Item 1B. Unresolved Staff Comments
ITEM
1B. UNRESOLVED STAFF COMMENTS
The Company received Staff comments during 2022 which are material and
still under review as set forth below. We additionally have described below certain comments more recently received which relate to certain
restatement items in this Form 10-K in order to provide complete disclosure and not imply that the restated items set forth below have
been fully resolved.
● Revenue recognition. The Staff commented on the Company’s
revenue recognition policy in its capacity as a pool operator and in its capacity as a pool participant, with specific attention on the
Company’s previous net recognition of revenue as an operator of a pool. The Company has, in the restated financial results, revised
its revenue to include gross revenue earned as pool operator with any amounts remitted to third party pool participants as cost of revenue.
The Staff further 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.
● Impairment of bitcoin. The Staff objected to the Company’s
calculation of impairment of bitcoin using a daily closing price. The Company has, in the restated financial results, revised its calculation
to calculate impairment of bitcoin using the intraday low price of bitcoin.
● Accounting for investment fund. The Staff commented on whether the
Company should have consolidated an investment fund in which the Company was the sole limited partner and, if so, whether its accounting
for the income and expenses of the investment fund were appropriately classified within the Company’s Statements of Other Comprehensive
Income (Loss). The Company has since determined it would consolidate the NYDIG Fund and updated its classification of income and expenses
of the investment fund within the Statements of Other Comprehensive Income (Loss) as part of the restated financial results.
● Statements of Other Comprehensive Income (Loss) Presentation. The
Staff has commented on the classification and inclusion of certain items in loss from operation versus in other income (expense). These
items include realized gain (loss) on sales of digital assets, interest income, impairment on digital assets and patents, and gain on
sale of equipment. The Company has since revised its presentation prospectively, and in the restated financial results.
● Embedded leases in Hosting and Power Arrangements. The Staff has
asked the Company for a comprehensive analysis around whether each of its server hosting arrangements contain embedded leases. The Company
has provided such analysis and included any required disclosure as a result of such analysis in the Notes to its Consolidated Financial
Statements.
● Investments. The Staff has requested fulsome analysis of the Company’s
accounting for various Simple Agreements on Future Equity (“SAFEs”) and its investment in equity of certain investees. The
Company has provided such analysis and has included impacts of any change in accounting for such investments in the restated financial
results.
● Risk factors. The Staff has requested further disclosure on material
risks due to regulations, ability to obtain financing, reputational harm, and depreciation of digital assets prices. The Company has considered
such risks and has made the disclosures accordingly.
● Bitcoin as collateral. The Staff has raised several comments on
the Company’s accounting for bitcoin used as collateral within the Company’s lending arrangements. The Company continues to
respond to the Staff’s comments based on its application of U.S. GAAP and has not changed its classification of such bitcoin used
as collateral as Digital assets, restricted.