United States securities and exchange commission logo
August 17, 2023
Gary A. Vecchiarelli
Chief Financial Officer
CleanSpark, Inc.
2370 Corporate Circle
Suite 160
Henderson, NV 89074
Re: CleanSpark, Inc.
Form 10-K for the
Fiscal Year Ended September 30, 2022
Filed December 15,
2022
Form 10-Q for the
Quarterly Period Ended June 30, 2022
Filed August 9,
2023
File No. 001-39187
Dear Gary A. Vecchiarelli:
We have reviewed your May 8, 2023 response to our comment letter
and have the
following comments. In some of our comments, we may ask you to provide
us with information
so we may better understand your disclosure.
Please respond to these comments 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 our
comments apply to your facts and circumstances, please tell us why in
your response.
After reviewing your response to these comments, we may have
additional
comments. Unless we note otherwise, our references to prior comments are
to comments in our
March 31, 2023 letter.
Form 10-K for the fiscal year ended September 30, 2022
General
1. Refer to your response
to comment 1. Please revise to include a footnote to your table to
disclose how you
calculated the weighted average cost of mining one bitcoin. In addition,
in future filings,
please revise the table to disclose the range of values of bitcoin during the
periods covered by the
table as well as the source or sources for determining the value of
bitcoin. In this
regard, we note your disclosure in your Form 10-Q for the quarterly period
ended March 31, 2023
that the market price of one bitcoin in your principal market ranged
from approximately
$15,460 to $29,190 during the six months ended March 31, 2023.
Gary A. Vecchiarelli
FirstName
CleanSpark,LastNameGary A. Vecchiarelli
Inc.
Comapany
August 17, NameCleanSpark,
2023 Inc.
August
Page 2 17, 2023 Page 2
FirstName LastName
Lines of Business, page 5
2. Refer to your response to comment 2 that you do not currently have
location-based data
on energy sources. However, in your investor presentation filed as an
exhibit to your
February 16, 2023 8-K, it appears that you disclose energy sources by
location. Please
clarify your response and, in addition, in future filings, please
identify the location of the
facilities pursuant to your co-location agreement with Coinmint, LLC.
Cybsersecurity, page 10
3. Refer to your response to comment 2 that Coinbase provides, obtains
and maintains
insurance coverage in such types and amounts as are commercially
reasonable for the
custodial services provided. In future filings, please disclose the
degree to which the
policy provides coverage for the loss of your crypto assets. In this
regard, we note your
disclosure in your Form 10-Q for the quarterly period ended March 31,
2023 that the
bitcoin held in custody by Coinbase is not insured. Also, in future
filings, identify the
percentage of your crypto assets that are held in hot wallets. In this
regard, we note your
response that you hold "most" of your bitcoin in hot wallets.
4. Refer to your response to comment 4. Please disclose the material
terms of your
agreement with Genesis Custody Limited, including a description of
Genesis Custody
Limited's insurance and the degree to which those policies provide
coverage for the loss of
your crypto assets, and, if known, the geographic location where your
crypto assets are
held in cold wallets. In addition, we note that the risk factor on
page 16 of your 10-Q for
the quarterly period ended December 31, 2022 notes that Genesis Global
Holdco LLC
declared bankruptcy but that you have no exposure to Genesis Global
Holdco. In future
filings, please expand this risk factor to state that you have a
custody agreement with
Genesis Custody Limited.
Note 2. Summary of Significant Accounting Policies
Revenue Recognition, page F-11
5. We acknowledge your responses to comments 7 and 8. Please respond to
the following:
You told us that you record your share of the bitcoins receivable
by the mining pool
operator upon the close of the reporting date at midnight UTC.
Clarify for us in what
period you recognize revenue for each day's mining activity and how
you perform
your revenue cutoff for each quarterly reporting period.
You gave us Foundry USA Pool Service Agreements in your last two
responses. Tell
us where the promises and related performance obligations are
described in the
agreements. If these items are contained in another agreement,
provide us a copy of
those agreements/terms.
Substantiate for us why the contribution of hash rate is your
performance obligation
and how the Foundry USA Pool Service Agreement identifies your
promises and
related performance obligations. In your response, address the
following:
o Tell us what a "Share" is in the context of your poll payout
structure (FPPS);
Gary A. Vecchiarelli
FirstName
CleanSpark,LastNameGary A. Vecchiarelli
Inc.
Comapany
August 17, NameCleanSpark,
2023 Inc.
August
Page 3 17, 2023 Page 3
FirstName LastName
o Tell us your consideration for treating each nonce you are
assigned as a
performance obligation or whether the range of all nonces
for an individual
block is a separate performance obligation; and
o Tell us how and when you report your work performed to the
pool operator. In
this regard, explain whether you report each nonce completed
or only report
when all nonces assigned are completed or at some point in
between.
o As you determined that your single performance obligation to
provide
computing power services (hashrate) is recognized over time
under ASC 606-
10-25-27a and 25-27b, please tell us how you considered if
25-27c was met.
Tell us how you have insight into whether the amount of bitcoin
to be received from
the pool operator is the appropriate amount given the variable
nature of the
computing power (and/or Shares) that you provide relative
computing power (or
Shares) related to the entire pool.
6. In response to comment 9, you told us that you believe contract
inception occurs daily at
midnight UTC. We note that under ASC 606-10-32-21, you should measure
the estimated
fair value of the non-cash consideration at contract inception. But
you also told us that the
fair value of the bitcoin award received is determined using the
closing price of the related
bitcoin on the date earned as of midnight UTC. That is, your response
tells us that
contract inception is at the beginning of the contract period but you
measure the fair value
of the non-cash consideration based on the estimated fair value as of
the end of the
contract period, even though your response acknowledges the potential
for material
fluctuations in the fair value of bitcoin over a 24-hour period. Given
that it appears that
your contract can be terminated at any time without penalty and you
likely have no
minimum service period requirement, please tell us your consideration
for the guidance in
Examples 1 and 2 of Question 7 to the FASB Revenue Recognition
Implementation
Q&As and the impact on your determination of both contract inception
and the impact of
termination provisions as to contract duration, with reference to ASC
606-10-25 and 10-
32. Include the following in your response:
Please tell us the timing of when you measure the value of
non-cash consideration,
Explain to us whether there are any penalties for contract
termination by either party,
Clarify for us what happens if you cancel midterm, and
Tell us whether you can withdraw computing power midterm and
reinstitute it later
that same day.
Form 10-Q for the Quarterly Period Ended June 30, 2023
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of continuing operations for three months ended June 30, 2023 and 2022
Costs of Revenue (exclusive of depreciation and amortization expense), page 10
7. We note your disclosure on page 10 that you incurred $5,291 of hosting
fees and $1,334
of profit sharing fees for the three months ended June 30, 2023, where
the 33% increase in
hosting fees was partially offset by the 46% decrease in profit
sharing fees compared to
Gary A. Vecchiarelli
FirstName
CleanSpark,LastNameGary A. Vecchiarelli
Inc.
Comapany
August 17, NameCleanSpark,
2023 Inc.
August
Page 4 17, 2023 Page 4
FirstName LastName
the comparable prior year's quarter. As the significant decrease in
profit sharing fees was
due to higher network difficulty and lower hashrate utilization at
your largest co-location,
please tell us the following:
Explain if you expect these trends to continue in future periods.
Tell us how this may impact your block reward variability.
Clarify what other accounts they may impact.
Financial Statements
Consolidated Statements of Cash Flows, page F-7
8. In response to comment 15, you told us that your current average
holding period of bitcoin
is less than one month. As previously requested, please tell us the
shortest and longest
time periods you have held bitcoin before sale and provide an estimate
of how frequently
it is converted to USD for each period presented. Then, considering
the length of time
bitcoin is held, tell us how management considered the guidance in ASC
230-10-45-
12(c) in determining that the proceeds from the sale of bitcoin should
be reflected
within operating activities and not investing activities.
Note 2. Summary of Significant Accounting Policies
Property and Equipment, page F-15
9. You disclose that property and equipment is reviewed on a regular
basis for the existence
of facts or circumstances that may suggest impairment. During the nine
months ended
June 30, 2023, you did not record an impairment expense on property
and equipment,
while you recorded $1,017 of impairment expense on bitcoin. Given the
significant
decline in the fair value of bitcoin in fiscal 2023 relative to
historical prices, as you
disclose "The value of bitcoin has historically been subject to wide
swings..." on page 7,
tell us how you considered this factor in determining whether or not
to evaluate your
mining equipment and related assets for impairment. Tell us the
significant factors you
consider that could trigger an impairment. Refer to ASC 350-10-35-21.
Bitcoin, page F-15
10. We acknowledge your response to comment 13 and your revised disclosure
on page F-15
where you state that you included bitcoin in current assets due to
your ability to sell
bitcoin in a highly liquid marketplace and your intent to liquidate
your bitcoin to support
operations when needed. We also note your disclosure on page 7 that
you sell bitcoin from
time to time and do not currently plan to engage in regular trading of
bitcoin. Please tell
us how your classification of cryptocurrencies as current assets is
consistent with the
definition of current assets in ASC 210-10-20 and the FASB Master
Glossary.
11. We acknowledge your response to comment 11. Please respond to the
following:
Confirm to us that you perform your digital asset impairment
analysis each day and
record any related impairment on that day and that you do not
perform your
impairment analysis as a look-back at the end of the quarter.
Gary A. Vecchiarelli
CleanSpark, Inc.
August 17, 2023
Page 5
You told us that you determined your method of calculating
impairment for your
bitcoin on a daily basis using a daily closing price at a
standard cutoff time was not in
compliance with the ASC 350-30-35-19, but you did not correct the
financial
statements because the impact was not material. Please provide us
with your analysis
of the materiality of the correction to your financial
statements.
You told us that you combine crypto assets into a single unit
for purposes
of calculating impairment. Tell us how you considered ASC
350-30-35-24 and why
you do not account for each unit (or fractional unit) of your
crypto assets as its own
unit of account for assessing impairment since you can sell or
otherwise dispose of
each unit (fractional unit) separately.
12. In response to prior comment 12, you told us that you used quotes from
Nasdaq.com to
value your bitcoin, even though your principal market is Coinbase.com.
You told us that
you will adjust your accounting to use your principal market in
subsequent periods,
beginning with the quarter ended March 31, 2023. Provide us with the
impact/variance
analysis you performed wherein you concluded that the impact of the
error is not material
to your historical financial statements.
You may contact Kate Tillan at 202-551-3604 or Bonnie Baynes at
202-551-4924 if you
have questions regarding comments on the financial statements and related
matters. Please
contact Sonia Bednarowski at 202-551-3666 or Sandra Hunter Berkheimer, Legal
Branch Chief,
at 202-551-3758 with any other questions.
FirstName LastNameGary A. Vecchiarelli Sincerely,
Comapany NameCleanSpark, Inc.
Division of
Corporation Finance
August 17, 2023 Page 5 Office of
Crypto Assets
FirstName LastName