HOSTING SERVICES AGREEMENT

3 Months Ended

Mar. 31, 2022

Commitments and Contingencies Disclosure [Abstract]

HOSTING SERVICES AGREEMENT

HOSTING SERVICES AGREEMENTOn August 17, 2021, Stronghold LLC entered into a Hosting Services Agreement with Northern Data PA, LLC ("Northern Data") whereby Northern Data will construct and operate a colocation data center facility located on the Scrubgrass Plant (as defined below) (the "Hosting Agreement"), the primary business purpose of which will be to provide hosting services and support cryptocurrency miners. In October 2021, the final deposit owed to Northern Data was paid, and Northern Data has started delivering the 9,900 miners committed in the Hardware and Purchase Agreement dated April 14, 2021. On March 28, 2022, we restructured the Hosting Agreement to obtain an additional 2,675 miners at cost of $37.5 per terahash (to be paid five months after delivery) and temporarily reduced the profit share for Northern Data while incorporating performance thresholds until the data center build-out is complete. In addition, the Company has executed

additional hardware agreements with Northern Data as described in Note 8 - Commitments and Contingencies - "Supplier Purchase Agreements".

We undertook an analysis of the accounting impacts under the FASB ASC 2016-02, Leases or ASC 842. We determined the arrangement with Northern Data meets the definition of a lease under ASC 842 and also determined the proper accounting for this lease. Based on our analysis and the quoted guidance, we will record lease expense related to the variable payments for Northern Data's profit share as Bitcoins are mined each period.

Once operational, after deducting an amount equal to $0.027 per kilowatt-hour for the actual power used, 65% of all cryptocurrency revenue generated by the miners in Northern Data's pods shall be payable to the Company and 35% of all cryptocurrency revenue generated by the miners shall be payable to Northern Data or its designee and recorded as lease expense.