Item 1B. Unresolved Staff Comments
Item 1B. Unresolved Staff Comments
The Company received comments from the Staff during fiscal year 2023. The Company’s responses to certain unresolved comments that the Company considers material are still under review by the Staff and are set forth below.
• Revenue recognition . The Staff commented on the Company’s accounting convention to recognize its noncash (bitcoin) revenue using fair value that is not at contract inception. The Company has evaluated the difference between its current accounting policy and fair value at contract inception and has determined that any differences in revenue are not material for all periods stated.
• Accounting policy for classifying digital assets as current. The Staff commented on whether bitcoin held at the end of the Company’s fiscal periods are properly reflected as current assets. The Company concludes that bitcoin are included in current assets in the consolidated balance sheets due to the Company’s ability to sell it in a highly liquid marketplace and its intent to liquidate its bitcoin to support operations when needed.
• Classification of proceeds from sale of bitcoin as an operating activity and not an investing activity. The Staff commented on the Company’s recording of the proceeds from bitcoin sales and why the Company classifies its proceeds as operating cash flows rather than investing cash flows. The Company records its proceeds from sales of bitcoin as operating activities since the bitcoin that is sold is typically held for 7 days or less.
• Impairment of bitcoin. The Staff commented on the Company’s calculation of impairment of bitcoin using a daily closing price. The Company had evaluated the difference using the daily closing price as compared to the intraday low bitcoin price on our principal market (Coinbase) and determined the difference to not be material for the periods stated. However, beginning in the quarter ended June 30, 2023, the Company began utilizing the intraday low price to calculate the bitcoin impairment. Additionally, the Staff requested clarification on how often the bitcoin impairment testing is performed and recorded. The Company responded that the impairment analysis is calculated on the bitcoin held as of the end of each reporting period, rather than on a daily basis.
• Bitcoin breakeven analysis . The Staff has requested further disclosure on a comprehensive breakeven analysis that compares the cost to earn or mine one bitcoin with the value of one bitcoin. The Company has revised its disclosures in response to the Staff’s request.
• Clean and renewable energy resources . The Staff has requested further disclosure on the Company’s use of clean and renewable energy resources. The Company has revised its disclosures in response to the Staff’s request.
• Custody procedures. The Staff has requested further disclosure on the Company’s custody procedures and arrangements with third-party custodians. The Company has revised its disclosures in response to the Staff’s request.
• Cybersecurity and insurance . The Staff has requested further disclosure on the Company’s insurance coverage as it relates to cybersecurity. The Company has revised its disclosures in response to the Staff’s request.
• Hosting and Profit-sharing Fees . The Staff has requested further information on the trends related to the Company’s hosting and profit-sharing fees.