Changes in Accounting Principle

6 Months Ended

Jun. 30, 2024

Changes In Accounting Principle

Changes in Accounting Principle

Note 4 - Changes in Accounting Principle

Fair Value Accounting for Crypto Assets - Adoption of ASU No. 2023-08

Effective January 1, 2023, the Company has elected to early adopt ASU No. 2023-08, resulting in a material change in accounting principles related to the Company’s accounting treatment of crypto assets.

As a result of the adoption of ASU No. 2023-08, crypto assets are recorded at their fair market value on its balance sheet and changes in the fair market value of its crypto assets during reporting periods are recorded within its statements of operations as unrealized appreciation (depreciation). Prior to adopting ASU No. 2023-08, crypto assets were accounted for as intangible assets with an indefinite life in accordance with ASC 350, Intangibles –Goodwill and Other, carrying them at their impaired value and recognizing impairment losses during reporting periods. Adoption of the fair market value guidance contained within ASU No. 2023-08 eliminates the need to calculate impairment losses on crypto assets for the period of adoption and moving forward.

The Company elected to early adopt the guidance contained with ASU No. 2023-08 as we believe that the specified changes in financial reporting better reflect the economic realities of the Company’s business model and the value of the crypto assets held, enhancing the transparency and accuracy of the financial statements.

The adoption of ASU No. 2023-08 required an adjustment to the Company’s opening Retained Earnings balance as of January 1, 2023, to recognize the cumulative effect of initially applying the change in accounting principle to previous periods. The adjustment accounts for the difference between the December 31, 2022 ending book value of crypto assets and their respective fair market value, which amounted to approximately $4,986,000.

Presentation of Ethereum Block Building Revenues and Costs – ASC 606

During the second quarter of 2024, the Company elected to change its accounting principle related to the presentation of revenue and cost of revenues associated with its Ethereum block building operations, as conducted through Builder+. This change in accounting principle is pursuant to the ASC 606, Revenue from Contracts with Customers.

Upon re-evaluation, the Company determined that gas fees earned by our Ethereum block builders should be recognized as gross revenue. The Validator Payments, which are fees paid to the validator nodes for the contractual rights to control transaction bundles within the blocks, should be presented separately as cost of revenues. The Company previously presented the net amount of gas fees, after netting off the Validator Payments made, as revenue. This change from a net to a gross presentation aligns more closely with the economic realities of our business operations and the transaction structure within the Ethereum network.

The Company has retrospectively applied this change in accounting principle to the financial statements for the three months ended March 31, 2024, to ensure comparability across all periods presented. The effect of this change results in an increase in the presentation of both revenues and cost of revenues by $65,614 for the three months ended March 31, 2024. The effect of this change in accounting principle is immaterial and does not impact the reported gross profit, net income (loss), or any balance sheet items for the current or prior periods.

Detailed impacts for the three months ended March 31, 2024, are presented in the following table:

	For the Three Months Ending
	March 31, 2024
	As reported on Form 10-Q		As revised resulting from change in accounting principle
Revenues	$	385,773	$	451,387
Cost of revenues		95,012		160,626
Gross profit	$	290,761	$	290,761

Based on an analysis of ASC 250, Accounting Changes and Error Corrections, and Staff Accounting Bulletin 99, Materiality, the Company has determined that the effect of this change was immaterial to the previously issued financial statements for the three months ended March 31, 2024.

The Company elected to implement this change in accounting principle as it provides a more accurate and transparent view of our Ethereum block building operations. This change enhances stakeholders’ understanding of the operational performance and the financial aspects of our block building activities under Builder+.