Ms. Melissa Rocha

Office Chief

Office of Finance

Division of Corporate Finance

United States Securities and Exchange Commission

Washington, D.C. 20549

August 24, 2020

Amendment No. 2 to Offering Statement on Form 1-A Filed on July 1, 2020

File No. 024-11256

Dear Ms. Rocha:

Thank you for your comments of July 30, 2020 regarding the Offering Statement of CERES Coin LLC (the “Company”). We appreciate the opportunity to respond to your comments.

Amendment No. 2 to Form 1-A filed July 1, 2020

Article IX Management’s Discussion and Analysis of Financial Condition and Results of Operations

Current Operating Results, page 100

The Company has amended the disclosure in the body of the Offering Circular to remove references to expenses not on the balance sheet.

The Company has amended its disclosure to make clear that proceeds from the sale of PIAs have been used for repayment of the CMS Loan and CMS Note and that there are currently no proceeds reserved for such purpose.

The Company has amended its disclosure to discuss the expenses incurred for the development of the Framework during comparative periods and the reasons for change in each such expense.

Article XIV Securities Being Offered, page 114

Your response should include a discussion of the authoritative literature you directly relied upon, as well as any literature that indirectly informed your conclusions. Additionally, please include a discussion of any alternative accounting options you considered, the relevant guidance and the reasons why you ultimately rejected those alternatives.

The Company has evaluated how it will account for and present the Coins and Tokens in its financial statements. Its analysis is presented below:

We will begin by noting that neither the Coins nor the Tokens strictly fit 100% of the definition, under GAAP, of an equity or a debt instrument, but we will discuss the structure of the cash flows associated with both for the purposes of illustrating both our anticipated accounting for Coins and Tokens as well as look through the GAAP lens to determine whether GAAP would prescribe treatment as debt or equity.

Coins

The accounting treatment for the Coins appears to be the most straight forward. Coins are redeemable, at the Coin owners’ option, for cash on demand, at par value. The mechanism for this redemption is the put option granted to the Coin owner. The put option is very broad and carries almost no restrictions, therefore it grants the owner the nearly absolute right to require the Coins to be redeemed by Ceres. This immediately indicates that treatment of the Coins as a liability is appropriate. This would meet the definition of a Mandatorily Redeemable Financial Instrument under FASB ASC 480-10-20.

“Any of various financial instruments issued in the form of shares that embody an unconditional obligation requiring the issuer to redeem the instrument by transferring its assets at a specified or determinable date (or dates) or upon an event that is certain to occur.”

In this case, Ceres has an unconditional obligation to redeem the Coins at a determinable date – the date the owner of the Coins wishes to redeem.

ASC 480-10-25-4 goes on to prescribe the treatment of such an instrument under GAAP as a liability:

“A mandatorily redeemable financial instrument shall be classified as a liability unless the redemption is required to occur only upon the liquidation or termination of the reporting entity”

The call option that Ceres has to call back the Coins is only exercisable if the entire allowed Coin subscription is filled. Even should Ceres fulfill this requirement and call back the Coins, liability treatment is still appropriate as the Coins are to be repurchased at par value.

Finally, as provided in the Coin Rights Agreement (in particular Section 5 thereof), for the remainder of the first calendar year the Coins are offered for sale and for each of the immediately following two full calendar years (each such calendar year, a “Coin Distribution Year”), those persons who purchased Coins from the Company in any such Coin Distribution Year will, as a group, be entitled to share in the total “Distributable Transaction Fees” (as defined in Article XIV Paragraph 3(E) of the Offering Circular), if any, actually received by the Company during such Coin Distribution Year. Any amounts payable to the holders of the Coins pursuant to the foregoing will be:

The Company intends to account for the Distributable Transaction Fees owed to the Coin holders as either an expense or a contra-revenue account, which it feels is appropriate given the remaining net revenues belong to the Company and Token holders and will be considered revenue. Thus, the Distributable Transaction Fees paid is a cost of revenue – either expense or contra-revenue.

With respect to liquidation rights, the company is required to buy back all outstanding coins at par. Beyond this, Coin owners are not entitled to any proceeds from a liquidation of the Company. If they were, this would be a characteristic of an equity security.

Tokens

The GAAP-prescribed treatment of the Tokens is admittedly less clear, but the Company does have a plan to apply a framework and have a system for accounting for these instruments.

The Tokens do not carry with them a put option like the Coins do. In addition, the liquidation rights of the Token holders are limited, as provided in the Token Rights Agreement and described in Article XIV Paragraph 2(H) of the Offering Circular:

“In the event of a Liquidation of the Blockchain Business and/or the Loan Business which occurs after the first sale of a Token, the then holders of the Tokens, as a group, will be entitled to receive a certain portion of the net proceeds received by the Company in connection with the same”

This strongly indicates that accounting for the proceeds from issuances/sales of Tokens should not be accounted for as a liability. The Token owner cannot liquidate his/her investment or force the Company to redeem. Additionally, only when certain conditions are met – net interest income is earned – are any cash flows back to the Token holders triggered. Were the Company to sell the Tokens and do nothing with the money, no interest income would be earned and thus no obligation to the Token holder created. We will discuss the splitting of the net interest income shortly.

The ASC comments on obligations being a sufficient condition for considering something a liability in ASC 480-10-05:

“Section 480-10-25 requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer”

Since the initial sale of the Token creates no obligation by the Company whatsoever, this appears to be the last piece of evidence needed to conclude that liability treatment is not appropriate for sale of Tokens. Having ruled out liability treatment, we have two options left for accounting for the proceeds on Token sales. One is equity; the other is revenue. We first examine whether the Tokens fit the GAAP definition of equity.

FASB ASC 321-10-20 defines an equity security thusly:

“Any security representing an ownership interest in an entity (for example, common, preferred, or other capital stock) or the right to acquire (for example, warrants, rights, forward purchase contracts, and call options) or dispose of (for example, put options and forward sale contracts) an ownership interest in an entity at fixed or determinable prices.”

The Tokens satisfy no part of this definition. Were this a true ownership position, we would expect the Token holder to have voting rights that have broad powers to shape the strategic course of the Company – much like shareholders electing a Board of Directors at a publicly-traded company can greatly affect the Company’s future. However, Token holders only have limited voting rights. They are only able to vote on a specific action: if the Company wishes to liquidate a loan or loans for 95% or less than book value. As described in the offering summary under Article II Section 2 of the Offering Circular, the Token holders voting rights thusly:

While the Tokens will represent equity interests of the Company, the Token holders will only have the right to vote on Major Loan Actions and to approve/disapprove certain amendments to the Token Rights Agreement (as described herein). Except for the foregoing, a Token holder will not be entitled to any vote (or any other say) on any matter regarding the Company or its Business.

Since this power is very limited to this very specific situation and does not carry with it the ability to broadly affect the enterprise, these voting rights cannot be considered broad or powerful enough to liken them to the typical voting powers enjoyed by a common stockholder.

Another related aspect of this analysis is that the Token holders’ economic participation is only in the loan business and the transaction fee business. While those are the only two business lines currently contemplated, should the Company expand into new business lines in the future, the Token holders would not participate in those profits. This is another key factor that leads us to believe that the Tokens are not equity. Under a more traditional capital structure with “plain-vanilla” equity, equity holders would enjoy shares of the profit of the enterprise regardless of which business line generated them.

The Company has reserved the exact method of distribution in the event of liquidations of the blockchain and the loan business as noted above, so it is possible that the liquidation waterfall would not follow a typical equity structure. Moreover, and as we previously noted, should the business expand and add new products or business lines, the Token holders would still only share in the proceeds from the blockchain and the loan business. They would not share in any proceeds allocable to sales of other business units, which creates a disconnect between their rights and economic exposures and that of both typically equity holders in a for-profit entity but also the actual equity owners of Ceres Coin, LLC.

Referring back to ASC 321-10-20, the Token also does not carry with it any rights to acquire or dispose of any ownership interests in the entity at fixed or determinable prices. This last technical definition, combined with the preceding analysis on the risk exposures, voting rights and economic participation in the various current and future business units, solidify our opinion that accounting for the Tokens as equity is not appropriate.

The only alternative option is to allocate sales of Tokens to revenue. This appears to be the most appropriate option given the lack of obligation created as well as the fact that Token holders do not have any residual interest in the entity’s profitability. This would address the initial sale of the Tokens.

We will now describe how we will account for the ongoing operations and the obligations they create to the Token holders. Like the Coins, the cash flows owed to the Token holders, as their share of the net interest income and their share of the transaction fees, will be accounted for as the obligations are created as contra-revenue. Since the non-allocated portion belongs to the Company as revenue, the portion owed to the Token holders is appropriately considered a cost of revenue, and therefore revenue/expense treatment is most appropriate. It is important to emphasize that what triggers cash flow to the Token holders is not their initial investment, but it is the Company beginning to earn interest income on the loans it makes as well as earning transaction fees through the blockchain business. Then and only then is an obligation created.

The Company feels that contra-revenue treatment is most appropriate (compared with treatment as an expense) because in essence the Company has sold a portion of its revenue stream (less operating expense deductions) to investors – the Token holders. As such, reporting that revenue as belonging to the Company does not appear appropriate. Reporting revenues net, rather than gross, in this manner is also widely considered to be the more conservative accounting choice.

The allowable operating expenses, which the Company is permitted to deduct before allocating the net to the Token holders, will be capitalized on the balance sheet and periodically offset, or “closed out” to the distributions made to the Token holders. Section 1(s) of the Token Rights Agreements provides the allowable expenses as follows:

With respect to the Token holders’ participation in the net interest income, since the cash flows derived are the product of the loan portfolio, it would appear appropriate to conclude this resembles a collateralized loan investment on the part of the Token holders. Those (expected) cash flows on the loan portfolio could indeed inform an estimate of the Tokens value. This is the essence of the value the Token holders had in mind when they purchased Tokens – they were essentially purchasing a stream of cash flows. This would further suggest treatment as debt on the Company’s balance sheet – it’s a relationship that resembles a debt servicing company that keeps a portion of the net interest for itself as compensation. The Company will develop a plan to, as it begins to earn interest income, to accrue the portion due back to the Token holders as contra-revenue. Likewise, the portion of the transaction fees owed to the Token holders will also be accrued as contra-revenue.

FASB ASC 325-40-20 can also be cited to support the conclusion that the Tokens, despite the collateralization, would be a debt security: Any security representing a creditor relationship with an entity. The term debt security also includes all of the following:

The above definition clearly resembles the structure of the Tokens cash flows most closely, and we have now seen that FASB ASC 325 would guide us towards debt security treatment.

Article XV Financial Statements

Balance Sheets, page F-1

The Company has amended these figures in its financial statements; the inaccurate information was the result of an EDGARization error.

Statement of Operations, page F-1

The Company has amended the financial statements to include the missing Note 7.

Statements of Cash Flow, page F-1

The requested reconciliations are being included as tables included in this Correspondence below:

As demonstrated in the reconciliation charts, the Company accounted for the $7,752 in the write-off of the intercompany receivable. Additionally, the Company expanded its footnote to the Statement of Cash Flows on page F-1F to reflect this write-off.

Notes to Financial Statements

3. Related Parties, page F-1

The Company has amended its disclosure on Page F-1J to identify a receivable that was not included in the disclosure in error. By including that receivable, the figures in the financial statements reconcile, as demonstrated in the table below:

4. Private Investment Agreements, page F-1

The Company evaluated whether the conversion feature represents an embedded derivative relaying on FASB ASC subtopic 815-40 and FASB ASC subtopic 470-20. Its analysis is presented below:

FASB ASC 815-40

FASB ASC subtopic 815-40 provides guidance on accounting for embedded derivatives. However, before applying the accounting prescriptions provided by 815-40 to the conversion feature embedded in the Private Investment Agreements (PIAs), we have to determine whether, under the guidance of the broader topic ASC 815, whether that conversion feature satisfies the definition of an embedded derivative. If it does, we will analyze further what the accounting literature tells us to do; if it does not, we will not perform that analysis.

For sake of completeness, the conversion feature is better described as a one-time option to convert the holder’s respective investment into cash or CERES Tokens

We first assess whether the conversion option satisfies the definition of an embedded derivative. Per ASC 815-15-20, an embedded derivative is:

“Implicit or explicit terms that affect some or all of the cash flows or the value of other exchanges required by a contract in a manner similar to a derivative instrument.”

Applying that criteria to the PIA options:

Thus, the evidence indicates that the option is indeed an embedded derivative. Accordingly, the next determination is whether the embedded derivative requires bifurcation – in other words, separate valuation and accounting from the PIA itself.

FASB ASC 815-25-1 discusses the criteria for bifurcation:

“An embedded derivative shall be separated from the host contract and accounted for as a derivative instrument pursuant to Subtopic 815-10 if and only if all of the following criteria are met:

Note that all of the above criteria must be satisfied to bifurcate the derivative. If even one criterion is violated, the embedded derivative shall not be separated (“bifurcated”) from the host contract.

An important note before we begin the analysis is that as of the balance sheet date, December 31, 2019, the CERES Tokens did not exist. Thus, while the PIA grants the holder the option of converting into cash or Tokens, no Tokens existed nor were required to be created if a holder exercised his/her option. The only other conversion the holder owned was to convert into cash. This fails test a) above, since the characteristics of the derivative are closely related to the characteristics of the host contract (since the host contract is debt and can be settled dollar-for-dollar). Thus, test a) is failed and bifurcation would not be required.

Test c) also fails. In order to fail, we must show that if the embedded derivative were separate from the contract, it would not satisfy the definition of a derivative. FASB ASC 815-10-15-83 defines a derivative:

“A derivative instrument is a financial instrument or other contract with all of the following characteristics:

First, the contract fails test (a)(1) given that the Tokens do not exist at December 31, 2019, there is no underlying. In addition, it fails test (c)(3) as the holder only has the option to convert into cash. As such, the conversion into cash does not result in an economic position dissimilar to the holder’s current position.

Accordingly, we conclude that the embedded derivative, if stripped out of the host contract, would not meet the definition of a derivative. As such, this is another reason why it does not require bifurcation in the financial statements.

FASB ASC 470-20

Here we are asked whether the conversion feature in the PIAs falls under the accounting purview of FASB ASC 470-20, which covers debt with contingent conversion features.

Whether or not ASC 470-20 applies to this feature can be found by reference to ASC 470-20-25-10, which discusses when to apply the guidance on debt with contingent conversion features. ASC 470-20-25-10 says:

“The guidance in paragraph 470-20-25-12 addresses debt instruments that have both of the following
characteristics:

Here we see that both tests must be satisfied to apply the guidance.

The first test is failed; while the debt instrument (i.e. the PIAs) are convertible, the holder has two options: cash or Tokens. In our response to item #4, we discussed that the Tokens do not satisfy the definition of equity under accounting principles generally accepted in the United States of America. Accordingly, we conclude that test a) is failed since the PIA holders do not have the ability or option to convert into equity.

As such, our consideration of ASC 470-20 ends here, since the instrument is scoped out.

5. CM Solutions LLC Unsecured Revolving Promissory Note, page F-1

The Company is providing the Commission with a table reflecting the calculated values related to its related party transaction with this correspondence. The Company believes that the additional disclosures included within the financial statements noted above alleviate any potential confusion on the part of investors, and that inclusion of the below table would be inappropriate:

Thank you again for the opportunity to respond to your questions to the Offering Statement of CERES Coin LLC. If you have additional questions or comments, please contact me at andrew@crowdchecklaw.com.

Sincerely,

/s/ Andrew Stephenson

Andrew Stephenson

CrowdCheck Law LLP

cc: Charlie Uchill

Board Member and COO

CERES Coin LLC

c/o CM Solutions LLC

39W462 Baert Lane

St. Charlies, IL 60175

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