On June 25, 2021, SDM (i.e. "the Company") entered into a $34,481,700 ("Maximum Advance Amount") master equipment financing agreement with an affiliate of Arctos Credit, LLC (“Arctos” now known as “NYDIG”) (the “Arctos/NYDIG Financing Agreement”) . As part of this agreement, NYDIG was issued a total of 126,274 shares of common stock of Stronghold Inc.. The effective date of this issuance was as of the commencement date of the agreement. On July 2, 2021, the Company received two separate loans, against the $34,481,700, totaling $24,157,178 (net of debt issuance fees). The loans each have a maturity date of July 23, 2023, where the full outstanding principal amount of the loans is due and payable. Interest for each of the loans is set at 10% per annum.

As of September 30, 2021, the fair value at the date of issuance (i.e.- June 25, 2021) of the 126,274 common shares or $1,389,888 is presented on the balance sheet as debt discounts that offsets the net proceeds of the loans; and is being amortized using the straight-line method over the terms of the loans (refer to Note 6 - Long-Term Debt for further details). For the nine months ended September 30, 2021, the Company recorded amortized costs in the amount of $173,736 related to the stock issued debt discounts. That amount is included in interest expense.

In addition, the agreement stipulates a "Standby Fee" if, prior to August 15, 2021, the Company has failed to take advances from NYDIG equal to the total agreement amount of $34,481,700. The Standby Fee is calculated as 1.75% times

the remaining principal that has not been borrowed; or $10,256,922 as of September 30, 2021. As a result, the Company has paid a total Standby Fee of $208,816 during each of the three and nine months ended September 30, 2021. That amount is included in interest expense.

As discussed in Note 8 – Contingencies and Commitments, the Company on April 2, 2021, entered into a purchase agreement with MinerVa for the acquisition of 15,000 of their MV7 ASIC SHA256 model cryptocurrency miner equipment with a total terahash to be delivered equal to 1.5 million terahash (total terahash). In the exchange for the delivery of the total terahash, MinerVa will be granted 443,848 shares of Stronghold Inc. As discussed in Note 8, not all miners have been delivered but the Company is committed to take all future deliveries. The final delivery is after September 30, 2021; thus, the shares are deemed as not yet issued as of September 30, 2021.

On June 30, 2021, Equipment LLC entered into a $40,000,000 promissory note (the “WhiteHawk Promissory Note”) with White-Hawk Finance LLC (the “Lender” or “WhiteHawk”). The note has a maturity date of June 23, 2023, where the full outstanding principal amount of the note is due and payable. Interest for the note is set at 10% per annum. On September 30, 2021, Equipment LLC also entered into a Stock Purchase Warrant agreement with the Lender, where Equipment LLC issued 181,705 warrants to purchase shares of Class A common stock of Equipment LLC to the Lender.

The warrants are exercisable by the Lender at any time during a ten-year term at $0.01 per share of common stock. The warrants are legally detachable and can separately be exercised.

The fair value for the warrants, as of the issuance date, is $1,999,396 and is recorded as equity with the offset recorded as a debt discount against the net proceeds. The proceeds of $40,000,000 are allocated to the WhiteHawk Promissory Note and the warrants are being amortized based on the straight-line method over the twenty-four month term of the note. For the three and nine months ended September 30, 2021, the Company has recorded amortized debt discount, related to the warrants, in the amount of $249,925, which is included in interest expenses.

On each of April 1, 2021 and May 14, 2021, Stronghold Inc. entered into a warrant agreement with American Stock Transfer & Trust Company (the “Warrant Agent”). B. Riley Securities, Inc. acted as the Company’s placement agent in connection with the Private Placements. In connection therewith, the Company issued B. Riley Securities, Inc. (i) a five-year warrant to purchase up to 97,920 shares of Series A Preferred Stock at a per share exercise price of $8.68 and (ii) a five-year warrant to purchase up to 18,170 shares of Series B Preferred Stock at a per share exercise price of $11.01. In each case the exercise price was equal to the respective private placement per share price. B. Riley Securities, Inc. and its affiliates purchased 439,200 and 91,619 shares of Series A Preferred Stock and Series B Preferred Stock, respectively, at the same private placement per share price.

The warrants contain standard limitations and representations and are exercisable for a period of five years from the date of the Private Placements. The warrants are legally detachable and separately exercisable. The accounting for warrants on redeemable shares follows the guidance in ASC 480-10-25-8 through 25-13. Those paragraphs address the classification of instruments, other than an outstanding share, that have both of the following characteristics:

The fair value of the warrants was recorded as a liability with an offset to Additional Paid-in Capital. The fair value of each of the warrants was calculated using the Black-Scholes option-pricing model with the following assumptions:

The following are the Black-Scholes input assumptions for the 97,920 Series A warrants; and the changes in fair values as of April 1, 2021 (date of issuance) and September 30, 2021 respectively:


	Three months ended September 30, 2021									Nine months ended September 30, 2021
	As of						Changes in Fair Value Inputs			As of						Changes in Fair Value Inputs
	June 30, 2021			September 30, 2021						April 1, 2021			September 30, 2021
Expected volatility	100.2		%	117.6		%	17.4		%	100.2		%	117.6		%	17.4		%
Expected life (in years)	4.83			4.83			0			4.83			4.83			0
Risk-free interest rate	0.9		%	1.0		%	0.1		%	0.9		%	1.0		%	0.1		%
Expected dividend yield	0.00		%	0.00		%	0.0		%	0.00		%	0.00		%	0.0		%
Fair value	$	825,350		$	745,023		$	(80,327)		$	631,897		$	745,023		$	113,126

On April 1, 2021, the Company recorded a liability of $631,897, and as a debt issuance cost against the Mezzanine Equity (see Note 15- Mezzanine Equity). As of September 30, 2021, the fair value of this liability is $745,023. For the three months and nine months ended September 30, 2021; respectively, the Company recognized a decrease of $(80,327) and an increase of $113,126 as part of the changes in fair value of warrant liabilities expense.

The following are the Black-Scholes input assumptions for the 18,170 Series B warrants; and the changes in fair values as of May 14, 2021 (date of issuance) and September 30, 2021 respectively:


	Three months ended September 30, 2021									Nine months ended September 30, 2021
	As of						Changes in Fair Value Inputs			As of						Changes in Fair Value Inputs
	June 30, 2021			September 30, 2021						May 14, 2021			September 30, 2021

Expected volatility	100.2		%	117.6		%	17.4		%	100.2		%	117.6		%	17.4		%
Expected life (in years)	4.8			4.8			0			4.8			4.8			0
Risk-free interest rate	0.9		%	1.0		%	0.1		%	0.8		%	1.0		%	0.2		%
Expected dividend yield	0.00		%	0.00		%	0.0		%	0.00		%	0.00		%	0.0		%
Fair value	$	146,599		$	133,947		$	(12,652)		$	148,575		$	133,947		$	(14,628)

On May 14, 2021, the Company recorded a liability of $148,575, and as a debt issuance cost against the Mezzanine Equity (see Note 15- Mezzanine Equity). As of September 30, 2021, the fair value of this liability is $133,947. For the three months and nine months ended September 30, 2021; respectively, the Company recognized a decrease of $(12,652) and a decrease of $(14,628) as part of the changes in fair value of warrant liabilities expense.