Fair Value Measurements

6 Months Ended

Jun. 30, 2023

(8) Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company did

not

have any assets or liabilities measured at fair value on a recurring basis as of December 31, 2022. As part of the PIPE Agreement, the Company recognized the fair value of the embedded derivative as a liability and the amount was immaterial.

Contingent Consideration

The following table presents the changes in the estimated fair value of the contingent consideration liability measured using significant unobservable inputs (Level 3) (in thousands):


	Six Months Ended June 30, 2023		Year ended December 31, 2022
Balance, beginning of period	$	1,841	$	2,879
Change in fair value during the period		142		962
Payment made during the period		—		(2,000	)

Balance, end of period	$	1,983	$	1,841

Contingent consideration related to the BitAccess acquisition in July 2021 was measured at the

probability-weighted

fair value at the date of acquisition

which was estimated by applying an income valuation approach based on Level 3 inputs consisting primarily of a discount rate and probability of achieving the performance metrics. During the year end December 31, 2022, the Company made the first year payment of $2.0

million

to the former owners of BitAccess as the performance conditions were determined to have been met. In addition, the Company amended the contingent consideration arrangement to remove the performance conditions for the second year payment such that the full $2.0

million

related to the second year payment will be paid out in accordance with the agreement on July 31, 2023. As such, the contingent consideration liability as of June 30, 2023 and December 31, 2022 is no longer a Level 3 fair value measurement as the contingency has been removed. The current portion of the contingent consideration due has been recorded in

Accrued

expenses

, in the accompanying consolidated Balance Sheet as of June 30, 2023 and December 31, 2022 at present value using a 15% discount rate. The change in fair value of the contingent consideration is recognized in interest expense in the consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the six months ended June 30, 2023 and 2022. The difference between the recorded fair value of the payments and the ultimate payment amounts was not material to any period.

Assets and Liabilities Measured at Fair Value on a

Non-recurring

Basis

The Company’s

non-financial

assets, such as goodwill, intangible assets, property and equipment, operating lease

right-of-use

assets and cryptocurrencies are adjusted down to fair value when an impairment charge is recognized. Certain fair value measurements are based predominantly on Level 3 inputs. No impairment charges related to goodwill, intangible assets, operating lease

right-of-use

assets and property and equipment have been recognized for the six months ended June 30, 2023 and 2022. Fair value of cryptocurrencies are based on Level 1 inputs. The carrying value of the Company’s cryptocurrency reflects any impairment charges recorded since its purchase or receipt.

Assets and Liabilities Not Measured and Recorded at Fair Value

The Company considers the carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses (excluding contingent consideration) in the consolidated financial statements to approximate fair value due to their short maturities.

The Company estimates the fair value of its

fixed-rated

note payable based on quoted prices in markets that are not active, which is considered a Level 2 valuation input. As of June 30, 2023, the estimated fair value of the

fixed-rated

note was approximately $19.4

million

and the carrying value was $18.0

million

- Definition

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.

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