](index=50&type=section&id=Item%201A.%20Risk%20Factors%20%28Part%20II%29) This section states that there have been no material changes to the **Risk Factors** previously disclosed in the Company's **Annual Report on Form 10-K** for the year ended December 31, 2022 - There are **no material changes to the Risk Factors** contained in the Company's **Annual Report on Form 10-K** for the year ended December 31, 2022[246](index=246&type=chunk) [Item 2. Unregistered Sales of Equity and Use of Proceeds](index=50&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20and%20Use%20of%20Proceeds%20%28Part%20II%29) This section indicates that there were **no unregistered sales of equity securities** and **no use of proceeds to report** - None[247](index=247&type=chunk) [Item 3. Defaults Upon Senior Securities](index=50&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities%20%28Part%20II%29) This section states that there were **no defaults upon senior securities to report** - None[248](index=248&type=chunk) [Item 4. Mine Safety Disclosures](index=50&type=section&id=Item%204.%20Mine%20Safety%20Disclosures%20%28Part%20II%29) This section states that mine safety disclosures are not applicable to the Company - Not applicable[249](index=249&type=chunk) [Item 5. Other Information](index=50&type=section&id=Item%205.%20Other%20Information%20%28Part%20II%29) This section indicates that there is **no other information to report** - None[250](index=250&type=chunk) [Item 6. Exhibits](index=51&type=section&id=Item%206.%20Exhibits%20%28Part%20II%29) This section lists all exhibits filed as part of this Quarterly Report on Form 10-Q, including corporate governance documents, warrant forms, credit agreement amendments, registration rights agreements, and various settlement and purchase agreements - Exhibits include the **Second Amended and Restated Certificate of Incorporation**, **Amended and Restated Bylaws**, and **Certificate of Designations of Series C Convertible Preferred Stock**[252](index=252&type=chunk) - Key agreements filed as exhibits include the **First and Second Amendments to Credit Agreement**, **Registration Rights Agreements**, **Settlement Agreement and Mutual Release**, **Promissory Note**, **Stock Purchase Warrant**, and **Securities Purchase Agreements**[252](index=252&type=chunk) - **Certifications from the Chief Executive Officer and Chief Financial Officer** pursuant to **Rule 13a-14(a)/15d-14(a)** and **Section 1350** are also included[253](index=253&type=chunk)

Stronghold Digital Mining, Inc. (NASDAQ:SDIG) Q1 2023 Earnings Conference Call May 11, 2023 11:00 AM ET Company Participants Alex Kovtun - IR Greg Beard - Chairman and CEO Matt Smith - CFO Conference Call Participants Chase White - Compass Point Research Lucas Pipes - B. Riley Securities Operator Good morning, and welcome to Stronghold Digital's Mining Conference Call for the First Quarter ended March 31, 2023. My name is Catherine, and I'll be your operator this morning. Before this call, Stronghold issued ...

Tax Receivable Agreement (TRA) Implications - Payments under the Tax Receivable Agreement (TRA) may be accelerated and could significantly exceed actual tax benefits realized, particularly in the event of a change of control[230]. - If a change of control occurs, the immediate payment obligation under the TRA could negatively impact liquidity and delay potential mergers or asset sales[231]. - The TRA payment obligations could reduce the consideration payable to common stockholders in the event of a change of control[233]. - Payments made under the TRA are not reimbursable if tax benefits are later disallowed, potentially leading to payments exceeding actual cash tax savings[234]. Internal Control and Financial Reporting - Material weaknesses in internal control over financial reporting were identified, leading to a restatement of financial statements due to improper classification of shares[239]. - Remediation efforts for internal control deficiencies include hiring qualified personnel and implementing new accounting systems[241]. - The company has remedied previously identified material weaknesses, but future weaknesses may still be identified[243]. Corporate Governance and Market Impact - Certain provisions in the company's bylaws could discourage acquisition bids, potentially affecting the market price of Class A common stock[244]. - Conflicts of interest may arise due to executive officers and directors holding positions with competing entities, impacting business opportunities[243]. Company Classification and Reporting Requirements - The company is classified as an "emerging growth company" (EGC) under the JOBS Act, which allows it to avoid certain reporting requirements for up to five years, unless it exceeds $1.235 billion in revenues in a fiscal year[249]. - The company is a "smaller reporting company," allowing it to provide only two years of audited financial statements until it meets certain market value and revenue thresholds[251]. Stock Performance and Compliance Risks - The company received a notification from Nasdaq on November 30, 2022, indicating that its Class A common stock did not meet the minimum bid price of $1.00 per share for 30 consecutive business days, with a grace period until May 29, 2023, to regain compliance[256]. - As of March 30, 2023, the company had approximately 53,930,000 shares of Class A common stock issuable upon conversion of its Series C preferred stock and approximately 11,521,104 shares from outstanding warrants, which could dilute existing stockholders' ownership interests[259]. - The trading price of the company's common stock has been volatile, influenced by various factors including the substantial number of shares issuable upon conversion of preferred stock and exercise of warrants[259]. - The company may issue preferred stock that could adversely affect the voting power or value of its Class A common stock, potentially impacting stockholder rights[248]. - If the company fails to regain compliance with Nasdaq's listing requirements, it may face delisting, which could adversely affect its stock price and trading market[255]. - The company intends to monitor its stock price and may consider actions such as a reverse stock split to regain compliance with Nasdaq[257]. Legal and Judicial Considerations - The exclusive forum provision in the company's certificate of incorporation may limit stockholders' ability to bring claims in favorable judicial forums, potentially discouraging lawsuits[254]. Financial Accounting Standards - The company may take advantage of extended transition periods for adopting new financial accounting standards, which could complicate comparisons with non-EGCs[250].

Q4 and FY 2022 Earnings Presentation March 2023 Pictured: Actual Reclaimed Waste Coal Site in Russellton, PA Disclaimer The information, financial projections and other estimates contained herein contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and future guidance with respect to the anticipated performance of the Company. Such financial projection, guidance and estimates are as to future events and are not to be viewed as facts, and reflect vari ...

Stronghold Digital Mining, Inc. (NASDAQ:SDIG) Q4 2022 Earnings Conference Call March 29, 2023 11:00 AM ET Company Participants Alex Kovtun - Investor Relations Greg Beard - Co-Chair and Chief Executive Officer Matt Smith - Chief Financial Officer Conference Call Participants Chase White - Compass Point Research & Trading LLC Chris Brendler - D.A. Davidson Kevin Dede - H.C. Wainwright Operator Good evening and welcome to Stronghold Digital Mining Conference Call for the Fourth Quarter and Full Year ended Dec ...