NOTE 4 – PROPERTY AND EQUIPMENT

The components of property and equipment as of December 31, 2022 and 2021 are:

SCHEDULE OF COMPONENTS OF PROPERTY AND EQUIPMENT

The Company records mining rigs not yet placed into service as construction in progress. Upon energization of the mining rigs, the mining rigs are reclassified to “Mining rigs” and depreciated over the estimated useful life.

The Company’s depreciation expense related to property and equipment for the years ended December 31, 2022 and December 31, 2021 was $78,709 thousand and $14,904 thousand, respectively.

In late 2021, the Company entered into an agreement with DCRBN Ventures Development and Acquisition LLC (“DCRBN”) in which the Company agreed to sell certain mining rigs to DCRBN in conjunction with the development of commercial activities at the McCamey, TX facility. In conjunction with its exit from the Hardin, MT facility, the Company also sold bitcoin mining rigs to various third parties. Total cash proceeds from these sales of assets for the year ended December 31, 2022 were $178,371 thousand and gains resulting from the asset sales totaled $83,880 thousand in the current-year period. There were no such sales in 2021.

In connection with the exit from the Hardin, MT facility (“Hardin”) in September 2022, the Company recorded additional depreciation expense related to approximately 1,800 bitcoin mining rigs that were previously deployed at Hardin that were no longer in operating condition based on inspections of the assets at the facility and experience with the assets formerly deployed at Hardin in the weeks following redeployment. In addition, the Company determined that the useful lives of the remaining mining rigs formerly deployed at Hardin should be reduced from 36 months to 24 months. These assets had a book value of approximately $12,358 thousand as of September 30, 2022.

In accordance with ASC 360 - “Impairment and Disposal of Long-Lived Assets” (“ASC 360”), long-lived asset (group) that is held and used must be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the long-lived asset (group) might not be recoverable. Due to the decrease in the cost of bitcoin mining rigs that was driven by the drop in bitcoin prices during the fourth quarter ended December 31, 2022, the Company assessed the need for an impairment write-down of its bitcoin mining rigs. In accordance with ASC 360-10, the Company first determined that the carrying value of its bitcoin miners is not recoverable. As its bitcoin mining rigs further had a carrying value in excess of fair value, the Company recognized an impairment charge for its bitcoin mining rigs of approximately $208,622 thousand for the year ended December 31, 2022. The fair value of the bitcoin miners determined primarily using observable prices for similar assets as of December 31, 2022 was $265,000 thousand (Level 2).

As a result of the above impairment charge for its asset group of bitcoin mining rigs, the Company re-evaluated and reduced the estimated useful life for its asset group of mining rigs from 5 to 3 years, effective January 1, 2023.

As of December 31, 2022, the Company had $488,299 thousand, net of a $124,311 thousand impairment charge per below, of Advances to vendors for the purchase of mining rigs on the consolidated balance sheet. As of December 31, 2021, the Company had $466,255 thousand of Advances to vendors for purchase of mining rigs on the consolidated balance sheet.

Due to the decrease in the cost of bitcoin mining rigs that was driven by the drop in bitcoin prices during the fourth quarter ended December 31, 2022, the Company evaluated the need for an impairment write-down of its contracts with bitcoin mining equipment manufacturers. The Company compared the prices of the miner rigs under contract to the fair value of mining rigs as of December 31, 2022, and determined that an impairment loss should be recognized. Accordingly, the Company recognized an impairment charge of $124,311 thousand and reduced its Advances to vendors on the consolidated balance sheet for the year ended December 31, 2022.