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United States securities and exchange commission logo
December 12, 2023
Patricia Trompeter
Chief Executive Officer
Sphere 3D Corp.
895 Don Mills Road
Building 2, Suite 900
Toronto, Ontario
Canada M3C 1W3
Re: Sphere 3D Corp.
Form 10-K for the
Fiscal Year Ended December 31, 2022
Filed March 31,
2023
Form 10-Q for the
Quarterly Period Ended March 31, 2023
Filed May 11, 2023
File No. 001-36532
Dear Patricia Trompeter:
We have reviewed your July 27, 2023 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 June 23,
2023 letter.
Form 10-K for the Fiscal Year Ended December 31, 2022
Financial Statements
Note 2. Summary of Significant Accounting Policies
Digital Assets, page F-13
1. We acknowledge your
responses to comment 5. Please tell us whether you use the spot
price obtained from the
CME to value your bitcoin holdings for impairment testing
purposes, and, if so,
please address the following:
Tell us how the
source you use to determine fair value considered ASC 820,
Patricia Trompeter
FirstName
Sphere 3D LastNamePatricia Trompeter
Corp.
Comapany12,
December NameSphere
2023 3D Corp.
December
Page 2 12, 2023 Page 2
FirstName LastName
including ASC 820-10-35-5. Tell us whether your source is a
principal market with
the greatest volume and level of activity for bitcoin. While your
response to comment
6 told us that CME has the greatest volume and level of activity,
you did not address
whether bitcoin may be traded on CME and whether CME may be a
principal market.
If your source does not meet the definition of a principal
market under ASC 820,
identify your principal market for us, and explain why it is a
principal market for
bitcoin. Refer to Example 4 beginning at ASC 820-10-55-42 and, in
the basis for
conclusions, BC22 and BC23.
With respect to your response to the first bullet point of
comment 5, revise future
filings to provide similar disclosure about your impairment
testing.
Revenue Recognition, page F-15
2. We acknowledge your response to comment 6. Please respond to the
following and revise
your disclosure in future filings to specifically address the
following concerning your
mining revenue recognition under ASC 606:
In Note 14 on page 30 of your Form 10-Q for the quarterly period
ended September
30, 2023, you disclose that digital mining revenue is generated
from two mining pool
operators. Tell us the name of the mining pool other than Foundry
in which you
participate. Tell us, and disclose, the payment mechanism (Full
Pay Per Share or
otherwise) for each mining pool, and, if different payment
mechanisms, the
proportion of revenue recognized under each for fiscal 2021 and
2022 and the nine
months ended September 30, 2023.
Since you told us that you provide continuous performance across
more than one day,
tell us what constitutes contract inception and contract duration
and the reasons why.
Cite the relevant ASC 606 guidance that supports your
determination. Given that you
told us that your contracts can be terminated at any time without
penalty, tell us your
consideration for the guidance in Examples 1 and 2 of Question 7
and of Question 8
to the FASB Revenue Recognition Implementation Q&As and whether
the mining
pool agreement is continuously renewed and the duration of your
contracts is less
than 24 hours.
Disclose, similar to your response, that the contracts are
terminable at any time by
either party without compensation to the other party for such
termination.
Assuming you conclude that your contracts are continuously
renewed, tell us whether
the rate of payment remains the same upon renewal and whether your
customer s
option to renew represents a material right that results in a
separate performance
obligation as contemplated in ASC 606-10-55-42.
With respect to the variability associated with the consideration
receivable, address
how the block reward portion of the consideration cannot be
reasonably estimated
(and should be fully constrained) if network difficulty changes
about every two
weeks, block rewards change about every four years, and contract
duration is one day
or less. In this regard, it appears for FPPS contracts that the
only variable at contract
inception is the number of hashes you will perform, which is
wholly in your control
Patricia Trompeter
FirstName
Sphere 3D LastNamePatricia Trompeter
Corp.
Comapany12,
December NameSphere
2023 3D Corp.
December
Page 3 12, 2023 Page 3
FirstName LastName
and would appear to be reasonably estimable.
You told us that you measure the noncash consideration in
accordance with ASC
606-10-32-21 and 606-10-32-23 on the date earned. Tell us in more
detail how you
perform your measurement and the time used for measurement in
relation to the
period over which your compensation is determined by the pool
operator and whether
or not that timing is consistently applied.
Revise your disclosure to clarify the time and date when you
measure the noncash
consideration (for example, if true, using your timing of the
bitcoin spot price on the
date of contract inception) and when you recognize the noncash
consideration (for
example, if true, on the same day that control of the contracted
service transfers to the
mining pool operator (i.e., the customer), which is the same day
as contract
inception).
You told us that your performance obligation is the provision
of computing power.
Tell us your consideration of disclosing your performance
obligation as a service to
perform hash computations for the mining pool operator, or
something similar, to
align with the promise under your agreement.
In your Step 3 analysis, your response indicates that under
section 6 of the Foundry
agreement, your share of the block reward is based on the
expected value from the
block reward, but that you recognize revenue when the mining pool
operator
successfully places a block on the blockchain. If network block
subsidies are based
on the total amount of block subsidies that are expected to be
generated on the bitcoin
network as a whole, at a minimum under the FPPS payout method,
regardless of
whether the mining pool operator successfully records a block to
the blockchain, then
reconcile your statements for us and revise your disclosure
accordingly.
Disclose, similar to your response, the payment mechanisms that
your mining pool
agreements utilize (the Full Pay Per Share (FPPS) payout method
or otherwise) and
summarize the nature of each component of your consideration
(i.e., network block
subsidies, network transaction fees, and pool operating fees). It
should be clear from
the disclosure whether the amounts are calculated based on
expected or actual
amounts. For example, if true, disclose that network block
subsidies are based on the
total amount of block subsidies that are expected to be generated
on the bitcoin
network as a whole during the 24-hour period beginning at
midnight UTC daily (i.e.,
the measurement period), regardless of whether the mining pool
operator successfully
records a block to the blockchain, while network transaction fees
are based on the
total amount of transaction fees and block rewards that are
actually generated on the
blockchain network as a whole during the measurement period.
Form 10-Q for the Quarterly Period Ended June 30, 2023
Financial Statements
Condensed Consolidated Statements of Cash Flows, page 8
3. We acknowledge your response to comment 11. Please note that we
continue to consider
your response.
Patricia Trompeter
Sphere 3D Corp.
December 12, 2023
Page 4
Note 1. Organization and Business
Liquidity and Going Concern, page 10
4. In response to comment 3, you revised the disclosure to state that the
factors raise
substantial doubt that the company will be able to continue as a going
concern beyond the
next 12 months from the date the financial statements are issued. ASC
205-40-50-13
requires that, if, after considering management's plans, substantial
doubt about an entity's
ability to continue as a going concern is not alleviated, you should
include a statement in
the notes to financial statements indicating that there is substantial
doubt about the entity's
ability to continue as a going concern within one year after the date
that the financial
statements are issued. Please tell us how you considered ASC
250-40-50-13.
Note 13. Commitments and Contingencies
Service Agreements, page 28
5. We acknowledge your response to comment 12. Please respond to the
following:
Confirm our understanding that Gryphon is the exclusive provider of
management
services for all your digital mining operations for which you
recognized revenue of
approximately $7.5 million in the six months ended June 30, 2023. If
true, then tell us
how the MSA operates with the other service agreements disclosed in
this note.
Revise future filings to disclose the material terms and conditions
of the agreement in
your Business section. Refer to Item 101 of Regulation S-K.
6. We acknowledge your response to comments 12 and 13. Please respond to the
following
regarding your digital assets held by Gryphon under the MSA:
Tell us who holds legal ownership of the bitcoin. Tell us whether the
bitcoin
is subject to claims of general creditors of Gryphon. Tell us whether
Gryphon
can lend or rehypothecate the bitcoin it holds, and whether the
bitcoin would be part
of Gryphon s insolvency estate or made available to general
creditors in the event of
Gryphon s insolvency.
Tell us how you considered the material terms of your MSA with
Gryphon in
determining how to account for and classify the digital assets held
by Gryphon. Cite
the accounting literature upon which you relied and how you applied
it to your facts
and circumstances.
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,
FirstName LastNamePatricia Trompeter
Comapany NameSphere 3D Corp. Division of
Corporation Finance
December 12, 2023 Page 4 Office of Crypto
Assets
cc:
FirstName M. Ali Panjwani
LastName