BITCOIN LOAN AND DERIVATIVE LIABILITY

3 Months Ended

Nov. 30, 2023

Bitcoin Loan And Derivative Liability

BITCOIN LOAN AND DERIVATIVE LIABILITY

NOTE 7 – BITCOIN LOAN AND DERIVATIVE LIABILITY

On October 4, 2023, the Company purchased 1,050 used ASIC miners from Luxor Technology Corporation (“Luxor”) for $488,775, and simultaneously entered into a Co-Location Services Agreement to host the miners at a hosting facility owned by Soluna SW, LLC (“Soluna”) in Murray, Kentucky. The purchase price of the used 1,050 ASIC miners was partially financed by selling 100 S19 Pro+/117/220 owned by the Company to Luxor for $149,250. The Company recorded a loss of $31,641 on this sale.

The remaining purchase price of $339,525 was financed via a forward sale of future Bitcoin production with Luxor via a hashrate derivatives contract (“Luxor Bitcoin Financing”, or “LBF”). Under the terms of the LBF, on October 4, 2023 the Company received 18.97542 Bitcoin valued at $27,799.39, each or a total of $527,505.19 in Bitcoin. In return the Company agreed to pay back Luxor 20.78946 Bitcoin in daily increments from bitcoin production generated by the 1,050 ASIC miners. The Bitcoin loan is due no later than April 1, 2024 and cannot be repaid in cash. The repayment must be in Bitcoin. As of November 30, 2023 the Company had repaid 6.583329 Bitcoin and recorded a loss of $37,537 on the extinguishment of debt as well as $50,429 in financing costs. Under the terms of the LBF, as of November 30, 2023 the Company owed Luxor 14.206131 Bitcoin. Since the price of Bitcoin is subject change and cannot be paid in cash this created a derivative liability for the Company. The Company performed a Black-Scholes calculation on the remaining 14.206131 Bitcoin to be delivered using the following variables.

Price of Bitcoin on November 30, 2023	$37,723.96
Volatility	29.3%
Term in days	180
Dividend rate	0%
Treasury bill rate	4.87%

Derivative liability calculation using the variables above was $152,612.

On November 30, 2023 the Company had a Bitcoin loan balance due of $394,922 and a derivative liability of $152,612 on its balance sheet.