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 March, 2015
Commission File Number: 001-36532
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: March 31, 2015 |
By: |
/s/ Kurt Kalbfleisch |
|
|
|
|
|
Kurt Kalbfleisch |
|
Title: |
Senior Vice President and Chief Financial Officer |
SPHERE 3D CORP.
Condensed Consolidated Financial
Statements (Unaudited)
For the Three and Six Months Ended June 30, 2014 and
2013
(Expressed in U.S. dollars)
Sphere 3D Corp. (Sphere 3D) adopted accounting principles
generally accepted in the United States of America (U.S. GAAP) commencing with
the annual financial statements for the year ended December 31, 2014, which are
available under Sphere 3Ds profile on the SEDAR website at www.sedar.com
<http://www.sedar.com> and on the EDGAR website at
www.sec.gov <http://www.sec.gov>.
As a result of Sphere 3D adopting U.S. GAAP, Canadian
securities regulations require that the Company refile its 2014 interim
financial statements and notes thereto under U.S. GAAP, together with
accompanying management's discussion and analysis and related certifications.
The previously filed interim financial statements and accompanying management's
discussion and analysis, as well as the previously filed annual audited
consolidated financial statements as at and for the year ended December 31, 2013
and accompanying management's discussion and analysis, are available under
Sphere 3Ds profile on the SEDAR website at www.sedar.com
<http://www.sedar.com> and on the EDGAR website at www.sec.gov
<http://www.sec.gov>.
SPHERE 3D CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in
thousands of U.S. dollars, except per share amounts)
|
|
Three
Months Ended |
|
|
Six Months
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Product
revenue |
$ |
1,460 |
|
$ |
|
|
$ |
2,284 |
|
$ |
|
|
Service revenue |
|
146 |
|
|
|
|
|
234 |
|
|
|
|
|
|
1,606 |
|
|
|
|
|
2,518 |
|
|
|
|
Cost of product revenue |
|
775 |
|
|
|
|
|
1,101 |
|
|
|
|
Cost of service revenue |
|
127 |
|
|
|
|
|
194 |
|
|
|
|
Gross profit |
|
704 |
|
|
|
|
|
1,223 |
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
865 |
|
|
30 |
|
|
1,085 |
|
|
78 |
|
Research
and development |
|
|
|
|
5 |
|
|
|
|
|
21 |
|
General and administrative |
|
2,755 |
|
|
515 |
|
|
3,820 |
|
|
1,093 |
|
|
|
3,620 |
|
|
550 |
|
|
4,905 |
|
|
1,192 |
|
Loss from operations |
|
(2,916 |
) |
|
(550 |
) |
|
(3,682 |
) |
|
(1,192 |
) |
Interest expense |
|
(104 |
) |
|
|
|
|
(117 |
) |
|
|
|
Other income (expense), net
|
|
(31 |
) |
|
(1 |
) |
|
(30 |
) |
|
1 |
|
Net loss |
$ |
(3,051 |
) |
$ |
(551 |
) |
$ |
(3,829 |
) |
$ |
(1,191 |
) |
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted |
$ |
(0.13 |
) |
$ |
(0.03 |
) |
$ |
(0.17 |
) |
$ |
(0.07 |
) |
Shares used in computing net
loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted |
|
23,314 |
|
|
16,114 |
|
|
22,527 |
|
|
16,114 |
|
See accompanying notes to condensed consolidated financial
statements.
1
SPHERE 3D CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands of U.S. dollars)
|
|
Three
Months Ended |
|
|
Six Months
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Net loss |
$ |
(3,051 |
) |
$ |
(551 |
) |
$ |
(3,829 |
) |
$ |
(1,191 |
) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments |
|
483 |
|
|
(59 |
) |
|
205 |
|
|
(112 |
) |
Total other comprehensive income (loss) |
|
483 |
|
|
(59 |
) |
|
205 |
|
|
(112 |
) |
Comprehensive loss |
$ |
(2,568 |
) |
$ |
(610 |
) |
$ |
(3,624 |
) |
$ |
(1,303 |
)
|
See accompanying notes to condensed consolidated financial
statements.
2
SPHERE 3D CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars)
|
|
June 30, |
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
|
|
(Unaudited) |
|
Assets |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
$ |
8,238 |
|
$ |
5,217 |
|
Accounts
receivable |
|
1,578 |
|
|
|
|
Inventories |
|
148 |
|
|
128 |
|
Other
current assets |
|
1,133 |
|
|
1,082 |
|
Total current
assets |
|
11,097 |
|
|
6,427 |
|
Property and equipment, net |
|
439 |
|
|
288 |
|
Intangible assets, net |
|
16,839 |
|
|
1,646 |
|
Promissory note, related party |
|
5,000 |
|
|
|
|
Total assets |
$ |
33,375 |
|
$ |
8,361 |
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Accounts
payable |
$ |
743 |
|
$ |
132 |
|
Accrued liabilities |
|
818 |
|
|
124 |
|
Accrued
payroll and employee compensation |
|
145 |
|
|
194 |
|
Deferred revenue |
|
191 |
|
|
474 |
|
Total current liabilities |
|
1,897 |
|
|
924 |
|
Long-term debt |
|
5,000 |
|
|
|
|
Other long-term liabilities |
|
3,841 |
|
|
|
|
Total liabilities
|
|
10,738 |
|
|
924 |
|
Commitments and contingencies (Note 9) |
|
|
|
|
|
|
Shareholders equity: |
|
|
|
|
|
|
Common
stock, no par value, unlimited shares authorized; 23,414 and 21,098
shares
issued and outstanding as of June 30, 2014 and December
31, 2013, respectively |
|
33,232 |
|
|
14,407 |
|
Accumulated other comprehensive income |
|
68 |
|
|
(136 |
) |
Accumulated
deficit |
|
(10,663 |
) |
|
(6,834 |
) |
Total shareholders
equity |
|
22,637 |
|
|
7,437 |
|
Total liabilities and
shareholders equity |
$ |
33,375 |
|
$ |
8,361 |
|
See accompanying notes to condensed consolidated financial
statements.
3
SPHERE 3D CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
|
|
Six Months
Ended |
|
|
|
June 30, |
|
|
|
2014 |
|
|
2013 |
|
|
|
(Unaudited) |
|
Operating activities:
|
|
|
|
|
|
|
Net loss |
$ |
(3,829 |
) |
$ |
(1,191 |
) |
Adjustments to reconcile net
loss to net cash used in operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
|
1,232 |
|
|
95 |
|
Share-based compensation |
|
1,803 |
|
|
45 |
|
Changes in
operating assets and liabilities: |
|
|
|
|
|
|
Accounts receivable
|
|
(1,578 |
)
|
|
|
|
Inventories |
|
(19 |
) |
|
|
|
Accounts payable
and accrued liabilities |
|
1,458 |
|
|
(141 |
)
|
Accrued payroll and employee
compensation |
|
(49 |
) |
|
|
|
Deferred revenue
|
|
(283 |
)
|
|
|
|
Other assets and liabilities, net
|
|
(759 |
) |
|
18 |
|
Net cash used in operating
activities |
|
(2,024 |
)
|
|
(1,174 |
)
|
Investing activities: |
|
|
|
|
|
|
Loan to related party |
|
(5,000 |
)
|
|
|
|
Purchase of
fixed assets |
|
(280 |
) |
|
(27 |
) |
Purchase of intangible assets |
|
(4,012 |
)
|
|
|
|
Purchase of
intangible assets internally generated |
|
(963 |
) |
|
(70 |
) |
Net cash used in investing
activities |
|
(10,255 |
)
|
|
(97 |
)
|
Financing activities: |
|
|
|
|
|
|
Proceeds from issuance of warrants |
|
9,380 |
|
|
|
|
Costs
related to issuance of warrants |
|
(830 |
) |
|
|
|
Proceeds from borrowings |
|
5,000 |
|
|
|
|
Proceeds
from exercised warrants |
|
1,671 |
|
|
|
|
Proceeds from exercised options |
|
77 |
|
|
|
|
Proceeds
from issuance of common stock |
|
|
|
|
148 |
|
Net cash provided by financing
activities |
|
15,298 |
|
|
148 |
|
Effect of exchange rate changes on cash |
|
2 |
|
|
(46 |
) |
Net increase (decrease) in
cash |
|
3,021 |
|
|
(1,169 |
)
|
Cash and cash equivalents, beginning of
period |
|
5,217 |
|
|
1,639 |
|
Cash and cash equivalents,
end of period |
$ |
8,238 |
|
$ |
470 |
|
Non-cash Investing and Financing Activities:
|
|
|
|
|
|
|
Issuance
of common shares for acquisition of intangible assets |
$ |
6,454 |
|
$ |
|
|
Contingent liability for
the acquisition of intangible assets |
$ |
3,647 |
|
$ |
|
|
See accompanying notes to condensed consolidated financial
statements.
4
SPHERE 3D CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 ORGANIZATION AND BUSINESS
Sphere 3D Corp. (the Company) was incorporated under the
Business Corporations Act (Ontario) on May 2, 2007 as T.B. Mining
Ventures Inc.
Sphere 3D Corp. is a technology development company focused on
establishing its patent pending emulation and virtualization technology. Over
the last three 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. The Company's products enable the integration of virtual applications
and virtual desktops, and allows organizations to deploy a combination of
public, private or hybrid cloud strategies.
The Company may have to raise additional capital to fund
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.
Merger Agreement
On May 15, 2014, the Company entered into a definitive merger
agreement (the Merger Agreement) with Overland Storage, Inc. (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 issued 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 issued 1,467,906
warrants, 143,325 options and 505,321 restricted share units, or equivalents, in
exchange for the outstanding convertible securities of Overland, calculated on
the basis of the Exchange Ratio.
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
$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 $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 $81.97 million or approximately $4.43 per Overland Share.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements of the Company have been
prepared by management in accordance with accounting principles generally
accepted in the United States of America (GAAP), applied on a basis consistent
for all periods. These consolidated financial statements include the accounts of
the Company and its subsidiaries, all of which are wholly owned. All
intercompany balances and transactions have been appropriately eliminated on
consolidation.
Reclassifications
Certain prior year amounts have been reclassified to conform to
the 2014 presentation.
Use of Estimates
The preparation of the consolidated financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Significant areas requiring
the use of management estimates relate to the determination of provisions for
litigation claims, deferred revenue, allowance for doubtful receivables,
inventory valuation, warranty provisions, deferred income taxes, impairment
assessments of property and equipment, intangible assets and goodwill. Actual
results could differ from these estimates.
5
Foreign currency translation
The Company uses the U.S. dollar as its reporting currency and
Canadian dollar for its functional currency. Exchange gains or losses are
included as part of other comprehensive income for the period and accumulated
other comprehensive loss as part of shareholders deficit.
Fair Value of Financial Instruments
The authoritative guidance for fair value measurements
establishes a three tier fair value hierarchy, which prioritizes the inputs used
in measuring fair value. These tiers include: Level 1, defined as observable
inputs such as quoted prices in active markets; Level 2, defined as inputs other
than quoted prices in active markets that are either directly or indirectly
observable; and Level 3, defined as unobservable inputs in which little or no
market data exists, therefore requiring an entity to develop its own
assumptions.
Our financial instruments include cash equivalents, accounts
receivable, prepaid expenses, accounts payable, accrued expenses and long-term
debt. Fair value estimates of these instruments are made at a specific point in
time, based on relevant market information. These estimates may be subjective in
nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. The carrying amount of cash
equivalents, accounts receivable, prepaid expenses, accounts payable and accrued
expenses are generally considered to be representative of their respective fair
values because of the short-term nature of those instruments. Further, based on
the borrowing rates currently available to us for loans with similar terms, we
believe the fair value of long-term debt approximates its carrying value.
Intangible Assets
Intangible assets acquired in a non-monetary exchange, the
estimated fair values of the assets transferred (or the estimated fair values of
the assets received, if more clearly evident) are used to establish their
recorded values. Valuation techniques consistent with the market approach,
income approach and/or cost approach are used to measure fair value.
Purchased intangible assets are amortized on a straight-line
basis over their economic lives of four to nine years for developed technology,
and eight years for capitalized development costs as we believe this method most
closely reflects the pattern in which the economic benefits of the assets will
be consumed. When the carrying value is not considered recoverable, an
impairment loss for the amount by which the carrying value of an intangible
asset exceeds its fair value is recognized, with an offsetting reduction in the
carrying value of the related intangible asset. If our future results are
significantly different from forecast, we may be required to further evaluate
intangible assets for recoverability and such analysis could result in an
impairment charge in a future period.
Impairment of Other Indefinite-Lived Intangible Assets and
Long-Lived Assets
Other indefinite-lived assets are tested for impairment on an
annual basis at December 31, or more frequently if we believe indicators of
impairment exist. Triggering events for impairment reviews may be indicators
such as adverse industry or economic trends, restructuring actions, lower
projections of profitability, or a sustained decline in our market
capitalization. Other indefinite-lived intangible assets are quantitatively
assessed for impairment, if necessary, by comparing their estimated fair values
to their carrying values. If the carrying value exceeds the fair value, the
difference is recorded as an impairment.
Long-lived assets, such as property and equipment and
intangible assets subject to amortization, are reviewed for recoverability
whenever events or changes in circumstances indicate the carrying value may not
be recoverable. Our consideration includes, but is not limited to, (i)
significant under-performance relative to historical or projected future
operating results; (ii) significant changes in the manner of use of the assets
or the strategy for the Company's overall business; (iii) significant decrease
in the market value of the assets; and (iv) significant negative industry or
economic trends.
When the carrying value is not considered recoverable, an
impairment loss for the amount by which the carrying value of a long-lived asset
exceeds its fair value is recognized, with an offsetting reduction in the
carrying value of the related asset.
Revenue Recognition
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, excluding sales to distributors, is
recognized upon shipment of products to customers. These customers are not
entitled to any 6 specific right of return or price protection, except for any
defective product that may be returned under our standard product warranty.
Generally, title and risk of loss transfer to the customer when
the product leaves the Company's dock. Product sales to distribution customers
are subject to certain rights of return, stock rotation privileges and price
protection. Because we are unable to estimate its exposure for returned product
or price adjustments, revenue from shipments to these customers is not
recognized until the related products are in turn sold to the ultimate customer
by the distributor. For products for which software is more than an incidental
component, we recognize revenue in accordance with current authoritative
guidance for software revenue recognition.
Research and Development Costs
Research and development expenses include payroll, employee
benefits, stock-based compensation expense, and other headcount-related expenses
associated with product development. Research and development expenses also
include third-party development and programming costs, localization costs
incurred to translate software for international markets, and the amortization
of purchased software code and services content. Such costs related to software
development are included in research and development expense until the point
that technological feasibility is reached, which for our software products, is
generally shortly before the products are released to manufacturing. Once
technological feasibility is reached, such costs are capitalized and amortized
to cost of revenue over the estimated lives of the products. During the six
months ended June 30, 2014 and 2013, $1.2 million and 0.1 million, respectively,
of development costs were capitalized.
Share-based Compensation
We account for share-based awards, and similar equity
instruments, granted to employees and non-employee directors under the fair
value method. Share-based compensation award types include stock options. We use
the Black-Scholes option pricing model to estimate the fair value of its option
awards on the measurement date, which generally is the date of grant. The cost
is recognized over the requisite service period (usually the vesting period) for
the estimated number of instruments for which service is expected to be
rendered.
Compensation expense associated with options with graded
vesting is recognized pursuant to an accelerated method. Compensation expense
associated with restricted stock is recognized over the vesting period using the
straight-line method. We have not recognized, and do not expect to recognize in
the near future, any tax benefit related to share-based compensation cost as a
result of the full valuation allowance of our net deferred tax assets and its
net operating loss carryforwards.
Recently Issued Accounting Pronouncements
From time to time, new accounting pronouncements are issued by
the FASB that are adopted by the Company as of the specified effective date. If
not discussed, the Company believes that the impact of recently issued
standards, which are not yet effective, will not have a material impact on the
Company's consolidated financial statements upon adoption.
In August 2014, the FASB issued ASU 2014-15, Presentation of
Financial Statements Going Concern. ASU 2014-15 provides that in
connection with preparing financial statements for each annual and interim
reporting period, an entity's management should evaluate whether there are
conditions or events, considered in the aggregate, that raise substantial doubt
about the entity's ability to continue as a going concern within one year after
the date that the financial statements are issued (or within one year after the
date that the financial statements are available to be issued when applicable).
ASU 2014-15 will be effective for the annual reporting period ending after
December 15, 2016, and for annual and interim periods thereafter. Early
application is permitted. The impact on our financial condition, results of
operations and cash flows as a result of the adoption of ASU 2014-15 has not yet
been determined.
In May 2014, the FASB issued ASU 2014-09, Revenue from
Contracts with Customers. ASU 2014-09 outlines a single comprehensive model
for accounting for revenue arising from contracts with customers and supersedes
most current revenue recognition guidance. ASU 2014-09 requires an entity to
recognize revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. ASU 2014-09 will
be effective for annual reporting periods beginning after December 15, 2016,
including interim periods within that reporting period. Early application is not
permitted. The impact on our financial condition, results of operations and cash
flows as a result of the adoption of ASU 2014-09 has not yet been determined.
7
In July 2013, the FASB, issued ASU No. 2013-11, Presentation
of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar
Tax Loss, or a Tax Credit Carryforward Exists. ASU No. 2013-11 provides that
an entity is required to present an unrecognized tax benefit, or a portion of an
unrecognized tax benefit, in the financial statements as a reduction to a
deferred tax asset for a net operating loss carryforward, a similar tax loss, or
a tax credit carryforward. If a net operating loss carryforward, a similar tax
loss, or a tax credit carryforward is not available at the reporting date, the
unrecognized tax benefit should be presented in the financial statements as a
liability and should not be combined with deferred tax assets. ASU No. 2013-11
is effective for fiscal years, and interim periods within those years, beginning
after December 15, 2013. The adoption of this guidance affected presentation
only and, therefore, did not have a material impact on the Company's
consolidated financial results.
NOTE 3 INTANGIBLE ASSETS
The following table summarizes purchased intangible assets (in
thousands):
|
|
June 30, |
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
Developed technology |
$ |
15,062 |
|
$ |
|
|
Capitalized development costs |
|
2,904 |
|
|
1,670 |
|
|
|
17,966 |
|
|
1,670 |
|
Accumulated amortization |
|
|
|
|
|
|
Developed
technology |
|
(941 |
) |
|
|
|
Capitalized development
costs |
|
(186 |
) |
|
(24 |
) |
Total intangible assets, net
|
$ |
16,839 |
|
$ |
1,646 |
|
Amortization expense of intangible assets was $1.1 million and
1,000 during the three months ended June 30, 2014 and 2013, respectively.
Amortization expense of intangible assets was $1.1 million and $2,000 during the
six months ended June 30, 2014 and 2013, respectively. Estimated amortization
expense for intangible assets is approximately $1.8 million for the remainder of
fiscal 2014 and $4.7 million, $4.7 million, $4.7 million, $1.4 million and $0.3
million in fiscal 2015, 2016, 2017, 2018 and 2019, respectively.
Asset Purchase
On March 21, 2014, the Company closed an Asset Purchase
Agreement to acquire Virtual Desktop Implementation (VDI) technology of V3
Systems, Inc. On closing, the purchase price for the acquired assets of V3
Systems was $14.4 million, which was paid by way of cash in the amount of $4.2
million and by the issuance of 1,089,867 common shares at $5.92. In addition,
the Company may pay an earn-out, based on the achievement of certain milestones
in revenue and gross margin related to the VDI technology, of up to an
additional $5.0 million. The estimated earn-out liability was $3.6 million as of
March 21, 2014. The earn-out is based on a sliding scale of revenue of up to
$12.5 million from the VDI technology (subject to minimum margin realization),
which will be payable at the discretion of Sphere 3D in cash or common 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
period expires on June 21, 2015.
The identified intangible assets as of the date of the purchase
agreement consisted of $14.4 million of developed technology with a useful life
of four years.
8
NOTE 4 DEBT
Convertible Notes - Related Party
In March 2014, the Company issued a senior secured convertible
debenture for $5.0 million. 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 $7.50 per share, with a maturity date of March
21, 2018.
The Company has the option to pay accrued and outstanding
interest either entirely in cash or shares of common stock. If the Company
choses to pay the interest in common stock, the calculation is based upon the
number of shares of common stock that may be issued as payment of interest on
the debenture and will be determined by dividing the amount of interest due by
current market price as defined in the debenture agreement, which is the
weighted average price per common share for the last 10 days on which the common
shares traded, ending on the day before such date, on the exchange. Interest
expense was $0.1 million for the three and six months ended June 30, 2014.
The debenture contains customary covenants, including covenants
that limit or restrict the Company's ability to incur liens, incur indebtedness,
or make certain restricted payments. Upon the occurrence of an event of default
under the debenture, the holder may declare all amounts outstanding to be
immediately due and payable. The debenture specifies a number of events of
default (some of which are subject to applicable grace or cure periods),
including, among other things, non-payment defaults, covenant defaults,
cross-defaults to other materials indebtedness, bankruptcy and insolvency
defaults and material judgment defaults. As of June 30, 2014, the Company was in
compliance with all covenants of the debenture.
NOTE 5 SHARE CAPITAL
Issued and Outstanding
The Company had the following share capital issuance activity
(in thousands):
|
|
Number of |
|
|
|
|
Shares outstanding |
|
Shares |
|
|
Value |
|
Balance, December 31, 2013
|
|
21,098 |
|
$ |
14,407 |
|
Issuance of common shares on acquisition of
intangible assets |
|
1,090 |
|
|
6,454 |
|
Issued on exercise of
warrants |
|
1,105 |
|
|
1,671 |
|
Issued on exercise of options |
|
121 |
|
|
77 |
|
Balance, June 30, 2014 |
|
23,414 |
|
$ |
22,609 |
|
Warrants Financing Agreement
The Company entered into an agreement with a syndicate of
investment dealers led by Cormark Securities Inc., and including Jacob
Securities Inc. and Paradigm Capital Inc. (collectively, the Underwriters)
pursuant to which the Underwriters have agreed to purchase, on a bought deal
basis, 1,176,500 special warrants of the Company (Special Warrants) at a price
of $8.10 per Special Warrants (the Issue Price), resulting in gross proceeds
of $9.4 million to the Company (the Offering). Each Special Warrant is
exercisable into one unit of the Company (a Unit) with each Unit being
comprised of one Common Share of the Company and one-half of a Common Share
purchase warrant of the Company (a Warrant). Each whole Warrant is exercisable
at an exercise price of $10.95 for a period of two years from the closing
date. The Company intended to register the shares issuable pursuant to exercise
of the special warrants by July 31, 2014. Such registration was not completed by
July 31, 2014, therefore the holders of the special warrants were entitled to
1.05 Units upon exercise.
The Underwriters have the option (the Underwriters Option)
to arrange for the purchase of up to an additional 15% of Special Warrants
(being up to 176,475 Special Warrants) sold under the Offering at the Issue
Price. The Underwriters Option shall 9 be exercisable, in whole or in part, until the time of closing.
The Underwriters shall be entitled to the same commission provided for below in
respect of any Special Warrants issued and sold upon exercise of the
Underwriters Option.
The Underwriters are entitled to receive a cash commission
equal to 6% of the gross proceeds of the Offering. The Company will also
reimburse the Underwriters for reasonable fees and expenses incurred in
connection with the Offering.
The Company incurred $0.8 million in fees and commission during
the three months ended June 30, 2014 related to the special warrant financing.
NOTE 6 NET LOSS PER SHARE
Basic net loss per share is computed by dividing net loss
applicable to common shareholders by the weighted-average number of shares of
common stock outstanding during the period. Dilutive common stock equivalents
are comprised of options granted under the Company's stock option plan, common
stock purchase warrants, and convertible notes. For all periods presented, there
is no difference in the number of shares used to calculate basic and diluted
shares outstanding due to the Company's net loss position.
Anti-dilutive common stock equivalents excluded from the
computation of diluted net loss per share were as follows (in thousands):
|
|
Six Months
Ended |
|
|
|
June 30, |
|
|
|
2014 |
|
|
2013 |
|
Options outstanding |
|
3,420 |
|
|
1,190 |
|
Common stock purchase warrants |
|
1,474 |
|
|
4,262 |
|
Convertible notes |
|
667 |
|
|
|
|
Convertible notes interest |
|
213 |
|
|
|
|
VDI earn-out liability |
|
1,051 |
|
|
|
|
NOTE 7 SHARE-BASED COMPENSATION
Share-Based Compensation Expense
The Company recorded the following compensation expense related
to its share-based compensation awards (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
Sales and marketing |
$ |
381 |
|
$ |
|
|
$ |
448 |
|
$ |
|
|
General and administrative |
|
689 |
|
|
25 |
|
|
1,355 |
|
|
45 |
|
|
$ |
1,070 |
|
$ |
25 |
|
$ |
1,803 |
|
$ |
45 |
|
There was $0.1 million and $0.3 million of share-based
compensation capitalized as development costs for the three and six months ended
June 30, 2014, respectively. There were no costs capitalized for the three and
six months ended June 30, 2013.
10
Table of Contents
NOTE 8 RELATED PARTY
In July 2013, the Company entered into a supply agreement, and
a technology license agreement, with Overland. As consideration for the
transactions contemplated by the technology license agreement, the Company
received $250,000 in cash and shares of common stock with a value at the time of
issuance of approximately $250,000.
In connection with the July 2013 Overland transaction, Eric
Kelly, formerly Overland's President and Chief Executive Officer, was appointed
chairman of the board of directors of Sphere 3D. Mr. Kelly was also awarded an
option to purchase up to 850,000 shares of common stock of Sphere 3D with an
exercise price of approximately $0.63.
The Company recognized $0.3 million in revenue related to the
license agreement during the three months ended June 30, 2014. The Company
recognized $0.5 million in revenue related to the license agreement during the
six months ended June 30, 2014. The Company made purchases of $0.6 million and
0.7 million from Overland related to the supply agreement during the three and
six months ended June 30, 2014. Amounts included in other current assets and
accounts payable under these agreements was $26,000 and $0.3 million as of June
30, 2014. Amounts included in other current assets and accounts payable under
these agreements was $0.4 million and $0.1 million as of December 31, 2013.
On May 15, 2013, the Company agreed to loan Overland $5.0
million to support its working capital requirements. The loan bears interest at
the published prime rate (as defined in the agreement) plus 2% 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. The Company
recognized $25,000 in interest income from a promissory note from Overland
during the three and six months ended June 30, 2014. Amounts included in other
current assets for interest receivable was $25,000 at June 30, 2014.
Legal services of 0.2 million and $13,000 were provided by a
legal firm affiliated with a director of the Company during the three months
ended June 30, 2014 and 2013, respectively. Legal services of 0.2 million and
$30,000 were provided by a legal firm affiliated with a director of the Company
during the six months ended June 30, 2014 and 2013, respectively. As of June 30,
2014 and December 31, 2013, accounts payable included $0.2 million, for each
period, due to related parties.
NOTE 9 COMMITMENTS AND CONTINGENCIES
Litigation
From time to time, the Company may be involved in various
lawsuits, legal proceedings, or claims that arise in the ordinary course of
business. Management does not believe any legal proceedings or claims pending at
June 30, 2014 will have, individually or in the aggregate, a material adverse
effect on its business, liquidity, financial position, or results of operations.
Litigation, however, is subject to inherent uncertainties, and an adverse result
in these or other matters may arise from time to time that may harm the
Company's business.
Proposed Merger
In May 2014, we announced that we had signed an agreement and
plan of merger with Overland. Since the merger was announced, four separate
putative shareholder class action lawsuits were filed against us, Overland and
all of its directors in the California Superior Court in and for the County of
San Diego. Three of the lawsuits also named Cyrus Capital Partners, the majority
shareholder of Overland, as a defendant. On June 25, 2014, the Superior Court
entered an order providing for the consolidation of all cases relating to
Overlands decision to enter into the merger agreement with Sphere 3D. These
cases have been consolidated before a single judge and are referred to as In
re Overland Storage Inc., Shareholders Litigation, Lead Case No.
37-2014-00016017-CU-SL-CTL. On July 30, 2014, the plaintiffs filed their
consolidated amended complaint. The lawsuit alleges breaches of fiduciary duties
and conflicts of interest against Overlands directors relating to the merger
process, the terms of the merger agreement, and the consideration to be received
by Overlands shareholders under the terms of the merger agreement. The lawsuit
alleges that we and the other defendants aided and abetted the purported
breaches of fiduciary duties by Overlands directors. The relief sought included
an injunction prohibiting the consummation of the merger,
rescission of the merger to the extent already implemented or rescissory
damages, damages, and an award of attorneys' fees and costs.
11
While the Company believes that the lawsuits are without merit,
and the Company specifically denies the allegations made in the lawsuits and
maintains that it and the other defendants committed no wrongdoing whatsoever,
to permit the timely consummation of the proposed merger, and without admitting
the validity of any allegations made in the lawsuits, the Company concluded that
it is desirable that the Consolidated Action and Merger Actions be resolved. The
proposed settlement of the Consolidated Action and Merger Actions, which is
subject to confirmatory discovery and court approval, provides for the release
of all claims against the defendants relating to the proposed merger and the
allegations in the Consolidated Action and Merger Actions. There can be no
assurance that the settlement will be finalized or that the Superior Court will
approve the settlement.
NOTE 10 SUBSEQUENT EVENTS
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 TSXV, on June 30, 2014.
On each of the dates July 17, 2014 and July 31, 2014, the
Company advanced Overland Storage Inc. additional amounts of $0.5 million to
support its working capital requirements.
On July 18, 2014, the Company issued 52,801 common shares,
valued at $0.5 million, under the related party supply agreement with Overland
Storage.
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, 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.
12
FORM 51-102F1
SPHERE 3D CORP.
MANAGEMENTS DISCUSSION AND ANALYSIS
FOR THE THREE
AND SIX MONTHS ENDED JUNE 30, 2014
Sphere 3D Corp. 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 NASDAQ exchange under the
trading symbol ANY. The Company has its main and registered office at 240
Matheson Blvd. East, Mississauga, Ontario, L4Z 1X1.
ADVISORY
Sphere 3D Corp. (Sphere 3D) adopted accounting principles
generally accepted in the United States of America (U.S. GAAP) commencing with
the annual financial statements for the year ended December 31, 2014, which are
available under Sphere 3Ds profile on the SEDAR website at www.sedar.com
<http://www.sedar.com> and on the EDGAR website at
www.sec.gov<http://www.sec.gov>.
As a result of Sphere 3D adopting U.S. GAAP, Canadian
securities regulations require that the Company refile its 2014 interim
financial statements and notes thereto under U.S. GAAP, together with
accompanying management's discussion and analysis and related certifications.
The previously filed interim financial statements and accompanying management's
discussion and analysis, as well as the previously filed annual audited
consolidated financial statements as at and for the year ended December 31, 2013
and accompanying management's discussion and analysis, are available under
Sphere 3Ds profile on the SEDAR website at
www.sedar.com<http://www.sedar.com> and on the EDGAR website at
www.sec.gov<http://www.sec.gov>.
This Managements Discussion and Analysis (MD&A) comments
on the financial condition and operations of Sphere 3D Corp. (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 accounting principles generally accepted in the
United States of America (US GAAP). All financial information contained in
this MD&A and in the unaudited consolidated interim financial statements has
been prepared in accordance with US GAAP.
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.
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 $8.10 per
Special Warrant, resulting in gross proceeds of $9.4 million 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 $10.95 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.
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.
1 IHS: Cloud- Related Spending by Businesses to
Triple from 2011 to 2017 February 4, 2014.
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.
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.
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
Adjusted EBITDA
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 |
$ |
1,606 |
|
$ |
- |
|
$ |
2,518 |
|
$ |
- |
|
Cost of Sales |
|
902 |
|
|
- |
|
|
1,295 |
|
|
- |
|
Gross Profit |
|
704 |
|
|
- |
|
|
1,223 |
|
|
- |
|
Gross margin percent |
|
43.8.0% |
|
|
- |
|
|
48.6% |
|
|
- |
|
Net loss for the period |
|
(3,051 |
) |
|
(551 |
) |
|
(3,829 |
) |
|
(1,191 |
) |
Loss per share |
$ |
(0.13 |
) |
$ |
(0.03 |
) |
$ |
(0.17 |
) |
$ |
(0.07 |
) |
Add back |
|
|
|
|
|
|
|
|
|
|
|
|
Stock based
compensation |
|
1,070 |
|
|
25 |
|
|
1,803 |
|
|
45 |
|
Amortization of intangibles |
|
1,090 |
|
|
1 |
|
|
1,046 |
|
|
2 |
|
Amortization of
property and |
|
57 |
|
|
47 |
|
|
150 |
|
|
93 |
|
equipment |
|
|
|
|
|
|
|
|
|
|
|
|
Financial
expenses |
|
128 |
|
|
1 |
|
|
138 |
|
|
- |
|
Merger agreement costs |
|
326 |
|
|
- |
|
|
324 |
|
|
- |
|
Total |
|
2,671 |
|
|
74 |
|
|
3,461 |
|
|
140 |
|
Adjusted EBIDA |
$ |
(380 |
) |
$ |
(477 |
) |
$ |
(368 |
) |
$ |
(1,051 |
) |
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 |
$ |
11,097 |
|
$ |
6,427 |
|
Non-current assets
|
|
22,278 |
|
|
1,934
|
|
Total assets |
$ |
33,375 |
|
$ |
8,361 |
|
Current liabilities |
$ |
1,897 |
|
$ |
924 |
|
Non-current liabilities |
|
8,841 |
|
|
- |
|
Total liabilities
|
$ |
10,738 |
|
$ |
924 |
|
Total equity |
$ |
22,637 |
|
$ |
7,437 |
|
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 |
$ |
1,264 |
|
$ |
|
|
|
- $ 1,767 |
|
$ |
- |
|
License fees
|
|
254 |
|
|
|
|
|
-517 |
|
|
- |
|
Service and Support |
|
88 |
|
|
|
|
|
-234 |
|
|
- |
|
Total |
$ |
1,606 |
|
$ |
|
|
|
- $ 2,518 |
|
$ |
- |
|
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 $902,000 and $1,295,000, respectively, providing a gross margin of
43.8% and 48.6% 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 $374,000 and $551,000 respectively, compared to $358,000 and
$729,000, 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 $1,070,000 and 1,803,000 respectively, compared to $26,000
and $46,000, 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 $500,000 and $726,000,
respectively, for the three and six months ended June 30, 2014 compared to
$118,000 and $320,000, 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 $1,090,000 and $1,046,000,
respectively, for the three and six months ended June 30, 2014 compared to
$1,000 and $2,000 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 $57,000 and $150,000 respectively, compared to
$47,000 and $93,000 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 $128,000 and $138,000, 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 $326,000 and $324,000 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.
The net loss for the three and six months ended June 30, 2014
was $3,051,000 or $0.13 per share and $3,829,000 or $0.17 per share,
respectively, compared with a net loss in the three and six months ended June
30, 2013 of $551,000 or $0.03 per share and $1,191,000 or $0.07 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 $3,021,000 compared to a decrease of $1,169,000 for the six
months ended June 30, 2013.
Operating activities required cash of $2,024,000, after
adjustments for non-cash items and changes in other working capital balances,
compared to $1,174,000 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 $10,255,000, related to
the acquisition and development of technology and intangible assets, the
acquisition of property and equipment to support Sphere 3Ds ongoing development
work and loans made to support Overlands working capital requirements as the
merger arrangement is completed.
Financing activities generated $15,298,000 during the six
months ended June 30, 2014 compared to $148,000 for the six months ended June
30, 2013. Financing activities included the sale of special warrants in June
2014, which will convert to Common Stock and Warrants upon final receipt of the
Companys 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 $8,238,000 and working
capital of $9,200,000 compared to cash of $5,217,000 and working capital of
$5,503,000 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 $10.79 per share 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 (in thousands):
|
|
|
June 30 |
|
|
June 30 |
|
|
|
|
2014 |
|
|
2013 |
|
|
Salaries, management fees and
benefits |
$ |
243,000
|
|
$ |
300,000
|
|
|
Share-based payments management |
|
65,000 |
|
|
19,000 |
|
|
Share-based payments directors |
|
116,000 |
|
|
14,000 |
|
|
|
$ |
424,000 |
|
$ |
333,000 |
|
Legal services of $211,000 (2013 - $30,000) 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 $182,000 (2013 - $12,000).
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 |
$ |
1,606 |
|
$ |
912 |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
Cost of sales
|
|
902 |
|
|
393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
704
|
|
|
519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
3,620 |
|
|
1,285 |
|
|
1,314 |
|
|
790 |
|
|
551 |
|
|
642 |
|
|
1,064 |
|
|
532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
$ |
(3,051 |
) |
$ |
(778 |
) |
$ |
(1,328 |
) |
$ |
(817 |
) |
$ |
(551 |
) |
$ |
(640 |
) |
$ |
(1,064 |
) |
$ |
(532 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share |
$ |
(0.13 |
) |
$ |
(0.04 |
) |
$ |
(0.07 |
) |
$ |
(0.05 |
) |
$ |
(0.03 |
) |
$ |
(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 |
$ |
8,238 |
|
$ |
6,461 |
|
$ |
5,217 |
|
$ |
1,355 |
|
$ |
470 |
|
$ |
1,036 |
|
$ |
1,639 |
|
Total assets |
$ |
33,375 |
|
$ |
24,646 |
|
$ |
8,361 |
|
$ |
2,512 |
|
$ |
1,808 |
|
$ |
2,512 |
|
$ |
3,222 |
|
Working
capital |
$ |
9,200 |
|
$ |
6,446 |
|
$ |
5,503 |
|
$ |
1,788 |
|
$ |
535 |
|
$ |
1,060 |
|
$ |
1,735 |
|
FORM 52-109F2R
CERTIFICATION OF REFILED INTERIM FILINGS
This certificate is being filed on the same date that Sphere 3D
Corp. (the "issuer") has refiled the interim financial report and interim
MD&A for the interim period ended June 30, 2014.
I, Eric Kelly, Chief Executive Officer of Sphere 3D
Corp., certify the following:
1. Review: I have reviewed the interim financial
report and interim MD&A (together, the "interim filings") of 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: March 31, 2015
(signed) Eric Kelly
Eric Kelly
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
reports 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 52-109F2R
CERTIFICATION OF REFILED INTERIM FILINGS
This certificate is being filed on the same date that Sphere 3D
Corp. (the "issuer") has refiled the interim financial report and interim
MD&A for the interim period ended June 30, 2014.
I, Kurt Kalbfleisch, Chief Financial Officer of Sphere 3D
Corp., certify the following:
1. Review: I have reviewed the interim financial
report and interim MD&A (together, the "interim filings") of 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: March 31, 2015
(signed) Kurt Kalbfleisch
Kurt
Kalbfleisch
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
reports 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. |
|
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