UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16
OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of August, 2014
Commission File Number: 000-55232
Sphere 3D Corp.
(Translation of registrant's name into English)
240 Matheson Blvd. East
Mississauga, Ontario L4Z 1X1
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
[ ] Form 20-F [ x ] Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): [ ]
SUBMITTED HEREWITH
Exhibits
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
SPHERE 3D CORP. |
|
(Registrant) |
|
|
|
Date: August 29, 2014 |
By: |
/s/ T. Scott Worthington |
|
|
|
|
|
T. Scott Worthington |
|
Title: |
Chief Financial Officer |
SPHERE 3D CORPORATION
Condensed Consolidated Financial
Statements (Unaudited)
For the Three and Six Months Ended
June 30, 2014 and 2013
(Expressed in Canadian Dollars)
See accompanying notes, which are an integral part of these
financial statements
1
Sphere 3D Corporation
Condensed
Consolidated Statements of Financial Position
As at
(Expressed in
Canadian Dollars)
|
|
June
30, |
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
|
|
(unaudited) |
|
|
(audited) |
|
Assets |
|
|
|
|
|
|
Current |
|
|
|
|
|
|
Cash and cash
equivalents |
$ |
8,782,627 |
|
$ |
5,550,788 |
|
Investments |
|
358,373 |
|
|
312,823 |
|
Loans |
|
- |
|
|
203,641 |
|
Sales tax recoverable |
|
357,632 |
|
|
95,088 |
|
Amounts receivable |
|
1,710,178 |
|
|
- |
|
Inventory |
|
158,152 |
|
|
136,591 |
|
Advance equipment
prepayment |
|
28,798 |
|
|
397,702 |
|
Prepaid and sundry assets (note 5) |
|
435,347 |
|
|
142,361 |
|
|
|
11,831,107 |
|
|
6,838,994 |
|
|
|
|
|
|
|
|
Promissory Note (note
6) |
|
5,335,000 |
|
|
- |
|
Capital assets (note 7) |
|
537,273 |
|
|
389,119 |
|
Intangible assets (note 8) |
|
17,881,807 |
|
|
1,668,079 |
|
|
|
|
|
|
|
|
|
$ |
35,585,187 |
|
$ |
8,896,192 |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Current |
|
|
|
|
|
|
Trade and other
payables (note 9) |
$ |
1,821,749 |
|
$ |
478,282 |
|
Contingent earn-out (note 8) |
|
3,891,534 |
|
|
- |
|
Deferred Revenue |
|
203,642 |
|
|
504,488 |
|
|
|
5,916,925 |
|
|
982,770 |
|
|
|
|
|
|
|
|
Convertible debenture (note 10) |
|
5,533,774 |
|
|
- |
|
|
|
11,450,699 |
|
|
982,770 |
|
|
|
|
|
|
|
|
Shareholders'
Deficiency |
|
|
|
|
|
|
Common share capital (note 11) |
|
21,535,047 |
|
|
12,085,781 |
|
Other equity (note 12)
|
|
11,883,895 |
|
|
1,715,151 |
|
Deficit |
|
(9,284,454 |
) |
|
(5,887,510 |
) |
|
|
|
|
|
|
|
|
|
24,134,488 |
|
|
7,913,422 |
|
|
|
|
|
|
|
|
|
$ |
35,585,187 |
|
$ |
8,896,192 |
|
Nature of operations (note 1)
|
|
|
|
|
|
|
Commitment and contingencies (note 15) |
|
|
|
|
|
|
Subsequent events (note 18)
|
|
|
|
|
|
|
Approved by the Board |
Glenn Bowman |
Peter Tassiopoulos
|
|
Director |
Director |
See accompanying notes, which are an integral part of these
financial statements
2
Sphere 3D Corporation
Condensed
Consolidated Statements of Comprehensive Loss (Unaudited)
(Expressed in
Canadian Dollars)
|
|
Three months ended |
|
|
Six
months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
1,751,230 |
|
$ |
- |
|
$ |
2,756,564 |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
840,751 |
|
|
- |
|
|
1,274,290 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin |
|
910,479 |
|
|
- |
|
|
1,482,274 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses (income) |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and consulting |
|
800,198 |
|
|
366,410 |
|
|
1,077,415 |
|
|
740,573 |
|
Stock based compensation |
|
850,051 |
|
|
26,733 |
|
|
1,184,691 |
|
|
47,039 |
|
General and administrative |
|
545,269 |
|
|
120,424 |
|
|
797,679 |
|
|
324,466 |
|
Amortization of intangibles |
|
1,147,439 |
|
|
873 |
|
|
1,148,312 |
|
|
1,746 |
|
Amortization of property and equipment |
|
85,241 |
|
|
48,981 |
|
|
164,519 |
|
|
96,297 |
|
Finance expenses (note 13) |
|
139,359 |
|
|
1,066 |
|
|
151,138 |
|
|
(347 |
) |
Merger agreement
costs |
|
355,464 |
|
|
- |
|
|
355,464 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,923,021 |
|
|
564,487 |
|
|
4,879,218 |
|
|
1,209,774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
comprehensive loss for the period |
$ |
(3,012,542 |
) |
$ |
(564,487 |
) |
$ |
(3,396,944 |
) |
$ |
(1,209,774 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
$ |
(0.13 |
) |
$ |
(0.04 |
) |
$ |
(0.15 |
) |
$ |
(0.08 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares |
|
23,314,161 |
|
|
16,114,339 |
|
|
22,527,164 |
|
|
16,114,339 |
|
See accompanying notes, which are an integral part of these
financial statements
3
Sphere 3D Corporation
Condensed
Consolidated Statements of Changes in Equity (Unaudited)
(Expressed in
Canadian Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common |
|
|
Common |
|
|
|
|
|
|
|
|
|
|
|
|
shares |
|
|
share capital |
|
|
Other Equity |
|
|
Deficit |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012
|
|
16,114,339 |
|
$ |
5,409,488 |
|
$ |
1,007,500 |
|
$ |
(3,509,487 |
)
|
$ |
2,907,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
|
- |
|
|
- |
|
|
47,039 |
|
|
- |
|
|
47,039
|
|
Comprehensive loss for the period |
|
- |
|
|
- |
|
|
- |
|
|
(1,209,774 |
) |
|
(1,209,774 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2013 |
|
16,114,339 |
|
$ |
5,409,488 |
|
$ |
1,054,539 |
|
$ |
(4,719,261 |
) |
$ |
1,744,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares |
|
1,250,000 |
|
|
4,187,500 |
|
|
- |
|
|
- |
|
|
4,187,500 |
|
Share issuance costs |
|
- |
|
|
(441,178 |
)
|
|
- |
|
|
- |
|
|
(441,178 |
)
|
Issuance of warrants |
|
- |
|
|
(860,000 |
) |
|
860,000 |
|
|
- |
|
|
- |
|
Exercise of warrants |
|
2,784,840 |
|
|
3,844,720 |
|
|
(1,154,528 |
)
|
|
- |
|
|
2,690,192
|
|
Issuance of warrants on exercise |
|
- |
|
|
(703,000 |
) |
|
703,000 |
|
|
- |
|
|
- |
|
Exercise of options |
|
180,001 |
|
|
148,251 |
|
|
(20,500 |
)
|
|
- |
|
|
127,751
|
|
Share-based payments |
|
769,231 |
|
|
500,000 |
|
|
- |
|
|
- |
|
|
500,000 |
|
Stock based compensation |
|
- |
|
|
- |
|
|
272,640 |
|
|
- |
|
|
272,640
|
|
Comprehensive loss for the period |
|
- |
|
|
- |
|
|
- |
|
|
(1,168,249 |
) |
|
(1,168,249 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013 |
|
21,098,411 |
|
$ |
12,085,781 |
|
$ |
1,715,151 |
|
$ |
(5,887,510 |
) |
$ |
7,913,422 |
|
Issuance of common shares on
acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of intangible assets |
|
1,089,867 |
|
|
7,133,179 |
|
|
- |
|
|
- |
|
|
7,133,179 |
|
Issuance of special warrants,
net of costs (note 12) |
|
- |
|
|
- |
|
|
9,115,010 |
|
|
- |
|
|
9,115,010
|
|
Exercise of warrants |
|
1,104,743 |
|
|
2,213,682 |
|
|
(388,312 |
) |
|
- |
|
|
1,825,370 |
|
Exercise of options |
|
121,250 |
|
|
102,405 |
|
|
(18,055 |
)
|
|
- |
|
|
84,350
|
|
Stock based compensation |
|
- |
|
|
- |
|
|
1,460,101 |
|
|
- |
|
|
1,460,101 |
|
Comprehensive loss for the period |
|
- |
|
|
- |
|
|
- |
|
|
(3,396,944 |
) |
|
(3,396,944 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2014 |
|
23,414,271 |
|
$ |
21,535,047 |
|
$ |
11,883,895 |
|
$ |
(9,284,454 |
) |
$ |
24,134,488 |
|
See accompanying notes, which are an integral part of these
financial statements
4
Sphere 3D Corporation
Condensed
Consolidated Statements of Cash Flows (Unaudited)
(Expressed in Canadian
Dollars)
|
|
Six
months ended |
|
|
|
June 30, |
|
|
|
2014 |
|
|
2013 |
|
Cash flow from operating activities
|
|
|
|
|
|
|
Net comprehensive loss for the period |
$ |
(3,396,944 |
) |
$ |
(1,209,774 |
) |
Items not affecting cash: |
|
|
|
|
|
|
Adjustment for depreciation |
|
168,206 |
|
|
96,297 |
|
Adjustment for
amortization |
|
1,148,312 |
|
|
1,746 |
|
Stock compensation expenses |
|
1,184,691 |
|
|
47,039 |
|
Financing expense of
convertible debenture |
|
19,393 |
|
|
- |
|
Unrealized loss on derivative liability |
|
164,144 |
|
|
- |
|
Interest on long term
investments |
|
- |
|
|
(1,658 |
) |
Unrealized foreign exchange gain |
|
(439,227 |
) |
|
- |
|
Unrealized investment
holding gain |
|
(13,982 |
) |
|
- |
|
Change in working capital: |
|
|
|
|
|
|
Change in investments |
|
(31,568 |
) |
|
10,203 |
|
Change in sales tax recoverable |
|
(262,544 |
) |
|
19,796 |
|
Change in amounts receivable |
|
(1,710,178 |
) |
|
- |
|
Change in inventory |
|
(21,561 |
) |
|
- |
|
Change in prepaid and sundry
assets |
|
75,918 |
|
|
(6,923 |
) |
Change in trade and other payables |
|
1,119,587 |
|
|
(146,711 |
) |
Change in deferred revenue |
|
(300,846 |
) |
|
- |
|
Change in subscriptions received |
|
-
|
|
|
150,035 |
|
Net cash used in operating activities |
|
(2,296,599 |
) |
|
(1,039,950 |
) |
Cash flow from investing activities |
|
|
|
|
|
|
Promissory notes |
|
(5,335,000 |
) |
|
- |
|
Acquisition of intangible assets |
|
(4,618,000 |
) |
|
- |
|
Investment in technology |
|
(1,028,925 |
) |
|
(71,938 |
) |
Acquisition of property and equipment |
|
(315,008 |
) |
|
(27,621 |
) |
Repayment of loans receivable |
|
203,641 |
|
|
- |
|
Net cash used
in investing activities |
|
(11,093,292 |
) |
|
(99,559 |
) |
Cash flow from financing activities
|
|
|
|
|
|
|
Proceeds from common shares net of issue costs |
|
- |
|
|
235,350 |
|
Proceeds from issuance of special warrants,
net of issue costs |
|
9,115,010 |
|
|
- |
|
Proceeds from warrant exercises |
|
1,825,370 |
|
|
- |
|
Proceeds from options exercises |
|
84,350 |
|
|
- |
|
Debenture
financing |
|
5,597,000 |
|
|
- |
|
Net cash generated in financing activities |
|
16,621,730 |
|
|
235,350 |
|
|
|
|
|
|
|
|
Net increase / (decrease) in cash and
cash equivalents |
|
3,231,839 |
|
|
(1,139,509 |
) |
Cash and cash
equivalents at opening |
|
5,550,788 |
|
|
1,633,334 |
|
Cash and cash equivalents at closing |
$ |
8,782,627 |
|
$ |
493,825 |
|
See accompanying notes, which are an integral part of these
financial statements
5
Sphere 3D Corporation
Condensed
Consolidated Statements of Cash Flows (Unaudited) - continued
(Expressed in
Canadian Dollars)
|
|
Six
months ended |
|
|
|
June 30, |
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
Non-cash Investing and
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares on
acquisition of intangible assets |
$ |
(7,133,179 |
) |
$ |
- |
|
Contingent liability for the acquisition of
intangible assets |
|
(4,031,220 |
) |
|
- |
|
Holdback on the acquisition of intangible assets |
|
(223,880 |
) |
|
- |
|
|
|
|
|
|
|
|
|
$ |
(11,388,279 |
) |
$ |
- |
|
See accompanying notes, which are an integral part of these
financial statements
6
Sphere 3D Corporation |
Notes to the Condensed Consolidated Interim Financial
Statements |
June 30, 2014 and 2013 |
(Expressed in
Canadian Dollars) |
1. |
NATURE OF OPERATIONS |
|
|
|
Sphere 3D Corporation (the "Company" or Sphere 3D) was
incorporated under the Business Corporations Act (Ontario) on May
2, 2007 and is listed on the TSXV and NASDAQ, under the trading symbol
ANY and has its main and registered office of the Company located at 240
Matheson Blvd. East, Mississauga, Ontario, L4Z 1X1. |
|
|
|
Sphere 3D is a technology development company focused on
establishing its patent pending emulation and virtualization technology.
These consolidated statements include the financial statements of the
Company, its wholly-owned subsidiaries, S3D Acquisition Company., which
was incorporated under the laws of the State of California on May 14,
2014, V3 Systems Holdings, Inc., which was incorporated under the laws of
the State of Delaware on January 14, 2014, Sphere 3D Inc., which was
incorporated under the Canada Business Corporation Act on October
20, 2009, and its wholly owned subsidiary, Frostcat Technologies Inc.,
which was incorporated under the |
|
|
|
Business Corporations Act (Ontario) on February
13, 2012. |
|
|
|
The Company may have to raise additional capital to fund
acquisitions and operations until such point that revenues from products
and technology are able to fund operations. If the Company is not able to
raise sufficient capital then there is the risk that the Company will not
be able to realize the value of its assets and discharge its liabilities.
To date the Company has been successful raising capital in fiscal 2013 and
2014. |
2. |
Statement of Compliance |
|
|
|
These condensed consolidated interim financial statements
have been prepared using the same accounting policies and methods of
computation as were applied in our most recent audited consolidated annual
financial statements for the year ended December 31, 2013. |
|
|
|
These condensed consolidated interim financial statements
have been prepared in accordance with International Accounting Standards
(IAS) 34 Interim Financial Reporting (IAS 34) using accounting
policies consistent with the International Financial Reporting Standards
(IFRS) issued by the International Accounting Standards Board (IASB)
and interpretations of the International Financial Reporting
Interpretations Committee (IFRIC). |
|
|
|
These condensed consolidated interim financial statements
do not include all of the information required of a full annual financial
report and are intended to provide users with an update in relation to
events and transactions that are significant to an understanding of the
changes in financial position and performance of the Company since the end
of the last annual reporting period. It is therefore recommended that
these condensed consolidated interim financial statements be read in
conjunction with the most recent audited consolidated annual financial
statements of the Company for the year ended December 31, 2013, which are
available at www.sedar.com. |
|
|
|
These condensed consolidated interim financial statements
were approved by the Board of Directors on August 29,
2014. |
7
Sphere 3D Corporation |
Notes to the Condensed Consolidated Interim Financial
Statements |
June 30, 2014 and 2013 |
(Expressed in
Canadian Dollars) |
3. |
Significant Accounting Policies |
|
|
|
|
The accounting policies set out below have been applied
consistently to all periods presented in these financial statements as at
and for the periods ended June 30, 2014 and 2013, unless otherwise
indicated. |
|
|
|
|
The consolidated financial statements comprise the
accounts of the Company, and its controlled subsidiaries. The financial
statements of the wholly owned subsidiaries are included in the
consolidated financial statements from the date that control commences
until the date that control ceases. Consolidated financial statements are
prepared using uniform accounting policies for like transactions and other
events in similar circumstances. |
|
|
|
|
All transactions and balances between the Company and its
subsidiaries are eliminated on consolidation, including unrealized gains
and losses on transactions between companies. Unrealized gains arising
from transactions with equity accounted investees are eliminated against
the investment to the extent of the Companys interest in the investee.
Unrealized losses are eliminated in the same way as unrealized gains, but
only to the extent that there is no evidence of impairment. |
|
|
|
|
(a) |
Use of estimates and judgements |
|
|
|
|
|
The preparation of the financial statements in conformity
with IFRSs requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and the
reported amounts of assets, liabilities, income and expenses. Actual
results may differ from these estimates. |
|
|
|
|
|
Estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognized in the
period in which the estimates are revised and in any future periods
affected. |
|
|
|
|
|
Information about significant areas of estimation
uncertainty and critical judgements in applying accounting policies that
have the most significant effect on the amounts recognised in the
financial statements are noted below with further details of the
assumptions in the following notes: |
|
(i) |
Share-based payments |
|
|
|
|
|
When charges for share-based payments are based on the
equity instrument granted, the fair value is calculated at the date of the
award. The equity instruments are valued using Black-Scholes; inputs to
the model include assumptions on share price volatility, discount rates
and expected life outstanding. |
|
|
|
|
(ii) |
Investment in technology |
|
|
|
|
|
The recoverability of the investment in technology is
dependent on the future realization of cash flows from amounts
spent. |
|
|
|
|
(iii) |
Capital assets |
|
|
|
|
|
The useful lives of capital assets are estimated based on
the length of use of the assets by the Company. |
8
Sphere 3D Corporation |
Notes to the Condensed Consolidated Interim Financial
Statements |
June 30, 2014 and 2013 |
(Expressed in
Canadian Dollars) |
3. |
Significant Accounting Policies
(continued) |
|
(a) |
Use of estimates and judgements
(continued) |
|
|
|
|
|
|
(iv) |
Income taxes |
|
|
|
|
|
|
|
Tax interpretations, regulations and legislation in the
jurisdiction in which the Company operates are subject to change. As such,
income taxes are subject to measurement uncertainty. Deferred income tax
assets are assessed by management at the end of the reporting period to
determine the likelihood that they will be realised from future taxable
earnings. |
|
|
|
|
|
|
(v) |
Convertible debenture |
|
|
|
|
|
|
|
The convertible debenture is a hybrid instrument that was
bifurcated between its liability and derivative components. The derivative
liability was valued using Black-Scholes; inputs to the model include
assumptions on share price volatility, discount rates and expected life
outstanding. |
|
|
|
|
|
|
|
The derivative liability is revalued each quarter using
Black-Scholes; inputs to the model include assumptions on share price
volatility, discount rates and expected life outstanding. |
|
|
|
|
|
|
(vi) |
Contingent liability |
|
|
|
|
|
|
|
The contingent liability was valued using assumptions on
revenue and discount rates. |
|
(b) |
Foreign currency |
|
|
|
|
|
|
The functional currency of the Company and its
subsidiaries is the Canadian dollar. Transactions in foreign currencies
are translated to the functional currency of the Company at exchange rates
at the dates of the transactions. Monetary assets and liabilities
denominated in foreign currencies are translated to Canadian dollars at
the period end exchange rate. Non-monetary assets and liabilities
denominated in foreign currencies that are measured at fair value are
retranslated to the functional currency at the exchange rate at the date
that the fair value was determined. Non-monetary items that are measured
in terms of historical cost in a foreign currency are translated using the
exchange rate at the date of the transaction. |
|
|
|
|
|
(c) |
Financial instruments |
|
|
|
|
|
|
(i) |
Non-derivative financial assets |
|
|
|
|
|
|
|
Non-derivative financial instruments comprise of cash and
cash equivalents, investments, loans, amounts receivable and trade and
other payables. Non-derivatives financial instruments are recognised
initially at the fair value plus, for instruments not at fair value
through profit and loss, any directly attributable transaction costs.
Subsequent to initial recognition non-derivative financial instruments are
measured as described below. |
9
Sphere 3D Corporation |
Notes to the Condensed Consolidated Interim Financial
Statements |
June 30, 2014 and 2013 |
(Expressed in
Canadian Dollars) |
3. |
Significant Accounting Policies
(continued) |
|
(c) |
Financial instruments (continued) |
|
|
|
|
|
|
(ii) |
Cash, cash equivalents and investments |
|
|
|
|
|
|
|
Cash and cash equivalents comprise cash on hand, term
deposits with banks, other short-term highly liquid investments with
original maturities of six months or less. Bank overdrafts that are
repayable on demand and form an integral part of the Companys cash
management, whereby management has the ability and intent to net bank
overdrafts against cash, are included as a component of cash and cash
equivalents for the purpose of the statement of cash flows. |
|
|
|
|
|
|
|
Investments comprise highly liquid investments, in the
form of guaranteed investment certificates, with maturities greater than
six months but with cashable features. Investments have been used to
secure the Companys credit rating and are therefore separated from cash
and cash equivalents for the purpose of the statement of cash
flows. |
|
|
|
|
|
|
(iii) |
Financial assets at fair value through profit or
loss |
|
|
|
|
|
|
|
An instrument is classified at fair value through profit
or loss if it is held or is designated as such upon initial recognition.
Financial instruments are designated at fair value through profit or loss
if the Company manages such investments and makes purchase and sale
decisions based on their fair value in accordance with the Companys
documented risk management or investment strategy. Upon initial
recognition the transaction costs are recognized in profit or loss when
incurred. Financial instruments at fair value through profit or loss are
measured at fair value, and changes therein are recognized in profit or
loss. The Company has designated cash and cash equivalents, investments,
contingent liability and derivative liability at fair value. |
|
|
|
|
|
|
(iv) |
Other |
|
|
|
|
|
|
|
Other non-derivative financial instruments, such as
amounts receivable, loans and trade and other payables and convertible
debentures, are measured at amortized cost using the effective interest
method, less any impairment losses. |
|
(d) |
Convertible debenture |
|
|
|
|
|
The proceeds received on issue of the Companys
convertible debenture have been recorded as a liability included in
borrowings on the consolidated statement of financial position. The
convertible debenture contains an embedded derivative. The Company values
the embedded derivative using an option pricing model and the residual
amount is allocated to the debenture liability. |
|
|
|
|
|
The derivative is revalued at each reporting date with
any gain or loss flowing through profit of loss. On conversion of the
convertible debt to common shares the value of the derivative is taken
into share capital. |
10
Sphere 3D Corporation |
Notes to the Condensed Consolidated Interim Financial
Statements |
June 30, 2014 and 2013 |
(Expressed in
Canadian Dollars) |
3. |
Significant Accounting Policies
(continued) |
|
(e) |
Capital assets |
|
|
|
|
|
|
(i) |
Recognition and measurement |
|
|
|
|
|
|
|
Items of property and equipment are measured at cost less
accumulated amortization and accumulated impairment losses. Costs include
expenditure that is directly attributable to the acquisition of the
asset. |
|
|
|
|
|
|
|
When parts of an item of property and equipment have
different useful lives, they are accounted for as separate items (major
components) of property, plant and equipment. |
|
|
|
|
|
|
|
Gains and losses on disposal of an item of property,
plant and equipment are determined by comparing the proceeds from disposal
with the carrying amount of property and equipment, and are recognized net
within other income in profit or loss. |
|
|
|
|
|
|
(ii) |
Subsequent costs |
|
|
|
|
|
|
|
The cost of replacing a part of an item of property and
equipment is recognized in the carrying amount of the item if it is
probable that the future economic benefits embodied within the part will
flow to the Company, and its cost can be measured reliably. The carrying
amount of the replaced part is derecognized. The costs of the day-to-day
servicing of property and equipment are recognized in profit (loss) as
incurred. |
|
|
|
|
|
|
(iii) |
Amortization |
|
|
|
|
|
|
|
Amortization is calculated as the cost of the asset less
its residual value. |
|
|
|
|
|
|
|
Amortization is recognized in profit or loss on a
straight-line basis over the estimated useful lives of each part of an
item of property and equipment, since this most closely reflects the
expected pattern of consumption of the future economic benefits embodied
in the assets. |
|
|
|
|
|
|
|
The estimated useful lives for the current and
comparative periods are as follows: |
|
|
Computer hardware |
- 3 years |
|
|
Furniture and fixtures |
- 5 years |
|
|
Marketing and Web Development |
- 2 years |
|
|
Leasehold improvements |
- over the term of the lease
|
This most closely reflects the
expected pattern of consumption of the future economic benefits embodied in the
asset.
Estimates for amortization methods,
useful lives and residual values are reviewed at each reporting period-end and
adjusted if appropriate.
11
Sphere 3D Corporation |
Notes to the Condensed Consolidated Interim Financial
Statements |
June 30, 2014 and 2013 |
(Expressed in
Canadian Dollars) |
3. |
Significant Accounting Policies
(continued) |
|
|
|
|
(f) |
Inventory |
|
|
|
|
|
Inventories are measured at the lower of cost and net
realizable value. The cost of inventories is based on the first-in
first-out principle, and includes expenditure incurred in acquiring the
inventories, production or conversion costs and other costs incurred in
bringing them to their existing location and condition. Net realizable
value is the estimated selling price in the ordinary course of business,
less the estimated cost of completion and selling expenses. |
|
|
|
|
(g) |
Trade and other payables |
|
|
|
|
|
Trade and other payables are stated at cost. |
|
|
|
|
(h) |
Statement of financial position |
|
|
|
|
|
Assets and liabilities expected to be realised in, or
intended for sale or consumption in, the Companys normal operating cycle,
usually equal to 12 months, are recorded as current assets or
liabilities. |
|
|
|
|
(i) |
Statement of cash flows |
|
|
|
|
|
The Company prepares its Statement of Cash Flows using
the indirect method. |
|
|
|
|
(j) |
Impairment |
|
(i) |
Financial assets |
|
|
|
|
|
A financial asset is assessed at each reporting date to
determine whether there is any objective evidence that it is impaired. A
financial asset is considered to be impaired if objective evidence
indicates that one or more events have had a negative effect on the
estimated future cash flows of that asset. |
|
|
|
|
|
An impairment loss in respect of a financial asset
measured at amortized cost is calculated as the difference between its
carrying amount, and the present value of the estimated future cash flows
discounted at the original effective interest rate. |
|
|
|
|
|
Individually significant financial assets are tested for
impairment on an individual basis. The remaining financial assets are
assessed collectively in groups that share similar credit risk
characteristics. |
|
|
|
|
|
All impairment losses are recognized in the statement of
comprehensive loss. |
|
|
|
|
|
An impairment loss is reversed if the reversal can be
related objectively to an event occurring after the impairment loss was
recognized. For financial assets measured at amortized cost the reversal
is recognized in the statement of comprehensive
loss. |
12
Sphere 3D Corporation |
Notes to the Condensed Consolidated Interim Financial
Statements |
June 30, 2014 and 2013 |
(Expressed in
Canadian Dollars) |
3. |
Significant Accounting Policies
(continued) |
|
(j) |
Impairment (continued) |
|
|
|
|
|
|
(ii) |
Non-financial assets |
|
|
|
|
|
|
|
The carrying amounts of the Companys non-financial
assets, other than deferred tax assets are reviewed at each reporting date
to determine whether there is any indication of impairment. If any such
indication exists, then the assets recoverable amount is
estimated. |
|
|
|
|
|
|
|
For the purpose of impairment testing, assets that cannot
be tested individually are grouped together into the smallest group of
assets that generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets or groups of assets
referred to as a cash generating unit (CGU). The recoverable amount of an
asset or a CGU is the greater of its value in use and its fair value less
cost to disposal. |
|
|
|
|
|
|
|
In assessing value in use, the estimated future cash
flows are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money and
the risks specific to the asset. Value in use is generally computed by
reference to the present value of the future cash flows expected to be
derived from sales. |
|
|
|
|
|
|
(iii) |
Non-financial assets (Contd) |
|
|
|
|
|
|
|
Fair value less costs of disposal to sell is determined
as the amount that would be obtained from the sale of a CGU in an arms
length transaction between knowledgeable and willing parties. The fair
value less cost of disposal is generally determined as the net present
value of the estimated future cash flows expected to arise from the
continued use of the CGU, including any expansion prospects, and its
eventual disposal, using assumptions that an independent market
participant may take into account. These cash flows are discounted by an
appropriate discount rate which would be applied by such a market
participant to arrive at a net present value of the CGU. |
|
|
|
|
|
|
|
An impairment loss is recognized if the carrying amount
of an asset or its CGU exceeds its estimated recoverable amount.
Impairment losses are recognized in the statement of comprehensive loss.
Impairment losses recognized in respect of CGUs are allocated first to
reduce the carrying amount of the other assets in the unit (group of
units) on a pro rata basis. |
|
|
|
|
|
|
|
An impairment loss in respect of other assets is assessed
at each reporting date for any indications that the loss has decreased or
no longer exists. An impairment loss is reversed if there has been a
change in the estimates used to determine the recoverable amount. An
impairment loss is reversed only to the extent that the assets carrying
amount does not exceed the carrying amount that would have been
determined, net of depletion and depreciation or amortization, if no
impairment loss had been recognized. |
13
Sphere 3D Corporation |
Notes to the Condensed Consolidated Interim Financial
Statements |
June 30, 2014 and 2013 |
(Expressed in
Canadian Dollars) |
3. |
Significant Accounting Policies
(continued) |
|
(k) |
Intangible assets |
|
|
|
|
|
|
(i) |
Patents and trademarks |
|
|
|
|
|
|
|
Costs to obtain patents and trademarks are capitalized
and are amortized to operations on a straight-line basis over the
underlying term of the assets, which is 20 years, commencing upon the
registration or acquisition of the patent or trademark. |
|
|
|
|
|
|
(ii) |
Investment in Technology |
|
|
|
|
|
|
|
The investment in technology consists of consideration
paid for the acquisition of the technology. Amortization commences with
the successful commercial production or use of the product or process.
These costs are being amortized over a period of four years from
commencement of commercial use. |
|
|
|
|
|
|
(iii) |
Research and Development Costs |
|
|
|
|
|
|
|
Research costs are charged to income when
incurred. |
|
|
|
|
|
|
|
Development costs are capitalized as intangible assets
when the Company can demonstrate that the technical feasibility of the
project has been established; the Company intends to complete the asset
for use or sale and has the ability to do so; the asset can generate
probable future economic benefits; the technical and financial resources
are available to complete the development; and the Company can reliably
measure the expenditure attributable to the intangible asset during its
development. As of July, 2013, the Company has met the requirements for
deferral of these expenses and has commenced capitalization of development
costs incurred relating to its investment in technology. Amortization
commences with the successful commercial production or use of the product
or process. These costs are amortized over a period of four years from
commencement of commercial use. |
|
|
|
|
|
|
|
Investment Tax Credits ("ITCs") earned as a result of
incurring Scientific Research and Experimental Development ("SRED")
expenditures are recorded as a reduction of the related current period
expense, the related deferred development costs or related capital assets.
Management records ITC's when there is reasonable assurance of collection.
To date, management has not recorded any amounts related to
ITCs. |
|
(l) |
Share capital common shares |
|
|
|
|
|
Common shares are classified as equity. Incremental costs
directly attributable to the issue of common shares and share options are
recognized as a deduction from equity, net of any tax
effects. |
14
Sphere 3D Corporation |
Notes to the Condensed Consolidated Interim Financial
Statements |
June 30, 2014 and 2013 |
(Expressed in
Canadian Dollars) |
3. |
Significant Accounting Policies
(continued) |
|
|
|
|
(m) |
Share based payments |
|
|
|
|
|
The grant date fair value of options awarded to
employees, directors, and service providers is measured using the
Black-Scholes option pricing model and recognised in the statement of
comprehensive loss, with corresponding increase in contributed surplus
over the vesting period. A forfeiture rate is estimated on the grant date
and is adjusted to reflect the actual number of options that vest. Upon
exercise of the option, consideration received, together with the amount
previously recognised in contributed surplus, is recorded as an increase
to share capital. |
|
|
|
|
|
Equity-settled share-based payment transactions with
parties other than employees are measured at the fair value of the goods
or services received, except where that fair value cannot be estimated
reliably, in which case they are measured at the fair value of the equity
instruments granted, measured at the date the entity obtains the goods or
the counterparty renders the service. |
|
|
|
|
(n) |
Revenue |
|
|
|
|
|
Revenue from sales of products is recognized when
persuasive evidence of an arrangement exists, the price is fixed or
determinable, collectability is reasonably assured and delivery has
occurred. Under this policy, revenue on direct product sales is recognized
upon shipment of products to customers. These customers are not entitled
to any specific right of return or price protection, except for any
defective product that may be returned under the Company's warranty
policy. Generally, title and risk of loss transfer to the customer when
the product leaves the Company's dock. |
|
|
|
|
|
Warranty and Extended Services |
|
|
|
|
|
The Company records a provision for estimated future
warranty costs for both return-to-factory and on-site warranties. If
future actual costs to repair were to differ significantly from estimates,
the impact of these unforeseen costs or cost reductions would be recorded
in subsequent periods. Separately priced extended warranties and service
contracts are offered for sale to customers on all product lines. Extended
warranty and service contract revenue is deferred and recognized as
service revenue, over the period of the service agreement. |
|
|
|
|
(o) |
Finance income and expenses |
|
|
|
|
|
Finance expenses comprise interest expense on borrowings,
changes in the fair value of financial assets at fair value through profit
or loss and impairment losses recognized on financial assets. |
|
|
|
|
|
Interest income is recognised as it accrues in profit or
loss, using the effective interest method. |
|
|
|
|
|
Foreign currency gain and losses, reported under finance
income and expenses, are reported on a net basis. |
15
Sphere 3D Corporation |
Notes to the Condensed Consolidated Interim Financial
Statements |
June 30, 2014 and 2013 |
(Expressed in
Canadian Dollars) |
3. |
Significant Accounting Policies
(continued) |
|
|
|
|
(p) |
Income taxes |
|
|
|
|
|
Income tax expense comprises current and deferred tax.
Income tax expense is recognized in profit or loss except to the extent
that it relates to items recognized directly in equity. |
|
|
|
|
|
Current tax is the expected tax payable on the taxable
income for the year, using tax rates enacted or substantively enacted at
the reporting date, and any adjustment to tax payable in respect of
previous years. |
|
|
|
|
|
Deferred tax is recognized in respect of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognised on the initial recognition of assets or
liabilities in a transaction that is not a business combination. Deferred
tax is measured at the tax rates that are expected to be applied to
temporary differences when they reverse, based on the laws that have been
enacted or substantively enacted by the reporting date. Deferred tax
assets and liabilities are offset if there is a legally enforceable right
to offset, and they relate to income taxes levied by the same tax
authority on the same taxable entity, or on different tax entities, but
they intend to settle current tax liabilities and assets on a net basis or
their tax assets and liabilities will be realised
simultaneously. |
|
|
|
|
|
A deferred tax asset is recognized to the extent that it
is probable that future taxable profits |
|
|
|
|
|
will be available against which they can be utilized.
Deferred tax assets are reviewed at each reporting date and are reduced to
the extent that it is no longer probable that the related tax benefit will
be realised. |
|
|
|
|
(q) |
Loss per share |
|
|
|
|
|
Basic earnings per share is calculated by dividing the
profit or loss attributable to common shareholders of the Company by the
weighted average number of common shares outstanding during the period.
Diluted earnings per share is determined by adjusting the profit or loss
attributable to common shareholders and the weighted average number of
common shares outstanding for the effects of dilutive instruments such as
options and warrants. The dilutive effect on earnings per share is
recognised on the use of the proceeds that could be obtained upon exercise
of options, warrants and similar instruments. It assumes that the proceeds
would be used to purchase common shares at the average market price during
the period. At year end, the effect of stock options, warrants and
conversion feature on debt was anti-dilutive. |
|
|
|
|
(r) |
Provisions |
|
|
|
|
|
A provision is recognized if, as a result of a past
event, the Company has a present legal or constructive obligation that can
be estimated reliably, and it is probable that an outflow of economic
benefits will be required to settle the obligation. Provisions are
determined by discounting the expected future cash flows at a pre-tax rate
that reflects current market assessments of the time value of money and
the risks specific to the liability. Provisions are not recognised for
future operating losses. |
16
Sphere 3D Corporation |
Notes to the Condensed Consolidated Interim Financial
Statements |
June 30, 2014 and 2013 |
(Expressed in
Canadian Dollars) |
3. |
Significant Accounting Policies
(continued) |
|
|
|
|
(s) |
Contingent earn-out |
|
|
|
|
|
A contingent liability is a possible obligation that
arises from past events and of which the existence will be confirmed only
by the occurrence or non-occurrence of one or more uncertain future events
not wholly within the control of the Company; or a present obligation that
arises from past events (and therefore exists), but is not recognized
because it is not probable that a transfer or use of assets, provision of
services or any other transfer of economic benefits will be required to
settle the obligation, or the amount of the obligation cannot be estimated
reliably. |
|
|
|
|
(t) |
Change in accounting policies |
|
|
|
|
|
Certain pronouncements were issued by the IASB or the
IFRIC that are mandatory for accounting periods after December 31, 2013.
Many are not applicable to, or do not have a significant impact on, the
Corporation and have been excluded. |
|
(i) |
IAS 32 Financial Instruments |
|
|
|
|
|
IAS 32 Financial Instruments: Presentation was amended by
the IASB in December 2011. Offsetting Financial Assets and Financial
Liabilities amendment addresses inconsistencies identified in applying
some of the offsetting criteria. At January 1, 2014, the Company adopted
this pronouncement and there was no material impact on the Companys
financial statements. |
|
|
|
|
(ii) |
IAS 36 Impairment of Assets |
|
|
|
|
|
IAS 36 Impairment of Assets was amended by the IASB in
June 2013. Recoverable Amount Disclosures for Non-Financial Assets
amendment modifies certain disclosure requirements about the recoverable
amount of impaired assets if that amount is based on fair value less costs
of disposal. The amendment is effective for annual periods beginning on or
after January 1, 2014. Earlier application is permitted when the entity
has already applied IFRS 13. At January 1, 2014, the Company adopted this
pronouncement and there was no material impact on the Companys financial
statements. |
17
Sphere 3D Corporation |
Notes to the Condensed Consolidated Interim Financial
Statements |
June 30, 2014 and 2013 |
(Expressed in
Canadian Dollars) |
3. |
Significant Accounting Policies
(continued) |
|
|
|
|
(u) |
Future accounting pronouncements |
|
|
|
|
|
The accounting pronouncements detailed in this note have
been issued but are not yet effective. The Company has not early adopted
any of these standards and is currently evaluating the impact, if any,
that these standards might have on its consolidated financial
statements. |
|
i) |
IFRS 9 Financial Instruments |
|
|
|
|
|
IFRS 9 was issued by the IASB in October 2010 and will
replace IAS 39 - Financial Instruments: Recognition and Measurement (IAS
39). IFRS 9 uses a single approach to determine whether a financial asset
is measured at amortized cost or fair value, replacing the multiple rules
in IAS 39. The approach in IFRS 9 is based on how an entity manages its
financial instruments in the context of its business model and the
contractual cash flow characteristics of the financial assets. Most of the
requirements in IAS 39 for classification and measurement of financial
liabilities were carried forward unchanged to IFRS 9. The new standard
also requires a single impairment method to be used, replacing the
multiple impairment methods in IAS 39. |
|
|
|
|
|
The effective date of IFRS 9 was deferred to years
beginning on or after January 1, 2018. Earlier application is
permitted. |
4. |
Determination of Fair Value |
|
|
|
A number of the Companys accounting policies and
disclosures require the determination of fair value, for both financial
and non-financial assets and liabilities. Fair values have been determined
for measurement and/or disclosure purposes based on the following methods.
When applicable, further information about the assumptions made in
determining fair values is disclosed in the notes specific to that asset
or liability. |
|
(a) |
The fair value of cash and cash equivalents, investments
and trade and other payables is estimated as the present value of future
cash flows, discounted at the market rate of interest at the reporting
date. At June 30, 2014 and June 30, 2013, the fair value of these balances
approximated their carrying value due to their short term to
maturity. |
|
|
|
|
(b) |
The fair value of stock options and warrants are measured
using a Black-Scholes, option pricing model. Measurement inputs include
share price on measurement date, exercise price of the instrument,
expected volatility (based on weighted average historic volatility
adjusted for changes expected due to publicly available information),
weighted average expected life of the instruments (based on historical
experience and general option and warrant holder behaviour) and the
risk-free interest rate (based on government bonds). |
|
|
|
|
|
The carrying value of amounts receivable, loans and trade
and other payables included in the financial position approximate fair
value due to the short term nature of those
instruments. |
18
Sphere 3D Corporation |
Notes to the Condensed Consolidated Interim Financial
Statements |
June 30, 2014 and 2013 |
(Expressed in
Canadian Dollars) |
4. |
Determination of Fair Value
(continued) |
The following tables provide fair
value measurement information for financial assets and liabilities measured at
fair value on the statement of financial position as of June 30, 2014 and
December 31, 2013.
|
|
|
|
|
|
|
|
|
Fair value measurements using |
|
|
|
|
|
|
|
|
|
|
Quoted |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
|
|
|
prices in |
|
|
other |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Active |
|
|
observable |
|
|
unobservable |
|
|
June 30, 2014 |
|
Carrying |
|
|
|
|
|
Market |
|
|
inputs |
|
|
inputs |
|
|
|
|
amount |
|
|
Fair
value |
|
|
(Level
1) |
|
|
(Level
2) |
|
|
(Level
3) |
|
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
8,782,627 |
|
$ |
8,782,627 |
|
$ |
8,782,627 |
|
$ |
- |
|
$ |
- |
|
|
Investments |
$ |
357,522 |
|
$ |
357,522 |
|
$ |
357,522 |
|
$ |
- |
|
$ |
- |
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability |
$ |
489,663 |
|
$ |
489,663 |
|
$ |
- |
|
$ |
489,663 |
|
$ |
- |
|
|
Contingent earn-out |
$ |
3,891,534 |
|
$ |
3,891,534 |
|
$ |
- |
|
$ |
- |
|
$ |
3,891,534 |
|
|
|
|
|
|
|
|
|
|
Fair
value measurements using |
|
|
|
|
|
|
|
|
|
|
Quoted |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
|
|
|
prices in |
|
|
other |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Active |
|
|
observable |
|
|
unobservable |
|
|
December 31, |
|
Carrying |
|
|
|
|
|
Market |
|
|
inputs |
|
|
inputs |
|
|
2013 |
|
amount |
|
|
Fair
value |
|
|
(Level
1) |
|
|
(Level
2) |
|
|
(Level
3) |
|
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
5,550,788 |
|
$ |
5,550,788 |
|
$ |
5,550,788 |
|
$ |
- |
|
$ |
- |
|
|
Investments |
$ |
312,823 |
|
$ |
312,823 |
|
$ |
312,823 |
|
$ |
- |
|
$ |
- |
|
Level 1 fair value measurements are
based on unadjusted quoted market prices.
Level 2 fair value measurements are
based on valuation models and techniques where the significant inputs are
derived from quoted indices.
Level 3 fair value measurements are
those with inputs for the asset or liability that are not based on observable
market data.
19
Sphere 3D Corporation |
Notes to the Condensed Consolidated Interim Financial
Statements |
June 30, 2014 and 2013 |
(Expressed in
Canadian Dollars) |
4. |
Determination of Fair Value
(continued) |
The Company values financial
instruments included in Level 3 on a quarterly basis. The significant
unobservable inputs used in the fair value measurement of the Level 3
instruments as at June 30, 2014 are as follows:
Contingent earn-out
|
|
|
March 21, 2014 |
|
|
March 31, 2014 |
|
|
June 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earn out revenue estimation
|
$ |
12,500,000 |
|
$ |
12,500,000 |
|
$ |
12,500,000 |
|
|
Discount rate |
|
35% |
|
|
35% |
|
|
35% |
|
|
Effect on condensed
consolidated interim |
|
|
|
|
|
|
|
|
|
|
statement of comprehensive loss |
$ |
- |
|
$ |
- |
|
$ |
- |
|
If the discount rate were changed to
30% or 40%, the fair value of the contingent earn-out would increase by $157,025
or decrease by $145,429 respectively. Management believes that reasonably
possible changes to other unobservable inputs would not result in a significant
change in the estimated fair value.
5. |
Prepaid and sundry
assets |
|
|
|
June 30 |
|
|
December 31 |
|
|
|
|
2014 |
|
|
2013
|
|
|
Services and consulting
prepayments and deposits |
$ |
243,782 |
|
$ |
- |
|
|
Professional fees |
|
111,070 |
|
|
- |
|
|
Insurance costs |
|
17,012 |
|
|
28,909 |
|
|
Facilities costs |
|
14,752 |
|
|
9,422 |
|
|
Other |
|
48,731 |
|
|
18,696 |
|
|
|
$ |
435,347 |
|
$ |
142,361 |
|
6. |
Promissory Notes |
|
|
|
On May 15, 2013, the Company agreed to loan Overland
Storage Inc. (Overland) $5,000,000 US to support its working capital
requirements. The loan bears interest at the Wall Street Journal published
prime rate plus two percent per annum payable semi-annually in arrears on
November 15 and May 15 of each year. The loan is secured by a Promissory
Note, repayable on May 15, 2018, and a security agreement, dated May 15,
2014, providing subordinated collateral security over Overlands inventory
and holdings of common shares of Sphere 3D. |
20
Sphere 3D Corporation |
Notes to the Condensed Consolidated Interim Financial
Statements |
June 30, 2014 and 2013 |
(Expressed in
Canadian Dollars) |
|
Cost |
|
Computer |
|
|
Furniture |
|
|
Marketing & |
|
|
Leaseholds |
|
|
Total |
|
|
|
|
Hardware |
|
|
and |
|
|
Web |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixtures |
|
|
Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012
|
$ |
509,684 |
|
$ |
6,463 |
|
$ |
- |
|
$ |
78,894 |
|
$ |
595,041 |
|
|
Additions |
|
148,895 |
|
|
- |
|
|
104,220 |
|
|
- |
|
|
253,115 |
|
|
Disposals |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013
|
$ |
658,579 |
|
$ |
6,463 |
|
$ |
104,220 |
|
$ |
78,894 |
|
$ |
848,156 |
|
|
Additions |
|
273,230 |
|
|
28,171 |
|
|
15,096 |
|
|
3,243 |
|
|
319,740 |
|
|
Disposals |
|
(4,056 |
) |
|
- |
|
|
- |
|
|
- |
|
|
(4,056 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2014 |
$ |
927,753 |
|
$ |
34,634 |
|
$ |
119,316 |
|
$ |
82,137 |
|
$ |
1,163,840 |
|
|
Accumulated Depreciation |
|
Computer |
|
|
Furniture |
|
|
Marketing & |
|
|
Leaseholds |
|
|
Total |
|
|
|
|
Hardware |
|
|
and |
|
|
Web |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixtures |
|
|
Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012
|
$ |
215,091 |
|
$ |
949 |
|
$ |
- |
|
$ |
20,874 |
|
$ |
236,914 |
|
|
Additions |
|
183,977 |
|
|
1,293 |
|
|
21,075 |
|
|
15,778 |
|
|
222,123 |
|
|
Disposals |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013
|
$ |
399,068 |
|
$ |
2,242 |
|
$ |
21,075 |
|
$ |
36,652 |
|
$ |
459,037 |
|
|
Additions |
|
128,986 |
|
|
2,527 |
|
|
28,571 |
|
|
8,122 |
|
|
168,206 |
|
|
Disposals |
|
(676 |
) |
|
- |
|
|
- |
|
|
- |
|
|
(676 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2014 |
$ |
527,378 |
|
$ |
4,769 |
|
$ |
49,646 |
|
$ |
44,774 |
|
$ |
626,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value as at December 31, 2013 |
$ |
259,511 |
|
$ |
4,221 |
|
$ |
83,145 |
|
$ |
42,242 |
|
$ |
389,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value as at June 30, 2014 |
$ |
400,375 |
|
$ |
29,865 |
|
$ |
69,670 |
|
$ |
37,363 |
|
$ |
537,273 |
|
21
Sphere 3D Corporation |
Notes to the Condensed Consolidated Interim Financial
Statements |
June 30, 2014 and 2013 |
(Expressed in
Canadian Dollars) |
|
(i) |
Emulation and virtualization technology |
|
|
|
|
|
On December 31, 2010, the Company acquired all rights and
assets related to the emulation and virtualization technology from
Promotion Depot Inc., in a non-arms length transaction, in exchange for
1,000,000 shares of the Companys common stock. Since the fair value of
the assets received are not readily determinable, the investment was
valued based on the $695,000 fair value of the shares received by
Promotion Depot Inc. |
|
|
|
|
|
As of July 2013, the Company met the requirements for the
deferral of development costs, under IFRS, and has commenced capitalizing
the development costs incurred during the period. The technology acquired
and developed achieved the beginning of commercial level of sales during
the quarter ended June 30, 2014. As such, amortization of this asset
commenced effective April 1, 2014. |
|
|
|
|
(ii) |
Virtual Desktop Implementation (VDI)
technology |
|
|
|
|
|
On March 21, 2014, the Company closed an Asset Purchase
Agreement to acquire the VDI technology, including patents, trademarks and
certain other intellectual property of V3 Systems, Inc. |
|
|
|
|
|
At closing, the Company paid a purchase price of
$11,829,505, in the form of USD$4M in cash and 1,089,867 shares of common
stock. |
|
|
|
|
|
In addition, the Company shall pay an earn-out (the
Earn-Out), based on achieving certain milestones in revenue and gross
margin, related to the VDI technology, of up to a further U.S. $5.0
million, payable at the discretion of Sphere 3D in cash or shares (up to a
maximum of 1,051,414 common shares), to be priced at a 20-day weighted
average price calculated at the time(s) the Earn-Out is realized. The
Earn-Out is based on a sliding scale of revenue of the VDI technology
(subject to minimum margin realization), subject to a maximum payment of
U.S. $5.0 million upon earn-out revenue of U.S. $12.5 million. The
Earn-Out was valued on a discounted cash flow basis using a discount rate
of 35%. |
|
|
|
|
|
The fair value of the consideration issued for the VDI
technology is as follows: |
|
Cash consideration paid |
$ |
4,472,446 |
|
|
Cash consideration owing current holdback |
|
223,880 |
|
|
1,089,867 common shares valued at $6.545
per share |
|
7,133,179 |
|
|
Fair value of
Earn-Out |
|
4,082,645 |
|
|
|
|
|
|
|
Total consideration |
|
15,912,150 |
|
|
|
|
|
|
|
Cost of
acquisition |
|
145,555 |
|
|
|
|
|
|
|
Allocated to VDI
technology |
$ |
16,057,705 |
|
22
Sphere 3D Corporation |
Notes to the Condensed Consolidated Interim Financial
Statements |
June 30, 2014 and 2013 |
(Expressed in
Canadian Dollars) |
8. |
Intangible assets (continued) |
|
|
|
|
(iii) |
Patents |
|
|
|
|
|
During the year ended December 31, 2013, the Company
filed 6 patents based on its technology, in addition to the 3 preliminary
patents, filed on January 16, 2012, based on the technology acquired in
the investment in technology. |
|
|
|
Emulation and |
|
|
|
|
|
|
|
|
|
|
|
Cost |
|
virtualization |
|
|
VDI |
|
|
|
|
|
|
|
|
|
|
technology |
|
|
technology |
|
|
Patents |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012 |
$ |
695,000 |
|
$ |
- |
|
$ |
25,000 |
|
$ |
720,000 |
|
|
Additions |
|
885,250 |
|
|
- |
|
|
67,571 |
|
|
952,821 |
|
|
Disposals |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
Balance at December 31, 2013 |
|
1,580,250 |
|
|
- |
|
|
92,571 |
|
|
1,672,821 |
|
|
Additions |
|
1,260,906 |
|
|
16,057,705 |
|
|
43,429 |
|
|
17,362,040 |
|
|
Disposals |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June
30, 2014 |
$ |
2,841,156 |
|
$ |
16,057,705 |
|
$ |
136,000 |
|
$ |
19,034,861 |
|
|
|
|
Emulation and |
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization |
|
virtualization |
|
|
VDI |
|
|
|
|
|
|
|
|
|
|
technology |
|
|
technology |
|
|
Patents |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012 |
$ |
- |
|
$ |
- |
|
$ |
1,250 |
|
$ |
1,250 |
|
|
Additions |
|
- |
|
|
- |
|
|
3,492 |
|
|
3,492 |
|
|
Disposals |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
Balance at December 31, 2013 |
$ |
- |
|
$ |
- |
|
$ |
4,742 |
|
$ |
4,742 |
|
|
Additions |
|
142,389 |
|
|
1,003,235 |
|
|
2,688 |
|
|
1,148,312 |
|
|
Disposals |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June
30, 2014 |
$ |
142,389 |
|
$ |
1,003,235 |
|
$ |
7,430 |
|
$ |
1,153,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value as
at December 31, 2013 |
$ |
1,580,250 |
|
$ |
- |
|
$ |
87,829 |
|
$ |
1,668,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value as
at June 30, 2014 |
$ |
2,698,767 |
|
$ |
15,054,470 |
|
$ |
128,570 |
|
$ |
17,881,807 |
|
23
Sphere 3D Corporation |
Notes to the Condensed Consolidated Interim Financial
Statements |
June 30, 2014 and 2013 |
(Expressed in
Canadian Dollars) |
9. |
Trade and other
payables |
|
|
|
June 30 |
|
|
December 31 |
|
|
|
|
2014 |
|
|
2013
|
|
|
Trade payables |
$ |
790,974 |
|
$ |
161,337 |
|
|
Non-trade payables and accrued expenses |
|
|
|
|
|
|
|
Salaries and
consulting |
|
214,599 |
|
|
279,162 |
|
|
Legal and audit |
|
429,035 |
|
|
37,783 |
|
|
Accrued warranty
costs |
|
196,126 |
|
|
- |
|
|
Interest on debenture financing
|
|
122,722 |
|
|
- |
|
|
Other |
|
68,293 |
|
|
- |
|
|
|
$ |
1,821,749 |
|
$ |
478,282 |
|
10. |
Convertible debenture |
|
|
|
On March 21, 2014, the Company issued a senior secured
convertible debenture for USD$5,000,000. Simple interest is payable, in
cash or stock, at the Companys discretion, semi-annually at an annual
rate of 8%. The note is convertible into common shares of the Company, at
any time, at the option of the holders, at a conversion rate of USD$7.50
per share. |
|
|
|
The Company has the option, up to March 21, 2015, and
upon ten days notice, to repay the debenture at 120% of the outstanding
principal and interest and the option, from March 21, 2015 to March 21,
2016, to repay the debenture at 125% of the outstanding principal and
interest. In addition, the Company has the right to force the conversion
of the debenture at any time that the weighted average price of the
Companys common stock for ten consecutive days has exceeded
USD$11.25. |
|
|
|
The note is secured by a general security interest in all
of the assets of the Company. Any unconverted principal and accrued
interest balance is payable at maturity, on March 21, 2018. |
|
|
|
The debenture represents a hybrid instrument that needs
to be bifurcated between its liability and derivative components. The
derivative was calculated using the Black Scholes pricing model with the
following inputs: (I) dividend yield of 0%; (II) expected volatility of
97%; (III) a risk free interest rate of 1.71% (IV) an expected life of 4
years; (V) an exercise price of $8.40 for the call and an exercise price
of $12.60 for the put and (VI) a share price of $7.05. The residual was
allocated to the debenture host contract portion. |
|
|
|
As at June 30, 2014, the derivative was revalued using
the Black Scholes pricing model with the following inputs: (I) dividend
yield of 0%; (II) expected volatility of 97%; (III) a risk free interest
rate of 1.71% (IV) an expected life of 3.75 years; (V) an exercise price
of $8.00 for the call and an exercise price of $12.00 for the put and (VI)
a share price of $10.84 for a value of $489,663. The change in value of
$164,144 has been recorded as an unrealized loss on derivative liability
in the condensed consolidated statements of comprehensive
loss. |
24
Sphere 3D Corporation |
Notes to the Condensed Consolidated Interim Financial
Statements |
June 30, 2014 and 2013 |
(Expressed in
Canadian Dollars) |
10. |
Convertible debenture (continued) |
|
|
|
The allocation of the liability and the derivative
portion of the debenture as at June 30, 2014 are as
follows: |
|
|
|
Debenture |
|
|
Derivative |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at December 31,
2013 |
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
Debenture proceeds |
|
5,597,000 |
|
|
- |
|
|
5,597,000 |
|
|
Derivative liability |
|
(325,519 |
) |
|
325,519 |
|
|
- |
|
|
Cumulative gain on derivative liability |
|
- |
|
|
164,144 |
|
|
164,144 |
|
|
Accretion of debenture host
contract |
|
19,393 |
|
|
- |
|
|
19,393 |
|
|
Currency translation adjustment |
|
(246,763 |
) |
|
- |
|
|
(246,763 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at December 31, 2013 |
$ |
5,044,111 |
|
$ |
489,663 |
|
$ |
5,533,774 |
|
11. |
Share Capital Authorized an unlimited number of
common shares |
|
|
|
Issued and outstanding |
|
|
|
Number |
|
|
|
|
|
|
|
of Shares |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2012
|
|
16,114,339 |
|
$ |
5,409,488 |
|
|
|
|
|
|
|
|
|
|
Issued for cash (net of cash
fees of $441,178) |
|
1,250,000 |
|
|
3,746,322 |
|
|
Less: Proceeds allocated to warrants |
|
|
|
|
(775,000 |
) |
|
Brokers warrants |
|
|
|
|
(85,000 |
) |
|
Issued on exercise of warrants |
|
2,784,840 |
|
|
3,844,720 |
|
|
Less: Warrants issued on
exercise of broker warrants |
|
|
|
|
(703,000 |
) |
|
Issued on exercise of options |
|
180,001 |
|
|
148,251 |
|
|
Issued for future services |
|
769,231 |
|
|
500,000 |
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2013
|
|
21,098,411 |
|
$ |
12,085,781 |
|
|
|
|
|
|
|
|
|
|
Issuance of common shares on
acquisition of intangible assets (note 8) |
|
1,089,867 |
|
|
7,133,179 |
|
|
Issued on exercise of warrants |
|
1,104,743 |
|
|
2,213,682 |
|
|
Issued on exercise of options |
|
121,250 |
|
|
102,405 |
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2014 |
|
23,414,271 |
|
$ |
21,535,047 |
|
25
Sphere 3D Corporation |
Notes to the Condensed Consolidated Interim Financial
Statements |
June 30, 2014 and 2013 |
(Expressed in
Canadian Dollars) |
11. |
Share Capital (continued) |
|
|
|
Escrowed shares |
|
|
|
With the completion of the Transaction and the Companys
subsequent listing on the TSXV, certain common shares of the Company are
subject to escrow in accordance with TSXV policies. There are two separate
escrow agreements in place which are subject to different rates of
release. The following table summarizes the common shares that were issued
by the Company and are subject to and held under each escrow and the dates
of release therefrom: |
|
|
|
Surplus Share |
|
|
Value Share |
|
|
|
|
|
|
|
|
|
|
Escrow |
|
|
Escrow |
|
|
Total |
|
|
|
|
Number |
|
|
% |
|
|
Number |
|
|
% |
|
|
Number |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 21, 2012 |
|
4,655,000 |
|
|
100 |
|
|
4,306,250 |
|
|
100 |
|
|
8,961,250 |
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Released - December 27, 2012(1) |
|
232,750 |
|
|
5 |
|
|
430,625 |
|
|
10 |
|
|
663,375 |
|
|
7 |
|
|
Released - June 27, 2013 |
|
232,750 |
|
|
5 |
|
|
645,937 |
|
|
15 |
|
|
878,687 |
|
|
10 |
|
|
Released - December 27, 2013 |
|
465,500 |
|
|
10 |
|
|
645,937 |
|
|
15 |
|
|
1,111,437 |
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subject to escrow at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013 |
|
3,724,000 |
|
|
80 |
|
|
2,583,751 |
|
|
60 |
|
|
6,307,751 |
|
|
70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Released - June
27, 2014 |
|
465,500 |
|
|
10 |
|
|
645,937 |
|
|
15 |
|
|
1,111,437 |
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subject to
escrow at June 30, 2014 |
|
3,258,500 |
|
|
70 |
|
|
1,937,814 |
|
|
45 |
|
|
5,196,314 |
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future releases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 27, 2014 |
|
698,250 |
|
|
15 |
|
|
645,938 |
|
|
15 |
|
|
1,344,188 |
|
|
15 |
|
|
June 27, 2015 |
|
698,250 |
|
|
15 |
|
|
645,938 |
|
|
15 |
|
|
1,344,188 |
|
|
15 |
|
|
December 27, 2015 |
|
1,862,000 |
|
|
40 |
|
|
645,938 |
|
|
15 |
|
|
2,507,938 |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total future
releases |
|
3,258,500 |
|
|
70 |
|
|
1,937,814 |
|
|
45 |
|
|
5,196,314 |
|
|
57 |
|
|
(1) |
Date of issuance of TSXV exchange bulletin announcing the
commencement of trading of the Companys stock. |
Escrowed shares are subject to release
every six months from the date of the exchange bulletin, at the rate shown.
Release dates can change if the Company were to move to the TSX Tier 1 Exchange.
As well, if the operations or development of the Intellectual Property or the
business are discontinued then the unreleased securities held in the QT Escrow
will be cancelled.
26
Sphere 3D Corporation |
Notes to the Condensed Consolidated Interim Financial
Statements |
June 30, 2014 and 2013 |
(Expressed in
Canadian Dollars) |
11. |
Share Capital (continued) |
|
|
|
|
Stock Options |
|
|
|
|
i. |
On February 5, 2014, the directors of the Company
approved the award of 50,000 options, which vest in 4 equal quarterly
amounts, exercisable for 10 years, with a value of $212,493. The fair
value of the options issued was estimated at the date of grant using the
Black-Scholes model with the following weighted average assumptions: (I)
dividend yield of 0%; (II) expected volatility of 102.39%; (III) a risk
free interest rate of 1.71% (IV) an expected life of 3 years; (V) an
exercise price of $6.54 and (VI) a share price of $6.54. Expected
volatility was based on the Companys historical stock price. |
|
|
|
|
ii. |
On April 18, 2014, the directors of the Company approved
the award of 150,000 options, which vest in 4 equal quarterly amounts,
exercisable for 10 years, with a value of $741,986. The fair value of the
options issued was estimated at the date of grant using the Black-Scholes
model with the following weighted average assumptions: (I) dividend yield
of 0%; (II) expected volatility of 97.29%; (III) a risk free interest rate
of 1.71% (IV) an expected life of 3 years; (V) an exercise price of $8.10
and (VI) a share price of $8.10. Expected volatility was based on the
Companys historical stock price. |
|
|
|
|
iii. |
On April 23, 2014, the directors of the Company approved
the award of 25,000 options, which vest in 4 equal quarterly amounts,
exercisable for 10 years, with a value of $261,860. The fair value of the
options issued was estimated at the date of grant using the Black-Scholes
model with the following weighted average assumptions: (I) dividend yield
of 0%; (II) expected volatility of 96.93%; (III) a risk free interest rate
of 1.71% (IV) an expected life of 3 years; (V) an exercise price of $8.60
and (VI) a share price of $8.60. Expected volatility was based on the
Companys historical stock price. |
|
|
|
|
iv. |
On May 27, 2014, at the annual and special meeting of the
shareholders of the Company, the shareholders ratified an amendment to the
fixed stock option plan, authorizing the award of up to 4,650,000 shares,
being approximately 20% of the common shares outstanding at the record
date for the meeting. |
|
|
|
|
v. |
On June 20, 2014, the directors of the Company approved
the award of 350,000 options, of which 50,000 vest immediately and 300,000
vest in quarterly amounts over a three year period, exercisable for 10
years, with a value of $1,788,261. The fair value of the options issued
was estimated at the date of grant using the Black-Scholes model with the
following weighted average assumptions: (I) dividend yield of 0%; (II)
expected volatility of 96.93%; (III) a risk free interest rate of 1.71%
(IV) an expected life of 3 years; (V) an exercise price of $8.39 and (VI)
a share price of $8.39. Expected volatility was based on the Companys
historical stock price. |
|
|
|
|
vi. |
On June 23, 2014, the directors of the Company approved
the award of 160,000 options, which vest in quarterly amounts over a three
year period, exercisable for 10 years, with a value of $813,593. The fair
value of the options issued was estimated at the date of grant using the
Black-Scholes model with the following weighted average assumptions: (I)
dividend yield of 0%; (II) expected volatility of 96.93%; (III) a risk
free interest rate of 1.71% (IV) an expected life of 3 years; (V) an
exercise price of $8.35 and (VI) a share price of $8.35. Expected
volatility was based on the Companys historical stock
price. |
27
Sphere 3D Corporation |
Notes to the Condensed Consolidated Interim Financial
Statements |
June 30, 2014 and 2013 |
(Expressed in
Canadian Dollars) |
11. |
Share Capital (continued) |
|
|
|
Stock Options (continued) |
|
|
|
As at June 30, 2014 the Company had 1,230,000 additional
options available for issuance. A continuity of the unexercised options to
purchase common shares is as follows: |
|
|
|
Weighted average |
|
|
|
|
|
|
|
exercise price |
|
|
Number |
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2012 |
$ |
0.83 |
|
|
1,015,000 |
|
|
Granted |
|
1.24 |
|
|
2,295,001 |
|
|
Exercised |
|
0.71 |
|
|
(180,001 |
) |
|
Expired |
|
0.60
|
|
|
(320,000 |
) |
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2013 |
$ |
1.18 |
|
|
2,810,000 |
|
|
Granted |
|
8.21 |
|
|
735,000 |
|
|
Exercised |
|
0.70 |
|
|
(121,250 |
) |
|
Expired |
|
2.68 |
|
|
(3,750 |
) |
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2014 |
$ |
2.71 |
|
|
3,420,000 |
|
The weighted average share price on the
date of exercise was $7.27 (December 31, 2013 -$3.69) .
The following table provides further
information on the outstanding options as at June 30, 2014:
Expiry Date
|
Number exercisable
|
Number outstanding
|
Weighted average
exercise price |
Weighted average
years remaining |
March 4, 2018 |
100,000 |
100,000 |
$ 0.85 |
3.68 |
July 3, 2018 |
50,000 |
125,000 |
0.65 |
4.01 |
January 16, 2022 |
640,000 |
640,000 |
0.83 |
7.55 |
September 19, 2022 |
233,333 |
300,000 |
0.85 |
8.23 |
April 16, 2023 |
75,000 |
75,000 |
0.85 |
8.80 |
July 2, 2023 |
259,722 |
850,000 |
0.65 |
9.01 |
August 29, 2023 |
75,000 |
100,000 |
2.50 |
9.17 |
September 15, 2023 |
333,750 |
445,000 |
2.68 |
9.22 |
October 31, 2023 |
25,000 |
50,000 |
4.28 |
9.34 |
February 4, 2024 |
12,500 |
50,000 |
6.70 |
9.59 |
April 18, 2014 |
- |
150,000 |
8.10 |
9.80 |
April 23, 2014 |
- |
25,000 |
8.60 |
9.82 |
June 20, 2014 |
50,000 |
350,000 |
8.39 |
9.98 |
June 23, 2014 |
- |
160,000 |
8.35 |
9.99 |
|
1,854,305 |
3,420,000 |
$ 2.71 |
8.56 |
28
Sphere 3D Corporation |
Notes to the Condensed Consolidated Interim Financial
Statements |
June 30, 2014 and 2013 |
(Expressed in
Canadian Dollars) |
11. |
Share Capital (continued) Warrants |
|
|
|
The Company had the following warrants
outstanding: |
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
Number of |
|
|
Exercise |
|
|
|
|
|
Warrants |
|
|
Price |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2012 |
|
|
4,262,442 |
|
$ |
0.98 |
|
|
|
|
|
|
|
|
|
|
|
Exercised |
Broker Warrants
|
|
(152,528 |
) |
|
0.70 |
|
|
|
Investor Warrants |
|
(1,980,462 |
) |
|
1.00 |
|
|
|
Broker Unit
Warrants |
|
(325,925 |
) |
|
0.85 |
|
|
|
|
|
|
|
|
|
|
|
Issued on exercise of Broker Unit Warrants
|
|
|
325,925 |
|
|
1.00 |
|
|
Exercise of warrants issued |
|
|
(325,925 |
) |
|
1.00 |
|
|
|
|
|
|
|
|
|
|
|
Granted |
Investor Warrants |
|
625,000 |
|
|
4.50 |
|
|
|
Broker Unit Warrants |
|
100,000 |
|
|
3.35 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2013 |
|
|
2,528,527 |
|
$ |
1.96 |
|
|
|
|
|
|
|
|
|
|
|
Exercised |
Broker Unit
Warrants |
|
(100,000 |
) |
|
3.35 |
|
|
|
Investor Warrants |
|
(1,004,743 |
) |
|
1.48 |
|
|
Granted |
Investor Warrants |
|
50,000 |
|
|
4.50 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2014 |
|
|
1,473,784 |
|
|
2.27 |
|
The weighted average share price on the
dates of exercise was $7.00 (December 31, 2013 -$3.46) .
29
Sphere 3D Corporation |
Notes to the Condensed Consolidated Interim Financial
Statements |
June 30, 2014 and 2013 |
(Expressed in
Canadian Dollars) |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
Other equity beginning of
period |
$ |
1,715,151 |
|
$ |
1,007,500 |
|
|
Issuance of special warrants net of
costs(1) |
|
9,115,010 |
|
|
- |
|
|
Value of warrants issued |
|
- |
|
|
1,563,000 |
|
|
Stock based compensation |
|
1,460,101 |
|
|
319,679 |
|
|
Value of warrants exercised
|
|
(388,312 |
) |
|
(1,154,528 |
) |
|
Value of options exercised |
|
(18,055 |
) |
|
(20,500 |
) |
|
|
|
|
|
|
|
|
|
Other equity end of period |
$ |
11,883,895 |
|
$ |
1,715,151 |
|
|
(1) |
On June 5, 2014, the Company closed an underwritten
financing for the sale of 1,176,500 Special Warrants of the Company at a
price of $8.50 per Special Warrant for gross proceeds of
$10,000,250. |
|
|
|
|
|
Each Special Warrant, upon exercise or deemed exercise,
will convert into one unit of the Company (a "Unit") with each Unit being
comprised of one common share of the Company (a "Common Share") and
one-half of a Common Share purchase warrant of the Company (a "Warrant").
There is no additional cost to exercise a Special Warrant. Each whole
Warrant is exercisable at an exercise price of $11.50 per share for a
period of two years from the closing date. All securities are subject to a
four-month hold period from the issuance date. The Company intends to file
a short form prospectus (the "Final Prospectus") in each of the Provinces
of British Columbia and Ontario (collectively, the "Offering
Jurisdictions") qualifying the Units issuable upon exercise or deemed
exercise of the Special Warrants by July 31, 2014, failing which the
holder would be entitled to receive 1.05 Units upon exercise or deemed
exercise of the Special Warrants (see Note 18 Subsequent Events). Any
unexercised Special Warrants will be deemed to be automatically exercised
on the earlier of: (i) the third business day following the day on which a
final receipt is issued in the Offering Jurisdictions for the Final
Prospectus qualifying the distribution of the Units; and (ii) October 6,
2014. |
|
|
|
|
|
The Company incurred fees and commissions to June 30,
2014 in the amount of $844,543 related to this
financing. |
|
|
|
Three months ended |
|
|
Six
months ended |
|
|
|
|
June 30, |
|
|
June 30, |
|
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
$ |
(27,309 |
) |
$ |
(3 |
) |
$ |
(28,150 |
) |
$ |
(1,685 |
) |
|
Interest expense |
|
132,111 |
|
|
1,069 |
|
|
146,400 |
|
|
1,338 |
|
|
Foreign exchange gain |
|
(97,791 |
) |
|
- |
|
|
(117,274 |
) |
|
- |
|
|
Unrealized loss on derivative liability |
|
164,144 |
|
|
- |
|
|
164,144 |
|
|
- |
|
|
Investment holding gain |
|
(31,796 |
) |
|
- |
|
|
(13,982 |
) |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
139,359 |
|
$ |
1,066 |
|
$ |
151,138 |
|
$ |
(347 |
) |
30
Sphere 3D Corporation |
Notes to the Condensed Consolidated Interim Financial
Statements |
June 30, 2014 and 2013 |
(Expressed in
Canadian Dollars) |
14. |
Related Party Transactions |
|
|
|
Related parties of the Company include the Companys key
management personnel and independent directors. |
|
|
|
Key management personnel are those persons having
authority and responsibility for planning, directing and controlling the
activities of the Company, directly or indirectly, including any director
(whether executive or otherwise). |
|
|
|
The compensation paid or payable to key management
personnel is shown below: |
|
|
|
June 30 |
|
|
June 30 |
|
|
|
|
2014
|
|
|
2013
|
|
|
Salaries, management fees and
benefits |
$ |
266,875 |
|
$ |
305,000 |
|
|
Share-based payments - management |
|
71,902 |
|
|
18,944 |
|
|
Share-based payments - directors |
|
127,180 |
|
|
14,000 |
|
|
|
$ |
465,957 |
|
$ |
337,944 |
|
|
Legal services of $232,129 (2013 - $30,394) were provided
by a legal firm affiliated with a director of the Company. |
|
|
|
|
Amounts owing to a legal firm affiliated with a director
of the Company and officers and directors of the Company at period end
included in trade and other payables total $193,723 (2013 -
$12,714) |
|
|
|
15. |
Commitment and Contingencies |
|
|
|
|
1) |
Merger Agreement |
|
|
|
|
|
On May 15, 2014, the Company entered into a definitive
merger agreement (the Merger Agreement) with Overland, pursuant to which
Overland and a wholly-owned subsidiary of Sphere 3D would combine (the
Transaction). After completion of the Transaction, it is expected that
current holders of Overland securities will own approximately 28.8% of
Sphere 3D, on a fully diluted basis, as a result of their exchange of
securities in the Transaction. |
|
|
|
|
|
Under the terms of the Merger Agreement, the Company will
issue a total of 9,443,882 common shares (Common Shares) on closing,
subject to adjustment, for all of the outstanding share capital of
Overland (Overland Shares) on the basis of one Overland Share for
0.510594 Common Shares of Sphere 3D (the Exchange Ratio). In addition,
Sphere 3D will issue up to 1,467,906 warrants, 143,325 options and 505,321
restricted share units, or equivalents, in exchange for the outstanding
convertible securities of Overland at the closing date, calculated on the
basis of the Exchange Ratio. All issued and outstanding stock appreciation
rights of Overland will terminate on closing. The average exercise price
of the options and warrants are US$22.62 and US$17.28, respectively. At
current pricing, the Company believes it is unlikely that any of these
options and warrants will be exercised. |
|
|
|
|
|
On May 14, 2014, the last trading day prior to the
announcement of the transaction, the closing price of the Overland Shares,
on the NASDAQ, was US$2.90 and the closing price of the Common Shares of
Sphere 3D, on the TSX Venture Exchange (the TSXV), was C$9.46 (or
US$8.68). Based on the closing price of the Common Shares of Sphere 3D on
May 14, 2014, the total consideration payable to holders of Overland
shareholders has an implied value of approximately US$81.97 million or
approximately US$4.43 per Overland Share. |
31
Sphere 3D Corporation |
Notes to the Condensed Consolidated Interim Financial
Statements |
June 30, 2014 and 2013 |
(Expressed in
Canadian Dollars) |
|
2) |
Supplier Agreement |
|
|
|
|
|
On July 15, 2013, the Company entered into a supplier
agreement with Overland Storage, Inc, under which the Company has agreed
to pay for up to $1.5 million of cloud infrastructure equipment purchases
from Overland in the form of common shares in the capital of the Company
(the Common Shares) as follows: (i) 769,231 Common Shares at a fair
value of $0.65, having a value of $500,000 were issued on Closing; and
(ii) that number of Common Shares equal to $500,000 divided by the 10
trading day average of the closing price per share of Common Shares ending
3 trading days prior to each of the first and second year anniversary date
of the Supply Agreement, to a maximum of 769,231 Common Shares on each
date having a value of $500,000. Such Sphere 3D shares are subject to a
four months and one day hold period from the date of issuance in
accordance with applicable Canadian securities laws. |
|
|
|
|
3) |
Operating Lease |
|
|
|
|
|
The Company entered into a five year lease, for a 6,000
square foot, free standing building, on May 1, 2011. In addition to the
minimum lease payments, the Company is required to pay operating costs
estimated at $27,000 per year. The minimum lease payments for the
Companys facility in Mississauga, are as
follows: |
2014 |
$ |
29,000 |
|
2015 |
|
59,500 |
|
2016 |
|
20,000 |
|
|
4) |
Legal Matters |
|
|
|
|
|
The Company has been named as a defendant in actions that
arose as a result of the announcement of the agreement to merge with
Overland Storage, Inc. With respect to these matters, based on the
managements current knowledge, the Company believes that the amount or
range of reasonable possible loss, if any, will not, either individually
or in the aggregate, have a material adverse effect on the Companys
business, consolidated financial position, results of operations or cash
flows. |
16. |
Capital Risk Management |
|
|
|
The Company is not subject to externally imposed capital
requirements and there has been no change with respect to the overall
capital risk management strategy during the period ended June 30, 2014 and
year ended December 31, 2013. |
32
Sphere 3D Corporation |
Notes to the Condensed Consolidated Interim Financial
Statements |
June 30, 2014 and 2013 |
(Expressed in
Canadian Dollars) |
17. |
Financial Risk Management |
|
|
|
|
|
The Company is exposed to a variety of financial risks by
virtue of its activities: market risk (including currency risk and
interest rate risk), credit risk and liquidity risk. The overall risk
management program focuses on the unpredictability of financial markets
and seeks to minimize potential adverse effects on financial
performance. |
|
|
|
|
|
Risk management is carried out by management under
policies approved by the Board of Directors. Management is charged with
the responsibility of establishing controls and procedures to ensure that
financial risks are mitigated in accordance with the approved
policies. |
|
|
|
|
|
(a) |
Market risk |
|
|
|
|
|
|
(i) |
Currency risk: |
|
|
|
|
|
|
|
The Company is still in its pre-commercialization phase
and as such has limited exposure to foreign exchange risk. Foreign
exchange risk arises from purchase transactions as well as recognized
financial assets and liabilities denominated in foreign
currencies. |
|
|
|
|
|
|
(ii) |
Interest rate risk: |
|
|
|
|
|
|
|
Interest rate risk is the risk that the future cash flows
of a financial instrument will fluctuate because of changes in market
interest rates. |
|
|
|
|
|
|
|
Financial assets and financial liabilities with variable
interest rates expose the Company to cash flow interest rate risk. The
convertible debenture is at a fixed rate. The Company's cash and cash
equivalents and investments earn interest at market rates. |
|
|
|
|
|
|
|
The Company manages its interest rate risk by maximizing
the interest income earned on excess funds while maintaining the liquidity
necessary to conduct operations on a day-to-day basis. Fluctuations in
market rates of interest do not have a significant impact on the Companys
results of operations as interest expense represents approximately 0.1%
(2012 0.7%) of total expenses. A 1.0% change in interest rates would not
have a significant impact on the interest income. |
|
|
|
|
|
(b) |
Credit risk |
|
|
|
|
|
|
The Company is subject to risk of non-payment of amounts
receivable. The Company mitigates this risk by monitoring the credit
worthiness of its customers. |
|
|
|
|
|
(c) |
Liquidity risk |
|
|
|
|
|
|
Liquidity risk is the risk that the Company will not be
able to meet its obligations as they fall due. The Company manages its
liquidity risk by forecasting cash flows from operations and anticipated
investing and financing activities. Senior management is also actively
involved in the review and approval of planned expenditures. |
|
|
|
|
|
|
As at June 30, 2014, the Company has trade and other
payables of $1,821,749 (December 31, 2013 - $478,282) due within 12 months
and has cash and cash equivalents of $8,782,627 (December 31, 2013 -
$5,550,788) to meet its current obligations. |
33
Sphere 3D Corporation |
Notes to the Condensed Consolidated Interim Financial
Statements |
June 30, 2014 and 2013 |
(Expressed in
Canadian Dollars) |
18. |
Subsequent Events |
|
|
|
|
a) |
On July 10, 2014, the Company issued 10,894 Common Shares
in payment of interest owing on the Convertible Debenture, for the period
ending June 30, 2014. The number of shares was calculated based on the
closing price of the Common Shares, on the TSX-V, on June 30,
2014. |
|
|
|
|
b) |
On July 17, 2014 and July 31, 2014, the Company advanced
Overland Storage Inc. additional amounts of USD$500,000 each to support
its working capital requirements. |
|
|
|
|
c) |
On July 18, 2014, the Company issued 52,801 Common
Shares, valued at $500,000 US, under the Supply Agreement (note 15(2))
with Overland Storage. The Common Shares had a fair value of $10.11 per
share, based on the 10 trading day average of the closing price per share
of Common Shares ending 3 trading days prior to the anniversary date of
the Supply Agreement. The shares are subject to a four months and one day
hold period from the date of issuance in accordance with applicable
Canadian securities laws. |
|
|
|
|
d) |
The Company has been informed by the Ontario Security
Commission (OSC) that, due to the fact that (i) the short form
prospectus, issued in connection to the Special Warrants (see Note 12
Special Warrants), is the first prospectus filing by the Company
post-Qualifying Transaction, and (ii) the materiality of the transaction
with Overland, the OSC has taken the position that it will be reviewed
under the long-form prospectus timing guidelines, as such, the Company was
unable to file the final Prospectus by July 31, 2014, meaning that the
Special Warrants will be convertible to 1.05 units per Special Warrant
upon the filing of the final Prospectus. |
34
MANAGEMENT DISCUSSION & ANALYSIS
Ontario Securities Commission FORM 51-102F1
ISSUER DETAILS
FOR QUARTER ENDED |
June 30, 2014 |
|
|
DATE OF REPORT |
August 29, 2014 |
|
|
NAME OF ISSUER |
Sphere 3D Corporation |
|
|
ISSUER ADDRESS |
240 Matheson Blvd. East |
|
Mississauga, ON L4Z 1X1 |
|
|
ISSUER TELEPHONE NUMBER |
(416) 749-5999 |
|
|
CONTACT PERSON |
Peter Tassiopoulos |
CONTACT POSITION |
CEO |
CONTACT TELEPHONE NUMBER |
(416) 749-5999 |
CONTACT EMAIL ADDRESS |
peter.tassiopoulos@sphere3d.com |
|
|
WEB SITE ADDRESS |
www.sphere3d.com
|
FORM 51-102F1
SPHERE 3D CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS
FOR THE THREE
AND SIX MONTHS ENDED JUNE 30, 2014
Sphere 3D Corporation is a virtualization technology solution
provider. Sphere 3D's Glassware 2.0 platform delivers virtualization of many of
the most demanding applications in the marketplace today; making it easy to move
applications from a physical PC or workstation to a virtual environment either
on premise and/or from the cloud. Sphere 3Ds V3 Systems division supplies the
industrys first purpose built appliance for virtualization as well as the
Desktop Cloud Orchestrator management software for Converged Infrastructure.
This Managements Discussion and Analysis includes the
financial results of the Company, its wholly-owned subsidiaries, V3 Systems
Holding, Inc., which was incorporated in the State of Delaware on January 14,
2014, S3D Acquisition Company, which was incorporated in the State of California
on May 14, 2014, Sphere 3D Inc., which was incorporated under the Canada
Business Corporation Act on October 20, 2009, and its wholly owned
subsidiary, Frostcat Technologies Inc., which was incorporated under the
Business Corporations Act (Ontario) on February 13, 2012.
The Company was incorporated under the Business Corporations
Act (Ontario) on May 2, 2007 and is listed on the TSXV and the NASDAQ Global
Market, under the trading symbol ANY. The Company has its main and registered
office at 240 Matheson Blvd. East, Mississauga, Ontario, L4Z 1X1 and maintains
an office at 299 South Main Street, Suite 1300, Salt Lake City Utah 84111.
ADVISORY
This Managements Discussion and Analysis (MD&A) comments
on the financial condition and operations of Sphere 3D Corporation (Sphere 3D
or the Company), for the three and six months ended June 30, 2014 and updates
our MD&A for fiscal 2013. The information contained herein should be read in
conjunction with the Consolidated Financial Statements and Auditors Report for
fiscal 2013 and the unaudited Interim Consolidated Financial Statements for the
three and six months ended June 30, 2014.
The Company prepares its interim consolidated financial
statements in accordance with International Financial Reporting Standards
(IFRS) as set out in the Handbook of The Canadian Institute of Chartered
Accountants (CICA Handbook). In 2010, the CICA Handbook was revised to
incorporate IFRS, and requires publicly accountable enterprises to apply such
standards effective for years beginning on or after January 1, 2011.
Accordingly, the Company has reported on this basis in these consolidated
interim financial statements. All financial information contained in this
MD&A and in the unaudited consolidated interim financial statements has been
prepared in accordance with International Financial Reporting Standards
(IFRS).
The quarterly unaudited consolidated financial statements and
this MD&A have been reviewed by the Companys Audit Committee and approved
by its Board of Directors on August 29, 2014.
FORWARD LOOKING INFORMATION
Certain statements in this MD&A constitute forward-looking
statements that involve risks and uncertainties. Forward-looking statements,
without limitation, may contain the words believes, expects, anticipates,
estimates, intends, plans, or similar expressions. Forward-looking statements
are not guarantees of future performance. They involve risks, uncertainties and
assumptions and Sphere 3Ds actual results could differ materially from those
anticipated. Forward looking statements are based on the opinions and estimates
of management at the date the statements are made, and are subject to a variety
of risks and uncertainties and other factors that could cause actual events or
results to differ materially from those projected in the forward-looking
statements. In the context of any forward-looking information please refer to
risk factors detailed herein, as well as other information contained in the
companys filings with Canadian securities regulators (www.sedar.com).
ADDITIONAL INFORMATION
Additional information relating to the Company is available on
SEDAR at www.sedar.com and on the Companys web-site at www.sphere3d.com.
GENERAL DEVELOPMENT OF THE BUSINESS
Sphere 3D is a technology company that delivers an application
virtualization platform aimed at extending the life of software indefinitely.
The Companys technology enhances the user experience of both legacy and current
applications and empowers users to gain access to these applications from
devices of their choosing.
Over the last five years, Sphere 3D has designed a proprietary
platform, namely Glassware 2.0, for the delivery of applications from a
server-based computing architecture.
Through the creation of Glassware 2.0, software is made
available from a central location irrespective of the device that is accessing
the software. Legacy software can be run using Glassware 2.0 even if the
operating system and the machine upon which it is run on is no longer sold or
supported. Software publishers who invest millions of dollars to write software
code can be assured that their software can be utilized for as long as it is
required. With Glassware 2.0, new software released by publishers will be driven
by new feature sets rather than the next release of the original OS upon which
the software was written.
The Company has taken a unique approach in that it has built
its technology platform without the use of a hypervisor and instead has designed
its own microvisor. This required the Company to design Glassware 2.0 without
resorting to layers of OS programming code. With the removal of the OS,
Glassware 2.0 did not connect to hardware so additional code was written to
access that hardware directly. Glassware 2.0 has a series of different emulators
within its design so that any device can access a wide array of applications
that sit on top of Glassware 2.0. This process is fundamentally different from
other software that approximates the feature sets which management believes
results in a quantum leap in functionality and a significant decrease in cost.
One of the additional benefits of this approach is the ability
to deliver multiple application sessions on either a single server or through
clusters of servers without the requirement to deliver complete VDI. Through
Glassware 2.0, the process for porting and publishing applications is
streamlined to the point that it is practically automated, requiring very little
administration input.
The Companys technology eliminates the complexity associated
with planning, implementation, licensing and support of virtualization and Cloud
migration while expanding the ecosystem of applications available to users.
Additionally, Glassware 2.0 architecture and unique application only
virtualization, coupled with complementary software and hardware designs from
its recent acquisition of the VDI technology of V3 Systems (as described below),
enables the Company and its partners to deliver flexibility within the industry
and a wide array of deployment options.
Since inception, the Company has invested the majority of its
capital in the design, development and testing of its technology, with the
majority of employees and financial resources allocated to such functions. In
2013, the Company started to transition its focus from entirely a research and
design organization to a commercial enterprise, through an increased investment
in sales and marketing resources.
New Product Introductions
The second quarter resulted in expanded utilization of the
Companys products and the introduction of new solutions that leverage Sphere 3D
technology.
-
Novarad Corporation, a leader in enterprise medical imaging solutions,
introduced NovaGlass, at the SIIM (Society for Imaging Informatics in
Medicine) Conference in Long Beach, California in May 2014.
Designed to
leverage Novarad PACS and RIS solutions, NovaGlass resides on enterprise
grade appliances, utilizes Sphere 3D software, and provides users with access
to full imaging features while significantly enhancing operating speeds and
choice of workstations.
-
The Company also announced their first converged solution for the MSP
market in May 2014. The Sphere 3D Converged MSP Solution includes custom
configurations of the V3 appliance, storage, industry-standard desktop
virtualization, and Glassware 2.0.
The new solution has been in production
with various clients since the initial part of this year and additional trials
are underway and in planning stages with several MSP customers, including
Telcos and Data Centers.
The third quarter has further increased the product and
solutions offerings with:
-
the launch of Sphere 3Ds V3 Hyper-Converged solution within Overlands
data management and protection product lines to addressed the Converged
Infrastructure solutions market.
-
the launch of the 2.5 update to Sphere 3Ds Desktop Cloud Orchestrator
(DCO) software.
DCO v2.5 brings a new level of Optimized Desktop Allocation
to the table, allowing virtual desktops to intelligently access additional
resources, including 3D GPU or allocations of CPU and RAM. Based on policy,
DCO v2.5 provides migratory access to virtual desktops which provide enhanced
resources on a temporary basis and on demand.
Continued Innovation
Sphere 3D continues on its quest to redefine the boundaries of
hardware through its software defined everything approach to computing. DLA
Piper, on behalf of the Company, filed a provisional patent for
the first microvisor runtime environment available on a chip.
The latest IP creation is a culmination of years of miniaturization work with
the intent of making Glassware 2.0 completely portable and available offline.
Glassware 2.0 has seen its architecture streamlined and gain
efficiency continuously since the first iteration that required 8 individual
hardware servers in 2010, to its current production state of availability on a
single appliance.
The most recent progress of the Glassware 2.0 single chip
architecture allowed Sphere 3D to showcase Glassware 2.0 server
technology running on a single laptop for attendees at BriForum in London
England, and Boston, as well as at VM World in San Francisco.
Corporate Highlights
NASDAQ Listing
On April 14, 2014, Sphere 3D filed an application with NASDAQ
OMX Group to list the Common Shares on the NASDAQ Global Market. On June 27,
2014, NASDAQs Listing Qualifications Department, approved the Companys
application to list the Common Shares and the Companys Common Shares commenced
trading on the NASDAQ on July 8, 2014 under the symbol ANY. Upon commencement
of trading on the NASDAQ, the Common Shares ceased trading on the OTCQX. The
Common Shares continue to trade on the TSXV.
Merger Agreement with Overland
On May 16th, 2014, the Company announced that it had
entered into a definitive agreement to acquire Overland Storage, Inc.
(NASDAQ:OVRL). Overland is a trusted global provider of unified data management
and data protection solutions designed to enable small and medium enterprises,
distributed enterprises, and small and medium businesses to anticipate and
respond to data storage requirements.
Overland provides an integrated range of technologies and
services for primary, nearline, offline, and archival data storage, and makes it
easy and cost effective to manage different tiers of information over time,
whether distributed data is across the hall or across the globe.
Overland SnapServer, RDX removable disk-based technology,
SnapScale, SnapServer, SnapSAN, NEO Series and REO Series solutions are
available through a channel of over 17,000 resellers, multiple distributers and
OEMs in over 70 countries.
Special Warrant Offering
On June 5, 2014, the Company closed a private placement
financing of 1,176,500 special warrants of the Company, at a price of $8.50 per
Special Warrant, resulting in gross proceeds of $10,000,250 to the Company. Each
Special Warrant entitles the holder thereof to receive, without the payment of
any additional consideration, one unit of the Company comprised of 1.05 Common
Shares and 0.525 of one Common Share purchase warrant. Each full Common Share
purchase warrant will entitle the holder thereof to acquire (subject to
adjustment in certain circumstances, as applicable), one Common Share at a price
of $11.50 per share at any time before 5:00 p.m. (Toronto time) on June 5,
2016.
Filing of SEC Form 40-F
On June 27, 2014, Sphere 3D announced that is has filed with
the SEC a registration statement on Form 40-F to register the Common Shares
under Section 12 of the U.S. Securities and Exchange Act of 1934, as
amended. The Form 40-F entitles eligible Canadian issuers to register securities
with the SEC pursuant to Section 12 of the U.S. Securities Exchange Act of
1934.
Future Developments
Sphere 3D intends to continue to build its organization with a
focus on revenue generation, marketing and a continuation of its aggressive
technology innovation cycle.
The Companys core focus of providing access to fully
functional software applications on otherwise incompatible devices has expanded
to include the availability of enhanced performance on compatible devices.
Sphere 3D plans to increasingly market targeted services to
enterprise level customers, to provide secure, fully functioning access to third
party legacy software and/or operating systems without the requirement to
rewrite them to the Cloud. Additionally, Sphere 3D will consider other possible
strategic acquisitions that may enhance its technology offering and market
position.
To support its marketing strategy, Sphere 3D intends to
continue to increase its service delivery capacity within the scalable model it
has already established, and add selective technology functionality to its
platform to enhance specific vertical and/or client offerings.
With the announcement of the Merger Agreement, Sphere 3D and
Overland have accelerated their efforts to develop an integrated application
virtualization and data storage platform, as well as Converged Infrastructure
solutions. It is expected that the combined businesses will accelerate Sphere
3Ds go to market strategy and allow it to leverage Overlands robust third
party reseller and OEM distribution model.
DESCRIPTION OF THE BUSINESS
All of the Companys product development, sales, and marketing
operations were conducted from its offices in Mississauga, Ontario, Canada, and
since the first quarter of 2014, from various sales offices in the United
States.
Market Overview
The market for the Companys products and services has
experienced strong demand and management anticipates that such demand will
continue for the foreseeable future.
According to IHS Technology, enterprise businesses moving their
IT services, applications and infrastructure to cloud-based architecture will
cause market revenue in this segment to surge by a factor of three from 2011 to
2017.1
IHS reports Global business spending for infrastructure and
services related to the cloud will reach an estimated $174.2 billion (in 2014),
up a hefty 20 percent from $145.2 billion in 2013. By 2017, enterprise spending
on the cloud will amount to a projected $235.1 billion, triple the $78.2 billion
in 2011.
_______________________________________________
1
IHS: Cloud- Related Spending by Businesses to Triple from 2011 to 2017
February 4, 2014.
Within the Cloud market, IDC is predicting that the cloud
software market will surpass $75 billion by 2017 attaining a five year compound
annual growth rate of 22% in the forecast period2 and according to
Gartner, SaaS and cloud-based business application services revenue will grow
from $13.5 billion in 2011 to $32.8 billion in 2016, at a compound annual growth
rate of 19.5% .3
Wikibons research projects rapid market growth for Converged
Infrastructure, expecting the total available market to reach $402 billion by
2017 of which $217 billion is comprised of Server, Storage, Networking and
Infrastructure Software.
Additional research from IDC anticipates the overall spending
on converged systems in the data center to grow at a compound annual growth rate
(CAGR) of 54.7 percent, from $2.0 billion in 2011 to $17.8 billion in 2016 and
that converged infrastructure will account for 12.8 percent of total storage,
server, networking and software spending by 2016, up from only 3.9 percent in
2012.
Over the next 12 months, two additional significant trends are
expected to benefit the Company: (i) within the next 12 months more than 50% of
enterprises will prioritize building private internal Clouds (currently, the
common approach that companies are using is by purchasing commercial
software),4 and (ii) Cloud applications will account for 90% of total
mobile data traffic by 2018 while Mobile cloud traffic will grow 12-fold from
2013 to 2018, attaining a compound annual growth rate of 64%.5
Sales and Marketing
The Company intends to focus the majority of sales efforts
through an indirect sales channel in order to achieve the greatest possible
impact with the least possible start-up costs. This indirect channel includes
licensees, resellers, ISVs, OEMs and systems integrators. The Company has
established a business relationships with Overland and through them access to
distributers, resellers, ISVs and OEMs.
The Companys software is delivered through both a SaaS model,
with maintenance to end-user customers included and under a perpetual license;
if software is sold as a perpetual license, the Company will require end-user
customers to purchase maintenance contracts when they purchase software.
In establishing prices for the Companys products, the Company
considers the value of the products and solutions in comparison to other
industry virtualization and hardware solutions and strives to deliver the lowest
total cost of ownership where possible.
The Company intends to invest throughout 2014 on communicating
the benefits of Glassware 2.0 while training Company licensees, resellers, ISVs
and OEMs as well as educating the media and industry analysts about the unique
value proposition associated with deploying the Companys technology as a
virtualization platform.
During fiscal 2013, Sphere 3D shifted its focus to deliver any
consumer centric solutions through a Business-to-Business-to-Consumer (B2B2C)
approach. This strategic shift is primarily in response to demand from software
publishers for application virtualization, the operational and financial
efficiencies gained through this approach, and the requirement to focus
resources on the considerable Business and Enterprise market opportunities
currently available to the Company.
_______________________________________________
2
IDC infographic sponsored by Cisco.
3 Gartner Forecast Analysis:
Enterprise Application Software, Worldwide, 2011-2016, 4Q12 Update, January
2013.
4 The Forrester Wave: Private Cloud Solutions, Q4 2013 by
Lauren E. Nelson, November 25, 2013.
5 Cisco Visual Networking
Index: Global Mobile Data Traffic Forecast Update, 20132018.
Source:
FORBES, Roundup of Cloud Computing Forecasts And Market Estimates, 2014.
Competitive Conditions
Management believes that the Sphere 3Ds Glassware 2.0
TM proprietary virtualization platform design and architecture is
unique and innovative, such that any measurable competition is limited to
somewhat similar technologies within the device and software emulation and
virtualization market place.
While some of our competitors appear to have similar product
offerings, management believes that Sphere 3Ds products represent a significant
advance in terms of functionality and usability.
Proprietary Protection
Sphere 3D has designed and maintains its virtualization
platform. The Company will be relying on a combination of patents, trademarks,
trade secret and copyright laws, as well as contractual restrictions, to protect
the proprietary aspects of its products and services. Although every effort is
made to protect Sphere 3Ds intellectual property, these legal protections may
only afford limited protection. Sphere 3D intends to continue to selectively
pursue patenting of further technology developed in the future.
Sphere 3D may continue to file for patents regarding aspects of
its platform, services and delivery method at a later date depending on the
costs and timing associated with such filings. The Company may make investments
to further strengthen its copyright protection going forward, although no
assurances can be given that it will be successful in such patent and trademark
protection endeavours. Sphere 3D seeks to limit disclosure of its intellectual
property by requiring employees, consultants, and partners with access to its
proprietary platform and information to execute confidentiality agreements and
non-competition agreements and by restricting access to Sphere 3D proprietary
information. Due to rapid technological change, Sphere 3D believes that factors
such as the expertise and technological and creative skills of our personnel,
new services and enhancements to our existing services are more important to
establish and maintain an industry and technology advantage than other available
legal protections.
Despite Sphere 3Ds efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of its services or to obtain
and use information that Sphere 3D regards as proprietary. The laws of many
countries do not protect proprietary rights to the same extent as the laws of
the United States or Canada. Litigation may be necessary in the future to
enforce Sphere 3Ds intellectual property rights, to protect Sphere 3Ds trade
secrets, to determine the validity and scope of the proprietary rights of others
or to defend against claims of infringement. Any such litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect on Sphere 3Ds business, operating results and financial condition. There
can be no assurance that Sphere 3Ds means of protecting its proprietary rights
will be adequate or that our competitors will not independently develop similar
services or products. Any failure by Sphere 3D to adequately protect its
intellectual property could have a material adverse effect on its business,
operating results and financial condition.
SEGEMENTED INFORMATION
The Companys product development, sales, and marketing
operations are conducted from its offices in North America. The Companys
operations focus on one market segment, Cloud Computing and Virtualization,
including the development, and sale of Sphere 3Ds Glassware 2.0
virtualization platform, the V3 Desktop Cloud Orchestrator management software
and Hyper-Converged Infrastructure.
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND MANAGEMENT'S
DISCUSSION AND ANALYSIS
Periods Ended June 30, 2014 and 2013
AdjustedEBITDA
The following table reconciles Adjusted EBITDA to Net profit
(loss). This information is taken from and should be read in conjunction with
Sphere 3D's financial statements and related notes:
|
|
Three
Months ended |
|
|
Six
Months ended |
|
|
|
June 30, |
|
|
June 30, |
|
In thousands (except
per share) |
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
(unaudited) |
|
|
(unaudited) |
|
Revenue |
$ |
1,751 |
|
$ |
- |
|
$ |
2,757 |
|
$ |
- |
|
Cost of Sales |
|
841 |
|
|
- |
|
|
1,274 |
|
|
- |
|
Gross Margin |
|
910 |
|
|
- |
|
|
1,483 |
|
|
- |
|
Gross
margin percent |
|
52.0% |
|
|
- |
|
|
53.8% |
|
|
- |
|
Net comprehensive loss for the period |
|
(3,013 |
) |
|
(564 |
) |
|
(3,397 |
) |
|
(1,210 |
) |
Loss per share |
$ |
(0.13 |
) |
$ |
(0.04 |
) |
$ |
(0.15 |
) |
$ |
(0.08 |
) |
Add back |
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
|
850 |
|
|
27 |
|
|
1,185 |
|
|
47 |
|
Amortization
of intangibles |
|
1,147 |
|
|
1 |
|
|
1,148 |
|
|
2 |
|
Amortization
of property and equipment |
|
85 |
|
|
49 |
|
|
165 |
|
|
96 |
|
Financial
expenses |
|
139 |
|
|
1 |
|
|
151 |
|
|
- |
|
Merger agreement costs |
|
355 |
|
|
- |
|
|
355 |
|
|
- |
|
Total |
|
2,576 |
|
|
78 |
|
|
3,004 |
|
|
145 |
|
Adjusted EBIDA |
$ |
(437 |
) |
$ |
(486 |
) |
$ |
(393 |
) |
$ |
(1,065 |
) |
Adjusted EBITDA
The term Adjusted EBITDA refers to Profit before deducting
share-based payment expense, finance expense, foreign exchange gain (loss),
non-cash loss (gain) on fair market value of financial instruments, depreciation
and income taxes. We believe that Adjusted EBITDA provides useful supplemental
information as an indication of the results generated by the Companys main
business activities prior to taking into consideration how those activities are
financed and taxed and also prior to taking into consideration share-based
payment expense and the other items listed above. Accordingly, we believe that
these measures may also be useful to investors in enhancing their understanding
of the Companys operating performance.
AS AT |
|
June 30 |
|
|
December 31 |
|
(in thousands) |
|
2014 |
|
|
2013 |
|
|
|
(unaudited) |
|
|
(audited) |
|
|
|
|
|
|
|
|
Current assets |
$ |
11,831 |
|
$ |
6,839 |
|
Non-current assets
|
|
23,754 |
|
|
2,057
|
|
|
|
|
|
|
|
|
Total assets |
$ |
35,585 |
|
$ |
8,896 |
|
|
|
|
|
|
|
|
Current liabilities |
$ |
5,917 |
|
$ |
983 |
|
Non-current liabilities |
|
5,534 |
|
|
- |
|
|
|
|
|
|
|
|
Total liabilities |
$ |
11,451 |
|
$ |
983 |
|
|
|
|
|
|
|
|
Total equity |
$ |
24,134 |
|
$ |
7,913 |
|
Sphere 3D has not declared any dividends since its
incorporation. Sphere 3D does not anticipate paying cash dividends in the
foreseeable future on its Sphere 3D Shares, but intends to retain future
earnings to finance internal growth, acquisitions and development of its
business. Any future determination to pay cash dividends will be at the
discretion of the board of directors of Sphere 3D and will depend upon Sphere
3D's financial condition, results of operations, capital requirements and such
other factors as the board of directors of Sphere 3D deems relevant.
Results of Operations (in thousands except per share
information)
Revenue
The Company generates and analyzes sales from the following
segments:
|
1. |
Hardware and Software Products. A suite of emulation
products, which includes Sphere 3Ds Glassware 2.0 application
virtualization platform products and its VDI appliances, including
software that powers the Sphere 3D hardware and enables network operators
to remotely control and monitor the appliances in their network. The
Company also provides hardware and software from other companies (3rd
Party Products) when required to complete an end-to-end network
solution. |
|
|
|
|
2. |
License fees License fees include the charges for the
right to use both Sphere 3D and 3rd Party Software products, as
well as exclusivity and special use licenses. |
|
|
|
|
3. |
Professional Services & Maintenance and Support.
Professional services and support typically include installation, project
management and training, as well as basic and extended warranty and online
support. These services can be provided by Sphere 3D or by third party
companies who work for Sphere 3D. Support |
With first sales of the Companys Glassware 2.0 technology, V3
appliances and DCO software in the first quarter of 2014, the Company has moved
from a development stage enterprise into full commercialization. This has provided revenue from
hardware, software, licensing and service and support.
Revenue by Segment
The proportion of the total revenue attributable to each
segment is outlined in the following table:
|
|
Three
Months ended |
|
|
Six
Months ended |
|
|
|
June 30, |
|
|
June 30, |
|
In
thousands |
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
(unaudited) |
|
|
(unaudited) |
|
Hardware and
Software |
$ |
1,315 |
|
$ |
- |
|
$ |
1,936 |
|
$ |
- |
|
License fees |
|
277 |
|
|
- |
|
|
565 |
|
|
- |
|
Service and
Support |
|
159 |
|
|
- |
|
|
256 |
|
|
- |
|
Total |
$ |
1,751 |
|
$ |
- |
|
$ |
2,757 |
|
$ |
- |
|
Revenue in the quarter increased by 74% over the first quarter
of 2014. Management expects the revenue contribution from Hardware, Software and
Services and Support to continue to growth as the Company continues its inroads
in the Health, Education and Government sectors.
Cost of Goods Sold
Cost of goods sold for the three and six months ended June 30,
2014 were $841 and $1,274, respectively, providing a gross margin of 52% and 54%
respectively. Management expects that gross margins will fluctuate as it
continues to introduce its products in various markets and takes an aggressive
approach to pricing as part of its short term growth strategy.
Expenses
Salaries and consulting for the three and six months ended June
30, 2014 were $800 and 1,077 respectively, compared to $366 and $741,
respectively, for the three and six months ended June 30, 2013. The increase in
expenses, was the result of the Company expanding its sales, marketing and
support staff throughout fiscal 2013 and early 2014. The Company expects to add
additional staff in sales, marketing and research & development during the
remainder of fiscal 2014.
Stock based compensation for the three and six months ended
June 30, 2014 were $850 and 1,185 respectively, compared to $27 and $47,
respectively, for the three and six months ended June 30, 2013. The increase in
expenses, was the result of the Company issuing stock options as part of its
ongoing hiring and staff retention processes. Charges for Stock based
compensation are based on Black Scholes calculations, which result in higher
expenses as the market price and the exercise price on the option awards
increase.
General and administrative expenses were $545 and $798,
respectively, for the three and six months ended June 30, 2014 compared to $120
and $324, respectively, for the three and six months ended June 30, 2013.
General and administrative expenses increased significantly in the second
quarter of 2014 as the Company accelerated it roll-out of new products and added
a sales and support office in the United States.
Amortization of intangibles was $1,147 and $1,148, respectively, for the three and six months ended June 30, 2014 compared to $1 and $2 for the three and six months ended June 30, 2013. Amortization of the acquired and developed
technology commenced in the second quarter of 2014 and will continue through the expected useful life.
Amortization of property and equipment for the three and six months ended June 30, 2014 were $85 and $165 respectively, compared to $49 and $96 for the three and six months ended June 30, 2013. The Company expects to continue
growing its capital asset base resulting in continued growth in amortization.
Financing expenses were $139 and $151, respectively, for the three and six months ended June 30, 2014 compared to $1 and $Nil for the three and six months ended June 30, 2013. Financing expenses included both realized and unrealized
foreign exchange and holding gains along with interest costs and derivative liability costs related to the debenture financing entered into by the Company on March 21, 2014.
Merger agreement costs for the three and six months ended June 30, 2014 were $355 and $355 respectively, compared to $Nil for the three and six months ended June 30, 2013. The costs related to the announced plan of merger between a
wholly owned subsidiary of the Company and Overland Storage, Inc. and include legal, accounting and other costs that are expensed as incurred under IFRS requirements.
The net comprehensive loss for the three and six months ended June 30, 2014 was $3,012 or $0.13 per share and $3,397 or $0.15 per share, respectively, compared with a net comprehensive loss in the three and six months ended June 30,
2013 of $564 or $0.04 per share and $1,210 or $0.08 per share, respectively. The increases in losses were mainly driven by non-cash or non-operating expenses incurred over the quarter. The Company expects to continue to have
significant non-cash expenses going forward as recognizes the value of the acquired and developed technology.
Financial Position
Sphere 3D's cash position increased during the six months ended June 30, 2014 by $3,232 compared to a decrease of $1,140 for the six months ended June 30, 2013.
Operating activities required cash of $2,297, after adjustments for non-cash items and changes in other working capital balances, compared to $1,040 during the six months ended June 30, 2013. The increase in use was mainly related to an
increase in net working capital assets as revenue increased.
Investing activities required cash of $11,093 (2012 - $100), related to the acquisition and development of technology and intangible assets, the acquisition of property and equipment to support Sphere 3D’s ongoing development work and
loans made to support Overland’s working capital requirements as the merger arrangement is completed. .
Financing activities generated $16,622 during the six months ended June 30, 2014 compared to $Nil for the six months ended June 30, 2012. Financing activities included the sale of special warrants in June 2014, which will convert to Common
Stock and Warrants upon final receipt of the Company’s short form prospectus, the closing of the 4 year 8% debenture financing on March 21, 2014 and the ongoing exercise of options and warrants. The Company expects that it will continue to
receive cash from warrant exercises through the remainder of the year.
Liquidity and Capital Resources
At June 30, 2014, Sphere 3D had cash of $8,783 and working
capital of $5,914 compared to cash of $5,551 and working capital of $5,856 as at
December 31, 2013.
SUMMARY OF OUTSTANDING SHARES AND DILUTIVE INSTRUMENTS
The authorized capital of the Company consists of an unlimited
number of common shares, of which 23,562,966 common shares were issued and
outstanding as of the date of this MD&A.
Certain common shares of the Company are subject to escrow in
accordance with TSXV policies. There are two separate escrow agreements in place
which are subject to different rates of release. The following table summarizes
the common shares that were issued by the Company and are subject to and held
under each escrow and the dates of release therefrom:
|
|
|
Surplus Share |
|
|
Value Share |
|
|
|
|
|
|
|
|
|
|
Escrow |
|
|
Escrow |
|
|
Total |
|
|
|
|
Number |
|
|
% |
|
|
Number |
|
|
% |
|
|
Number |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 21, 2012 |
|
4,655,000 |
|
|
100 |
|
|
4,306,250 |
|
|
100 |
|
|
8,961,250 |
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Released - December 27, 2012(1) |
|
232,750 |
|
|
5 |
|
|
430,625 |
|
|
10 |
|
|
663,375 |
|
|
7 |
|
|
Released - June 27, 2013 |
|
232,750 |
|
|
5 |
|
|
645,937 |
|
|
15 |
|
|
878,687 |
|
|
10 |
|
|
Released - December 27, 2013 |
|
465,500 |
|
|
10 |
|
|
645,937 |
|
|
15 |
|
|
1,111,437 |
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subject to escrow at December 31,
2013 |
|
3,724,000 |
|
|
80 |
|
|
2,583,751 |
|
|
60 |
|
|
6,307,751 |
|
|
70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Released - June 27, 2014 |
|
465,500 |
|
|
10 |
|
|
645,937 |
|
|
15 |
|
|
1,111,437 |
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subject to escrow at June 30, 2014 |
|
3,258,500 |
|
|
70 |
|
|
1,937,814 |
|
|
45 |
|
|
5,196,314 |
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future releases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 27, 2014 |
|
698,250 |
|
|
15 |
|
|
645,938 |
|
|
15 |
|
|
1,344,188 |
|
|
15 |
|
|
June 27, 2015 |
|
698,250 |
|
|
15 |
|
|
645,938 |
|
|
15 |
|
|
1,344,188 |
|
|
15 |
|
|
December 27, 2015 |
|
1,862,000 |
|
|
40 |
|
|
645,938 |
|
|
15 |
|
|
2,507,938 |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total future releases |
|
3,258,500 |
|
|
70 |
|
|
1,937,814 |
|
|
45 |
|
|
5,196,314 |
|
|
57 |
|
(1) Date of issuance of TSXV exchange
bulletin announcing the commencement of trading of the Companys stock.
Escrowed shares are subject to release every six months from
the date of the exchange bulletin, at the rate shown. Release rates can change
if the Company were to move to the TSX Tier 1 Exchange. As well, if the
operations or development of the Intellectual Property or the business are
discontinued then the unreleased securities held in the QT Escrow will be
cancelled.
The Company has warrants outstanding to purchase up to an
aggregate of 1,454,144 common shares, and special warrants that upon final
clearance of the Companys prospectus will result in the issuance of 1,235,325
Common Shares and 617,663 warrants, exercisable at $11.50 per shares for a
period of 2 years.
The stock option plan (the Option Plan) of the Company is
administered by the Board of Directors, which is responsible for establishing
the exercise price (at not less than the Discounted Market Price as defined in
the policies of the TSX Venture Exchange) and the vesting and expiry provisions.
The maximum number of common shares reserved for issuance for options that may
be granted under the Option Plan is 20% of the number of common shares
outstanding at the time of the record date for the last shareholders meeting,
or 4,625,000 Options. As of the date of this MD&A, Options granted under the
Option Plan to purchase up to an aggregate of 3,345,000 common shares are issued
and outstanding.
Assuming that all of the outstanding options and warrants are
exercised, 30,215,098 common shares would be issued and outstanding on a fully
diluted basis.
Related Party Transactions
Related parties of the Company include the Companys key
management personnel and independent directors.
Key management personnel are those persons having authority and
responsibility for planning, directing and controlling the activities of the
Company, directly or indirectly, including any director (whether executive or
otherwise).
The compensation paid or payable to key management personnel is
shown below:
|
|
|
June 30 |
|
|
June 30 |
|
|
|
|
2014
|
|
|
2013
|
|
|
Salaries, management fees and
benefits |
$ |
266,875 |
|
$ |
305,000 |
|
|
Share-based payments - management |
|
71,902 |
|
|
18,944 |
|
|
Share-based payments - directors |
|
127,180 |
|
|
14,000 |
|
|
|
$ |
465,957 |
|
$ |
337,944 |
|
Legal services of $232,129 (2013 - $30,394) were provided by a
legal firm affiliated with a director of the Company.
Amounts owing to a legal firm affiliated with a director of the
Company and officers and directors of the Company at period end included in
trade and other payables total $193,723 (2013 - $12,714)
Quarterly Information
Quarterly Information (in thousands, except loss per
share)
|
|
Jun |
|
|
Mar |
|
|
Dec |
|
|
Sep |
|
|
Jun |
|
|
Mar |
|
|
Dec |
|
|
Sep |
|
|
|
2014 |
|
|
2014 |
|
|
2013 |
|
|
2013 |
|
|
2013 |
|
|
2013 |
|
|
2012 |
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
1,751 |
|
$ |
1,005 |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
Cost of sales |
|
841 |
|
|
433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
910 |
|
|
572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
3,923 |
|
|
956 |
|
|
700 |
|
|
469 |
|
|
564 |
|
|
645 |
|
|
1,055 |
|
|
530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net comprehensive
loss |
$ |
(3,013 |
) |
$ |
(384 |
) |
$ |
(700 |
) |
$ |
(469 |
) |
$ |
(564 |
) |
$ |
(645 |
) |
$ |
(1,055 |
) |
$ |
(530 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share |
$ |
(0.13 |
) |
$ |
(0.02 |
) |
$ |
(0.04 |
) |
$ |
(0.03 |
) |
$ |
(0.04 |
) |
$ |
(0.04 |
) |
$ |
(0.08 |
) |
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of shares |
|
23,314 |
|
|
21,692 |
|
|
19,868 |
|
|
17,188 |
|
|
16,114 |
|
|
16,114 |
|
|
13,737 |
|
|
11,870 |
|
|
|
Jun |
|
|
Mar |
|
|
Dec |
|
|
Sep |
|
|
Jun |
|
|
Mar |
|
|
Dec |
|
|
|
2014 |
|
|
2014 |
|
|
2013 |
|
|
2013 |
|
|
2013 |
|
|
2013 |
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
$ |
8,783 |
|
$ |
7,141 |
|
$ |
5,551 |
|
$ |
1,395 |
|
$ |
494 |
|
$ |
1,054 |
|
$ |
1,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
$ |
35,585 |
|
$ |
27,240 |
|
$ |
8,896 |
|
$ |
3,896 |
|
$ |
1,901 |
|
$ |
2,555 |
|
$ |
3,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital |
$ |
5,914 |
|
$ |
5,026 |
|
$ |
5,856 |
|
$ |
1,842 |
|
$ |
563 |
|
$ |
1,078 |
|
$ |
1,729 |
|
Form 52-109FV2
Certification of Interim Filings
Venture
Issuer Basic Certificate
I, Peter Tassiopoulos, Chief Executive Officer of Sphere 3D
Corporation, certify the following:
|
1. |
Review: I have reviewed the interim
financial report and interim MD&A (together, the interim filings) of
Sphere 3D Corporation (the issuer) for the interim period ended June 30,
2014. |
|
|
|
|
2. |
No misrepresentations: Based on my
knowledge, having exercised reasonable diligence, the interim filings do
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated or that is necessary to make a
statement not misleading in light of the circumstances under which it was
made, with respect to the period covered by the interim filings. |
|
|
|
|
3. |
Fair presentation: Based on my knowledge,
having exercised reasonable diligence, the interim financial report
together with the other financial information included in the interim
filings fairly present in all material respects the financial condition,
financial performance and cash flows of the issuer, as of the date of and
for the periods presented in the interim filings. |
Date: August 29, 2014
Peter Tassiopoulos
_______________________
Peter Tassiopoulos
Chief Executive
Officer
NOTE TO READER |
|
In contrast to the certificate required for non-venture
issuers under National Instrument 52-109 Certification of Disclosure
in Issuers Annual and Interim Filings (NI 52-109), this
Venture Issuer Basic Certificate does not include representations relating
to the establishment and maintenance of disclosure controls and procedures
(DC&P) and internal control over financial reporting (ICFR), as
defined in NI 52-109. In particular, the certifying officers filing this
certificate are not making any representations relating to the
establishment and maintenance of |
|
i) |
controls and other procedures designed to provide
reasonable assurance that information required to be disclosed by the
issuer in its annual filings, interim filings or other reports filed or
submitted under securities legislation is recorded, processed, summarized
and reported within the time periods specified in securities legislation;
and |
ii) |
a process to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with the issuers GAAP.
|
|
The issuers certifying officers are responsible for
ensuring that processes are in place to provide them with sufficient
knowledge to support the representations they are making in this
certificate. Investors should be aware that inherent limitations on the
ability of certifying officers of a venture issuer to design and implement
on a cost effective basis DC&P and ICFR as defined in NI 52- 109 may
result in additional risks to the quality, reliability, transparency and
timeliness of interim and annual filings and other reports provided under
securities legislation. |
|
Form 52-109FV2
Certification of Interim Filings
Venture
Issuer Basic Certificate
I, Scott Worthington, Chief Financial Officer of Sphere 3D
Corporation, certify the following:
|
1. |
Review: I have reviewed the interim
financial report and interim MD&A (together, the interim filings) of
Sphere 3D Corporation (the issuer) for the interim period ended June 30,
2014. |
|
|
|
|
2. |
No misrepresentations: Based on my
knowledge, having exercised reasonable diligence, the interim filings do
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated or that is necessary to make a
statement not misleading in light of the circumstances under which it was
made, with respect to the period covered by the interim filings. |
|
|
|
|
3. |
Fair presentation: Based on my knowledge,
having exercised reasonable diligence, the interim financial report
together with the other financial information included in the interim
filings fairly present in all material respects the financial condition,
financial performance and cash flows of the issuer, as of the date of and
for the periods presented in the interim filings. |
Date: August 29, 2014
Scott
Worthington
_______________________
Scott Worthington
Chief
Financial Officer
NOTE TO READER |
|
In contrast to the certificate required for non-venture
issuers under National Instrument 52-109 Certification of Disclosure
in Issuers Annual and Interim Filings (NI 52-109), this
Venture Issuer Basic Certificate does not include representations relating
to the establishment and maintenance of disclosure controls and procedures
(DC&P) and internal control over financial reporting (ICFR), as
defined in NI 52-109. In particular, the certifying officers filing this
certificate are not making any representations relating to the
establishment and maintenance of |
|
i) |
controls and other procedures designed to provide
reasonable assurance that information required to be disclosed by the
issuer in its annual filings, interim filings or other reports filed or
submitted under securities legislation is recorded, processed, summarized
and reported within the time periods specified in securities legislation;
and |
ii) |
a process to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with the issuers GAAP.
|
|
The issuers certifying officers are responsible for
ensuring that processes are in place to provide them with sufficient
knowledge to support the representations they are making in this
certificate. Investors should be aware that inherent limitations on the
ability of certifying officers of a venture issuer to design and implement
on a cost effective basis DC&P and ICFR as defined in NI 52- 109 may
result in additional risks to the quality, reliability, transparency and
timeliness of interim and annual filings and other reports provided under
securities legislation. |
|
Sphere 3D (NASDAQ:ANY)
Historical Stock Chart
From Aug 2024 to Sep 2024
Sphere 3D (NASDAQ:ANY)
Historical Stock Chart
From Sep 2023 to Sep 2024