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July 10, 2024
Patricia Trompeter
Chief Executive Officer
Sphere 3D Corp.
243 Tresser Blvd, 17th Floor
Stamford, CT 06901
Re: Sphere 3D Corp.
Form 10-K for the Fiscal Year Ended December 31, 2023
Form 10-Q for the Quarterly Period Ended March 31, 2024
Response Dated January 12, 2024
File No. 001-36532
Dear Patricia Trompeter:
We have reviewed your January 12, 2024 response to our comment letter
and have the
following comments.
Please respond to this letter within ten business days by providing the
requested
information or advise us as soon as possible when you will respond. If you do
not believe a
comment applies to your facts and circumstances, please tell us why in your
response.
After reviewing your response to this letter, we may have additional
comments. Unless we
note otherwise, any references to prior comments are to comments in our
December 12,
2023 letter.
Form 10-K for the Fiscal Year Ended December 31, 2023
Financial Statements
Consolidated Statements of Operations, page F-4
1. We note that depreciation is not included within costs of revenue.
Consistent with SAB
Topic 11.B, in future filings, please change your description of the
line items for cost of
revenues to indicate that the amounts are exclusive of depreciation
shown separately
below.
Note 2. Summary of Significant Accounting Policies
Digital Assets, page F-11
2. We acknowledge your response to prior comment 1. Please respond to the
following
regarding your valuation of bitcoin for purposes of impairment testing
under ASC 350:
July 10, 2024
Page 2
You told us that you consider Coinbase to be bitcoin s principal
market, but you did
not tell us whether Coinbase is your principal market for bitcoin.
Per ASC 820-10-35-
6A, you should consider the principal (or most advantageous) market
from the
perspective of the reporting entity.
For your impairment analysis for the year ended December 31, 2022,
you told us you
used the lowest intraday quoted bitcoin price from the bitcoin USD
historical data on
Yahoo Finance and that this is in accordance with ASC 820-10-35-5A
because
bitcoin prices derived from Yahoo Finance are widely accessible. We
note that Yahoo
Finance is not itself a market where bitcoin and other
cryptocurrencies are traded.
Accordingly, we do not believe that your response provides
sufficient analysis to
demonstrate how your use of Yahoo Finance to determine the fair
value of your
bitcoin complies with ASC 820. Please expand your analysis to
include, but not
necessarily limit it to, identifying your principal market and
demonstrating how you
comply with ASC 820.
If you agree that your principal market is not Yahoo Finance,
please provide us with
your analysis of the quantitative impact of using Yahoo Finance
rather than your
principal market to value your cryptocurrencies for impairment
purposes for all
periods presented in your financial statements.
Revenue Recognition, page F-13
3. We acknowledge your response to prior comment 2. Please respond to the
following:
Please represent to us that you will revise your revenue recognition
policy in future
filings to address the following:
o Disclose, similar to your response, that you have a single
performance
obligation.
o Disclose, if true, that the mining pool operators are your
customers.
o Disclose, similar to your response to comment 6 in your July 27,
2023 letter that
the services you provide are an output of your ordinary
activities.
Your response indicates your only performance obligation is to
supply computing
power because the mining pool operators perform computations based
on their own
systems. We understand that you run software from the pool operators
that constructs
block header candidates and performs hash computations on behalf of
the pool
operators. If you do perform hash calculations for the pool
operators, tell us whether a
more accurate description of your promise and single performance
obligation is a
service to perform hash calculations for the pool operator, and if
so, represent to us
that you will make corresponding revisions to your accounting policy
and related
disclosures throughout your filing.
You told us that you believe, under ASC 606-10-25-1, contract
inception occurs when
you provide computing power to Foundry or Luxor, which is the
beginning of the 24
hour period (12:00am UTC time) and the contract duration is 24
hours. However, you
have also told us that your contracts can be terminated at any time
by either party and
the duration of the contract does not extend beyond the goods or
services already
delivered. Given your statements about termination rights and
contract duration not
extending beyond the goods or services already delivered (i.e., the
last hash
July 10, 2024
Page 3
calculation) coupled with the discussion in FASB Revenue Recognition
Implementation Q&As Question 8 that indicates that customer
cancellation rights can
be similar to a renewal option, tell us your consideration of
whether the contract
continuously renews throughout the day and therefore that the
duration of the contract
is less than 24 hours. To the extent that you agree, represent to us
that you will revise
your accounting policy disclosure accordingly in future filings.
Because termination rights are akin to renewal options, tell us
whether the customer s
renewal option is a material right and whether the terms,
conditions, and
compensation amounts of the renewal option are at the then-current
market rates. If
so, tell us whether you concluded that the customer s renewal
option is not a material
right that represents a separate performance obligation. Refer to
ASC 606-10-25-18(j)
and 606-10-55-42. Also if so, represent to us that you will make
corresponding
revisions to your accounting policy and related disclosures in
future filings that links
this conclusion to your determination that you have only one
performance obligation.
The disclosure in your September 30, 2023 Form 10-Q stated that
you measured your
noncash consideration on the date earned rather than the date that
control of your
service transfers to the pool operator. We note that you have
revised your disclosure
to state that you measure the fair value of the noncash
consideration at contract
inception. Please address the following:
o Provide us with an analysis supporting your prior statement that
historically
measuring noncash consideration on the date earned is not
materially different
from the date of contract inception.
o Tell us the time you use for determining the estimated fair
value of the bitcoin
(e.g., at the beginning or at the end of the date of contract
inception, or using a
simple average price throughout that date, etc.) and whether
your timing is
consistently applied for all periods presented. Represent to
us that you will make
corresponding revisions to your accounting policy and related
disclosures in
future filings.
You previously disclosed that you recognized revenue when the
mining pool operator
successfully places a block and you receive confirmation of the
consideration you
will receive. We note that you have revised your disclosure to state
that you recognize
the noncash consideration on the same day that control is
transferred, which is the
same day as contract inception. Since it appears that you changed
the timing of when
you recognize revenue, tell us whether applying the corrected policy
to historical
periods resulted in a material change to the historical financial
statements presented.
Form 10-Q for the Quarterly Period Ended March 31, 2024
Financial Statements
Note 2. Summary of Significant Accounting Policies
Digital Assets, page 10
4. We acknowledge your response to prior comment 4 of our letter dated June
23, 2023. You
disclose that digital assets are included in current assets due to your
ability to sell bitcoin
in a highly liquid marketplace and the sale of bitcoin to fund operating
expenses to
support operations. As noted in your response, the definition of a
current asset in the
July 10, 2024
Page 4
FASB Master Glossary refers to a reasonable expectation of realization.
Please revise
your disclosure in future filings to state, if true, that your bitcoin
holdings are reasonably
expected to be realized in cash or sold or consumed during the normal
operation cycle of
your business.
Please contact Kate Tillan at 202-551-3604 or Rolf Sundwall at
202-551-3105 if you
have questions regarding comments on the financial statements and related
matters.
Sincerely,
Division of
Corporation Finance
Office of Crypto
Assets