FAIR VALUE MEASUREMENT
|12 Months Ended|
Dec. 31, 2022
|Fair Value Disclosures [Abstract]|
|FAIR VALUE MEASUREMENT||
NOTE 6 - FAIR VALUE MEASUREMENT
The Company measures at fair value certain of its financial and non-financial assets and liabilities by using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, essentially an exit price, based on the highest and best use of the asset or liability. The levels of the fair value hierarchy are:
The carrying amounts reported in the Consolidated Balance Sheets for cash and cash equivalents, restricted cash, other receivable, deposits, prepaid expenses and other current assets, property and equipment, advances to vendors, accounts payable, accrued expenses, and legal reserve payable, approximate their estimated fair market value based on the short-term maturity of these instruments.
Due to the significant increase in current market interest rates for convertible notes and the high conversion price of our notes in relation to our current stock price, the carrying value of our convertible notes are significantly above the current fair value. The estimated fair value of our convertible notes as of December 31, 2022, is approximately $173,200 thousand compared to a carrying value less unamortized debt discount of $732,289 thousand.
The carrying value of our term loan, operating lease liabilities and other long-term liabilities approximate fair value as the related interest rates approximate rates currently available to the Company.
Financial assets and liabilities are classified in their entirety within the fair value hierarchy based on the lowest level of input that is significant to their fair value measurement. The Company measures the fair value of its marketable securities by taking into consideration valuations obtained from third-party pricing sources. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs included reported trades of and broker-dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities and other observable inputs.
The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis and the Company’s estimated level within the fair value hierarchy of those assets and liabilities as of December 31, 2022 and 2021, respectively:
SCHEDULE OF ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON RECURRING BASIS
At December 31, 2021, the Company had 600 bitcoin as a loan to NYDIG. This loan of bitcoin was recorded as a digital asset loan receivable within other receivable. (see NOTE 5 – DIGITAL ASSET LOAN RECEIVABLE, NET OF ALLOWANCE). The 600 bitcoin were returned to the Company on June 10, 2022. The digital assets loaned represent the fair value of the 600 bitcoin underlying the loan as Level 2 inputs for the year ended December 31, 2021 as bitcoin prices can be determined based on several exchange prices.
On June 10, 2022, the Company withdrew approximately 4,769 bitcoin from its investment in NYDIG Digital Assets Fund III, LP and transferred the bitcoin directly into the Company’s account. As a result, the Company will no longer receive “mark-to-market” accounting for the bitcoin formerly held in the Fund and the 4,769 bitcoin will now be classified as digital assets on the Consolidated Balance Sheets and subject to impairment analysis as an indefinite-lived intangible.
The Company’s investments (see NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES) are classified within Level 3 of the fair value hierarchy because the fair value is determined using the Monte Carlo Simulation Model and by utilizing significant unobservable inputs including probability of financing events, subordinated recovery rate, and credit spread of the investees. The Company will update its assumptions each reporting period based on new developments and record such amounts at fair value based on the revised assumptions.
At December 31, 2022, the Company had an outstanding warrant liability in the amount of $0 associated with warrants that were issued in January 2017 and warrants issued related to the convertible notes issued in August and September of 2017. The fair value of the warrant liabilities are marked-to-market each reporting period and changes in fair value are recorded as a non-operating gain or loss in our Consolidated Statements of Other Comprehensive Income (Loss), until they are completely exercised. The fair value is determined each reporting period using the Black-Scholes option pricing model and is affected by changes in inputs to that model including our stock price, expected stock price volatility, dividends, interest rates and expected term.
The following table provides a reconciliation of the beginning and ending balances of our recurring fair value measurements, using significant unobservable inputs (Level 3). The Company did not make any transfers into or out of Level 3 of the fair value hierarchy during the years ended December 31, 2022 and 2021:
SCHEDULE OF RECONCILIATION OF THE BEGINNING AND ENDING BALANCES OF OUR RECURRING FAIR VALUE MEASUREMENTS
Non-recurring measurement of Fair Value
The Company accounts for its digital assets as indefinite-lived intangible assets in accordance with ASC 350 - “Intangibles – Goodwill and Other” (“ASC 350”). The Company’s digital assets are initially recorded at fair value upon receipt (or “carrying value”). On a quarterly basis, they are measured at carrying value, net of any impairment losses incurred since receipt. Pursuant to guidance from ASC 820, the Company is required to determine the nonrecurring fair value measurement used to determine impairment of the digital assets held on the Consolidated Balance Sheets. The Company will record impairment losses as the fair value falls below the carrying value of the digital assets. The digital assets can only be marked down when impaired and not marked up when their value increases. The resulting carrying value represents the fair value of the asset. The last impairment date for the digital assets was December 31, 2022. The Company had an outstanding carrying balance of digital assets of approximately $190,717 thousand, and fair value net of impairment losses incurred of $173,215 thousand for the year ended December 31, 2022. As of December 31, 2022, the fair value of the bitcoin held as digital assets was approximately $202,409 thousand (Level 2).
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 it’s bitcoin miners. In accordance with ASC 360-10, the Company determined that its bitcoin miners had a carrying value in excess of fair value, and accordingly, the Company recognized an impairment charge for its bitcoin rigs of approximately $208,622 thousand for the year ended December 31, 2022. The fair value of the bitcoin rigs determined primarily using observable prices for similar assets as of December 31, 2022 was $202,409 thousand (Level 2).
No definition available.
The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef