LEASES

3 Months Ended

Mar. 31, 2022

LEASES

LEASES

NOTE 7 — LEASES

Effective in May 2021, the Company entered into a ground lease related to its planned bitcoin mining facility in New York with a counterparty which is a related party due to control by a member of Company management. The lease includes fixed payments and contingent payments, including an annual escalation based on the change in the Consumer Price Index as well as the Company’s proportionate share of the landlord’s cost to own, operate and maintain the premises. The lease has an initial term of five years commencing in May 2021 and a renewal term of five years at the option of the Company, subject to the Company not then being in default, as defined. Payments under the lease commenced in 2021. The lease is classified as an operating lease based on an analysis that utilized a discount rate of 6%, which is an estimate of the Company’s incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at the commencement date. For the three months ended March 31, 2022, the Company recorded operating lease expense of $49,000 in operating expense in the consolidated statement of operations and made lease payments of $50,000. The remaining lease term is 9.1 years.

The following is a maturity analysis of the annual undiscounted cash flows of the estimated operating lease liabilities as of March 31, 2022 (in thousands):

Year ending December 31:
2022	$	113
2023		150
2024		150
2025		150
2026		150
Thereafter		662
	$	1,375

A reconciliation of the undiscounted cash flows to the operating lease liabilities recognized in the consolidated balance sheet as of March 31, 2022 follows (in thousands):

Undiscounted cash flows of the operating lease	$	1,375
Unamortized discount		316
Total operating lease liability		1,059
Current portion of operating lease liability		90
Operating lease liability, net of current portion	$	969

During the three months ended March 31, 2022, the Company entered into a short term lease arrangement for digital currency mining equipment. The term of the operating lease is two months and concludes in May 2022.  There are no variable charges under this arrangement.  For the three months ended March 31, 2022, lease expense related to this arrangement of $451,000 was recorded in operating expense in the consolidated statement of operations.