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United States securities and exchange commission logo
May 20, 2024
Patricia Trompeter
Chief Executive Officer
Sphere 3D Corp.
243 Tresser Blvd, 17th Floor
Stamford, CT 06901
Re: Sphere 3D Corp.
Amendment No. 1 to
Registration Statement on Form S-3
Filed May 7, 2024
File No. 333-269663
Dear Patricia Trompeter:
We have conducted a limited review of your registration statement
and have the
following comments.
Please respond to this letter by amending your registration
statement and providing the
requested information. If you do not believe a comment applies to your
facts and circumstances
or do not believe an amendment is appropriate, please tell us why in
your response.
After reviewing any amendment to your registration statement and
the information you
provide in response to this letter, we may have additional comments.
Amendment No. 1 to Registration Statement on Form S-3
General
1. At this time, there are
outstanding comments on your annual report on Form 10-K. We
will coordinate any
request for acceleration of effectiveness for this registration statement
with resolution of all
comments regarding that review, including that all corresponding
changes that ensue from
the Form 10-K review are made in this Form S-3, as applicable.
Please confirm your
understanding in this regard.
2. We note your references
to the terms "cryptocurrencies," "digital currencies," "virtual
currency," "digital
assets," "crypto assets," "cryptocurrency assets," "crypto economy,"
and "crypto network."
To the extent you are using these terms interchangeably, please
revise your disclosure
to use one term. If these terms are instead being used to mean
different things,
please revise to define each term on first use.
Patricia Trompeter
FirstName
Sphere 3D LastNamePatricia Trompeter
Corp.
Comapany
May NameSphere 3D Corp.
20, 2024
May 20,
Page 2 2024 Page 2
FirstName LastName
Our Company
Overview, page 5
3. We note your disclosure on page 27 that there is substantial doubt
about your ability to
continue as a going concern. Please revise your Overview section to
provide disclosure
about the facts that raise substantial doubt about your ability to
continue as a going
concern. Your disclosure should include a discussion of:
The principal conditions or events that raise substantial doubt
about your ability to
continue as a going concern;
Your evaluation of the significance of those conditions or events
in relation to your
ability to meet your obligations; and
Management s plans that are intended to mitigate the conditions
or events that raise
substantial doubt about your ability to continue as a going
concern.
As part of this disclosure, please also include a discussion of your
current liquidity
position, the sources of that liquidity (e.g., cash, short-term
investments, etc.), and the
expected uses and timing of uses of that liquidity.
Digital Mining, page 5
4. Please revise your disclosure to discuss the geographic locations of
your mining operations and any state-specific regulatory requirements
in those areas. In
this regard, we note your references to New York and Georgia state
regulators on page 15.
5. Please reconcile your statement here with respect to the activities
that you will
conduct that "[a]t this time, [you] intend only to mine Bitcoin and
hold no other digital
assets other than Bitcoin" with your disclosures elsewhere that
suggest otherwise. In this
regard, we note, for example, the following disclosures:
References to "digital assets that [you] mine or otherwise acquire
or hold for [your]
own account, including Bitcoin (emphasis added)" on pages 17, 20,
22, 23 and 24;
Statement that "[t]here is no assurance that any supported digital
asset will maintain
its value or that there will be meaningful levels of trading
activities (emphasis
added)" on page 12;
Several references to your "platform" on pages 11 and 12;
Reference to your "ability to mine cryptocurrencies" on page 16.
To the extent you intend to engage in mining of other crypto assets or
activities other than
the mining and holding of Bitcoin, please provide related disclosures.
To the extent you
will acquire or hold other crypto assets, please describe in detail
your internal processes
for how you determine, or will determine as you expand your business,
whether particular
crypto assets are securities within the meaning of the U.S. federal
securities laws, and
clarify that such processes are risk-based assessments and are not a
legal standard or
binding on regulators. Also include a risk factor addressing the
uncertainty and
consequences of making an incorrect assessment or a regulator
disagreeing with your
assessment.
Patricia Trompeter
FirstName
Sphere 3D LastNamePatricia Trompeter
Corp.
Comapany
May NameSphere 3D Corp.
20, 2024
May 20,
Page 3 2024 Page 3
FirstName LastName
Mining Pools, page 6
6. Please revise to provide more detailed discussions of how you
currently are "engaged with
mining pool operators" and will utilize mining pools and how mining
pools operate. As
part of your discussion, identify the mining pool operators with whom
you are engaged,
and explain the material terms of any agreements or understandings of
the fees that
may be incurred.
Hosting Agreements, page 7
7. We note your disclosures about your hosting agreements. Please file
these as exhibits to
your registration statement, or provide your analysis as to why you
believe these are not
required to be filed pursuant to Item 601(b)(10) of Regulation S-K.
Risk Factors
Risks Related to Our Business
Bitcoin mining activities are energy-intensive, page 15
8. We note your disclosure that "electricity costs are expected to
account for a significant
portion of [your] overall costs" and your business model can only be
successful if you
"can obtain access to sufficient electrical power on a cost-effective
basis through hosting
arrangements with mining data centers." Please expand your disclosure
to address the fact
that you do not have any power purchase agreements for the supply of
power, as disclosed
on page 6, and discuss the impact of your various hosting agreements
with respect to this
risk.
9. Please reconcile this risk factor with the risk factor entitled
"Cryptocurrency mining
activities are energy-intensive..." on page 14 as the two risk factors
seem redundant.
Further significant disruptions in the crypto asset markets, page 21
10. We note your statement that theoretically there is a minimum bitcoin
price that is so low
that you would want to turn off your miners. Please revise to provide
a
comprehensive breakeven analysis for your bitcoin mining operations
that compares the
cost to earn/mine one bitcoin with the market value of one mined
bitcoin. Quantitative
tabular disclosure may be helpful. Your analysis should:
Identify and explain all relevant inputs used in your calculation
and the key
assumptions used in preparing it;
Clarify whether, and if so, how the cost of purchasing mining
equipment factors into
your analysis;
Clarify whether you finance the purchase of mining equipment and,
if so, reflect
financing costs in your analysis; and
Discuss any known trends related to your breakeven analysis as of
the most recent
practicable date, such as whether your cost of revenue and mining
inputs (e.g.,
electricity costs) have materially increased or decreased in
recent periods.
Patricia Trompeter
FirstName
Sphere 3D LastNamePatricia Trompeter
Corp.
Comapany
May NameSphere 3D Corp.
20, 2024
May 20,
Page 4 2024 Page 4
FirstName LastName
The dynamic nature of digital asset exchanges, page 22
11. We note your statement that you have been directly and indirectly
impacted by certain of
the recent bankruptcies in the crypto asset space. Please expand to
more fully identify and
describe these bankruptcies and discuss in greater detail how you have
been directly or
indirectly impacted by these bankruptcies.
Cryptocurrency may be subject to loss, page 23
12. We note that when you decide to sell Bitcoin, you transfer it from
your digital wallets held
by the applicable Custodian to your trading account wallet. Please
revise to disclose
whether you have a specific policy for how you will determine when to
sell Bitcoin for
fiat currency to fund operations or growth and through what exchange,
or if you intend to
hold your mining rewards for investment purposes. To the extent you
have an agreement
with a third-party exchange, please disclose the material terms and
file the agreement as
an exhibit. Please discuss the average period between receipt of
Bitcoin and the
subsequent conversion to cash, and discuss any risks to your liquidity
caused by volatility
in Bitcoin pricing.
13. We note that you expect to hold all your cryptocurrency in a
combination of insured
institutional custody services and multi signature cold storage
wallets, and maintain secure
backups to reduce the risk of malfeasance. We also note that you store
your Bitcoin in
wallets custodied by Bitgo and Coinbase, and when you decide to sell
Bitcoin,
you transfer Bitcoin from your digital wallets held by the applicable
Custodian to your
trading account wallet. Please revise to clarify whether the wallets
custodied by the
Custodians and your trading account wallet are hot wallets or cold
storage.
Our interactions with a blockchain may expose us, page 24
14. We note that your policy prohibits any transactions with persons named
on OFAC's
specially designated nationals list. Please revise to discuss in
greater detail your current
AML and OFAC policies, procedures and systems.
Bitcoin is subject to halving, page 24
15. Please update your disclosure to reflect that halving for the Bitcoin
blockchain in April
2024 already occurred, and discuss the next anticipated halving.
16. Please revise your disclosure to address the maximum number of
Bitcoins that may be
released into circulation, and the number of Bitcoins currently in
circulation. Please also
revise to discuss how the limited supply of Bitcoins that can be mined
(and the current
mining total) affects your business plan.
We may not be able to realize the benefits of forks, page 25
17. Please revise to disclose your policies related to forks.
Patricia Trompeter
Sphere 3D Corp.
May 20, 2024
Page 5
Part II. Information Not Required in Prospectus
Item 17. Undertakings, page II-2
18. We note your response to prior comment 1. Please revise to replace
references to Form
20-F with references to Form 10-K.
We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments, action
or absence of
action by the staff.
Refer to Rules 460 and 461 regarding requests for acceleration. Please
allow adequate
time for us to review any amendment prior to the requested effective date of
the registration
statement.
Please contact Lulu Cheng at 202-551-3811 or Eric Envall at 202-551-3234
with any
questions.
Sincerely,
FirstName LastNamePatricia Trompeter
Division of
Corporation Finance
Comapany NameSphere 3D Corp.
Office of Crypto
Assets
May 20, 2024 Page 5
cc: M. Ali Panjwani
FirstName LastName