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United States securities and exchange commission logo
June 9, 2021
Gregory A. Beard
Chief Executive Officer
Stronghold Digital Mining, Inc.
228 Park Ave S
New York, NY 10003
Re: Stronghold Digital
Mining, Inc.
Draft Registration
Statement on Form S-1
Submitted May 10,
2021
CIK: 0001856028
Dear Mr. Beard:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so
we may better
understand your disclosure.
Please respond to this letter by providing the requested
information and either submitting
an amended draft registration statement or publicly filing your
registration statement on
EDGAR. If you do not believe our comments apply to your facts and
circumstances or do not
believe an amendment is appropriate, please tell us why in your
response.
After reviewing the information you provide in response to these
comments and your
amended draft registration statement or filed registration statement, we
may have additional
comments.
Draft Registration Statement on Form S-1
Cover Page
1. Please revise to
disclose that you intend to contribute the net proceeds from this offering
to Stronghold Digital
Mining Holdings LLC in exchange for units of the LLC.
Prospectus Summary, page 1
2. Please revise your
discussion of the Tax Receivable Agreement in the Summary and
throughout the
prospectus to quantify the likely tax benefits to be realized and paid to the
Continuing LLC Owners.
Gregory A. Beard
FirstName
StrongholdLastNameGregory A. Beard
Digital Mining, Inc.
Comapany
June 9, 2021NameStronghold Digital Mining, Inc.
June 9,
Page 2 2021 Page 2
FirstName LastName
Low-Cost Power Generation, page 5
3. We note that your graphic provides estimated power costs for other
crypto mining
companies. Please revise to provide the source of information
presented in the table and
to balance your disclosure with a discussion of the limitations in
accurately estimating the
power cost for private companies. Finally, clarify whether the
comparison of your net
cost of power is equivalent to and includes the same inputs as the
cost of power identified
for comparable crypto asset mining companies.
Mining Operations, page 6
4. We note that you have entered into a definitive agreement with
suppliers for a substantial
number of mining machines. Please revise to identify your principal
suppliers, the
material terms any agreements including termination provisions and any
minimum
delivery requirements. File the agreements as exhibits. Refer to Items
101(h)(4) and
601(b)(10)(ii)(B) of Regulation S-K. In addition, disclose whether the
ASIC miners have
already been manufactured or if the current supply side constraints
might impact the
ability of your suppliers to fulfill the agreement and whether the
miners you are acquiring
will be pre-owned or newly manufactured.
5. We note that several of your risk factors reference Ethereum mining.
To the extent you
intend to engage in the mining of Ethereum, or any other proof-of-work
crypto asset,
please provide disclosure to indicate which other assets you intend to
mine. If you do not
intend to mine any crypto assets other than Bitcoin, please tell us
why you have included
references to Ethereum.
6. Please provide a concise summary and table of the use of proceeds in
this transaction,
including payments expected to be made to related parties or
affiliates of the company.
As part of your disclosure, clearly highlight the economic and voting
rights that will be
held by public investors post-offering.
7. Please expand your disclosure to explain the business or strategic
rationale for why the
Company selected an Up-C structure, including any material ways in
which the structure
benefits the company, or related parties. Conflicts of interest
related to such benefits
should be discussed in the Risk Factors section.
8. Please revise to clarify whether the company intends to acquire other
cryptocurrencies
besides Bitcoin, such as through participation in Initial Coin
Offerings, or through
exchanging Bitcoin for other crypto assets.
9. You disclose that you anticipate being able to generate power for
approximately $19 per
megawatt hour and $2,500 in power cost per Bitcoin mined. Please
revise to clarify that
this estimated cost to generate power includes the renewable energy
credit and tax credits
and to provide balancing disclosure to quantify the cost to generate
power if such
incentives were to be discontinued.
Gregory A. Beard
Stronghold Digital Mining, Inc.
June 9, 2021
Page 3
10. We note your disclosure regarding the number of ASIC miners you
currently have in
operation and the number you intend to procure. Please revise to
provide a discussion
regarding the model(s) of ASIC miners you employ and the average
efficiency, as well as
whether you have any third party services providing support for your
mining operations.
Risk Factors, page 23
11. Please provide risk factor disclosure regarding the limitations of and
competition
in microchip manufacturing, including any issues regarding shortage in
supply.
12. Please expand your risk factor disclosure to discuss the impact the
dual class structure will
have on the ability of Class V holders to control matters requiring a
shareholder approval,
such as the election of directors and amendments to organizational
documents, as well as
approval of major corporate transactions.
Unaudited Pro Forma Condensed Consolidated Financial Information
Unaudited Pro Forma Consolidated Balance Sheet, page 69
13. Please give pro forma balance sheet effect to the Tax Receivable
Agreement. To the
extent such adjustments will vary due to the uncertainty of future
factors, please describe
in a footnote to the pro forma financials this circumstance and the
range of possible
results. Also, please include a comprehensive discussion of the Tax
Receivable
Agreement in the introduction to the pro forma financial statements
including any
deferred tax asset and related liabilities that will be recognized
assuming all the unit
holders exchange their LLC units.
14. We note that the Stronghold Unit Holders have the right to cause
Stronghold LLC to
acquire all or a portion of their Stronghold LLC Units for shares of
Class A common stock
or cash as determined pursuant to the terms of the Stronghold LLC
Agreement. Please tell
us how you considered ASC 480-10- S99-3 in determining that the
Stronghold LLC
Units should be presented as pro forma permanent equity. Please ensure
that your
response addresses who makes the decision to redeem in cash rather
than Class A shares
and how you determined that redemption is within control of the
Company.
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Components of our Results of Operations, page 72
15. We note that you began mining crypto assets in 2020 and that revenue
from generation
and capacity decreased substantially in 2020. Please revise to provide a
discussion of any
known trends or uncertainties regarding your crypto asset mining results
and energy
FirstName LastNameGregory A. Beard
generation. As part of your discussion, please tell us whether there are
any key
Comapany NameStronghold
performance Digital Mining,
metrics management usesInc.
in evaluating its business
related crypto asset
June 9,mining or power
2021 Page 3 generation. Refer to Item 303 of Regulation S-K.
FirstName LastName
Gregory A. Beard
FirstName
StrongholdLastNameGregory A. Beard
Digital Mining, Inc.
Comapany
June 9, 2021NameStronghold Digital Mining, Inc.
June 9,
Page 4 2021 Page 4
FirstName LastName
Results of Operations, page 75
16. We note your disclosure on page F-15 that you have two operating
segments, which
are, apparently, reportable segments. Accordingly, to add more context
to your operating
results discussion, please revise to also incorporate a discussion of
your segment results,
including associated costs of segment revenues and segment profit or
loss measures. Refer to Item 303(a) of Regulation S-K and SEC Release
No. 33-6835.
17. For all periods presented, please revise to further discuss and
separately quantify each
significant factor contributing to the change for each of the line
items discussed within the
results of operations section. In regard to Energy Generation
revenues, for example,
please provide a more detailed discussion how low "Local Marginal
Pricing" for your
area negatively impacted electricity production at your generation
facility. In regard to
Cryptocurrency Mining revenues, please clarify and quantify the
purchase of "additional
miners." Refer to Item 303(a)(3)(iii) of Regulation S-K.
Liquidity and Capital Resources
Contractual Obligations, page 80
18. Please revise and add a note to the table to disclose that you may be
required to make
payments under the Tax Receivable Agreement that may be significant
and are not
reflected in the table. See Release No. 33-8182, Section III.D.
Tax Receivable Agreement, page 81
19. Please revise to include estimated annual payments and how you intend
to fund the
required payments under the agreement. Also, revise to clarify the
reasonably likely
impact on your liquidity from any known trends, events or
uncertainties related to the Tax
Receivable Agreement payments. Refer to Sections III.B.3 and IV of SEC
Release 33-
8350.
20. Please expand your disclosure to quantify the present value of the
anticipated future
payments to be made under the Tax Receivable Agreement.
Business, page 82
21. Please disclose whether you have a policy in place regarding when and
how you will
exchange Bitcoin for fiat currency to fund operations or growth and
through what
exchange. To the extent you have an agreement with a third-party
exchange, please
disclose the material terms and file the agreement as an exhibit, and
provide a discussion
of the fees incurred in converting Bitcoin to fiat currency. Discuss
whether your Bitcoin
will be held in digital wallets, exchanges or hardware wallet, and the
security precautions
you will take to keep the mined Bitcoin secure.
Gregory A. Beard
FirstName
StrongholdLastNameGregory A. Beard
Digital Mining, Inc.
Comapany
June 9, 2021NameStronghold Digital Mining, Inc.
June 9,
Page 5 2021 Page 5
FirstName LastName
Certain Relationships and Related Party Transactions, page 107
22. Your financial statements indicate that you have outstanding related
party notes. Please
revise this section to provide a discussion of the notes, including
the identity of the note
holders, the nature of the relationship with the related party, and
the material terms of the
agreement. Refer to Item 404(a) of Regulation S-K.
Principal Stockholders, page 113
23. Please disclose the natural person(s) possessing investment and/or
voting power over the
shares held by Q Power, LLC. Refer to Item 403 of Regulation S-K.
Combined Financial Statements
Note 2. Significant Accounting Policies
Basis of Presentation, page F-7
24. Please disclose, if true, that Scrubgrass Generating Co., LP and
Stronghold Digital
Mining, LLC were under common control for all presented periods.
Cryptocurrencies, page F-8
25. In your roll-forward table, please revise to separately disclose each
material crypto asset
held and its value as of each period end presented, or clarify that
Bitcoin is the only crypto
asset you hold.
Revenue Recognition, page F-11
26. We note your power-generating reclamation facility is a member of PJM
Interconnection
to whom you sell capacity, energy, and ancillary services. Please
enhance your disclosure
and provide the material terms of any agreement you may have with PJM.
27. Furthermore, we note your power-generating reclamation facility is
under dispatch control
of PJM, and you are required to supply power to PJM, diverting
capacity away from your
mining operations. Please explain to us your consideration whether any
agreement with
PJM qualifies as a lease. Refer to authoritative guidance in your
response.
28. In regard to your cryptocurrency hosting revenues, we note that you
provide power to
third party cryptocurrency mining customers under favorable Power
Purchase Agreement
( PPA ) agreements. Please provide the following:
disclose the general terms and conditions of the PPAs,
clarify that the sole nature of the hosting service is to provide
electrical
power to cryptocurrency mining customers,
tell us your consideration of lease accounting, and
discuss the prevalence of collecting monthly fees in the form of
crypto assets and
quantify if material.
Gregory A. Beard
FirstName
StrongholdLastNameGregory A. Beard
Digital Mining, Inc.
Comapany
June 9, 2021NameStronghold Digital Mining, Inc.
June 9,
Page 6 2021 Page 6
FirstName LastName
29. In regard to cryptocurrency mining, we note you are entitled to a
fractional share of the
fixed cryptocurrency award the mining pool operator receives, with
revenues measured
based on the amount of crypto assets received and the crypto assets
fair value at the time
of the transaction. Please revise and provide the following:
clarify how you calculate or verify your proportion of the
contributed computing
power resulting in a fractional share of cryptocurrency,
explain if you typically hold these crypto assets or convert them
into fiat currency
after receipt, and
discuss how you manage the fair value risk associated with crypto
assets received.
Segment Reporting, page F-15
30. We note your disclosure of revenues and assets by segment. Please also
disclose a
measure of profit or loss for each reportable segment as well as
expenditures for long-
lived assets for each segment. The total of the reportable segments
measures of profit or
loss should be reconciled to your consolidated income before income
taxes, extraordinary
items, and discontinued operations. See guidance in ASC 280-10-50-22
through ASC 280-
10-50-25 and ASC 280-10-50-30.
Note 4. Property and Equipment, page F-16
31. Please revise to separately disclose the estimated useful life of each
significant class of
property and equipment.
General
32. Please provide us with copies of all written communications, as
defined in Rule 405 under
the Securities Act, that you, or anyone authorized to do so on your
behalf, present to
potential investors in reliance on Section 5(d) of the Securities Act,
whether or not they
retain copies of the communications.
You may contact Joseph Cascarano, Senior Staff Accountant, at (202)
551-3379 or
Robert Littlepage, Accounting Branch Chief, at (202) 551-3361 if you have
questions regarding
comments on the financial statements and related matters. Please contact
Matthew Derby, Staff
Attorney, at (202) 551-3334 or Jan Woo, Legal Branch Chief, at (202) 551-3453
with any other
questions.
Sincerely,
Division of
Corporation Finance
Office of
Technology
cc: Shelley Barber