ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

9 Months Ended

Sep. 30, 2022

ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

NOTE 4 – ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

Upon acquisition, the IKONICS business met the assets held-for-sale and discontinued operations criteria and is reflected as discontinued operations held for sale in these consolidated financial statements. The Company determined that the IKONICS business qualified as assets held for sale as management committed to a plan to sell the business, the business was in readily sellable form and it was deemed probable that the business would be sold in a twelve-month period. The structure of the business combination, through the CVR Agreement, contemplated the sale of the IKONICS legacy business whereby the Company would become solely a bitcoin mining focused entity. The Merger Agreement requires IKONICS, after the Closing, to use its reasonable best efforts to consummate a sale of its legacy business as soon as reasonably practicable. The CVR Agreement provides that 95% of the net proceeds of the disposition, as defined, of the IKONICS business accrue to the historical stockholders of IKONCS if the disposition is consummated within eighteen months from the Closing. As of September 30, 2022, all assets previously held for sale had been sold.

The assets and liabilities of IKONICS are presented separately in current assets held for sale and current liabilities held for sale, respectively, in the consolidated balance sheets and includes the following (in thousands):

	September 30, 2022		December 31, 2021
Trade receivables	$	—	$	1,327
Inventories		—		3,737
Prepaid expenses and other current assets		—		944
Property, plant and equipment		—		10,036
Intangible assets		—		3,304
Current assets held for sale	$	—	$	19,348
Accounts payable	$	—	$	1,207
Accrued compensation		—		439
Other accrued liabilities		—		109
Current liabilities held for sale	$	—	$	1,755

During the nine months ended September 30, 2022, the Company determined that change in circumstance indicated that the then carrying amount of the IKONICS’ long-lived assets may not have been recoverable and recognized an impairment loss in loss on discontinued operations, net of tax of $4.5 million to write down the related carrying amounts to their fair values less estimated cost to

sell. The loss from discontinued operations, net of tax presented in the consolidated statements of operations includes the following results of IKONICS (in thousands):

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2022		2022
Net sales	$	2,203	$	11,028
Cost of goods sold		1,945		8,265
Gross profit		258		2,763
Selling, general and administrative expenses		760		3,375
Research and development expenses		148		437
Impairment on remeasurement or classification as held for sale		—		4,541
Loss on sale of net assets held for sale		239		239
Loss from discontinued operations before other income		(889)		(5,829)
Interest expense		(12)		(12)
Other income		—		6
Loss from discontinued operations before income tax		(901)		(5,835)
Income tax expense		—		(8)
Loss from discontinued operations, net of tax	$	(901)	$	(5,843)

Total cash flows used in operating activities from discontinued operations was $1.3 million and $0 in the consolidated statements of cash flows for the nine months ended September 30, 2022 and the period February 8, 2021 (date of inception) to September 30, 2021, respectively.