UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018June 30, 2023
¨or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from___________________________to ___________________________
Commission File Number: 001-36532

Sphere 3D Corp.
(Exact name of Registrant as specified in its charter)

__________________________________
Ontario, Canada98-1220792
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification No.)
240 Matheson Blvd. East895 Don Mills Road, Bldg 2, Suite 900
Mississauga,Toronto, Ontario Canada L4Z 1XM3C 1W3
(Address of principal executive offices)(Zip Code)
(408) 283-4754647 952-5049
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common SharesANYNASDAQ Capital Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer ¨ Smaller reporting company x
(Do not check if a smaller reporting company)    Emerging growth company x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨Yes ☐No ☒
As of May 1, 2018,August 7, 2023, there were 13,748,74411,900,464 shares of the registrant’s common stock outstanding.







TABLE OF CONTENTS
TABLE OF CONTENTS
Item 1.Page
Item 2.
Item 3.
Item 4.
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2.
Item 3.
Item 4.
Item 5.Other Information
Item 6.Exhibits
Signature






PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
Sphere 3D Corp.
Condensed Consolidated Balance Sheets
(in thousands of U.S. dollars, except shares)
(unaudited)
June 30,
2023
December 31,
2022
Assets
Current assets:
Cash and cash equivalents$506 $1,337 
Digital assets626 1,695 
Restricted cash202 206 
Accounts receivable, net148 174 
Note receivable, net of allowance for credit losses of $3,821 and $0, respectively— 3,821 
Other current assets3,196 3,051 
Total current assets4,678 10,284 
Property and equipment, net28,695 34,259 
Intangible assets, net8,666 9,477 
Funds held in trust account8,542 10,297 
Other assets20,697 18,699 
Total assets$71,278 $83,016 
Liabilities, Temporary Equity and Shareholders’ Equity
Current liabilities:
Accounts payable$2,729 $2,993 
Accrued liabilities1,794 1,537 
Accrued payroll and employee compensation458 696 
Warrant liabilities579 — 
Convertible debt250 — 
Other current liabilities1,350 974 
Total current liabilities7,160 6,200 
Deferred underwriting fee4,554 4,554 
Warrant liabilities— 864 
Convertible debt, long-term801 — 
Other non-current liabilities320 366 
Total liabilities12,835 11,984 
Commitments and contingencies (Note 13)
Series H preferred shares, no par value, unlimited shares authorized, 49,981 and 60,000 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively22,049 26,469 
Redeemable non-controlling interest8,492 9,998 
Total temporary equity30,541 36,467 
Shareholders’ equity:
Common shares, no par value; unlimited shares authorized, 11,423,310 and 9,804,609 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively462,226 456,402 
Accumulated other comprehensive loss(1,804)(1,799)
Accumulated deficit(432,297)(419,732)
Total Sphere 3D Corp. shareholders’ equity28,125 34,871 
Non-controlling interest(223)(306)
Total shareholders’ equity27,902 34,565 
Total liabilities, temporary equity, and shareholders’ equity$71,278 $83,016 
See accompanying notes to condensed consolidated financial statements.



Sphere 3D Corp.
Condensed Consolidated Statements of Operations
(in thousands of U.S. dollars, except share and per share amounts)
(unaudited)
Three Months
Ended June 30,
Six Months
Ended June 30,
Three Months
Ended March 31,
2023202220232022
2018 2017
Revenues:Revenues:
Digital mining revenueDigital mining revenue$4,966 $1,211 $7,490 $1,958 
Service and product revenueService and product revenue500 710 1,002 1,335 
Total revenuesTotal revenues5,466 1,921 8,492 3,293 
   
Net revenue:(Unaudited)
Product revenue$17,419
 $19,445
Service revenue2,029
 2,293
19,448
 21,738
Cost of product revenue12,535
 14,085
Cost of service revenue903
 822
Gross profit6,010
 6,831
Operating expenses:   
Operating costs and expenses:Operating costs and expenses:
Cost of digital mining revenueCost of digital mining revenue4,074 619 6,039 974 
Cost of service and product revenueCost of service and product revenue209 341 507 700 
Sales and marketing4,390
 4,797
Sales and marketing277 264 551 495 
Research and development1,288
 1,771
Research and development227 139 497 253 
General and administrative5,421
 4,989
General and administrative3,634 7,788 7,105 16,757 
Depreciation and amortizationDepreciation and amortization1,375 7,485 2,400 13,849 
Loss on disposal of property and equipmentLoss on disposal of property and equipment251 — 251 — 
Realized gain on sale of digital assetsRealized gain on sale of digital assets(139)— (772)— 
Impairment of digital assetsImpairment of digital assets254 679 350 770 
Total operating expensesTotal operating expenses10,162 17,315 16,928 33,798 
Loss from operationsLoss from operations(4,696)(15,394)(8,436)(30,505)
Other income (expense):Other income (expense):
11,099
 11,557
Loss from operations(5,089) (4,726)
Other expense:   
Interest expense(453) (1,190)Interest expense(1,173)— (1,173)— 
Interest expense, related party(655) (660)
Other expense, net(286) (927)
Loss before income taxes(6,483) (7,503)
Interest income and other expense, netInterest income and other expense, net1,113 281 1,364 745 
Forgiveness of note receivableForgiveness of note receivable— (13,145)— (13,145)
Impairment of investmentsImpairment of investments— (12,429)— (12,429)
Net loss before taxesNet loss before taxes(4,756)(40,687)(8,245)(55,334)
Provision for income taxes340
 306
Provision for income taxes— — 
Net loss$(6,823) $(7,809)Net loss(4,760)(40,687)(8,249)(55,334)
Less: Non-controlling interest - incomeLess: Non-controlling interest - income67 — 83 — 
Net loss available to common shareholdersNet loss available to common shareholders$(4,827)$(40,687)$(8,332)$(55,334)
Net loss per share:   Net loss per share:
Basic and diluted$(0.89) $(2.50)
Net loss per share basic and dilutedNet loss per share basic and diluted$(0.44)$(4.31)$(0.78)$(5.96)
Shares used in computing net loss per share:   Shares used in computing net loss per share:
Basic and diluted7,679
 3,118
Basic and diluted11,051,588 9,449,735 10,673,876 9,285,878 
See accompanying notes to condensed consolidated financial statements.

4



Sphere 3D Corp.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands of U.S. dollars)
(unaudited)
Three Months
Ended March 31,
2018 2017Three Months
Ended June 30,
Six Months
Ended June 30,
   2023202220232022
(Unaudited)
Net loss$(6,823) $(7,809)Net loss$(4,760)$(40,687)$(8,249)$(55,334)
Other comprehensive loss:   
Other comprehensive (loss) income:Other comprehensive (loss) income:
Foreign currency translation adjustment641
 (9)Foreign currency translation adjustment(3)(8)(5)
Total other comprehensive income (loss)641
 (9)
Total other comprehensive (loss) incomeTotal other comprehensive (loss) income(3)(8)(5)
Comprehensive loss$(6,182) $(7,818)Comprehensive loss$(4,763)$(40,695)$(8,254)$(55,333)
See accompanying notes to condensed consolidated financial statements.

5



Sphere 3D Corp.
Condensed Consolidated Balance SheetsStatements of Shareholders’ Equity
(in thousands of U.S. dollars)dollars, except shares)
(unaudited)
 March 31, 2018 December 31, 2017
    
Assets(Unaudited)
Current assets:   
Cash and cash equivalents$2,327
 $4,598
Accounts receivable, net of allowance for doubtful accounts of
     $1,699 and $1,675, respectively
10,606
 11,482
Inventories7,697
 8,366
Other current assets2,325
 1,829
Total current assets22,955
 26,275
Property and equipment, net2,676
 2,742
Intangible assets, net40,130
 41,473
Goodwill11,590
 11,590
Other assets1,236
 1,200
Total assets$78,587
 $83,280
Liabilities and Shareholders’ Equity   
Current liabilities:   
Accounts payable$10,788
 $9,362
Accrued liabilities4,538
 4,157
Accrued payroll and employee compensation2,419
 3,240
Deferred revenue4,318
 5,060
Debt, related party25,854
 26,613
Debt18,109
 18,195
Other current liabilities1,023
 1,283
Total current liabilities67,049
 67,910
Deferred revenue, long-term1,321
 1,276
Deferred income taxes1,368
 1,342
Other non-current liabilities794
 2,289
Total liabilities70,532
 72,817
Commitments and contingencies (Note 12)

 

Shareholders’ equity:   
Common shares, no par value; 9,428 and 7,116 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively177,371
 173,871
Accumulated other comprehensive loss(1,340) (1,981)
Accumulated deficit(167,976) (161,427)
Total shareholders’ equity8,055
 10,463
Total liabilities and shareholders’ equity$78,587
 $83,280
Common SharesAccumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Non-controlling InterestTotal
Shareholders'
Equity
SharesAmount
Balance at January 1, 20239,804,609 $456,402 $(1,799)$(419,732)$(306)$34,565 
Cumulative adjustment from adoption of
     ASU 2016-13
— — — (3,821)— (3,821)
Issuance of common shares for
     conversion of preferred shares
748,427 2,311 — — — 2,311 
Issuance of common shares pursuant to the
     vesting of restricted stock units
10,656 — — — — — 
Share-based compensation— 485 — — — 485 
Remeasurement of redeemable
     non-controlling interest
— — — (376)— (376)
Other comprehensive loss— — (2)— — (2)
Net loss— — — (3,505)16 (3,489)
Balance at March 31, 202310,563,692 459,198 (1,801)(427,434)(290)29,673 
Issuance of common shares for
     conversion of preferred shares
682,856 2,109 — — — 2,109 
Exercise of stock options94,701 200 — — — 200 
Issuance of common shares for vested
     restricted stock units, net of shares
     withheld for income taxes
82,061 — — — — — 
Share-based compensation— 719 — — — 719 
Remeasurement of redeemable
     non-controlling interest
— — — (36)— (36)
Other comprehensive loss— — (3)— — (3)
Net loss— — — (4,827)67 (4,760)
Balance at June 30, 202311,423,310 $462,226 $(1,804)$(432,297)$(223)$27,902 


See accompanying notes to condensed consolidated financial statements.

6



Sphere 3D Corp.
Condensed Consolidated Statements of Shareholders’ Equity (continued)
(in thousands of U.S. dollars, except shares)
(unaudited)
Common SharesAccumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Non-controlling InterestTotal
Shareholders'
Equity
SharesAmount
Balance at January 1, 20229,080,915 $444,265 $(1,794)$(215,195)$— $227,276 
Issuance of common shares and warrants for
     the settlement of liabilities
135,714 1,957 — — — 1,957 
Share-based compensation— 117 — — — 117 
Other comprehensive income— — — — 
Net loss— — — (14,647)— (14,647)
Balance at March 31, 20229,216,629 446,339 (1,785)(229,842)— 214,712 
Issuance of common shares for
     the purchase of intangible assets
192,857 1,721 — — — 1,721 
Issuance of common shares for vested
     restricted stock units, net of shares
     withheld for income taxes
91,338 — — — — — 
Share-based compensation— 7,199 — — — 7,199 
Other comprehensive loss— — (8)— — (8)
Net loss— — — (40,687)— (40,687)
Balance at June 30, 20229,500,824 $455,259 $(1,793)$(270,529)$— $182,937 

See accompanying notes to condensed consolidated financial statements.
7


Sphere 3D Corp.
Condensed Consolidated Statements of Cash Flows
(in thousands of U.S. dollars)
(unaudited)
Six Months
Ended June 30,
20232022
Operating activities:
Net loss$(8,249)$(55,334)
Adjustments to reconcile net loss to cash used in operating activities:
Digital currency issued for services669 229 
Depreciation and amortization2,400 13,849 
Share-based compensation1,204 7,316 
Change in fair value of warrant liabilities(1,261)— 
Warrants issued with convertible debt976 — 
Realized gain on sale of digital assets(772)(3)
Impairment of digital assets350 770 
Loss on disposal of property and equipment251 — 
Change in fair value of debt51 — 
Noncash lease cost25 — 
Forgiveness of note receivable— 13,145 
Impairment of investments— 12,429 
Issuance of common shares and warrants for settlement of liabilities— 1,957 
Change in fair value of crypto asset payable— (1,607)
Changes in operating assets and liabilities:
Proceeds from sale of digital assets8,312 — 
Digital assets(7,490)(1,958)
Accounts receivable26 (12)
Accounts payable and accrued liabilities1,738 (339)
Accrued payroll and employee compensation(238)423 
Other assets and liabilities, net(26)(15,395)
Net cash used in operating activities(2,034)(24,530)
Investing activities:
Proceeds from sale of property and equipment3,699 — 
Redemption of non-controlling interest(1,918)— 
Payments for purchase of property and equipment(1,561)(15,958)
Notes receivable— (2,837)
Purchase of intangible assets— (306)
Net cash provided by (used in) investing activities220 (19,101)
Financing activities:
Proceeds from convertible debt, net of debt issuance costs779 — 
Proceeds from exercise of stock options200 — 
Net cash provided by financing activities979 — 
Net decrease in cash, cash equivalents and restricted cash(835)(43,631)
Cash, cash equivalents and restricted cash, beginning of period1,543 54,355 
Cash, cash equivalents and restricted cash, end of period$708 $10,724 
See accompanying notes to condensed consolidated financial statements.
8


 Three Months
Ended March 31,
 2018 2017
    
Operating activities:(Unaudited)
Net loss$(6,823) $(7,809)
Adjustments to reconcile net loss to cash used in operating activities:   
Depreciation and amortization1,484
 1,526
Share-based compensation821
 2,169
Amortization of debt issuance costs183
 951
Fair value adjustment of warrants(259) (187)
Payment in-kind interest expense, related party63
 
Loss on revaluation of investment
 1,145
Changes in operating assets and liabilities (net of effects of acquisition):   
Accounts receivable1,036
 (756)
Inventories709
 (496)
Accounts payable and accrued liabilities2,228
 1,298
Accrued payroll and employee compensation(823) (414)
Deferred revenue(465) 124
Other assets and liabilities, net(265) (1,523)
Net cash used in operating activities(2,111) (3,972)
Investing activities:   
Acquisition, net of cash acquired
 (1,051)
Purchase of fixed assets(8) (4)
Net cash used in investing activities(8) (1,055)
Financing activities:   
Proceeds from issuance of common shares and warrants
 7,862
Payment for issuance costs
 (433)
Payments on debt, related party(192) (577)
Net cash (used in) provided by financing activities(192) 6,852
Effect of exchange rate changes on cash40
 23
Net (decrease) increase in cash and cash equivalents(2,271) 1,848
Cash and cash equivalents, beginning of period4,598
 5,056
Cash and cash equivalents, end of period$2,327
 $6,904
Supplemental disclosures of cash flow information:   
Cash paid for interest$379
 $404
Supplemental disclosures of non-cash investing and financing activities:   
Issuance of common shares for settlement of liabilities$787
 $52
Issuance of common shares for related party liabilities$483
 $
Issuance of common shares for acquisition$
 $346
Costs accrued for issuance of common shares$
 $250

Sphere 3D Corp.
Condensed Consolidated Statements of Cash Flows (continued)
(in thousands of U.S. dollars)
Six Months
Ended June 30,
20232022
Reconciliation of cash, cash equivalents and restricted cash to consolidated balance sheets:
Cash and cash equivalents$506 $10,724 
Restricted cash202 — 
Total cash, cash equivalents and restricted cash$708 $10,724 
Supplemental disclosures of non-cash investing activities:
Remeasurement of redeemable non-controlling interest$412 $— 
Reclassification from deposit for mining equipment to mining equipment$— $9,137 
Issuance of common shares for purchase of intangible assets$— $1,721 
See accompanying notes to condensed consolidated financial statements.

9


Sphere 3D Corp.
Notes to Condensed Consolidated Financial Statements
(Unaudited)(unaudited)
1.Organization and Business
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. On March 24, 2015, the Company completed a short-form amalgamation with a wholly-owned subsidiary. In connection with the short-form amalgamation, the Company changed its name to “Sphere 3D Corp.”
Any reference to the “Company”, “Sphere 3D”, “we”, “our”, “us”, or similar terms refers to Sphere 3D Corp. and its subsidiaries. In January 2022, the Company commenced operations of its digital mining operation dedicated to becoming a leading carbon-neutral Bitcoin mining company. The Company is establishing an enterprise-scale mining operation through procurement of next-generation mining equipment and partnering with experienced service providers. In addition, the Company delivers data management and desktop and application virtualization solutions through hybrid cloud, cloud and on premise implementations by its global reseller network. The Company achieves this through a combination of containerized applications, virtual desktops, virtual storage and physical hyper-converged platforms. The Company’s products allow organizations to deploy a combination of public, private or hybrid cloud strategies while backing them up with the latest storage solutions. The Company has a portfolio ofCompany’s brands including RDX®,Glassware 2.0™, SnapCLOUD®, SnapServer®, SnapSync™, NEO®, and V3®.
Related Party Share Purchase Agreement 
On February 20, 2018, the Company, Overland Storage, Inc., a California corporation and a wholly owned subsidiary of the Companyinclude HVE ConneXions (“Overland”), and Silicon Valley Technology Partners LLC, a Delaware limited liability company established and controlled by Eric Kelly, the Company’s Chief Executive Officer and Chairman of the Board of Directors (the “Purchaser”) entered into a share purchase agreement (the “Purchase Agreement”), pursuant to which, among other things, and subject to certain closing conditions, the Company will sell to Purchaser all of the issued and outstanding shares of capital stock of Overland for $45.0 million (the “Purchase Price”), subject to a working capital adjustment (the “Share Purchase”). The net proceeds from the Share Purchase will be used to repay: (i) the Company’s outstanding obligations under its Credit Agreement with Opus Bank; (ii) its outstanding obligations under the related party convertible note with FBC Holdings S.a.r.l. (“FBC Holdings”); and (iii) its related party subordinated promissory note with MF Ventures, LLC. The Special Committee of the Board of Directors of the Company and the Board of Directors of the Company (with Eric Kelly recusing himself) unanimously approved the entry into the Purchase Agreement by the Company. The Company will hold a special shareholder meeting on May 31, 2018 to seek shareholder approval for the Share Purchase and, subject to the receipt of requisite shareholder approval and meeting the other closing conditions contained therein (including Purchaser’s receipt of adequate funding to close the Share Purchase), anticipates the transaction will close shortly thereafter.
 Under the terms of the Purchase Agreement, the Share Purchase is contingent upon, and Purchaser must use its best efforts to arrange for, debt and/or equity financing in an amount at least equal to the Purchase Price in order to consummate the Share Purchase (the “Financing”). In addition, the Company must use commercially reasonable efforts to provide all cooperation reasonably requested by Purchaser regarding the Financing. Until the Financing is committed in accordance with a Contingency Termination Event (as defined below), the Company is free to solicit and negotiate other offers to purchase the Company, Overland or any or all of their assets and has the right to terminate the Purchase Agreement for any or no reason without penalty (subject to the expense reimbursement provisions described below).
The closing of the Share Purchase and of the other transactions contemplated by the Purchase Agreement are subject to (i) the adoption of the Purchase Agreement by the affirmative vote of the holders of (a) at least 66 2/3% of the outstanding common shares of the Company cast in person or by proxy at the special meeting of shareholders and (b) a majority of the votes cast by certain “minority shareholders” in person or by proxy at the special meeting of shareholders (the “Shareholder Approval”HVE”) and (ii) the transfer by the Company of (a) the businesses of (x) Unified ConneXions Inc.(“UCX”).
Liquidity and (y) HVE ConneXions, LLC (including the provision of information technology consulting services and hardware solutions around cloud computing, data storage and server virtualization to corporate, government, and educational institutions), and (b) the SNAP network attached storage business to a subsidiary of the Company other than Overland or a subsidiary of Overland. The closing of the Share Purchase and of the other


transactions contemplated by the Purchase Agreement are also subject to various other conditions, including the consummation of the Financing, the absence of any order, statute, rule, regulation, executive order, decree or injunction issued by any governmental entity prohibiting the Share Purchase, the absence of a pending claim, suit, action or proceeding material claims seeking to prohibit the Share Purchase, the accuracy of the representations and warranties contained in the Purchase Agreement, compliance with the covenants and agreements contained in the Purchase Agreement in all material respects, and the absence of a material adverse effect on either the Company or Overland.Going Concern
The Company has made customary representations, warrantiesrecurring losses from operations and covenants in the Purchase Agreement, including, among others, covenants (i) to conduct its business in the ordinary course during the period between the executionincurred a net loss of the Purchaser Agreement and the closing of the Share Purchase, (ii) not to engage in specified types of transactions during this period unless agreed to in writing by Purchaser, (iii) to convene and hold a meeting of its shareholdersapproximately $8.2 million for the purpose of obtaining the Shareholder Approval and (iv) subject to certain exceptions and only following the occurrence of the Contingency Termination Event (as defined below), not to solicit and negotiate other offers to purchase the Company, Overland or any or all of their assets or to withdraw, modify or qualify in a manner adverse to Purchaser the recommendation of the Board that the Company’s shareholders vote in favor of approving the Share Purchase. The Company has also agreed to indemnification provisions in favor of Purchaser that are customary for transactions of this type.
Prior to the (i) execution and delivery of financing commitments in forms reasonably acceptable to the Company, which provide, among other things, for commitments from financing sources sufficient to pay the Purchase Price in the Share Purchase, (ii) execution and delivery by Purchaser of an irrevocable waiver in a form reasonably acceptable to the Company waiving Purchaser’s condition to the obligation to close the Share Purchase that the Financing has been received and (iii) an executed certificate delivered by Purchaser to the Company regarding the accuracy of certain representations regarding the Financing (the “Contingency Termination Event”), the Company has the right to terminate the Purchase Agreement for any reason or for no reason. The Purchase Agreement also provides that, upon such termination of the Purchase Agreement by the Company, the Company has agreed to reimburse Purchaser up to approximately $350,000 for the reasonable and documented out-of-pocket expenses incurred by the Purchaser and the sources for the Financing in connection with the negotiation, execution and performance of the Purchase Agreement and the transactions contemplated thereby, as well as the fees and expenses of the Purchaser's outside counsel.
In addition, the Purchase Agreement contains certain other termination rights, including, following the occurrence of the Contingency Termination Event, the right of the Company to terminate the Purchase Agreement under specified circumstances to accept an unsolicited superior proposal from a third party. The Purchase Agreement provides that, following the occurrence of the Contingency Termination Event and upon termination of the Purchase Agreement by the Company under specified circumstances (including termination by the Company to accept a superior proposal) or by Purchaser under specified circumstances, a termination fee equal to the lesser of (i) $1.0 million and (ii) the amount of Purchaser’s reasonable fees and expenses in connection with the negotiation, execution and performance of the Purchase Agreement (including the amount that the Purchaser must pay or reimburse to the sources for the Financing) will be payable by the Company to the Purchaser. Such termination fee is also payable following the occurrence of the Contingency Termination Event under certain other specified circumstances set forth in the Purchase Agreement. The Purchase Agreement also provides that each party to the Purchase Agreement may compel the other party or parties thereto to specifically perform its or their obligations under the Purchase Agreement. However, if the Purchase Agreement is terminated such that the Company termination fee becomes payable, the Purchaser will be precluded from any other remedy against the Company or Overland, including expense reimbursement and specific performance. Further, if the Purchase Agreement is terminated such that the expense reimbursement becomes payable, the Purchaser will be precluded from any other remedy against the Company or Overland, including the Company termination fee and specific performance. Subject to certain exceptions and limitations, either party may terminate the Purchase Agreement if the Share Purchase is not consummated by August 19, 2018.


six months ended June 30, 2023. Management has projected that based on our hashing rate at June 30, 2023, cash on hand willmay not be sufficient to allow the Company to continue operations beyond May 31, 2018the next 12 months from the date the financial statements are issued if the Company iswe are unable to amend, refinance,raise additional funding for operations. We expect our working capital needs to increase in the future as we continue to expand and enhance our operations. Our ability to raise additional funds for working capital through equity or pay off its debt financings or other sources may depend on the financial success of our then current business and credit facilities. If the transactions contemplated by the Purchase Agreementsuccessful implementation of our key strategic initiatives, financial, economic and market conditions and other factors, some of which are consummated, the Company expects that the proceeds to be received by the Company would be sufficient to pay off its outstanding debt and credit facilities. The Company will hold a special shareholder meeting on May 31, 2018 to seek shareholder approval for the Share Purchase and, subject to the receipt of requisite shareholder approval and meeting the other closing conditions contained therein (including Purchaser’s receipt of adequate funding to close the Share Purchase), anticipates the transaction will close shortly thereafter. Therebeyond our control. No assurance can be no guaranteegiven that we will be successful in raising the required capital at a reasonable cost and at the required times, or at all. Further equity financings may have a dilutive effect on shareholders and any debt financing, if available, may require restrictions to be placed on our future financing and operating activities. We require additional capital and if we are unsuccessful in raising that capital, we may not be able to raise additional fundscontinue our business operations in the cryptocurrency mining industry or amend or refinancewe may be unable to advance our debtgrowth initiatives, either of which could adversely impact our business, financial condition and credit facilities on favorable terms or at all, nor can there be any guarantee that the Company’s shareholders will approve the Share Purchase or that the Share Purchase will ultimately be consummated. results of operations.
Significant changes from the Company’s current forecasts, including but not limited to: (i) any delay in the closing of the Share Purchase after May 31, 2018 (including as a result of a failure to receive the appropriate shareholder vote, the failure of the Purchaser to obtain funding adequate to fund the Purchase Price, or the failure to satisfy any closing conditions), (ii) failure to comply with the financial covenants in its credit facilities; (iii) shortfalls from projected sales levels; (iv)(ii) unexpected increases in product costs; (v)(iii) increases in operating costs; (vi) changes(iv) fluctuations in the historical timingvalue of collecting accounts receivable;cryptocurrency; and (vii)(v) inability to maintain compliance with the requirements of the NASDAQ Capital Market and/or inability to maintain listing with the NASDAQ Capital Market could have a material adverse impact on the Company’s ability to access the level of funding necessary to continue its operations at current levels. If any of these events occurs or the Company is unable to generate sufficient cash from operations or financing sources, the Company may be forced to liquidate assets where possible and/or curtail, suspend or cease planned programs or operations generally or possibly seek bankruptcy protection or be subject to an involuntary bankruptcy petition, any of, which would have a material adverse effect on the Company’s business, results of operations, financial position and liquidity.
The Company incurred losses from operations and negative cash flows from operating activities for the three months ended March 31, 2018, and such losses might continue for the foreseeable future. Based upon the Company's current expectations and projections for the next year, the Company believes that it may not have sufficient liquidity necessary to sustain operations beyond May 31, 2018 due to the maturity dates of the existing debt facilities. These factors, among others, raise substantial doubt that the Company will be able to continue as a going concern.concern beyond the next 12 months from the date the financial statements are issued. The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.business and do not include any adjustments that might result from the outcome of this uncertainty.
Reverse Stock Split
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Share Consolidation
On July 5, 2017, the Board of Directors ofJune 28, 2023, the Company authorizedfiled Articles of Amendment to effect a share consolidation (also known as a reverse stock split) of the Company’sits issued and outstanding common shares aton a ratio of 1-for-25, whichone-for-seven basis. The share consolidation became effective on July 11, 2017.June 28, 2023. All share and per share amounts in the accompanying consolidated financial statements and the notes thereto have been restated for all periods presented to reflect the share consolidation.
2.Significant Accounting Policies
2.Summary of Significant Accounting Policies
Principles of Consolidation
The condensed 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. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for a complete set of financial statements. These condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on March 31, 2023. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year. These condensed consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned.subsidiaries. All intercompany balances and transactions have been appropriately eliminated in consolidation.
Use of Estimates
The preparation of the condensed 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 condensed consolidated 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 impairment assessments of goodwill,


other indefinite-lived intangible assets and long-lived assets; deferred revenue; allowance for doubtful receivables; inventory valuation; warranty provisions; deferred income taxes; and litigation claims. Actual results could differ from these estimates.
Reclassifications
Certain prior period amounts have been reclassified for consistency with the current period presentation. The reclassifications did not have a material impact on the Company's condensed interim consolidated financial statements and related disclosures.
Foreign Currency Translation
The financial statements of the Company’s foreign subsidiaries,subsidiary, for which the functional currency is the local currency, areis translated into U.S. dollars using the exchange rate at the consolidated balance sheet date for assets and liabilities and a weighted-average exchange rate during the year for revenue, expenses, gains and losses. Translation adjustments are recorded as accumulated other comprehensive income (loss) within shareholders’ equity. Gains or losses from foreign currency transactions are recognized in the condensed consolidated statements of operations. Such transactions resulted in a loss of $0.6 million inminimal gains or losses for the three and six months ended March 31, 2018June 30, 2023 and a minimal gain in three months ended March 31, 2017.2022.
Cash and Cash Equivalents
Highly liquid investments with insignificant interest rate risk and original maturities of three months or less, when purchased, are classified as cash equivalents. Cash equivalents are composed of money market funds. The carrying amounts approximateCompany maintains cash and cash equivalent balances with financial institutions that exceed federally insured limits. The Company has not experienced any losses related to these balances and believes credit risk to be minimal.
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Restricted Cash and Cash Equivalents
Restricted cash is cash held in a separate bank account with restrictions on withdrawal. The Company’s restricted cash classified as current, is pledged as collateral for a standby letter of credit used for the bonding purpose necessary for the Company to receive mining machines.
Funds held in trust account are restricted and invested in U.S. government treasury money market funds, except with respect to interest earned on the funds held in the trust account that may be released to MEOA, to pay its franchise and income tax obligations (less up to $100,000 of interest to pay dissolution expenses). In the third quarter of 2023, the trust account proceeds were released and used for the redemption of the public shares of MEOA as a result of the initial business combination not being completed prior to the applicable deadline.
Digital Assets
The Company accounts for digital assets as indefinite-lived intangible assets. The digital assets are recorded at cost less impairment.
An impairment analysis is performed at each reporting period or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. The fair value due to the short maturities of these instruments.
Accounts Receivable
Accounts receivabledigital assets is recorded at the invoiced amount and is non-interest bearing. We estimate our allowance for doubtful accountsdetermined on a nonrecurring basis based on an assessmentthe lowest intraday quoted price on the active exchange(s) that the Company has determined as the principal market for digital assets (Level 1 inputs). If the carrying value of the collectability of specific accounts anddigitalasset exceeds the overall condition offair value based on the accounts receivable portfolio. When evaluating the adequacy of the allowance for doubtful accounts, we analyze specific trade and other receivables, historical bad debts, customer credits, customer concentrations, customer credit-worthiness, current economic trends and changes in customers’ payment terms and/or patterns. We review the allowance for doubtful accounts on a quarterly basis and record adjustments as considered necessary. Customer accounts are written-off against the allowance for doubtful accounts when an account is considered uncollectable.
Inventories
Inventories are stated at the lower of cost and net realizable value using the first-in-first-out method. Net realizable value is the estimated sellinglowest price quoted in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We assessactive exchanges during the value of inventories periodically based upon numerous factors including, among others, expected product or material demand, current market conditions, technological obsolescence, current cost, and net realizable value. If necessary, we write down its inventory for obsolete or unmarketable inventory byperiod, an impairment loss has occurred with respect to those digital assets in the amount equal to the difference between their carrying values and the price determined.
Impairment losses are recognized in operating expenses in the consolidated statements of operations in the period in which the impairment is identified. The impaired digital assets are written down to their fair value at the time of impairment and this new cost basis will not be adjusted upward for any subsequent increase in fair value. Gains are not recorded until realized upon sale or disposition.
Digital assets awarded to the Company through its mining activities are included within operating activities on the accompanying consolidated statements of cash flows. The sales of digital assets are included within operating activities in the accompanying condensed consolidated statements of cash flows and any realized gains or losses from such sales are included in operating costs and expenses in the condensed consolidated statements of operations. The Company accounts for its gains or losses in accordance with the first in first out (FIFO) method of accounting.
The following table presents the activities of the inventorydigital assets (in thousands):
Balance at January 1, 2023$1,695 
Addition of digital assets7,490 
Digital assets sold for cash(7,540)
Digital assets issued for services(669)
Impairment loss(350)
Balance at June 30, 2023$626 
Allowance for Credit Losses
The Company’s assessment of its allowance for credit losses requires it to incorporate considerations of historical information, current conditions and reasonable and supportable forecasts. The Company manages credit risk through review of available public company information. For the net realizable value.Company’s note receivable, the Company has recorded an allowance for credit losses and elected to write off accrued interest receivables by reversing interest income.
Goodwill
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Leases
The Company has entered into operating leases primarily for real estate. These leases have contractual terms which range from 12 months to 5 years. The Company determines if an arrangement contains a lease at inception. Right of use (“ROU”) assets and liabilities resulting from operating leases are included in property and equipment, other current liabilities and other non-current liabilities on our consolidated balance sheets. Operating lease ROU assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As the leases typically do not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at commencement date in determining the discount rate to calculate the present value of future payments. The operating lease ROU asset may also include any lease payments made and exclude lease incentives and initial direct costs incurred. The Company’s leases do not include options to extend the lease. Short-term leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
Property and Equipment
Property and equipment primarily consists of mining equipment and is stated at cost, including purchase price and all shipping and custom fees, and depreciated using the straight-line method over the estimated useful lives of the assets, generally five years.
The Company reviews the carrying amounts of property and equipment when events or changes in circumstances indicate the assets may not be recoverable. If any such indication exists, the fair value of the asset is estimated in order to determine the extent of the impairment loss, if any.
Intangible Assets
Goodwill represents the excess of consideration paid over the value assigned to the net tangible and identifiable intangible assets acquired. For intangible assets purchased in a business combination, the estimated fair values of the assets received are used to establish their recorded values. For 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 six5 years to 2515 years for supplier agreements, six years for channel partner relationships, three to nine years for developed technology, three to eight years for capitalized development costs, and two to 25seven years for customer relationships as this method most closely reflects the pattern in which the economic benefits of the assets will be consumed.
The Company has purchased carbon credits. As it intends to use these carbon credits, the assets have been classified as intangible assets. When the carbon credit is used, it will be expensed as an operating expense.
Impairment of Goodwill, Intangible Assets and Long-Lived Assets
Goodwill andThe Company performs regular reviews of intangible assets to determine if any event has occurred that may indicate that intangible assets with finite useful lives and other long-lived assets are tested for impairment on an annual basis at December 31, or more frequently if there are indicators of impairment.potentially impaired. 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. 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 are reviewed
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Convertible Debt
The Company accounts for recoverability whenever events orconvertible debt in accordance with the applicable authoritative guidance and has elected to apply the fair value option. The convertible debt is reflected at fair value in the condensed consolidated balance sheets and changes in circumstances indicate the carryingfair 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 changesare recorded in the mannercondensed consolidated statements of useoperations as a fair value adjustment to the convertible debt each reporting period (with the portion of the assetschange that results from a change in the instrument-specific credit risk recorded separately in other comprehensive income, if applicable). The Company expenses any issuance costs allocated to a freestanding or an embedded financial instrument that is subsequently measured at fair value through earnings as of the strategyissuance date.
Warrant Liabilities
Warrant liabilities are for warrants for shares of MEOA’s common stock that are not indexed to its own stock and for warrants for a common share purchase warrant issued in connection with the Company’s overall business; (iii) significant decreaseconvertible debt. The warrants are presented as liabilities at fair value on the consolidated balance sheets. The warrants are subject to remeasurement at each balance sheet date and any change 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 reductionin interest income and other expense, net, in the carryingconsolidated statements of operations. The fair value of the related asset.warrants issued in connection with MEOA's public offering were measured based on the listed market price of such warrants. The fair value of the LDA Warrant was measured using a Monte Carlo valuation model.
Redeemable Non-controlling Interest
Redeemable non-controlling interest is interest in a subsidiary of the Company that are redeemable outside of the Company’s control either for cash or other assets. This interest is classified as temporary equity and measured at the estimated redemption value at the end of each reporting period. The resulting increases or decreases in the estimated redemption amount are effected by corresponding charges to accumulated deficit. At June 30, 2023, redeemable non-controlling interest recorded within the Company’s consolidated balance sheets relates to its subsidiary, MEOA.
Revenue Recognition
The Company primarilyaccounts for revenue pursuant to ASU 2014-09, Revenue from Contracts with Customers and all the related amendments (“Topic 606”). Under Topic 606, an entity is required 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, and contract consideration will be recognized on a “sell-in basis” or when control of the purchased goods or services transfer to the distributor.
The Company is engaged with digital asset mining pool operators to provide computing power to the mining pools. In exchange for providing computing power, the Company is entitled to a fractional share of the fixed Bitcoin award the mining pool operator receives for successfully adding a block to the blockchain, plus a fractional share of the transaction fees attached to that blockchain. The Company’s fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm. The Company satisfies its performance obligation over time with daily settlement in Bitcoin. The transaction price is the fair value of the digital asset mined, Bitcoin, being the fair value per the prevailing market rate for that digital asset on the date earned. The transaction consideration the Company receives is noncash consideration, in the form of Bitcoin, which the Company measures at fair value on the date earned which is not materially different from the fair value at contract inception. Fair value of the Bitcoin received is determined using the spot price of the Bitcoin on the date earned. The Company cannot determine, during the course of solving for a block, that a reversal of revenue is not probable and therefore revenue is recognized when the mining pool operator successfully places a block (by being the first to solve an algorithm) and the Company receives confirmation of the consideration it will receive.
Expenses associated with running the digital asset mining operations, such as rent, operating supplies, utilities and monitoring services are recorded as cost of revenues.
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The Company also generates revenue fromfrom: (i) solutions for standalone storage and long-term data archive products, as well as enterprise storage management solutions which are primarily grouped into three categories: (i) disk systems,integrated hyper-converged storage; (ii) tape automation systems, tape drive and media,professional services; and (iii) warranty and customer services.
Approximately 90% The Company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. To determine revenue recognition for contracts with customers the Company performs the following five steps: (i) identify the promised goods or services in the contract; (ii) identify the performance obligations in the contract, including whether they are distinct in the context of the contract; (iii) determine the transaction price, including the constraint on variable consideration; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies the performance obligations.
The majority of the Company’s product and service revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied at a point in time. These contracts are generally havecomprised of a single performance obligation to transfer products. Accordingly, the Company recognizes revenue when change of control has been transferred to the customer, generally at the time of shipment of products. The Company sells its products both directly to customers and through distributors generally under agreements with payment terms typically less than 45 days. Revenue on direct product sales, excluding sales to distributors, are not entitled to any specific right of return or price protection, except for any defective product that may be returned under our standard product warranty. Product sales to distribution customers that are subject to certain rights of return, stock rotation privileges and price protections, that createcontain a component of “variable considerations”.consideration.” Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products and is generally based upon a negotiated fixed price and is net of estimates for variable considerations.
For performance obligations related to warranty and customer services, such as extended product warranties, the Company transfers control and recognizes revenue over time on a ratabletime-elapsed basis. The performance obligations are satisfied as services are rendered typically on a straight-linestand-ready basis over the contract term, which is generally 12 months.
In limited circumstances where a customer is unable to accept shipment and requests products be delivered to, and stored on, the Company’s premises, also known as a “bill-and-hold” arrangements, revenue is recognized when: (i) the customer has requested delayed delivery and storage of the products, (ii) the goods are segregated from the inventory, (iii) the product is complete, ready for shipment and physical transfer to the customer, and (iv) the Company does not have the ability to use the product or direct it to another customer.
The Company also enters into revenue arrangements that may consist of multiple performance obligations of its product and service offerings such as for sales of hardware devices and extended warranty services. The Company allocates revenuecontract fees to the performance obligations in multiple element arrangements based on a relative stand-alone selling prices.price basis. The Company determines the transactionstand-alone selling price based on its normal pricing and discounting practices for the specific product and/or service when sold separately. When the Company is not ableunable to establish the individual transactionstand-alone price for all performance obligationselements in an arrangement with multiple elements,by reference to sold separately instances, the Company determinesmay estimate the stand-alone selling price of each element based onperformance obligation using a cost plus a margin approach, by reference to third party evidence of selling price, or based on the Company’s actual historical selling prices of similar items, or based on a combination of the aforementioned methodologies; whichever management believes provides the most reliable estimate of expectedstand-alone selling prices.price.
Warranty and Extended Warranty
The Company records a provision for standard warranties provided with all products. 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 on-site warranties and service contracts are offered for sale to customers on all product lines. The Company contracts with third party service providers to provide service relating to on-site warranties and service contracts.


Extended warranty and service contract revenue and amounts paid in advance to outside service organizations are deferred and recognized as service revenue and cost of service, respectively, over the period of the service agreement.
Shipping The Company will typically apply the practical expedient to agreements wherein the period between transfer of any good or service in the contract and Handling
Amounts billed to customerswhen the customer pays for shipping and handling are included in product revenue, and costs incurred related to shipping and handling are included in cost of product revenue.that good or service is one year or less.
Research and Development Costs
Research and development expenses include payroll, employee benefits, share-based compensation expense, and other headcount-related expenses associated with product development. Research and development expenses also include third partythird-party development and programming costs, localization costscosts. Research and development expenses are charged to operating expenses as incurred when these expenditures relate to translate software for international markets, and the amortization of purchased software code and services content. Such costs related to software development are included inCompany’s 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 capitalizedefforts and amortized to cost of revenue over the estimated lives of the products.have no alternative future uses.
Segment Information
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We report segment data based on the management approach. The management approach designates the internal reporting that is used by management for making operating and investment decisions and evaluating performance as the source of our reportable segments. We use one measurement of profitability and do not disaggregate our business for internal reporting. We operate in one segment providing data management, and desktop and application virtualization solutions for small and medium businesses and distributed enterprises. We disclose information about products and services, geographic areas, and major customers.

Comprehensive LossIncome (Loss)
Comprehensive lossincome (loss) and its components encompassesencompass all changes in equity other than those arising from transactions with shareholders, including net loss and foreign currency translation adjustments, and is disclosed in a separate condensed consolidated statement of comprehensive loss.
Share-based Compensation
We accountThe Company accounts for share-based awards, and similar equity instruments, granted to employees, non-employee directors, and consultants underin accordance with the fair value method.authoritative guidance for share-based compensation. Share-based compensation award types include stock options, restricted stock units (“RSUs”) and restricted stock. We use the Black-Scholes option pricing model to estimate the fair value of optionstock awards on the measurement date, which generally is the date of grant. The(“RSAs”). Share-based compensation expense is recognized on a straight-lined basis over the requisite service period (usually the vesting period) for the estimated number of instruments for which service is expected to be rendered. The fair value of restricted stock units (“RSUs”) is estimated based on the market value of the Company’s common shares on the date of grant. The fair value of options granted to non-employees is estimated at the measurement date using the Black-Scholes option pricing model and the unvested options remeasured at each reporting date, with changes in fair value recognized in expense in the consolidated statement of operations.
Share-based compensation expenseexcept for options with graded vesting which is recognized pursuant to an accelerated method. Share-based compensation expense for RSUs is recognized over the vesting period using the straight-line method. Share-based compensation expense for an award with performance conditions is recognized when the achievement of such performance conditions are determined to be probable. If the outcome of such performance condition is not determined to be probable or is not met, no compensation expense is recognized and any previously recognized compensation expense is reversed. Forfeitures are recognized as a reduction in share-based compensation expense as they occur.
We haveNon-controlling Interest
The Company accounts for its non-controlling interest in accordance with the authoritative guidance for consolidation which governs the accounting for and reporting of non-controlling interests (“NCIs”) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of the guidance indicate, among other things, that NCIs be treated as a separate component of equity, not recognized,as a liability, that increases and do not expect to recognizedecreases in the near future, any tax benefit relatedparent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially owned consolidated subsidiary be allocated to share-based compensation costthe NCI even when such allocation might result in a deficit balance. The net income (loss) attributed to the NCI is separately designated in the accompanying consolidated statements of operations.
Segment Reporting
Operating segments are defined as a resultcomponents of an enterprise for which separate financial information is available and evaluated regularly by the full valuation allowance of our net deferred tax assetschief operating decision maker, or decision-making group, in deciding the method to allocate resources and its netassess performance. The Company has two operating loss carryforward.


segments.
Recently Issued and Adopted Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”)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 January 2017,June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2017-04, Intangibles2016-13, FinancialInstruments - GoodwillCredit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses for most financial assets and Other (Topic 350) - Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). The update simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. An entity should perform its annual, or interim, goodwill impairment test by comparing thecertain other instruments that are not measured at fair value through net income. Entities will no longer be permitted to consider the length of time that fair value has been less than amortized cost when evaluating when credit losses should be recognized. The Company adopted ASU 2016-13 on January 1, 2023 on a reporting unit with its carrying amount, and recognize an impairment chargemodified retrospective basis which resulted in a $3.8 million increase to the opening balance of accumulated deficit, representing the cumulative allowance for credit losses for the amount by which the carrying amount exceeds the reporting unit's fair value, if applicable. The loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. The same impairment test also applies to any reporting unit with a zero or negative carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The update is effective for annual reporting periods, including interim periods, beginning after December 15, 2019, on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017. We do not expect the adoption of ASU 2017-04 to have a material effect on our consolidated financial statements and related disclosures.Company’s note receivable.
In February 2016,October 2021, the FASB issued ASU 2016-02, Leases (Topic 842)Accounting Standards Update No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2016-02”2021-08”). The update increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requires disclosing key information about leasing arrangements. The update is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. An entity will be requiredASU 2021-08 amends ASC 805 to require acquiring entities to apply Topic 606 to recognize and measure leases at the beginning of the earliest period presented usingcontract assets and contract liabilities in a modified retrospective approach. We are currently evaluating the effect that ASU 2016-02 will have on our consolidated financial statements and related disclosures.
Recently Adopted Accounting Pronouncements
On January 1, 2018, webusiness combination. The Company adopted ASU 2014-09, Revenue from Contracts with Customers and all the related amendments, or Accounting Standards Codification (“ASC”) Topic 606. Under Topic 606, an entity is required 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. Topic 606 defines a five-step process in order to achieve this core principle, which may require the use of judgment and estimates, and also requires expanded qualitative and quantitative disclosures relating to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including significant judgments and estimates used. The adoption of the new standard requires the recognition of revenues generally upon shipment to our customers for both distributors and direct consumers also known as “sell-in basis” for sales of products to certain customers which had previously been recognized on a “sell-through basis” or when the product was ultimately shipped to the end consumer. We elected to adopt this guidance using the modified retrospective method and it resulted in a cumulative adjustment reducing our accumulated deficit by approximately $0.3 million. Comparative prior periods were not adjusted and continue to be reported under FASB ASC Topic 605, Revenue Recognition.
In connection with the adoption of Topic 606, we are required to capitalize certain contract acquisition costs consisting primarily of commissions paid when contracts are signed. The Company elected follow a Topic 606 practical expedient and expense the incremental costs of obtaining a contract (sales commissions) when incurred because the amortization period is generally one year or less and capitalized long-term contract costs are not significant. For certain performance obligations related to services, extended warranty and other service agreements that are settled over time, the Company has elected not to adjust the transaction price for the consideration of the effects of time value of money for prepaid services from customers as these services and warranty services are usually fully amortized in one year or less. The impact of the adoption of ASC 606 on our unaudited consolidated balance sheet at March 31, 2018 and our unaudited consolidated statements of comprehensive income, equity and cash flows for the three months ended March 31, 2018 was not material. We do not expect the adoption of this guidance to have a material effect on our results of operations in future periods.


In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). The update addresses eight cash flow classification issues and how they should be reported in the statement of cash flows. The update is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The adoption of the new standard on January 1, 20182023, however it did not have a materialan effect on ourits financial position, results of operations or cash flows.
In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718) - Scope of Modification Accounting (“ASU 2017-09”). The update provides clarity and is expected to reduce both diversity in practice and the cost and complexity when accounting for a change to the terms of a stock-based award. the update is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2017, on a prospective basis. The adoption of the new standard on January 1, 2018 did not have a material effect on our financial position, results of operations or cash flows.
In July 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815) (“ASU 2017-11”). The update changes the classification of certain equity-linked financial instruments (or embedded features) with down round features. The update also clarifies existing disclosure requirements for equity-classified instruments. The update is effective retrospectively for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. We early adopted the new standard effective January 1, 2018 and it did not have a material effect on our financial position, results of operations or cash flows.
3.Business Combination
UCX and HVE Acquisition
In December 2016, the Company acquired 19.9% of the outstanding equity interests of Unified ConneXions, Inc. (“UCX”) and HVE ConneXions, LLC (“HVE”) for the purchase price of $1.5 million. The Company issued 157,894 shares of its common shares in satisfaction of payment. In January 2017, the Company completed its acquisition of all of the remaining outstanding equity interests of UCX and HVE, for $1.1 million in cash and issued 88,235 common shares with an approximate value of $0.3 million. In 2017, the Company recognized a $1.1 million loss, included in other expense, as a result of the remeasurement to fair value the equity interest held immediately before the business combination. The valuation was based on the Company’s private placement completed as of January 26, 2017.
UCX and HVE provide information technology consulting services and hardware solutions around cloud computing, data storage and server virtualization to corporate, government, and educational institutions primarily in the southern central United States. By adding UCX’s technologies, professional services and engineering talent, and HVE’s products, engineering and virtualization expertise, the Company intends to expand its virtualization offerings as well as enhance its ability to accelerate the delivery of hybrid cloud solutions to customers. We incurred acquisition related expenses of $34,000 which consisted primarily of due diligence, legal and other one-time charges and are included in general and administrative expense in the consolidated statements of operations.


A summary of the estimated fair values of the assets acquired and liabilities assumed as of the closing date were as follows (in thousands):
16
Cash $49
Accounts receivable 582
Inventory 206
Identifiable intangible assets 1,260
Other assets 45
Total identifiable assets acquired 2,142
Accounts payable and accrued liabilities (359)
Deferred revenue (518)
Net identifiable assets acquired 1,265
Goodwill 522
Net assets acquired $1,787
Goodwill is primarily comprised of a trained and assembled workforce. The fair value estimates for the assets acquired and liabilities assumed for the acquisition were based on estimates and analysis, including work performed by third party valuation specialists. The goodwill recognized upon acquisition is not deductible for tax purposes.
The results of operations related to this acquisition have been included in our consolidated statements of operations from the acquisition date. Pro forma results of operations have not been presented because at this time it is impracticable to provide as the information is not available at the level of detail required.
The identified intangible assets as of the date of acquisition consisted of the following (in thousands):


  Estimated
Fair Value
 Weighted-
Average
Useful Life 
(years)
Channel partner relationships $730
 6.0
Customer relationships 380
 3.2
Developed technology 150
 3.0
Total identified intangible assets $1,260
  
3.Fair Value Measurements
4.Inventories
The following table summarizes inventories (in thousands):
 
March 31,
2018
 
December 31,
2017
Raw materials$1,601
 $1,222
Work in process2,160
 2,217
Finished goods3,936
 4,927
 $7,697
 $8,366


5.Intangible Assets and Goodwill
The following table summarizes intangible assets, net (in thousands):
 
March 31,
2018
 
December 31,
2017
Developed technology$23,414
 $23,414
Channel partner relationships(1)
12,976
 12,929
Capitalized development costs(1)
3,069
 3,164
Customer relationships(1)
1,668
 1,647
 41,127
 41,154
Accumulated amortization:   
Developed technology(16,299) (15,276)
Channel partner relationships(1)
(1,365) (1,201)
Capitalized development costs(1)
(1,461) (1,409)
Customer relationships(1)
(572) (495)

(19,697) (18,381)
Total finite-lived assets, net21,430
 22,773
Indefinite-lived intangible assets - trade names18,700
 18,700
Total intangible assets, net$40,130
 $41,473
________________
(1)Includes the impact of foreign currency exchange rate fluctuations.
Amortization expense of intangible assets was $1.3 million during each of the three months ended March 31, 2018 and 2017. Estimated amortization expense for intangible assets is expected to be approximately $2.4 million for the remainder of 2018 and $2.6 million, $2.5 million, $2.1 million, $1.9 million and $1.5 million in fiscal 2019, 2020, 2021, 2022 and 2023, respectively.
6.Debt
Related Party Convertible Note
In December 2014, in connection with the acquisition of Overland, the existing debt of Overland and the remaining debt of the Company were amended and restated into a $19.5 million convertible note held by FBC Holdings. In April 2016, the Company modified its convertible note with FBC Holdings, pursuant to which the holder made an additional advance and principal amount under the convertible note amount was increased to $24.5 million. The convertible note bears interest at an 8.0% simple annual interest rate, payable semi-annually. The obligations under the convertible note are secured by substantially all assets of the Company. At March 31, 2018, the Company had $23.8 million, net of unamortized debt costs of $0.7 million, outstanding on the convertible note.
The Company has the option to pay accrued and outstanding interest either entirely in cash or common shares. If the Company choses to pay the interest in common shares, the calculation is based upon the number of common shares that may be issued as payment of interest on the convertible note and will be determined by dividing the amount of interest due by the current market price as defined in the convertible note agreement. For the three months ended March 31, 2018 and 2017, the Company issued 344,959 and zero common shares, respectively, for the settlement of accrued interest expense.


In March 2018, the Company and FBC Holdings entered into an amendment to the convertible note, under which the maturity date was extended from March 31, 2018 to May 31, 2018. The amendment also altered the schedule for interest payments under the FBC Debenture by providing for future accrued interest to be paid twice monthly rather than semi-annually. In partial consideration for the extension, the Company agreed to pay to FBC Holdings a fee, payable in cash or common shares of the Company at the Company’s option, of $735,000, payable in full by May 16, 2018. In April 2018, the Company issued in the aggregate 950,579 common shares to FBC Holdings for payment of accrued interest and partial payment of fees related to the March 2018 amendment to the convertible note.
In November 2015, the convertible note’s conversion price was adjusted to $75.00 per share. At the option of the Company, the convertible note is convertible into common shares at the conversion price at any time that the weighted average trading price for the common shares exceeds 150% of the conversion price (i.e. exceeds $112.50 per share), for ten consecutive trading days on its principal stock exchange that the common shares trade.
The convertible note 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 convertible note, the Holder may declare all amounts outstanding to be immediately due and payable. The convertible note 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 March 31, 2018, the Company was in compliance with all covenants of the convertible note.
For the three months ended March 31, 2018 and 2017, interest expense, including amortization of debt costs, on the convertible note was $0.6 million and $0.5 million, respectively.
Related Party Debt
In December 2017, the Company entered into a $2.0 million subordinated promissory note with MF Ventures, LLC, a related party. The promissory note is subordinate to the Company’s Opus Bank Credit Agreement and FBC Holdings indebtedness and has a maturity date of the earliest of: (i) December 11, 2020; (ii) immediately after repayment in full of the Opus Bank Credit Agreement and the FBC Holdings indebtedness; or (iii) immediately after the Company’s refinancing of both the Opus Bank Credit Agreement and the FBC Holdings indebtedness. The promissory note may be prepaid at any time by the Company; including any accrued and unpaid interest and a $0.3 million prepayment penalty. The promissory note bears interest at a 12.5% simple annual interest rate, payable quarterly in arrears. Interest shall be paid in kind by increasing the principal amount of the note on each quarterly interest payment date. At March 31, 2018, the Company had $2.1 million outstanding on the convertible note. For the three months ended March 31, 2018, interest expense, including amortization of debt costs, on the promissory note was $0.1 million.
In September 2016, the Company entered into a $2.5 million agreement with FBC Holdings. The term loan has a maturity date of January 31, 2018 and bears interest at a 20.0% simple annual interest rate, payable monthly in arrears. For the three months ended March 31, 2018 and 2017, interest expense, including amortization of debt costs, on the term loan was $5,000 and $119,000, respectively. In January 2018, the FBC Holdings term loan was repaid in full per the term loan agreement.
Credit Agreement
In April 2016, the Company entered into a Credit Agreement with Opus Bank for a term loan in the amount of $10.0 million and a credit facility in the amount of up to $10.0 million. A portion of the proceeds were used to pay off the Company’s then outstanding credit facilities with FBC Holdings and Silicon Valley Bank. The remainder of the proceeds were used for working capital and general business requirements. On December 30, 2016, the credit facility was reduced to $8.2 million. The obligations under the term loan and credit facility are secured by substantially all assets of the Company other than the stock of its subsidiaries organized outside of the U.S. and Canada that are pledged to secure the Company’s obligations under the Company’s convertible note. At March 31, 2018, the interest rate on the term loan and credit facility was 8.25%.


In March 2018, the Company and Opus Bank entered into Amendment Number Eight to Credit Agreement (“Amendment Number Eight”). Under the terms of Amendment Number Eight the maturity date for the revolving and term loan credit facilities were extended from March 31, 2018 to May 31, 2018. In consideration for the extension, the Company agreed to pay to Opus Bank a fee of $0.1 million, payable in cash on the date the Credit Agreement is paid in full.
In March 2017, the Company and Opus Bank entered into Amendment Number Two to Credit Agreement, Amendment Number One to Amendment Number 1, Waiver and Reaffirmation (the “Second Amendment”). As a condition of the Second Amendment, the Company issued to Opus Bank (i) a warrant, exercisable for 15,957 shares at an exercise price of $0.25 per common share as the debt was not repaid by April 17, 2017 and (ii) a warrant, exercisable for 35,242 shares at an exercise price of $0.25 per common share as the debt was not repaid by May 31, 2017.
The term loan and credit facility contain 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 term loan, the holder may declare all amounts outstanding to be immediately due and payable. The term loan and credit facility specify 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 March 31, 2018, the Company was in compliance with all covenants of the term loan and credit facility.
At March 31, 2018, the outstanding balances of the term loan and credit facility were $9.9 million, net of unamortized debt costs of $0.1 million, and $8.2 million, respectively. For the three months ended March 31, 2018 and 2017, interest expense, including amortization of debt costs, on the Opus facilities was $0.5 million and $1.2 million, respectively.
7.Fair Value Measurements
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.
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
OurThe Company’s consolidated financial instruments include cash equivalents, accounts receivable, prepaid expenses,notes receivable, accounts payable, accrued expenses, credit facility, debtliabilities, warrant liabilities and related partyconvertible 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,notes receivable, accounts payable and accrued expensesliabilities are generally considered to be representative of their respective fair values because of the short-term nature of those instruments. The carrying amountCompany has elected to record its convertible debt at fair value.
The following tables provide a summary of the credit facility borrowings approximate theirfinancial instruments that are measured at fair value as the interest rate of the credit facility is substantially comparable to rates offered for similar debt instruments. The carrying value of debt and related party debt approximates its fair value as the borrowing rates are substantially comparable to rates available for loans with similar terms.on a recurring basis (in thousands):
June 30, 2023
Fair ValueLevel 1Level 2Level 3
Convertible note$1,051 $— $— $1,051 
Warrant liabilities$579 $— $— $579 
December 31, 2022
Fair ValueLevel 1Level 2Level 3
Warrant liabilities$864 $864 $— $— 
The following table provides information by level forpresents the activities of warrant liabilities that are measured at fair value using significant unobservable inputs (Level 3) (in thousands):
Warrant liability as of December 31, 2017 $1,669
Adoption of accounting guidance (46)
Change in fair value of warrants (259)
Reclassification to equity resulting from warrant exchange agreement (1,364)
Warrant liability as of March 31, 2018 $


Warrant liability as of January 1, 2023$864 
Change in fair value MEOA warrant(202)
Warrant liability as of March 31, 2023662 
Issuance of LDA warrant976 
Change in fair value MEOA warrant(662)
Change in fair value LDA warrant(397)
Warrant liability as of June 30, 2023$579 
Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis
As discussed in Note 2, Summary of Significant Accounting Policies, to the Condensed Consolidated Financial Statements, the Company accounts for its bitcoin as indefinite-lived intangible assets, which are subject to impairment losses if the fair value of its bitcoin held decreases below their carrying value during the reporting period.
The Company's non-financial assets such as goodwill, intangible assets and property and equipment and intangible assets are recorded at fair value when an impairment is recognized or at the time acquired in an asset acquisition or business combination measured using significant unobservable inputs (Level 3).
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4.    Note Receivable
Rainmaker Promissory Note
In September 2020, the Company entered into a Senior Secured Convertible Promissory Note with Rainmaker (the “Rainmaker Note”), pursuant to which the Company loanedRainmaker the principal amount of$3.1 million. The Rainmaker Note is secured as a registered lien under the Uniform Commercial Code and the Personal Property Security Act (Ontario) against the assets of Rainmaker and bears interest at the rate of 10.0% per annum.The principal and interest accrue monthly and are due and payable in full on September 14, 2023. The Company has the right, at any time, to convert all or any portion of the then outstanding and unpaid Rainmaker Note and interest into non-assessable shares of Rainmaker common stock, or any shares of capital stock or other securities of Rainmaker, at the conversion price as defined in the Rainmaker Note. On January 1, 2023, as a result of adopting ASU 2016-13, the Company recorded an allowance for credit losses of $3.8 million and reversed accrued interest of $0.1 million. As of June 30, 2023 and December 31, 2022, the Rainmaker Note balance, including accrued interest, was nil and $3.8 million, respectively.
5.    Certain Balance Sheet Items
The following table summarizes other current assets (in thousands):
June 30,
2023
December 31,
2022
Prepaid digital hosting services$1,265 $880 
Prepaid services611 927 
Prepaid insurance735 783 
Other585 461 
$3,196 $3,051 
The following table summarizes property and equipment, net (in thousands):
June 30,
2023
December 31,
2022
Mining equipment$31,600 $35,550 
Accumulated depreciation(3,298)(1,709)
Subtotal28,302 33,841 
Right of use asset393 418 
Property and equipment, net$28,695 $34,259 
Depreciation expense for property and equipment was $1.0 million and $0.5 million during the three months ended June 30, 2023 and 2022, respectively, inclusive of ROU asset amortization of $15,000 and nil, respectively. Depreciation expense for property and equipment was $1.6 million and $0.6 million during the six months ended June 30, 2023 and 2022, respectively, inclusive of ROU asset amortization of $25,000 and nil, respectively.
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During the six months ended June 30, 2023, the Company sold 2,531 miners that were included in mining equipment, for cash proceeds of $3.7 million.
The following table summarizes other assets (in thousands):
June 30,
2023
December 31,
2022
Prepaid digital hosting services$20,637 $18,514 
Prepaid insurance and services49 116 
Other11 69 
$20,697 $18,699 
The following table summarizes other current liabilities (in thousands):
June 30,
2023
December 31,
2022
Advance from target for SPAC$898 $449 
Taxes payable for SPAC270254
Deferred revenue74160
Other108111
$1,350 $974 
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6.    Intangible Assets
The following table summarizes intangible assets, net (in thousands):
June 30,
2023
December 31,
2022
Supplier agreements$39,084 $39,084 
Developed technology150 150 
Channel partner relationships730 730 
Customer relationships380 380 
Capitalized development costs103 103 
40,447 40,447 
Accumulated amortization:
Supplier agreements(32,502)(31,708)
Developed technology(150)(150)
Channel partner relationships(730)(720)
Customer relationships(373)(366)
Capitalized development costs(103)(103)
(33,858)(33,047)
Total finite-lived intangible assets, net6,589 7,400 
Carbon credits held for future use2,077 2,077 
Total intangible assets, net$8,666 $9,477 
Amortization expense for intangible assets was $0.4 million and $7.0 million during the three months ended June 30, 2023 and 2022, respectively. Amortization expense for intangible assets was $0.8 million and $13.2 million during the six months ended June 30, 2023 and 2022, respectively. Estimated amortization expense for intangible assets is expected to be approximately $0.8 million for the remainder of 2023 and $1.6 million, $1.6 million, $1.6 million, $0.2 million, and $0.1 million in fiscal 2024, 2025, 2026, 2027 and 2028, respectively.
7.Investments
Special Purpose Acquisition Company
In April 2021, the Company sponsored a special purpose acquisition company (“SPAC”), Minority Equality Opportunities Acquisition Inc. (“MEOA”), through the Company’s wholly owned subsidiary, Minority Equality Opportunities Acquisition Sponsor, LLC (“SPAC Sponsor”). MEOA’s purpose is to focus initially on transactions with companies that are minority owned businesses. MEOA’s IPO was completed on August 30, 2021. As of both June 30, 2023 and December 31, 2022, the Company held an aggregate of 3,162,500 shares of MEOA’s Class B common stock.
In August 2022, MEOA entered into a business combination.combination agreement with MEOA Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of MEOA (“Merger Sub”), and Digerati Technologies, Inc., a Nevada corporation (“Digerati”), pursuant to which, subject to the satisfaction or waiver of certain conditions set forth therein, Merger Sub will merge with and into Digerati (the “Digerati Merger”), with Digerati surviving the Digerati Merger as a wholly owned subsidiary of MEOA, and with Digerati’s equity holders receiving shares of MEOA common stock.
20
8.Share Capital

Reverse Stock Split

On November 29, 2022, MEOA held a special meeting of stockholders (the “MEOA Meeting”). At the MEOA Meeting, MEOA’s stockholders approved an amendment (the “Extension Amendment”) to MEOA’s amended and restated certificate of incorporation to extend the date by which MEOA must consummate its initial business combination from November 30, 2022 to May 30, 2023, or such earlier date as determined by MEOA’s board of directors. On November 30, 2022, after giving effect to the redemption of public shares of MEOA, the Company’s subsidiary owns a controlling interest of MEOA and it has been consolidated in the Condensed Consolidated Financial Statements.
On July 5, 2017,3, 2023, MEOA announced that it did not complete an initial business combination on or prior to June 30, 2023, the Boarddeadline by which it must have completed an initial business combination, and intends to dissolve and liquidate in accordance with the provisions of Directorsits amended charter. As of the close of business on July 3, 2023, MEOA’s public shares were deemed cancelled and represent only the right to receive the redemption amount. MEOA instructed Continental Stock Transfer & Trust Company, the trustee of the trust account, to take all necessary actions to liquidate the securities held in the trust account. The redemption of MEOA’s public shares was completed in the third quarter of 2023.
The SPAC Sponsor agreed to waive its redemption rights with respect to its outstanding Class B common stock issued prior to MEOA’s initial public offering. There were no redemption rights or liquidating distributions with respect to MEOA’s warrants, which expired worthless.
8.    Convertible Debt
On April 17, 2023, the Company entered into a Securities Purchase Agreement (the “LDA Purchase Agreement”) pursuant to which the Company issued to an investor, LDA Capital Limited (the “Investor”), a senior convertible promissory note having an aggregate principal amount of $1.0 million (the “LDA Note”), as amended April 25, 2023, and a common share purchase warrant (the “LDA Warrant”) to purchase up to 455,927 common shares of the Company authorized(the “LDA Warrant Shares”). The Company received proceeds of approximately $0.8 million, which were net of fees associated with the transaction, on April 18, 2023 (the “Closing Date”), with an additional tranche of up to $2.0 million (the “Second Tranche”) to be provided to the Company, subject to certain conditions precedent, within five business days of the date on which an effective registration statement is filed to cover the resale of the conversion shares (as defined below) and the LDA Warrant Shares. Upon receipt of the Second Tranche, the Company shall issue an additional senior convertible promissory note with a principal amount equal to the amount of the Second Tranche, and a common share purchase warrant.
The LDA Note matures 24 months after issuance, bears interest at a rate of 7.5% per annum and is convertible into the Company's common shares (the “Conversion Shares”), at the Investor's election, at an initial conversion price equal to the greater of (i) $2.0832 per share, or (ii) 85% of the VWAPS (as defined in the LDA Note) during the five trading days prior to delivery of a conversion notice by the Investor, subject to adjustment for certain stock splits, stock combinations and dilutive share issuances. Commencing on the date that is 12 months from the date of issuance, the Company is required to pay the Investor back the amount of the outstanding principal in twelve consecutive monthly installments. The Company may prepay all, but not less than all, of the then outstanding principal amount of the LDA Note plus an additional prepayment amount equal to the greater of (i) the total amount of interest that would have been payable in respect of initial principal amount under the LDA Note from the issuance date through (A) its original maturity date or (B) if the date of applicable prepayment is prior to the date that is 120 days from the issuance date, the date that is 12 months from the issuance date, and (ii) the amount of interest that would have been payable in respect of initial principal amount under the LDA Note from the date of the applicable prepayment through (A) its original maturity date or (B) if the date of applicable prepayment is prior to the date that is 120 days from the issuance date, the date that is 12 months from the issuance date, at any time prior to the maturity date. The LDA Note contains a number of customary events of default. Additionally, the LDA Note is secured by certain property and equipment owned by the Company, pursuant to a security agreement between the Company and the Investor dated as of April 17, 2023. At June 30, 2023, the fair value balance of the LDA Note was $1,051,000.
21


As of June 30, 2023, the Company was not in compliance with a financial covenant of the LDA Note. Subsequent to June 30, 2023, the Company received a waiver for the financial covenant noncompliance.
The fair value of the LDA Note was estimated based on a pay-off scenario upon maturity using discount rates of 16.2% and 14.0% as of April 17, 2023 and June 30, 2023, respectively. The Company recorded a change in fair value adjustment of $51,000 for both the three and six months ended June 30, 2023.
The LDA Warrant is exercisable at an initial exercise price of $3.29 per share and expires three years from the date of issuance or earlier if the closing of a Fundamental Transaction occurs (defined as merger or consolidation, any sale of substantially all of the Company’s assets, any tender offer or exchange offer pursuant to which common shareholders can tender or exchange their shares for other securities, cash or property, as well as any reclassification of common shares into other securities, cash or property). On the date that is six months from the date of issuance of the LDA Warrant, the exercise price will be adjusted to the lower of (i) $3.29, and (ii) a price equal to 110% of the average of the VWAPS (as defined in the LDA Warrant) of the Company's common shares over five trading days preceding such date. Additionally, the exercise price of the LDA Warrant is subject to adjustment for certain stock splits, stock combinations and dilutive share issuances. Pursuant to the terms of the LDA Purchase Agreement, the Company will reserve for issuance 200% of the maximum aggregate number of common shares as are issuable upon repayment or conversion in full of the LDA Note and exercise in full of the LDA Warrant at any time.
The LDA Warrant contains a contingent put option. In the event of a Fundamental Transaction, the Investor may, at the Investor’s option, require the Company to purchase the LDA Warrant for an amount of cash equal to the Black Scholes value of the remaining unexercised portion of the warrant on the date of consummation of such Fundamental Transaction. The Company has recorded the warrant as a liability and will adjust the warrant liability to fair value each reporting period until settled.
The fair value of the LDA Warrant was measured using a Monte Carlo valuation model with the following assumptions:
April 17, 2023June 30, 2023
Common share price$2.98 $1.94 
Expected volatility120.0 %115.0 %
Risk-free interest rate3.8 %4.5%
On April 17, 2023, upon issuance of the LDA Note and LDA Warrant, which are accounted for as freestanding financial instruments, the Company determined that the aggregate fair value of $2.0 million for the instruments issued exceeds the net proceeds received under the transaction. Accordingly, the excess of the fair value over the proceeds received of $1.0 million was recognized as interest expense.
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9.Preferred Shares
Series H Preferred Shares
On October 1, 2021, the Company filed articles of amendment to create a series of preferred shares, being, an unlimited number of Series H Preferred Shares and to provide for the rights, privileges, restrictions and conditions attaching thereto. The Series H Preferred Shares are convertible provided (and only if and to the extent) that prior shareholder approval of the issuance of all Sphere 3D common shares issuable upon conversion of the Series H Preferred Shares has been obtained in accordance with the rules of the Nasdaq Stock Market, at any time from time to time, at the option of the holder thereof, into 142.857 Sphere 3D common shares for every Series H Preferred Share. Each holder of the Series H Preferred Shares, may, subject to prior shareholder approval, convert all or any part of the Series H Preferred Shares provided that after such conversion the common shares issuable, together with all the common shares held by the shareholder in the aggregate would not exceed 9.99% of the total number of outstanding common shares of the Company. Each Series H Preferred Share has a stated value of $1,000. The Series H Preferred Shares are non-voting and do not accrue dividends. These features include, in the event of the liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, deemed liquidation or any other distribution of the assets of the Company among its shareholders for the purpose of winding-up its affairs, the Series H Preferred Shares shall entitle each of the holders thereof to receive an amount equal to the Series H subscription price per Series H Preferred Share, as defined in the agreement, to be paid before any amount is paid or any assets of the Company are distributed to the holders of its common shares.
In November 2022, the Company entered into the Modified Hertford Agreement. The Modified Hertford Agreement provides for certain resale restrictions applicable to the common shares that are issuable upon the conversion of the remaining Series H Preferred Shares during the two-year period ending on December 31, 2024, which are different from the restrictions contained in the Hertford Agreement, as well, commencing January 1, 2023 and terminating on December 31, 2023, holders of Series H Preferred Shares are permitted to (a) convert Series H Preferred Shares in an aggregate amount up to or equal to 3.0% of the aggregate number of Series H Preferred Shares outstanding on the first day of each such month and (b) sell the resulting number (and no greater number) of such converted common shares within such month. Commencing January 1, 2024 and terminating on December 31, 2024, holders of Series H Preferred Shares are permitted to (a) convert Series H Preferred Shares in an aggregate amount up to or equal to 10.0% of the aggregate number of Series H Preferred Shares outstanding on the first day of each such month and (b) sell the resulting number (and no greater number) of such converted common shares within such month.
During the six months ended June 30, 2023, pursuant to the Modified Hertford Agreement, the Company issued 1,431,283 common shares for the conversion of 10,019 Series H Preferred Shares.
In accordance with the authoritative guidance for distinguishing liabilities from equity, the Company has determined that its Series H preferred shares carry certain redemption features beyond the control of the Company. Accordingly, the Series H Preferred Shares are presented as temporary equity.
10.Share Capital
On June 28, 2023, the Company filed an Articles of Amendment to effect a share consolidation (also known as a reverse stock split) of the Company’sits issued and outstanding common shares aton a ratio of 1-for-25, whichone-for-seven basis. The share consolidation became effective on July 11, 2017.June 28, 2023. All share and per share amounts have been restated for all periods presented to reflect the share consolidation.
In April 2022, the Company issued 192,857 unregistered common shares, with a fair value of $1.7 million, to Bluesphere Ventures Inc. for the right to acquire up to 1,040,000 carbon credits. As of June 30, 2023, none of the carbon credits have been retired.
23


In March 2022, in connection with the Merger Agreement, the Company issued into escrow 121,428 common shares with a fair value of $1.2 million. On April 4, 2022, the Merger Agreement with Gryphon Digital Mining, Inc. (“Gryphon”) was terminated by the Company and the common shares were released to Gryphon as stated by the escrow agreement.
In February 2022, the Company issued 14,286 common shares and 42,858 warrants to purchase up to 42,858 common shares, with a combined fair value of $0.7 million to PGP Capital Advisors for financial advisory services provided.
Unlimited authorized common shares at no par value are available to the Company. At March 31, 2018,June 30, 2023, the Company had the following outstanding warrants to purchase common shares:
Date issuedContractual life (years)Exercise priceNumber outstandingExpiration
July 20213$28.00285,716 December 22, 2024
August 20213$45.50370,787 August 25, 2024
August 20213$52.50370,787 August 25, 2024
September 20215$66.501,614,299 September 8, 2026
October 20213$42.00121,429 October 1, 2024
February 20225$28.0014,286 February 7, 2027
February 20225$35.0014,286 February 7, 2027
February 20225$42.0014,286 February 7, 2027
April 20233$3.29455,927 April 17, 2026
3,261,803 
24
Date issued Contractual life (years) Exercise price Number outstanding Expiration
May 2015 5 $100.00 33,600
 May 31, 2020
October 2015 5 $58.25 16,077
 October 14, 2020
December 2015 3 $38.50 20,000
 December 21, 2018
December 2015 5 $62.50 41,100
 December 15, 2020
December 2015 5 $27.00 60,000
(1)December 4, 2020
January 2016 3 $51.50 3,539
 November 30, 2018
February 2016 3 $40.50 20,000
 February 26, 2019
March 2016 5 $62.50 1,200
 March 4, 2021
November 2016 3 $50.00 1,000
 November 8, 2019
December 2016 6 $0.25 34,483
 December 30, 2022
March 2017 6 $0.25 15,957
 April 18, 2023
March 2017 6 $0.25 35,242
 June 1, 2023
August 2017 5 $5.25 300,000
 August 11, 2022
August 2017 5 $5.25 95,000
 August 16, 2022
August 2017 5 $5.25 205,000
 August 22, 2022
      882,198
(2) 


_______________
(1)If the Company or any subsidiary thereof, at any time while this warrant is outstanding, enters into a Variable Rate Transaction (“VRT”) (as defined in the purchase agreement) and the issue price, conversion price or exercise price per share applicable thereto is less than the warrant exercise price then in effect, the exercise price shall be reduced to equal the VRT price.
(2)Includes warrants to purchase up to 340,000 common shares, in the aggregate, outstanding to related parties at March 31, 2018.

11.Equity Incentive Plans

Stock Options
Related Party Share Capital Transactions
In August 2017, the Company entered into a securities purchase agreement with certain investors pursuant to which the Company issued (i) 600,000 common shares,The fair value of which 395,000 common shares were issued to related parties, and (ii) warrants for the purchase of up to 600,000 common shares, of which warrants to purchase up to 395,000 common shares were issued to related parties, in a private placement in exchange for a cash payment of $3.0 million. The purchase price was $5.00 per common share and warrant to purchase one common share, and the exercise price of the warrants is $5.25 per warrant share. The warrants were subject to certain anti-dilution adjustments through December 2017.
In July 2017, the Company entered into amended and restated warrant agreements with certain holders of warrants previously issued in March 2016 (the “Amended March 2016 Warrant”) and between December 2016 and March 2017 (the “Amended March 2017 Warrants” and together with the Amended March 2016 Warrant, the “Amended and Restated Warrants”). Pursuant to the amended and restated warrant agreements, the Company issued an aggregate of 1,617,917 common shares, of which 1,315,385 common shares were issued to related parties, in exchange for the cancellation of such warrants. Immediately after the exchange, the amended and restated warrant agreements became null and void.
In March 2017, the Company entered into a securities purchase agreement with certain investors party thereto, pursuant to which the Company issued to the investors, in the aggregate, 818,182 of the Company’s common shares for gross proceeds of $4.5 million. The securities purchase agreement also provided for the concurrent private placement of warrants exercisable to purchase up to 867,272 common shares. Each warrant had an exercise price of $7.50 per warrant share. MF Ventures, LLC, a related party, participated in the offering by acquiring 181,818 common shares and warrants to purchase 181,818 shares. In August 2017, the Company issued additional common shares, which triggered a price adjustment for the March 2017 warrants from $7.50 to $5.00 and the Company issued, in the aggregate, additional warrants exercisable to purchase up to 433,638 common shares, of which MF Ventures, LLC received warrants exercisable to purchase 90,909 common shares. In March 2018, the Company entered into warrant exchange agreements, in a privately negotiated exchange under Section 4(a)(2) of the Securities Act of 1933, as amended, pursuant to which the Company issued 1,430,998 common shares in exchange for the surrender and cancellation of the Company’s outstanding March 24, 2017 warrants (the “Exchange”). Immediately after the Exchange, the previously issued warrants became null and void. MF Ventures, LLC, participated in the Exchange by acquiring 299,999 common shares in exchange for the cancellation of a warrant to purchase 272,727 common shares.
Between December 30, 2016 and March 16, 2017, the Company completed a private placement and issued a total of 725,599 “Units” at a purchase price of $7.50 per Unit. Each Unit consisted of one common share and one warrant from each of two series of warrants. The Company received gross proceeds of $5.4 million in connection with the sale of the Units. The warrants were exercisable to purchase 1,451,198 common shares in the aggregate. MF Ventures, LLC participated in the private placements by acquiring 333,333 common shares and warrants to purchase 666,666 common shares. Lynn Factor and Sheldon Inwentash, a married couple and related party to the Company, participated in the private placements by acquiring 213,000 common shares and warrants to purchase 426,000 common shares. An additional 28,000 common shares and warrants to purchase 56,000 common shares were acquired by ThreeD Capital Inc. Mr. Inwentash is the Chief Executive Officer of ThreeD Capital Inc. In July 2017, the warrants issued between December 30, 2016 and March 16, 2017 became null and void as a result of the amended and restated warrant agreements. As of December 31, 2017, Lynn Factor and Sheldon Inwentash no longer have a significant direct or indirect ownership of the Company andoption awards are no longer classified as a related party.
9.Equity Incentive Plans
During the three months ended March 31, 2018 and 2017, the Company granted awards of restricted stock units of 400 and 210,441, respectively, which 206,238 were granted outside of the 2015 Performance Incentive Plan. The restricted stock units were fair valued basedestimated on the date of grant. During the three months ended March 31, 2018 and 2017, the Company granted awards of stock options of none and 800, respectively. The stock options were fair valuedgrant using the Black-Scholes option pricing model. Expected volatility was based on historical volatility of the Company’s common shares. The restricted stock units and stockexpected term of options typically vest overgranted was based on the simplified formula. The risk-free interest rate was based on the U.S. Treasury yield for a period consistent with the expected term of approximately three years.the option in effect at the time of the grant. The dividend yield assumption was based on the expectation of no future dividend payments.

The assumptions used in the Black-Scholes model were as follows:

Three Months
Ended June 30,
Six Months
Ended June 30,
2023202220232022
Expected volatility84.0 %124.0 %84.0 %124.0 %
Expected term (in years)0.54.20.54.2
Risk-free interest rate5.27%2.71-3.25%5.27%2.71-3.25%
Dividend yield
During the three months ended March 31, 2018 and 2017, the Company granted restricted stock awards (“RSA”) in lieu of cash payment for services performed. The following table summarizes option activity:
Shares 
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic
Value 
Options outstanding — January 1, 2023389,604 $7.07 
Granted100,000 $2.11 
Exercised(94,701)$2.11 
Forfeited(14,286)$6.30 
Options outstanding — June 30, 2023380,617 $7.01 5.1$— 
Vested and expected to vest — June 30, 2023380,617 $7.01 5.1$— 
Exercisable — June 30, 2023129,560 $11.75 4.7$— 
Restricted Stock
The following table summarizes RSU activity:
 Number of
Shares
Weighted Average
Grant Date Fair Value
Outstanding — January 1, 2023125,182 $8.89 
Granted444,697 $2.90 
Vested and released(101,873)$5.37 
Forfeited(20,953)$6.78 
Outstanding — June 30, 2023447,053 $3.83 
The estimated fair value of the RSAsRSUs was based on the market value of the Company’s common shares on the date of grant. DuringRSUs typically vest over a period of one to three years from the threeoriginal date of grant. The total grant date fair value of RSUs vested during the six months ended March 31, 2018June 30, 2023 and 2017, the Company granted RSAs of 380,3712022 was approximately $0.5 million and 6,520, respectively, with a value of $787,000 and $52,000,$2.0 million, respectively.
Stock Options
The fair value of each option is estimated onRSUs vested during the date of grant using the Black-Scholes option pricing model, which uses the weighted-average assumptions noted in the following table:six months ended June 30, 2023 and 2022 was approximately $0.2 million and $1.5 million, respectively.
25


 Three Months
Ended March 31,
 2018 2017
Expected volatilityn/a 93.0%
Risk-free interest raten/a 1.5%
Dividend yieldn/a 
Expected term (in years)n/a 4.7
The expected volatility was based on the Company’s historical share price. The risk-free interest rate is determined based upon a constant maturity U.S. Treasury security with a contractual life approximating the expected term of the option. The expected term of options granted is estimated based on a number of factors, including but not limited to the vesting term of the award, historical employee exercise behavior, the expected volatility of the Company’s common shares and an employee’s average length of service.
Share-Based Compensation Expense
The Company recorded the following compensation expense related to its share-based compensation awards (in thousands):
Three Months
Ended June 30,
Six Months
Ended June 30,
2023202220232022
Sales and marketing$35 $— $51 $— 
General and administrative684 7,199 1,153 7,316 
Total share-based compensation expense$719 $7,199 $1,204 $7,316 
 Three Months
Ended March 31,
 2018 2017
Cost of sales$32
 $84
Sales and marketing184
 651
Research and development96
 370
General and administrative509
 1,064
Total share-based compensation expense$821
 $2,169
AsTotal unrecognized estimated compensation cost by type of March 31, 2018, there was a total of $2.1 million of unrecognized compensationaward and the weighted-average remaining requisite service period over which such expense related to unvested equity-based compensation awards. The expense associated with non-vested restricted stock units and options awards granted as of March 31, 2018 is expected to be recognized over a weighted-average period of 1.6 years.

(in thousands, unless otherwise noted):

June 30, 2023
Unrecognized ExpenseRemaining Weighted-Average Recognition Period (years)
RSUs$1,247 1.1
Stock options$449 1.4
10.Net Loss per Share
12.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 common shares outstanding during the period. For all periods presented, there is no differencePreferred shares, outstanding common share purchase warrants, and outstanding options and RSUs are considered common stock equivalents and are only included in the numbercalculation of shares used to calculate basicdiluted earnings per common share when net income is reported and diluted shares outstanding due to the Company’s net loss position.their effect is dilutive.
Anti-dilutive common share equivalents excluded from the computation of diluted net loss per share were as follows (in thousands):follows:
Three Months
Ended June 30,
Six Months
Ended June 30,
 2023202220232022
Preferred shares issued and outstanding7,140,136 13,714,286 7,140,136 13,714,286 
Common share purchase warrants3,261,803 2,836,935 3,261,803 2,836,935 
Options and RSUs outstanding827,670 637,902 827,670 637,902 
Convertible debt480,031 — 480,031 — 
26
 Three Months
Ended March 31,
 2018 2017
Common share purchase warrants882
 2,744
Convertible notes327
 327
Convertible notes interest328
 452
Restricted stock not yet vested or released848
 267
Options outstanding176
 130


13.Commitments and Contingencies
11.Related Party Transactions
Professional services provided by affiliatesService Agreements
On August 19, 2021, the Company entered into a Master Services Agreement with Gryphon (the “Gryphon MSA”). To provide greater certainty as to the term of the Gryphon MSA, on December 29, 2021, the Company were $206,000 and $42,000Gryphon entered into Amendment No. 1 to the Gryphon MSA (the “Gryphon MSA Amendment”) which extended the initial term of the Gryphon MSA to five years, as the Company did not receive delivery of a specified minimum number of digital mining machines during 2022. Subject to written notice from the Company and an opportunity by Gryphon to cure for a period of up to 180 days, the Company shall be entitled to terminate the Gryphon MSA in the event of: (i) Gryphon’s failure to perform the services under the Gryphon MSA in a professional and workmanlike manner in accordance with generally recognized digital mining industry standards for similar services, or (ii) Gryphon’s gross negligence, fraud or willful misconduct in connection with performing the services. Gryphon shall be entitled to specific performance or termination for cause in the event of a breach by the Company, subject to written notice and an opportunity to cure for a period of up to 180 days. As consideration for the Gryphon MSA, Gryphon shall receive the equivalent of 22.5% of the net operating profit, as defined in the Gryphon MSA, of all of the Company’s blockchain and digital currency related operations as a management fee. In addition, any costs Gryphon incurs on the Company's behalf are to be reimbursed to Gryphon as defined in the Gryphon MSA. The Company paid costs under this agreement of $3.3 million and $0.4 million during the three months ended MarchJune 30, 2023 and 2022, respectively. The Company paid costs under this agreement of $3.9 million and $0.8 million during the six months ended June 30, 2023 and 2022, respectively.
On April 7, 2023, the Company filed litigation against Gryphon citing several breaches to the Gryphon MSA, including but not limited to, several fiduciary and operational breaches.
On June 3, 2022, the Company entered into a Master Agreement with Compute North LLC (the “Compute North MA”) for, the colocation, management and other services of certain of the Company’s mining equipment. In September 2022, Compute North filed for Chapter 11 bankruptcy. In December 2022, the Compute North MA was assigned to GC Data Center Granbury, LLC (the “GC Data Center MA”) and has a term of five years from such assignment date. Under the GC Data Center MA, the monthly service fee is payable based on the actual hashrate performance of the equipment per miner type per location as a percentage of the anticipated monthly hashrate per miner type. A deposit of $0.5 million previously paid to Compute North for the last two months of monthly service fees was remitted to GC Data Center on behalf of the Company and is included in prepaid digital hosting services at June 30, 2023. During the three months ended June 30, 2023 and 2022, the Company incurred costs under the GC Data Center MA of $1.3 million and nil, respectively. During the six months ended June 30, 2023 and 2022, the Company incurred costs under the GC Data Center MA of $2.6 million and nil, respectively. For both the three and six months ended June 30, 2023, $0.9 million of the costs incurred under the GC Data Center MA were paid through the Gryphon MSA and are included in the Gryphon MSA costs above.
On February 8, 2023, the Company entered into a Hosting Agreement with Lancium FS 25, LLC (the “Lancium Hosting Agreement”) for rack space, network services, electrical connections, routine facility maintenance, and technical support of certain of the Company’s mining equipment. The Lancium Hosting Agreement has a term of two years with subsequent one year renewal periods. During both the three and six months ended June 30, 2023, the Company incurred costs under the Lancium Hosting Agreement of $0.5 million. The costs incurred under the Lancium Hosting Agreement are paid through the Gryphon MSA and included in the Gryphon MSA costs above.
On April 4, 2023, the Company entered into a Master Hosting Services Agreement with Rebel Mining Company, LLC (the “Rebel Hosting Agreement”) for rack space, network services, electrical connections, routine facility maintenance, and technical support of certain of the Company’s mining equipment. The Rebel Hosting Agreement has a term of three years with subsequent one year renewal periods. As required by the Rebel Hosting Agreement, the Company paid deposits of $2.6 million representing the last two months of estimated service fees. During both the three and six months ended June 30, 2023, the Company incurred costs under the Rebel Hosting Agreement of $1.2 million. The costs incurred under the Rebel Hosting Agreement are paid through the Gryphon MSA and included in the Gryphon MSA costs above.
27


Digital Mining Hosting Sub-License
On October 5, 2021, the Company entered into a Sub-License and Delegation Agreement (“Hosting Sub-Lease”) by and between Gryphon and the Company, which assigned to the Company certain Master Services Agreement, dated as of September 12, 2021 (the “Core Scientific MSA”), by and between Core Scientific, Inc. (“Core Scientific”), and Gryphon and Master Services Agreement Order #2 (“Order 2”). On December 29, 2021, the Company and Gryphon entered into Amendment No. 1 to the Sub-Lease Agreement (the “Sub-Lease Amendment”) to provide Gryphon the right to recapture the usage of up to 50% of the hosting capacity to be managed by Core Scientific. The agreement allows for approximately 230 MW of net carbon neutral digital mining hosting capacity to be managed by Core Scientific as hosting partner. As part of the agreement, Core Scientific will provide digital mining fleet management and monitoring solution, Minder™, data analytics, alerting, monitoring, and miner management services. The Hosting Sub-Lease shall automatically terminate upon the termination of the Core Scientific MSA and/or Order 2 in accordance with their respective terms. On October 31, 20182022, the Company filed an arbitration request against Core Scientific regarding the Hosting Sub-Lease. The Company has requested that certain advanced deposits paid be refunded back to it as a result of the modification to the Company’s machine purchase agreement with FuFu Technology Limited (now Ethereal Tech Pte. Ltd.). In December 2022, Core Scientific filed Chapter 11 bankruptcy. The Company incurred costs under this agreement of $0.2 million and 2017,$0.2 million during the three months ended June 30, 2023 and 2022, respectively. The Company incurred costs under this agreement of $0.4 million and $0.2 million during the six months ended June 30, 2023 and 2022, respectively. The costs incurred under the Sub-Lease Amendment are paid through the Gryphon MSA and included in the Gryphon MSA costs above.
Underwriting Agreement
12.Commitments and Contingencies
Subject to the terms of the underwriting agreement for MEOA’s initial public offering, as amended on August 30, 2022, the underwriter is entitled to a deferred underwriting fee of $4.6 million, which is recorded as deferred underwriting fee in the Company’s consolidated balance sheets.
Letters of credit
During the ordinary course of business, the Company provides standby letters of credit to third parties as required for certain transactions initiated by the Company. As of March 31, 2018,June 30, 2023, the Company’s had noCompany has one outstanding standby lettersletter of credit.credit used for the bond necessary for the Company to receive mining machines.
Warranty and Extended Warranty
The Company had $0.8 million in deferred costs included in other current and non-current assets related to deferred service revenue at both March 31, 2018 and December 31, 2017. Changes in the liability for product warranty and deferred revenue associated with extended warranties and service contracts were as follows (in thousands):
 Product
Warranty
 Deferred
Revenue
Liability at December 31, 2017$996
 $5,672
Settlements made during the period(156) (1,493)
Change in liability for warranties issued during the period180
 1,339
Change in liability for pre-existing warranties9
 
Liability at March 31, 2018$1,029
 $5,518
Current liability$642
 $4,260
Non-current liability387
 1,258
Liability at March 31, 2018$1,029
 $5,518


Deferred
Revenue
Liability at January 1, 2023$139 
Revenue recognized during the period(53)
Change in liability for warranties issued during the period
Liability at June 30, 2023$93 
Current liability, included in other current liabilities52 
Non-current liability, included in other non-current liabilities41 
Liability at June 30, 2023$93 
Litigation
The Company is, from time to time, subject to claims and suits arising in the ordinary course of business. In the opinion of management, the ultimate resolution of such pending proceedings will not have a material effect on the Company’s results of operations, financial position or cash flows.
Patent Litigation Funding Agreement
28
In December 2010, Overland


14.Segment Information
The Company has two operating segments, (1) Digital Mining and (2) Service and Product. The segment disclosures present the measure(s) used by the chief operating decision maker to decide how to allocate resources and for purposes of assessing such segments’ performance.
The Digital Mining segment generates revenue from the digital currency the Company earns through its bitcoin mining activities. The Company generates its digital mining revenue from two mining pool operators. The Company’s revenue from digital mining is generated in the United States.
The Service and Product segment generates revenue from customer contracts for service and extended service contract and the sale of products related to the Company’s data storage product line. The Company’s revenue from service and product is generated in the United States.
Summary information by segment (in thousands):
Three months ended June 30, 2023Digital MiningService and ProductUnallocatedTotal Consolidated
Revenue$4,966 $500 $— $5,466 
Segment gross profit$891 $292 $— $1,183 
Segment loss from operations$(821)$(285)$(3,590)$(4,696)
Interest expense— — 1,173 1,173 
Depreciation and amortization$1,346 $$26 $1,375 
Six months ended June 30, 2023Digital MiningService and ProductUnallocatedTotal Consolidated
Revenue$7,490 $1,002 $— $8,492 
Segment gross profit$1,451 $495 $— $1,946 
Segment loss from operations$(712)$(742)$(6,982)$(8,436)
Capital expenditures$1,561 $— $— $1,561 
Interest expense— — 1,173 1,173 
Depreciation and amortization$2,331 $17 $52 $2,400 
Three months ended June 30, 2022Digital MiningService and ProductUnallocatedTotal Consolidated
Revenue$1,211 $710 $— $1,921 
Segment gross profit$592 $369 $— $961 
Segment loss from operations$(4,762)$(145)$(10,487)$(15,394)
Capital expenditures$6,265 $— $— $6,265 
Depreciation and amortization$7,425 $34 $26 $7,485 
Six months ended June 30, 2022Digital MiningService and ProductUnallocatedTotal Consolidated
Revenue$1,958 $1,335 $— $3,293 
Segment gross profit$984 $635 $— $1,619 
Segment loss from operations$(15,412)$(397)$(14,696)$(30,505)
Capital expenditures$16,264 $— $— $16,264 
Depreciation and amortization$13,730 $67 $52 $13,849 
29


A summary of segment assets is as follows (in thousands):
As of June 30, 2023Digital MiningService and ProductUnallocatedTotal Consolidated
Total assets$58,252 $616 $12,410 $71,278 
As of December 31, 2022Digital MiningService and ProductUnallocatedTotal Consolidated
Total assets$63,077 $689 $19,250 $83,016 
Service and product had the following customers that represented more than 10% of revenue.
Three Months
Ended June 30,
Six Months
Ended June 30,
2023202220232022
Customer A24.7 %18.9 %24.2 %20.1 %
Customer B13.9 %14.3 %14.4 %13.0 %
Customer C10.9 %— %10.9 %— %
Service and product had the following receivable’s that represented more than 10% of accounts receivable.
June 30,
2023
December 31,
2022
Customer A36.2 %— %
Customer B26.7 %22.7 %
Customer C17.8 %15.2 %
Customer D— %10.5 %
Customer E— %14.5 %
Customer F— %10.2 %
30


14.Subsequent Events
Subsequent to June 30, 2023, the Company issued 421,856 common shares for the conversion of 2,953 Series H Preferred Shares.
Private Placement
On August 11, 2023, the Company entered into a litigation funding agreementSecurities Purchase Agreement (the “Funding“Purchase Agreement”) with Special Situations Fund III QP, L.P., Special Situations Private Equity Fund, L.P., Special Situations Technology Fund, L.P., and Special Situations Technology Fund II, L.P. (collectively, the “Special Situations Funds”) pursuant to which the Special Situations Funds agreedCompany issued to fundtwo investors, a total of 13,764 of the Company’s Series H Preferred Shares and a total of 1,966,292 common share purchase warrants (the “Warrants”), each of which entitled the holder to purchase one common share of the Company (the “Warrant Shares”). Per the terms of the Purchase Agreement, the Company will receive gross proceeds of $3.5 million. The Company issued a total of 1,377 Series H Preferred Shares and 196,629 Warrants as a finder’s fee for the transaction.
The Warrants issued to the investors are exercisable beginning February 12, 2024 at an initial exercise price of $2.75 per share and have a term of three years from the date of issuance. The Warrants issued for a finder’s fee are immediately exercisable. The exercise price of the Warrant is subject to adjustment for certain patent litigation brought by Overland. In May 2014,stock splits, stock combinations and dilutive share issuances.
Pursuant to the Special Situations Funds filed a complaint against Overlandterms of the Purchase Agreement, the Company will reserve for issuance the maximum aggregate number of common shares that are issuable upon exercise in full of the Warrants at any time.
Amendment to Hertford Agreement
On August 11, 2023, the Company entered into an Amended and Restated Agreement (the “Hertford Amendment”) with Hertford Advisors Ltd. and certain other parties listed in the Supreme Court for New York County, alleging breach ofHertford Amendment (together, the Funding Agreement. The Special Situations Funds alleged that Overland’s January 2014 acquisition of Tandberg Data entitled the Special Situation Funds to a $6.0 million payment under the Funding Agreement,“Hertford Group”), which amends and therefore Overland’s refusal to make the payment constituted a breach of the Funding Agreement by Overland. In November 2014, the Special Situations Funds amended their complaint to allege that Overland breached the Funding Agreement’s implied covenant of good faith and fair dealing by settling the patent litigation with BDT in bad faith to avoid a payment obligation under the Funding Agreement.  The Special Situations Funds sought $6.0 million in contractual damages as well as costs and fees. On October 10, 2017, the Court entered an order granting Overland’s motion for summary judgment and dismissing the Special Situations Funds’ complaintrestates in its entirety with prejudice, and in April 2018, the parties entered into a settlementpurchase agreement ending the litigation that did not require payment from either party.
Other
In January 2018, Mr. Vito Lupis filed a statement of claim in the Ontario Court of Justice alleging, among other things, breach of contracts, deceit and negligence against Mr. Giovanni J. Morelli, a former officer ofbetween the Company and vicarious liability againstHertford Advisors Ltd. dated July 31, 2021, as modified by the amendment to such agreement dated November 7, 2022 (together, the “Original Hertford Agreement”). As an inducement to enter into the Hertford Amendment, the Company in connectionshall issue to Hertford 1,376 Series H Preferred Shares and 800,000 Warrants.
Hertford shall have the right to exchange 14,980 Series H Preferred Shares for Series H Preferred Shares held by other persons (the “Exchanged Series H Preferred Shares”), provided that at no time shall any recipient of Exchanged Series H Preferred Shares be permitted to convert Series H Preferred Shares that, when aggregated with stock purchase agreements and other related agreements that would have been entered into between Mr. Lupis and the Company in 2012. The Company believes the allegations are without merit and plans to vigorously defend itself against the allegations.
In April 2015, we filed a proof of claim in connection with bankruptcy proceedings of V3 Systems, Inc. (“V3”) based on breaches by V3 of the Asset Purchase Agreement entered into between V3 and the Company dated February 11, 2014 (the “APA”). On October 6, 2015, UD Dissolution Liquidating Trust (“UD Trust”), the apparent successor to V3, filed a complaint against us and certain of our current and former directors in the U.S. Bankruptcy Court for the District of Utah Central Division objecting to our proof of claim and asserting claims for affirmative relief against us and our directors. This complaint alleges, among other things, that Sphere 3D breached the APA and engaged in certain other actions and/or omissions that caused V3 to be unable to timely sell the Sphere 3Dany common shares receivedbeneficially owned by V3 pursuantthe recipient of Exchanged Series H Preferred Shares prior to the APA. The plaintiff seeks, among other things, monetary damages for the loss of the potential earn-out consideration, the valuesuch conversion, would result in exceeding 9.99% of the common shares held back by us pursuantoutstanding immediately after giving effect to the APAsuch conversion.
The offer and costs and fees. We believe the lawsuit to be without merit and intend to vigorously defend against the action.
On December 23, 2015, we filed a motion seeking to dismiss the majoritysale of the claims asserted bySeries H Preferred Shares and the UD Trust. On January 13, 2016, we filed a counterclaim againstWarrants have not been registered under the UD TrustSecurities Act and may not be offered or sold in which we allege that V3 breached numerous provisions of the APA. On July 22, 2016, we filed a motion seeking to transfer venue of this action to the United States District Court forin the Districtabsence of Delaware. The Bankruptcy Court granted our motion to transfer venue on an effective registration statement or exemption from the registration requirements, and in each case in compliance with applicable state securities laws.
Convertible Debt
On August 30, 2016, and14, 2023, in accordance with the case was formally transferred toterms of the Delaware Court on October 11, 2016. There is currently no hearing set on our motion to dismiss.


In March 2018, UD Trust filed a complaint in U.S. District Court, Northern California District (“California Complaint”) asserting that two transactions involvingLDA Purchase Agreement prepayment option, the Company constitute fraudulent transfers under federalrepaid the full amount of the LDA Note, including interest and state law. First, UD Trust alleges thatfees, in the consolidationamount of $1.3 million. As a result of the Company’s and its subsidiaries’ indebtedness to the Cyrus Group into a debenture between FBC andrepayment, the Company inshall have the principal amount of $19.5 million in December 2014 constitutes a fraudulent transfer. Second, UD Trust alleges thatright to redeem from the Share Purchase Agreement constitutes a fraudulent transfer, and seeks to enjoin the Share Purchase or that the proceedsholder of the transaction be placed in escrow until the V3 litigation is resolved. The California Complaint also asserts a claim against the Company’s CEO for breach of fiduciary duty, and a claim against the Cyrus Group for aiding and abetting breach of fiduciary duty. We believe the lawsuit to be without merit and intend to vigorously defend against the action.
13.Segmented Information
The Company reports segment information as a single reportable business segment based upon the manner in which related information is organized, reviewed, and managed. The Company operates in one segment providing data storage and desktop virtualization solutions for small and medium businesses and distributed enterprises.
The following table summarizes net revenue (in thousands):
  Three Months
Ended March 31,
  2018 2017
Disk systems $13,164
 $14,965
Tape automation systems 2,064
 2,398
Tape drives and media 2,191
 2,082
Service 2,029
 2,293
  $19,448
 $21,738
14.Subsequent Events
In April 2018, the Company closed an underwritten public offering of 3,300,000 common shares and warrants to purchase up to an aggregate of 990,000 common shares at an aggregate purchase price of $0.70 per common share and accompanying warrant, as well as a concurrent closing of warrants to purchase an additional 112,500 common shares pursuant to the partial exerciseLDA Warrants 40% of the over-allotment option granted to the underwriter. Gross proceeds, before underwriting discounts and commissions and other offering expenses, were approximately $2.3 million.then outstanding LDA Warrants.
On May 10, 2018, the Company issued 640,800 common shares to satisfy payment obligations incurred by the Company in the aggregate amount of $0.3 million. The obligations were related to the Purchase Agreement entered into in February 2018.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following quarterly management’s discussion and analysis (“MD&A”) should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes of Sphere 3D Corp. (the “Company”) for the three and six months ended March 31, 2018.June 30, 2023. The condensed consolidated financial statements have been presented in United States (“U.S.”) dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Unless the context otherwise requires, any reference to the “Company,” “Sphere 3D,” “we,” “our,” “us” or similar terms refers to Sphere 3D Corp. and its subsidiaries. Unless otherwise indicated, all references to “$” and “dollars” in this discussion and analysis mean U.S. dollars.
This MD&Areport includes forward-looking statements that involveinvolves risks uncertainties and assumptions that are difficult to predict. Words and expressions reflecting optimism, satisfaction or disappointment with current prospects, as well as words such as “believes,” “hopes,” “intends,” “estimates,” “expects,” “projects,” “plans,” “anticipates” and variations thereof, or the use of future tense, identifyuncertainties. This forward-looking statements,information includes, but their absence does not mean that a statement is not forward-looking. Forward-lookinglimited to, statements are based onwith respect to management’s expectations regarding the future growth, results of operations, performance and business prospects of Sphere 3D. This forward-looking information currently availablerelates to, us and on estimates and assumptions made by us regarding, among other things, general economic conditions,future business plans and business planning process, uses of cash, and may also include other statements that are predictive in lightnature, or that depend upon or refer to future events or conditions. The words “could”, “expects”, “may”, “will”, “anticipates”, “assumes”, “intends”, “plans”, “believes”, “estimates”, “guidance”, and similar expressions are intended to identify statements containing forward-looking information, although not all forward-looking statements include such words. In addition, any statements that refer to expectations, projections or other characterizations of our experience and perception offuture events or circumstances contain forward-looking information. Statements containing forward-looking information are not historical trends, current conditions and expected future developments, as well as other factors that we believe are appropriate and reasonable in the circumstances,facts but there can be no assurance that suchinstead represent management’s expectations, estimates and assumptions will prove to be correct. projections regarding future events.
Many factors could cause actual results, performance or achievements or future events or developments to differ materially from those expressed or implied by the forward-looking statements, including, but not limited to: our entry into the Purchase Agreement dated February 20, 2018 with Silicon Valley Technology Partners LLC (“Purchaser”), an entity established and controlled by Eric Kelly, chairman and chief executive officer of the Company, pursuant to which Purchaser proposes to acquire Overland and the Data Protection and Archive business from Sphere 3D;  Purchaser’s ability to obtain sufficient financing to fund such acquisition and our inability to meet the closing conditions and to close such acquisition on a timely basis; our ability to refinance our credit facilities and to raise additional debt or equity financing; the inability to maintain compliance with the requirements of the NASDAQ Capital Market and/or inability to maintain listing with the NASDAQ Capital Market; the limited operating history of Sphere 3D; the ability of Sphere 3D to manage growth and specifically, its recent acquisition of Unified ConneXions, Inc. (“UCX”) and HVE ConneXions, LLC (“HVE”); the impact of competition; the investment in technological innovation; any defects in components or design of Sphere 3D’s products; the retention or maintenance of key personnel; the possibility of significant fluctuations in operating results; currency fluctuations; the ability of Sphere 3D to maintain business relationships; financial, political or economic conditions; financing risks; future acquisitions; the ability of Sphere 3D to protect its intellectual property; third party intellectual property rights; volatility in the market price for the common shares of the Company; compliance by Sphere 3D with financial reporting and other requirements as a public company; conflicts of interests; future sales of common shares by Sphere 3D’s directors, officers and other shareholders; dilution and future sales of common shares. For more information on these risks, you should refer to the Company’s filings with the securities regulatory authorities, including the Company’s most recently filed Annual Report on Form 10-K, which is available on SEDAR at www.sedar.com and EDGAR at www.sec.gov. In evaluating such statements, we urge you to specifically consider various factors identified in this report, any of which could cause actual results to differ materially from those indicated by such forward-looking statements. Forward-looking statements speak only as of the date of this report and we undertake no obligation to publicly update any forward-looking statements to reflect new information, events or circumstances after the date of this report. Actual events or results may differ materially from such statements.

Share Consolidation

On June 28, 2023, we filed Articles of Amendment to effect a share consolidation (also known as a reverse stock split) of our issued and outstanding common shares on a 1-for-7 basis. The share consolidation became effective on June 28, 2023. All share and per share amounts have been restated for all periods presented to reflect the share consolidation.
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Overview
Sphere 3D provideswas incorporated under the Business Corporations Act (Ontario) on May 2, 2007 as T.B. Mining Ventures Inc. On March 24, 2015, we completed a short-form amalgamation with a wholly-owned subsidiary. In connection with the short-form amalgamation, we changed our name to “Sphere 3D Corp.” Any reference to the “Company”, “Sphere 3D”, “we”, “our”, “us”, or similar terms refers to Sphere 3D Corp. and its subsidiaries. In December 2014, we completed the acquisition of Overland Storage, Inc. (“Overland”) to grow our business in the containerization and virtualization technologies along with data management products that enabled workload-optimized solutions. In November 2018, we sold our Overland business. In January 2022, we commenced operations of our digital mining operation and are dedicated to becoming a leading carbon-neutral Bitcoin mining company. We are establishing an enterprise-scale mining operation through procurement of next-generation mining equipment and partnering with experienced service providers.
Digital assets and blockchain
Bitcoin is a digital asset issued by and transmitted through an open source protocol maintained by a peer-to-peer network of decentralized user nodes. This network hosts a public transaction ledger blockchain where the digital assets and their corresponding transactions are recorded. The digital assets are stored in individual wallets with public addresses and a private key that controls access. The blockchain is updated without a single owner or operator of the network. New digital assets are generated and mined rewarding users after transactions are verified in the blockchain.
Digital assets and their corresponding markets emulate foreign exchange markets of fiat currencies, such as the U.S. dollar, where they can be exchanged to said fiat currencies trading exchanges. In addition to these exchanges, additional trading markets for digital assets exist, such as derivative markets.
Since the nature of digital assets is such that it exists solely in electronic form, they are exposed to risks similar to that of any data held solely in electronic form such as power failure, data corruption, cyber security attacks, protocol breaches, and user error, among others. Similar to data centers, these risks put the digital assets subject to the aforementioned threats which might not necessarily affect a physical fiat currency. In addition, blockchain relies on open source developers to maintain the digital asset protocols. Blockchain as such may be subject to design changes, governance disputes such as “forked” protocols, and other risks associated with open source software.
Digital currencies serve multiple purposes - a medium of exchange, store of value or unit of account. Examples of digital currencies include: bitcoin, bitcoin cash, Ethereum, and Litecoin. Digital currencies are decentralized currencies that facilitate instant transfers. Transactions occur on an open source platform using peer-to-peer direct technology with no single owner. Blockchain is a public transaction ledger where transactions occur, are recorded and tracked, however not owned nor managed by one single entity. Blockchain, accessible and open to all, contains records of all existing and historical transactions. All accounts on the blockchain have a unique public key and is secured with a private key that is only known to the individual. The combination of private and public keys results in a secure digital “fingerprint” which results in a strong control of ownership.
We believe cryptocurrencies have many advantages over traditional, physical fiat currencies, including immediate settlement, fraud deterrent as they are unable to be duplicated or counterfeited, lower fees, mass accessibility, decentralized nature, identity theft prevention, physical loss prevention, no counterparty risk, no intermediary facilitation, no arduous exchange rate implications and a strong confirmation transaction process.
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Service and product
In addition to digital mining, we provide network operations center (“NOC”) services to our customers. NOC revenues are for monthly services performed for the customer that are performed either in-house or at the customer’s site. We also deliver data management and desktop and application virtualization solutions for standalonethrough hybrid cloud, cloud and on premise implementations by a reseller network. We achieve this through a combination of containerized applications, virtual desktops, virtual storage and long-term data archivephysical hyper-converged platforms. Our products as well as technologies that converge the traditional silosallow organizations to deploy a combination of compute, storage and network into one integrated “hyper-converged” or converged solution. We provide enterprise storage management solutions, the archiving of the data created by these solutions, and the ability to connect to public cloud services such as Microsoft Azure for additional delivery options and hybrid cloud capabilities. Our solutions are tightly integrated and include a patented portfolio for operating systems for storage, proprietary virtual desktop orchestration software, and proprietary application container software. Our software, combined with commodity x86 servers, or its purpose built appliances, deliver solutions that provide application mobility, security, data integrity and simplified management. These solutions can be deployed through a public, private or hybrid cloud strategies while backing them up with the latest storage solutions. Our brands include HVE ConneXions (“HVE”) and are deliveredUnified ConneXions (“UCX”).
Investment in Special Purpose Acquisition Company
In April 2021, we sponsored a special purpose acquisition company (“SPAC”), Minority Equality Opportunities Acquisition Inc. (“MEOA”), through our global reseller networkwholly owned subsidiary, Minority Equality Opportunities Acquisition Sponsor, LLC (“SPAC Sponsor”). MEOA’s purpose is to focus initially on transactions with companies that are minority owned businesses. In April 2021, SPAC Sponsor paid $25,000 of deferred offering costs on behalf of MEOA in exchange for 2,875,000 shares of MEOA’s Class B common stock (the “Founder Shares”). On August 30, 2021, MEOA consummated its initial public offering (the “IPO”) and professional services organization. We have a portfolioissued units which were comprised of brands including Overland-Tandberg™, HVE ConneXionsone share of Class A common stock and UCX ConneXions, dedicated to helping customers achieve their IT goals.
We have created our own platform, Glassware 2.0TM (“Glassware”) forone redeemable warrant. Also in August 2021, and simultaneously with the delivery of applications from a server-based computing architecture. This is accomplished through a number of unique approaches to virtualization utilized by Glassware including the use of software “containers” and “microvisors.” A container refers to software that takes an application and all the things required to run that application and encapsulates them with software. By doing so, users can run numerous applications from a single server and on a single copyconsummation of the operating system. A microvisor refers toIPO, SPAC Sponsor participated in the technology that allows non-Windows® based applications to run on the same servers as Windows software using a lightweight emulator. Glassware sales are not material.
First Quarterprivate sale of 2018 and Recent Highlights
On April 17, 2018, the Company closed an underwritten public offering of 3,300,000 common shares and warrants to purchase up to an aggregate of 990,000 common shares5,395,000 Warrants (the “Private Placement Warrants”) at an aggregatea purchase price of $0.70$1.00 per Private Placement Warrant. The SPAC Sponsor paid $5.4 million to MEOA, which included $1.0 million from an investor participating in MEOA Sponsor. The Private Placement Warrants are not transferable, assignable or saleable until 30 days after MEOA completes a business combination. On October 18, 2021, the securities comprising the units begin separate trading, the Class A common sharestock and accompanying warrant, as well as a concurrent closing of warrants to purchase an additional 112,500 common shares pursuant toare listed on the partial exercise ofNASDAQ Capital Market under the over-allotment option granted to the underwriter. Gross proceeds, before underwriting discountssymbols “MEOA” and commissions and other offering expenses, were approximately $2.3 million.“MEOAW,” respectively.
On March 16, 2018, the CompanyIn August 2022, MEOA entered into warrant exchange agreements, in a privately negotiated exchange under Section 4(a)(2)business combination agreement with MEOA Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of the Securities Act of 1933, as amended,MEOA (“Merger Sub”), and Digerati Technologies, Inc., a Nevada corporation (“Digerati”), pursuant to which, subject to the Company issued 1,430,998 common shares in exchange forsatisfaction or waiver of certain conditions set forth therein, Merger Sub will merge with and into Digerati (the “Digerati Merger”), with Digerati surviving the surrender and cancellation of the Company’s outstanding March 24, 2017 warrants (the “Exchange”). Immediately after the Exchange, the previously issued warrants became null and void. MF Ventures, LLC, participated in the Exchange by acquiring 299,999 common shares in exchange for the cancellation of a warrant to purchase 272,727 common shares.
On February 20, 2018, the Company, Overland Storage, Inc., a California corporation andDigerati Merger as a wholly owned subsidiary of MEOA, and with Digerati’s equity holders receiving shares of MEOA common stock.
In November 2022, MEOA held a special meeting of stockholders (the “MEOA Meeting”). At the MEOA Meeting, MEOA’s stockholders approved an amendment (the “Extension Amendment”) to MEOA’s amended and restated certificate of incorporation to extend the date by which MEOA must consummate its initial business combination from November 30, 2022 to May 30, 2023, or such earlier date as determined by MEOA’s board of directors. In connection with the MEOA Meeting, the holders of MEOA’s shares of its Class A common stock exercised their right to redeem such shares for a pro rata portion of the funds in the trust account. After giving effect to the redemption of MEOA’s public shares, on November 30, 2022, the Company (“Overland”),owned a controlling interest of MEOA and Silicon Valley Technology Partners LLC,since such time MEOA has been recorded on a Delaware limited liability company establishedconsolidated basis.
SPAC Sponsor, along with MEOA’s initial stockholders, MEOA’s executive officers and controlled by Eric Kelly, the Company’s Chief Executive Officer and Chairman of the Board of Directors (the “Purchaser”)directors have entered into a letter agreement with MEOA, pursuant to which we have agreed to (i) waive our redemption rights with respect to our founder shares and public shares in connection with the completion of the initial business combination; (ii) waive our redemption rights with respect to our founder shares and public shares in connection with a stockholder vote to approve an amendment to the certificate of incorporation: (A) to modify the substance or timing of MEOA’s obligation to redeem 100% of the public shares if MEOA does not complete an initial business combination within the combination period; or (B) with respect to any other material provision relating to stockholders’ rights or pre-initial business combination activity; and (iii) waive our rights to liquidating distributions from the trust account with respect to our founder shares if MEOA fails to complete an initial business combination within the Combination Period.
On July 3, 2023, MEOA announced that it did not complete an initial business combination on or prior to June 30,
34


2023, the deadline by which it must have completed an initial business combination, and intends to dissolve and liquidate in accordance with the provisions of its amended charter. As of the close of business on July 3, 2023, MEOA’s public shares were deemed cancelled and represent only the right to receive the redemption amount. MEOA instructed Continental Stock Transfer & Trust Company, the trustee of the trust account, to take all necessary actions to liquidate the securities held in the trust account. The redemption of MEOA’s public shares was completed in the third quarter of 2023. We did not retain any proceeds from the trust account.
Nasdaq Listing
On July 25, 2022, we received a notice from the Nasdaq Listing Qualifications Department of the Nasdaq Stock Market LLC (“Nasdaq”) stating that the bid price of our common stock for the last 30 consecutive trading days had closed below the minimum $1.00 per share purchase agreementrequired for continued listing under Listing Rule 5550(a)(2) (the “Listing Rule”). We had a period of 180 calendar days, or until January 23, 2023, to regain compliance with the Listing Rule.
On January 24, 2023, we received notification from Nasdaq indicating that we will have an additional 180-day grace period, or until July 24, 2023, to regain compliance with the Listing Rule's $1.00 minimum bid requirement. The notification indicated that we did not regain compliance during the initial 180-day grace period provided under the Listing Rule. In accordance with Nasdaq Marketplace Rule 5810(c)(3)(A), we are eligible for the additional grace period because we meet the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the Nasdaq Capital Market with the exception of the bid price requirement, and our written notice to Nasdaq of our intentions to cure the deficiency by effecting a reverse stock split, if necessary.
On July 14, 2023, we received notification from Nasdaq indicating that we had regained compliance with the Listing Rule.
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Recent Key Events
On August 14, 2023, in accordance with the terms of the LDA Purchase Agreement prepayment option, we repaid the full amount of the LDA Note, including interest and fees, in the amount of $1.3 million. As a result of our repayment, we shall have the right to redeem from the holder of the LDA Warrants 40% of the then outstanding LDA Warrants.
On August 11, 2023, we entered into a Securities Purchase Agreement (the “Purchase Agreement”), pursuant to which among other things,we issued to two investors, a total of 13,764 of our Series H Preferred Shares and subjecta total of 1,966,292 common share purchase warrants (the “Warrants”), each of which entitled the holder to certain closing conditions, the Company will sell to Purchaser allpurchase one common share of the issued and outstanding sharesCompany. Per the terms of capital stock of Overland for $45.0 million (the “Purchase Price”), subject to a working capital adjustment (the “Share Purchase”). The net proceeds from the Share Purchase will be used to repay: (i) the Company’s outstanding obligations under its Credit Agreement with Opus Bank; (ii) its outstanding obligations under the related party convertible note with FBC Holdings S.a.r.l. (“FBC Holdings”); and (iii) its related party subordinated promissory note with MF Ventures, LLC. The Special Committee of the Board of Directors of the Company and the Board of Directors of the Company (with Eric Kelly recusing himself) unanimously approved the entry into the Purchase Agreement, we will receive gross proceeds of $3.5 million. We issued a total of 1,377 Series H Preferred Shares and 196,629 Warrants as a finder’s fee for the transaction.
On August 11, 2023, we entered into an Amended and Restated Agreement (the “Hertford Amendment”) with Hertford Advisors Ltd. and certain other parties listed in the Hertford Amendment (together, the “Hertford Group”), which amends and restates in its entirety the purchase agreement between us and Hertford Advisors Ltd. dated July 31, 2021, as modified by the Company. The Company will hold a special shareholder meeting on May 31, 2018amendment to seek shareholder approvalsuch agreement dated November 7, 2022 (together, the “Original Hertford Agreement”). Pursuant to the Hertford Amendment, we shall issue to Hertford 1,376 Series H Preferred Shares and 800,000 Warrants. Hertford shall have the right to exchange 14,980 Series H Preferred Shares for Series H Preferred Shares held by other persons (the “Exchanged Series H Preferred Shares”), provided that at no time shall any recipient of Exchanged Series H Preferred Shares be permitted to convert Series H Preferred Shares that, when aggregated with any common shares beneficially owned by the recipient of Exchanged Series H Preferred Shares prior to such conversion, would result in exceeding 9.99% of the common shares outstanding immediately after giving effect to such conversion.
In the first six months of 2023, we issued 1,431,283 common shares for the Share Purchase and, subjectconversion of 10,019 Series H Preferred Shares. Subsequent to June 30, 2023, we issued 421,856 common shares for the receiptconversion of requisite shareholder approval and meeting the other closing conditions contained therein (including Purchaser’s receipt of adequate funding to close the Share Purchase), anticipates the transaction will close shortly thereafter.


2,953 Series H Preferred Shares.
Results of Operations
The following table sets forth certain financial data as a percentage of net revenue:
 Three Months
Ended March 31,
 2018 2017
Net revenue100.0 % 100.0 %
Cost of revenue69.1
 68.6
Gross profit30.9
 31.4
Operating expenses:   
Sales and marketing22.6
 22.1
Research and development6.6
 8.1
General and administrative27.9
 23.0
 57.1
 53.2
Loss from operations(26.2) (21.8)
Interest expense(5.7) (8.5)
Other expense, net(1.5) (4.3)
Loss before income taxes(33.4) (34.6)
Provision for income taxes1.7
 1.4
Net loss(35.1)% (36.0)%
A summary of the sales mix by product follows (in thousands):
 Three Months
Ended March 31,
  
 2018 2017 Change
Disk systems$13,164
 $14,965
 (12.0)%
Tape automation systems2,064
 2,398
 (13.9)%
Tape drives and media2,191
 2,082
 5.2 %
Service2,029
 2,293
 (11.5)%
Total$19,448
 $21,738
 (10.5)%
The FirstSecond Quarter of 20182023 Compared with The Firstthe Second Quarter of 20172022
Net Revenue
We had revenuegenerated revenues of $19.4$5.5 million and $1.9 million during the firstsecond quarter of 2018 compared to $21.72023 and 2022, respectively. The $3.6 million during the first quarter of 2017. The decreaseincrease in net revenue is a result of a decrease in product revenue of $2.0 million primarily due a decreaseto the increase of sales units for disk systems$3.8 million in revenues from our HVE product line, and a decrease in service revenue of $0.3 million. Original equipment manufacturer (OEM) net revenue accounted for 20.6% and 15.5% of net revenue during the first quarter of 2018 and 2017, respectively.
Product Revenue
Net product revenue decreased to $17.4 million during the first quarter of 2018 from $19.4 million during the first quarter of 2017, a decrease of $2.0 million. Revenue from disk systems decreaseddigital mining operation, offset by $1.8 million primarily related to a $1.4 million decrease in our HVE product line related to a transaction in the first quarter of 2017 that did not recur in the first quarter of 2018. In addition, there was a $0.2 million decrease in tape automation,product and tape drivesservice.
During the second quarter of 2023, the majority of our revenue was derived from digital currency mining and media revenue related to lower tape media sales volume.data management services.

Operating Expenses

ServiceCost of Revenue
Net service revenue decreased to $2.0 millionDirect cost of revenues during the firstsecond quarter of 2018 from $2.32023 and 2022 were $4.3 million during the first quarterand $1.0 million, respectively, representing an increase of 2017. The decrease of approximately $0.3$3.3 million was due to a decrease in virtualization and extended service contracts related to tape automation product sales.
Gross Profit
Gross profit and margin were as follows (in thousands, unless otherwise noted):
  Three Months
Ended March 31,
  
  2018 2017 Change
Gross profit 6,010
 6,831
 (12.0)%
Gross margin 30.9% 31.4% (0.5)pt
Gross profit - product 4,884
 5,360
 (8.9)%
Gross margin - product 28.0% 27.6% 0.4 pt
Gross profit - service 1,126
 1,471
 (23.5)%
Gross margin - service 55.5% 64.2% (8.7)pt
In the first quarter of 2018, gross profit for product and service decreased primarily due to lower sales volumethe increase in our disk systems product line and a decrease in extended service contractsminers deployed related to virtualization and tape automation product sales.our digital mining operation.
Operating Expenses
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Sales and Marketing Expense
Sales and marketing expenses were $4.4 million and $4.8$0.3 million for both the firstsecond quarter of 20182023 and 2017, respectively. The decrease of $0.4 million was primarily due to a decrease of $0.4 million in employee and related expenses associated with a lower average headcount, and a $0.5 million decrease in share-based compensation, offset by a $0.5 million increase in strategic marketing and outside contractors’ fees.2022.
Research and Development Expense
Research and development expenses were $1.3$0.2 million and $1.8$0.1 million for the firstsecond quarter of 20182023 and 2017,2022, respectively. The decrease of $0.5 million was primarily due to a decrease of $0.2 million in employee and related expenses and a $0.3 million decrease in share-based compensation.
General and Administrative Expense
General and administrative expenses were $5.4$3.6 million and $5.0$7.8 million for the second quarter of 2023 and 2022, respectively. The decrease of $4.2 million was due to a decrease of approximately $6.5 million in share-based compensation related to awards, $1.0 million was primarily associated with outside services related to our 2022 expansion into the digital mining industry, and $0.8 million for employee and related expenses primarily related to prior year executive bonuses. These decreases were offset by prior year nonrecurring adjustment of $2.8 million for a change in fair value of crypto asset payable, $0.6 million for legal expenses associated with our digital mining operation, $0.5 million related to formation and operating costs for our SPAC (MEOA), and $0.3 million of additional insurance cost.
Depreciation and Amortization Expense
Depreciation and amortization expense was $1.4 million and $7.5 million for the second quarter of 2023 and 2022, respectively. The decrease of $6.1 million was primarily due to fully amortized supplier agreements related to our digital mining machines.
Loss on disposal of property and equipment
Loss on disposal of property and equipment was $0.3 million and nil for the second quarter of 2023 and 2022, respectively, and related to the sale of mining equipment.
Impairment of Digital Assets
Impairment of digital assets was $0.3 million and $0.7 million for the second quarter of 2023 and 2022, respectively. The decrease of $0.4 million was due to less impairment losses recognized on our digital assets.
Interest Expense
Interest expense was $1.2 million and nil for the second quarter of 2023 and 2022, respectively. The second quarter of 2023 interest expense was primarily $1.0 million for warrants issued with our LDA convertible debt and $0.2 million of debt costs.
Forgiveness of Note Receivable
Forgiveness of note receivable was nil and $13.1 million for the second quarter of 2023 and 2022, respectively. The decrease of $13.1 million was due to the prior year forgiveness of our note receivable, including accrued interest, with Gryphon which occurred when the Merger Agreement with Gryphon was terminated by us on April 4, 2022.
Impairment of Investments
Impairment of investments was nil and $12.4 million for the second quarter of 2023 and 2022, respectively. The decrease of $12.4 million was due to prior year impairment losses recognized on our Filecoiner investments. The fair value of these investments was impacted by the decrease in the price of Filecoin since the time of the investments resulting in an impairment.
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Interest Income and Other Expense, net
Interest income and other expense, net was $1.1 million and $0.3 million for the second quarter of 2023 and 2022, respectively. The second quarter of 2023 interest income and other expense, net, primarily related to a $1.0 million fair value adjustment for warrant liabilities and $0.1 million in interest income from restricted funds held in trust. The second quarter of 2022 primarily related to in interest income from notes receivable and management fees from a transition service agreement.
The First Six Months of 2023 Compared with the First Six Months of 2022
Revenue
We generated revenues of $8.5 million and $3.3 million during the first six months of 2023 and 2022, respectively. The $5.2 million increase in revenue is primarily due to the increase of $5.5 million in revenues from our digital mining operation, offset by a decrease of $0.3 million in product and service.
During the first six months of 2023, the majority of our revenue was derived from digital currency mining and data management services.
Operating Expenses
Cost of Revenue
Direct cost of revenues during the first six months of 2023 and 2022 were $6.5 million and $1.7 million, respectively, representing an increase of $4.8 million primarily due to the increase in miners deployed related to our digital mining operation.
Sales and Marketing Expense
Sales and marketing expenses were $0.6 million and $0.5 million for the first quartersix months of 20182023 and 2017,2022, respectively.
Research and Development Expense
Research and development expenses were $0.5 million and $0.3 million for the first six months of 2023 and 2022, respectively. The increase of $0.4$0.2 million was primarily due to an increase in employee and related expenses associated with internal projects.
General and Administrative Expense
General and administrative expenses were $7.1 million and $16.8 million for the first six months of 2023 and 2022, respectively. The decrease of $9.7 million was primarily due to a $1.1 million increase in transaction costs related to the share purchase agreement entered into in February 2018, offset by decreasesdecrease of $0.6approximately $6.2 million in share-based compensation expense,related to awards, $5.6 million was primarily associated with outside services related to our 2022 expansion into the digital mining industry, $1.7 million for costs related to former proposed merger transactions that were terminated in 2022, and $0.2$0.3 million for employee and related expenses. These decreases were offset by prior year nonrecurring adjustment of $1.6 million for a change in fair value of crypto asset payable, $0.9 million for legal expenses associated with our digital mining operation, $0.7 million related to formation and operating costs for our SPAC (MEOA), $0.7 million of additional insurance cost, and $0.1 million in employeedirector fees.
Depreciation and Amortization Expense
Depreciation and amortization expense was $2.4 million and $13.8 million for the first six months of 2023 and 2022, respectively. The decrease of $11.4 million was primarily due to fully amortized supplier agreements related expenses.to our digital mining machines.
Non-Operating Expenses
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Loss on disposal of property and equipment
Loss on disposal of property and equipment was $0.3 million and nil for the first six months of 2023 and 2022, respectively, and related to the sale of mining equipment.
Impairment of Digital Assets
Impairment of digital assets was $0.4 million and $0.8 million for the first six months of 2023 and 2022, respectively. The decrease of $0.4 million was due to less impairment losses recognized on our digital assets.
Forgiveness of Note Receivable
Forgiveness of note receivable was nil and $13.1 million for the first six months of 2023 and 2022, respectively. The decrease of $13.1 million was due to the prior year forgiveness of our note receivable, including accrued interest, with Gryphon which occurred when the Merger Agreement with Gryphon was terminated by us on April 4, 2022.
Impairment of Investments
Impairment of investments was nil and $12.4 million for the first six months of 2023 and 2022, respectively. The decrease of $12.4 million was due to prior year impairment losses recognized on our Filecoiner investments. The fair value of these investments was impacted by the decrease in the price of Filecoin since the time of the investments resulting in an impairment.
Interest Expense
Interest expense was $1.1$1.2 million and $1.8 millionnil for the first quartersix months of 20182023 and 2017,2022, respectively. The decreasefirst six months of 2023 interest expense was primarily related to a decrease in amortization$1.0 million for warrants issued with our LDA convertible debt and $0.2 million of debt costs of $0.7 million.costs.


Interest Income and Other Expense, Net.net
OtherInterest income and other expense, net inwas $1.4 million and $0.7 million of income, net, for the first quartersix months of 20182023 and 2017 was $0.3 million2022, respectively. The first six months of 2023 interest income and $0.9 million, respectively. In the first quarter of 2018, other expense, net, primarily related to realized foreign currency lossa $1.3 million fair value adjustment for warrant liabilities and $0.2 million in interest income from restricted funds held in trust. The first six months of $0.6 million, offset by a gain on the revaluation of warrants of $0.3 million. In the first quarter of 2017,2022 Interest income and other expense, net, was primarily related to a $1.1 million loss from the revaluation of our investment in connection with our January 2017 acquisition, offset by a $0.2 million gain on revaluation of warrants.
Foreign Currency Risk
We conduct business on a global basis and a significant portion of our sales in international markets are not denominated in U.S. dollars. Our wholly-owned foreign subsidiaries incur costs that are denominated in local currencies. As exchange rates vary, these results may vary from expectations when translated into U.S. dollars, which could adversely impact overall expected results. The effect of exchange rate fluctuations on our results of operations resulted in a loss of $0.6$0.4 million in the first quarter of 2018interest income from notes receivable, and $0.3 million from management fees from a minimal gain in the first quarter of 2017.transition service agreement.
Liquidity and Capital Resources
We have recurring losses from operations and a net working capital deficiency.operations. Our primary source of cash flow is generated from sales of our diskdigital mining revenue and tape automation systems.service revenue. We have financed our operations through gross proceeds from private and public sales of equity securities and with borrowings under our credit facilities.securities. At March 31, 2018,June 30, 2023, we had cash and cash equivalents of $2.3$0.5 million compared to cash and cash equivalents of $4.6$1.3 million at December 31, 2017.2022. As of March 31, 2018,June 30, 2023, we had a working capital deficit of $44.1$2.5 million reflecting a decrease in current assets of $3.3$6.6 million and a decrease in current liabilities of $0.9 million compared tosince December 31, 2017.2022. Cash management and preservation continuecontinues to be a top priority. We expect to incur negative operating cash flows as we continuework to maintain and increase our sales volume,digital mining revenue and maintain operational efficiencies.
In April 2018, the Company closed an underwritten public offering of 3,300,000 common shares and warrants to purchase up to an aggregate of 990,000 common shares at an aggregate purchase price of $0.70 per common share and accompanying warrant, as well as a concurrent closing of warrants to purchase an additional 112,500 common shares pursuant to the partial exercise of the over-allotment option granted to the underwriter. Gross proceeds, before underwriting discounts and commissions and other offering expenses, were approximately $2.3 million.
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On February 20, 2018, the Company, Overland, and Silicon Valley Technology Partners LLC, a Delaware limited liability company established and controlled by Eric Kelly, the Company’s Chief Executive Officer and Chairman of the Board of Directors (the “Purchaser”) entered into a share purchase agreement (the “Purchase Agreement”), pursuant to which, among other things, and subject to certain closing conditions, the Company will sell to Purchaser all of the issued and outstanding shares of capital stock of Overland for $45.0 million (the “Purchase Price”), subject to working capital adjustments (the “Share Purchase”). The net proceeds from the Share Purchase will be used to repay: (i) the Company’s outstanding obligations under its Credit Agreement with Opus Bank; (ii) its outstanding obligations under the related party convertible note with FBC Holdings S.a.r.l. (“FBC Holdings”); and (iii) its related party subordinated promissory note with MF Ventures, LLC. The Special Committee of the Board of Directors of the Company and the Board of Directors of the Company (with Eric Kelly recusing) unanimously approved the entry into the Purchase Agreement by the Company. On May 10, 2018, the Company issued 640,800 common shares to satisfy payment obligations incurred by the Company in the aggregate amount of $0.3 million related to the Purchase Agreement. See Note 1 - Organization and Business for additional details.

Management has projected that based on our hashing rate at June 30, 2023, cash on hand willmay not be sufficient to allow the Companyus to continue operations beyond May 31, 2018the next 12 months from the date the financial statements are issued if the Company iswe are unable to amend, refinance,raise additional funding for operations. We expect our working capital needs to increase in the future as we continue to expand and enhance our operations. Our ability to raise additional funds for working capital through equity or pay off its debt financings or other sources may depend on the financial success of our then current business and credit facilities. In February 2018, the Company entered into the Purchase Agreement. If the transactions contemplated by the Purchase Agreementsuccessful implementation of our key strategic initiatives, financial, economic and market conditions and other factors, some of which are consummated, the Company expects that the proceeds to be received by the Company would be sufficient to pay off its outstanding debt and credit facilities. The Company will hold a special shareholder meeting on May 31, 2018 to seek shareholder approval for the Share Purchase and, subject to the receipt of requisite shareholder approval and meeting the other closing conditions contained therein (including Purchaser’s receipt of adequate funding to close the Share Purchase), anticipates the transaction will close shortly thereafter. Therebeyond our control. No assurance can be no guaranteegiven that we will be successful in raising the required capital at a reasonable cost and at the required times, or at all. Further equity financings may have a dilutive effect on shareholders and any debt financing, if available, may require restrictions to be placed on our future financing and operating activities. If we require additional capital and are unsuccessful in raising that capital, we may not be able to raise additional fundscontinue our business operations in the cryptocurrency mining industry or amend or refinancewe may be unable to advance our debtgrowth initiatives, either of which could adversely impact our business, financial condition and credit facilities on favorableresults of operations.


terms or at all, nor can there be any guarantee that the Company’s shareholders will approve the Share Purchase or that the Share Purchase will ultimately be consummated. Significant changes from the Company’sour current forecasts, including but not limited to: (i) any delay in the closing of the Share Purchase after May 31, 2018 (including as a result of a failure to receive the appropriate shareholder vote, the failure of the Purchaser to obtain funding adequate to fund the Purchase Price, or the failure to satisfy any closing conditions), (ii) failure to comply with the financial covenants in its credit facilities; (iii) shortfalls from projected sales levels; (iv)(ii) fluctuations in the value of cryptocurrency; (iii) unexpected increases in product costs; (v)(iv) increases in operating costs; (vi) changes in the historical timing of collecting accounts receivable; and (vii)(v) inability to maintain compliance with the requirements of the NASDAQ Capital Market and/or inability to maintain listing with the NASDAQ Capital Market could have a material adverse impact on the Company’sour ability to access the level of funding necessary to continue itsour operations at current levels. If any of these events occurs or the Company iswe are unable to generate sufficient cash from operations or financing sources, the Companywe may be forced to liquidate assets where possible and/or curtail, suspend or cease planned programs or operations generally or possibly seek bankruptcy protection or be subject to an involuntary bankruptcy petition, any of, which would have a material adverse effect on the Company’sour business, results of operations, financial position and liquidity.
As a result of our recurring losses from operations and negative cash flows, the report from our independent registered public accounting firm regarding our consolidated financial statements for the year ended December 31, 2017 includes an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern.
As of March 31, 2018, our outstanding debt balance was as follows (in thousands):
  Maturity Date Interest Rate Amount Outstanding
Convertible note related party - net 5/31/2018 8.0% $23,776
Term loan - net 5/31/2018 8.25% $9,914
Revolving loan 5/31/2018 8.25% $8,195
Subordinated promissory note, related party 5/31/2018 12.5% $2,078
In March 2018, the Company and FBC Holdings entered into an amendment to the convertible note, under which the maturity date was extended from March 31, 2018 to May 31, 2018. The amendment also altered the schedule for interest payments under the FBC Debenture by providing for future accrued interest to be paid twice monthly rather than semi-annually. In partial consideration for the extension, the Company agreed to pay to FBC Holdings a fee, payable in cash or common shares of the Company at the Company’s option, of $735,000, payable in full by May 16, 2018. In April 2018, the Company issued in the aggregate 950,579 common shares to FBC Holdings for payment of accrued interest and partial payment of fees related to the March 2018 amendment to the convertible note.
In March 2018, the Company and Opus Bank entered into an Amendment Number Eight to Credit Agreement (“Amendment Number Eight”). Under the terms of Amendment Number Eight the maturity date for the revolving and term loan credit facilities were extended from March 31, 2018 to May 31, 2018. In consideration for the extension, the Company agreed to pay a fee of $0.1 million, payable in cash on the date the Credit Agreement is paid in full.
All debt and credit facilities are denominated in U.S. dollars. Our debt and credit facilities contain standard borrowing conditions and can be recalled by the lenders if certain conditions are not met.
The following table shows a summary of our cash flows (used in) provided by operating activities investing activities and financinginvesting activities (in thousands):
Six Months
Ended June 30,
20232022
Net cash used in operating activities$(2,034)$(24,530)
Net cash provided by (used in) investing activities$220 $(19,101)
Net cash provided by financing activities$979 $— 
  Three Months
Ended March 31,
  2018 2017
Net cash used in operating activities $(2,111) $(3,972)
Net cash used in investing activities $(8) $(1,055)
Net cash (used in) provided by financing activities $(192) $6,852


Net cash used in operating activities. The use of cash during the first quartersix months of 20182023 was primarily a result of our net loss of $6.8$8.2 million, offset by $2.3$3.9 million in non-cash items, which primarily included amortization of intangible assets, depreciation, realized gain on sale of digital assets, share-based compensation depreciationexpense, impairment of digital assets, warrants issued with convertible debt, and amortization, amortizationa loss on sale of debt issuance costs,property and fair value adjustment of warrants.equipment.
Net cash provided by (used in) investing activities.During the first quartersix months of 2017, net2023, we sold 2,531 miners originally included in mining equipment, for cash used in investing activities were primarilyproceeds of $3.7 million, our SPAC paid $1.9 million for the redemption of non-controlling interest related to our January 2017 acquisition.
MEOA, and we paid $1.6 million towards digital asset mining machines and shipping costs. During the first quartersix months of 2018,2022, we made $0.2paid $16.0 million towards digital asset mining machines and shipping costs for which delivery started in January 2022, we entered into promissory notes receivable with Gryphon and MEOA for $2.5 million and $337,000, respectively, and we purchased $0.3 million of paymentscarbon credits for future use. The Gryphon note receivable was forgiven on our related party debt. April 4, 2022 upon termination of the Merger Agreement with Gryphon.
Net cash provided by financing activities. During the first quartersix months of 2017,2023, we received $7.4$0.8 million, net, from issuance of a convertible note, and $0.2 million from the exercise of stock options.
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Convertible Debt
On April 17, 2023, we entered into a Securities Purchase Agreement (the “LDA Purchase Agreement”) pursuant to which we issued to an investor, LDA Capital Limited (the ”Investor”), a senior convertible promissory note having an aggregate principal amount of $1.0 million (the “LDA Note”), as amended April 25, 2023, and a common share purchase warrant (the “LDA Warrant”) to purchase up to 455,927 common shares of the Company (the “LDA Warrant Shares”). We received proceeds of approximately $0.8 million, which were net of fees associated with the transaction, on April 18, 2023 (the “Closing Date”), with an additional tranche of up to $2.0 million (the “Second Tranche”) to be provided to us, subject to certain conditions precedent, within five business days of the date on which an effective registration statement is filed to cover the resale of the conversion shares (as defined below) and the LDA Warrant Shares. Upon receipt of the Second Tranche, we shall issue an additional senior convertible promissory note with a principal amount equal to the amount of the Second Tranche, and a common share purchase warrant.
The LDA Note matures 24 months after issuance, bears interest at a rate of 7.5% per annum and is convertible into our common shares (the “Conversion Shares”), at the Investor's election, at an initial conversion price equal to the greater of (i) $2.0832 per share, or (ii) 85% of the VWAPS (as defined in net proceedsthe LDA Note) during the five trading days prior to delivery of a conversion notice by the Investor, subject to adjustment for certain stock splits, stock combinations and dilutive share issuances. Commencing on the date that is 12 months from the date of issuance, we are required to pay the Investor back the amount of the outstanding principal in twelve consecutive monthly installments. We may prepay all, but not less than all, of the then outstanding principal amount of the LDA Note plus an additional prepayment amount equal to the greater of (i) the total amount of interest that would have been payable in respect of initial principal amount under the LDA Note from the issuance date through (A) its original maturity date or (B) if the date of applicable prepayment is prior to the date that is 120 days from the issuance date, the date that is 12 months from the issuance date, and (ii) the amount of interest that would have been payable in respect of initial principal amount under the LDA Note from the date of the applicable prepayment through (A) its original maturity date or (B) if the date of applicable prepayment is prior to the date that is 120 days from the issuance date, the date that is 12 months from the issuance date, at any time prior to the maturity date. The LDA Note contains a number of customary events of default. Additionally, the LDA Note is secured by certain property and equipment owned by us, pursuant to a security agreement between us and the Investor dated as of April 17, 2023. At June 30, 2023, the fair value balance of the LDA Note was $1,051,000.
As of June 30, 2023, we were not in compliance with a financial covenant of the LDA Note. Subsequent to June 30, 2023, we received a waiver for the covenant noncompliance.
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The LDA Warrant is exercisable at an initial exercise price of $3.29 per share and expires three years from the date of issuance or earlier if the closing of a Fundamental Transaction occurs (defined as merger or consolidation, any sale of substantially all of our assets, any tender offer or exchange offer pursuant to which common shareholders can tender or exchange their shares for other securities, cash or property, as well as any reclassification of common shares into other securities, cash or property). On the date that is six months from the date of issuance of the LDA Warrant, the exercise price will be adjusted to the lower of (i) $3.29, and warrants, offset by $0.6 million(ii) a price equal to 110% of payments onthe average of the VWAPS (as defined in the LDA Warrant) of our related party debt.common shares over five trading days preceding such date. Additionally, the exercise price of the LDA Warrant is subject to adjustment for certain stock splits, stock combinations and dilutive share issuances. Pursuant to the terms of the LDA Purchase Agreement, we will reserve for issuance 200% of the maximum aggregate number of common shares as are issuable upon repayment or conversion in full of the LDA Note and exercise in full of the LDA Warrant at any time.
On August 14, 2023, in accordance with the terms of the LDA Purchase Agreement prepayment option, we repaid the full amount of the LDA Note, including interest and fees, in the amount of $1.3 million. As a result of our repayment, we shall have the right to redeem from the holder of the LDA Warrants 40% of the then outstanding LDA Warrants.
Off-Balance Sheet Information
During the ordinary course of business, we may provide standby letters of credit to third parties as required for certain transactions initiated by us. As of March 31, 2018, we had noWe have one outstanding standby lettersletter of credit outstanding.used for the bond necessary for us to receive mining machines. At June 30, 2023, there was restricted cash of $0.2 million pledged as collateral for the standby letter of credit.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial positioncondition and results of operations isare based on our unauditedcondensed consolidated interim financial statements, included elsewhere in this Form 10-Q, which have been prepared in accordance with U.S. generally accepted accounting principles, generally accepted inor U.S. GAAP. The preparation of our condensed consolidated financial statements requires us to make estimates and judgments that affect the United States. We believe certainreported amounts of ourassets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.
Our significant accounting policies are critical to understanding our financial position and results of operations. Except for policy changesdescribed in accounting for revenues associated with our adoption of Topic 606 (see Note 2 “Revenue Recognition” into the Notes to Condensed Consolidated Financial Statements in Item 1), there have been no significant changes to our critical accounting judgments, policies and estimates as describedconsolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.2022. The accounting estimates that are most critical to a full understanding and evaluation of our reported financial results are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. There were no material changes to our critical accounting estimates during the three months ended June 30, 2023.
Recent Accounting Pronouncements
See Note 2 - Summary of Significant Accounting Policies to our condensed consolidated financial statements for information aboutfor a discussion of recent accounting pronouncements.pronouncements and their effect, if any.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss that may impact our financial position, results of operations, or cash flows due to adverse changes in financial and commodity market prices and rates. We are exposed to market risk from changes in foreign currency exchange rates as measured against the U.S. dollar. These exposures are directly related to our normal operating and funding activities. Historically, we have not used derivative instruments or engaged in hedging activities.Not applicable.
Foreign Currency Risk. We conduct business on a global basis and a significant portion of our sales in international markets are not denominated in U.S. dollars. Export sales represent a significant portion of our sales and are expected to continue to represent a significant portion of sales. Purchase contracts are typically in U.S. dollars. In addition, our wholly-owned foreign subsidiaries incur costs that are denominated in local currencies. As exchange rates vary, these results may vary from expectations when translated into U.S. dollars, which could adversely impact overall expected results. Such transactions resulted in a loss of $0.6 million for the three months ended March 31, 2018 and a minimal gain for the three months ended March 31, 2017.
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Credit Risk. Credit risk is the risk that the counterparty to a financial instrument fails to meet its contractual obligations, resulting in a financial loss to us. We sell to a diverse customer base over a global geographic area. We evaluate collectability of specific customer receivables based on a variety of factors including currency risk, geopolitical risk, payment history, customer stability and other economic factors. Collectability of receivables is reviewed on an ongoing basis by management and the allowance for doubtful receivables is adjusted as required. Account balances are charged against the allowance for doubtful receivables when we determine that it is probable that the receivable will not be recovered. We believe that the geographic diversity of the customer base, combined with our established credit approval practices and ongoing monitoring of customer balances, mitigates this counterparty risk.




Liquidity Risk. Liquidity risk is the risk that we will not be able to meet our financial obligations as they come due. We continually monitor our actual and projected cash flows and believe that our internally generated cash flows will not provide us with sufficient funding to meet all working capital and financing needs for at least the next 12 months.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) or 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective to give reasonable assurance that information required to be publicly disclosed is recorded, processed, summarized, and reported on a timely basis as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the three monthsquarter ended March 31, 2018June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1.Legal Proceedings.
Item 1.    Legal Proceedings.
The Company is, from time to time, subject to claims and suits arising in the ordinary course of business. In the opinion of management, the ultimate resolution of such pending proceedings will not have a material effect on the Company’s results of operations, financial position or cash flows.
Patent Litigation Funding Agreement
In December 2010, Overland entered into a litigation funding agreement (the “Funding Agreement”) with Special Situations Fund III QP, L.P., Special Situations Private Equity Fund, L.P., Special Situations Technology Fund, L.P., and Special Situations Technology Fund II, L.P. (collectively, the “Special Situations Funds”) pursuant to which the Special Situations Funds agreed to fund certain patent litigation brought by Overland. In May 2014, the Special Situations Funds filed a complaint against Overland in the Supreme Court for New York County, alleging breach of the Funding Agreement. The Special Situations Funds alleged that Overland’s January 2014 acquisition of Tandberg Data entitled the Special Situation Funds to a $6.0 million payment under the Funding Agreement, and therefore Overland’s refusal to make the payment constituted a breach of the Funding Agreement by Overland. In November 2014, the Special Situations Funds amended their complaint to allege that Overland breached the Funding Agreement’s implied covenant of good faith and fair dealing by settling the patent litigation with BDT in bad faith to avoid a payment obligation under the Funding Agreement.  The Special Situations Funds sought $6.0 million in contractual damages as well as costs and fees. On October 10, 2017, the Court entered an order granting Overland’s motion for summary judgment and dismissing the Special Situations Funds’ complaint in its entirety with prejudice, and in April 2018, the parties entered into a settlement agreement ending the litigation that did not require payment from either party.
Other
In January 2018, Mr. Vito Lupis filed a statement of claim in the Ontario Court of Justice alleging, among other things, breach of contracts, deceit and negligence against Mr. Giovanni J. Morelli, a former officer of the Company, and vicarious liability against the Company, in connection with stock purchase agreements and other related agreements that would have been entered into between Mr. Lupis and the Company in 2012. The Company believes the allegations are without merit and plans to vigorously defend itself against the allegations.


In April 2015, we filed a proof of claim in connection with bankruptcy proceedings of V3 Systems, Inc. (“V3”) based on breaches by V3 of the Asset Purchase Agreement entered into between V3 and the Company dated February 11, 2014 (the “APA”). On October 6, 2015, UD Dissolution Liquidating Trust (“UD Trust”), the apparent successor to V3, filed a complaint against us and certain of our current and former directors in the U.S. Bankruptcy Court for the District of Utah Central Division objecting to our proof of claim and asserting claims for affirmative relief against us and our directors. This complaint alleges, among other things, that Sphere 3D breached the APA and engaged in certain other actions and/or omissions that caused V3 to be unable to timely sell the Sphere 3D common shares received by V3 pursuant to the APA. The plaintiff seeks, among other things, monetary damages for the loss of the potential earn-out consideration, the value of the common shares held back by us pursuant to the APA and costs and fees. We believe the lawsuit to be without merit and intend to vigorously defend against the action.
On December 23, 2015, we filed a motion seeking to dismiss the majority of the claims asserted by the UD Trust. On January 13, 2016, we filed a counterclaim against the UD Trust in which we allege that V3 breached numerous provisions of the APA. On July 22, 2016, we filed a motion seeking to transfer venue of this action to the United States District Court for the District of Delaware. The Bankruptcy Court granted our motion to transfer venue on August 30, 2016, and the case was formally transferred to the Delaware Court on October 11, 2016. There is currently no hearing set on our motion to dismiss.
In March 2018, UD Trust filed a complaint in U.S. District Court, Northern California District (“California Complaint”) asserting that two transactions involving the Company constitute fraudulent transfers under federal and state law. First, UD Trust alleges that the consolidation of the Company’s and its subsidiaries’ indebtedness to the Cyrus Group into a debenture between FBC and the Company in the principal amount of $19.5 million in December 2014 constitutes a fraudulent transfer. Second, UD Trust alleges that the Share Purchase Agreement constitutes a fraudulent transfer, and seeks to enjoin the Share Purchase or that the proceeds of the transaction be placed in escrow until the V3 litigation is resolved. The California Complaint also asserts a claim against the Company’s CEO for breach of fiduciary duty, and a claim against the Cyrus Group for aiding and abetting breach of fiduciary duty. We believe the lawsuit to be without merit and intend to vigorously defend against the action.


Item 1A. Risk Factors.
An investment in our Company involves a high degree of risk. In addition to the risk factors and other information included or incorporated by reference to this report, you should carefully consider each of the risk factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017,2022, which is available on SEDAR at www.sedar.com and EDGAR at www.sec.gov. These risks and uncertainties are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also impair our business operations. If any of the risks actually occur, our business and financial results could be harmed and the trading price of our common shares could decline.
Risks Related to the Share Purchase Agreement
Our agreement to sell Overland is subject to a number of conditions, some of which are outside of our control. If such conditions are not timely met, such sale may not occur, which would cause us to need immediate funding to pay our existing debt and other obligations and to continue our operations.
On February 20, 2018, we, Overland, and Silicon Valley Technology Partners LLC, a Delaware limited liability company established and controlled by Eric Kelly, our Chief Executive Officer and Chairman of the Board of Directors (the “Purchaser”) entered into a share purchase agreement (the “Purchase Agreement”), under which, subject to the terms and conditions of the Purchase Agreement, the Company will sell to Purchaser all of the issued and outstanding shares of capital stock of Overland for $45.0 million, subject to a working capital adjustment (the “Share Purchase”). The consummation of the Share Purchase is subject to certain customary conditions. A number of the conditions are not within the control of us, Overland, or Purchaser, and it is possible that such conditions may prevent, delay or otherwise materially adversely affect the completion of the Share Purchase. These conditions include, among others (i) the adoption of the Purchase Agreement by the affirmative vote of the holders of (a) at least 66 2/3% of the outstanding common shares of the Company cast in person or by proxy at the special meeting of shareholders and (b) a majority of the votes cast by certain “minority shareholders” in person or by proxy at the special meeting of shareholders, (ii) the Purchaser’s securing of adequate financing to fund the purchase price, (iii) the transfer by the Company of (a) the businesses of (x) Unified ConneXions, Inc. and (y) HVE ConneXions, LLC (including the provision of information technology consulting services and hardware solutions around cloud computing, data storage and server virtualization to corporate, government, and educational institutions), and (b) the SNAP network attached storage business to a subsidiary of the Company other than Overland or a subsidiary of Overland, and (iv) other customary closing conditions, including (among others) (a) the accuracy of each party’s representation and warrants, (b) each party’s performance in all material respects with its obligations under the Purchase Agreement, and (c) the absence of a material adverse effect on the Company (as defined in the Purchase Agreement).The Company cannot predict with certainty, whether and when any of the required closing conditions will be satisfied or if another uncertainty may arise. Currently, the Company’s special meeting of shareholders for the adoption of the Share Purchase is to be held on May 31, 2018, which is also the maturity date of our credit facility and convertible note. If the Share Purchase does not receive, or timely receive, the shareholder approval, or if another event occurs that delays or prevents the Share Purchase, such delay or failure to complete the Share Purchase may cause uncertainty or other negative consequences that may materially and adversely affect the Company’s business, financial condition and results of operations and, to the extent that the current price of the Company’s common stock reflects an assumption that the Share Purchase will be completed, the price per share for the Company’s common stock.
If we fail to complete the Share Purchase, we will be required to seek financing to pay off our existing secured debt, satisfy our other liabilities, pay our transaction expenses and continue our operations as a going concern.
If we do not complete the Share Purchase, we will continue to face challenges and uncertainties in our ability to repay the outstanding obligations due under the Credit Agreement with Opus Bank and the outstanding obligations under the $24.5 million convertible note with FBC Holdings, which are both scheduled to mature May 31, 2018. As discussed above, it is possible that the net proceeds will not be sufficient to pay all of the above debts, liabilities and expenses or that there will be enough cash or working capital in the Company to fund its continuing operations. Accordingly, the Company may need to raise additional capital through debt or equity financings before, at or around the time of the closing of the Share Purchase, failing which the Company may not be able to continue to operate as a going concern.


Further, if the Share Purchase is not consummated, our directors, executive officers and other employees will have expended extensive time and effort and will have experienced significant distractions from their work during the period the transaction was pending and we will have incurred significant third party transaction costs, in each case, without any commensurate benefit, which may have a material and adverse effect on our common share price and results of operations.
Risks Related to our Business
Our Opus Bank debt facilities mature on the earlier of the maturity date in the 8% Senior Secured Convertible Debenture (“Convertible Note”), dated December 1, 2014, issued to FBC Holdings, or May 31, 2018, and our Convertible Note with FBC Holdings matures on May 31, 2018. If we are unable to refinance or amend our debt and credit facilities before their maturity date, we may be forced to liquidate assets and/or curtail or cease operations.
We have obtained external funding for our business through a credit agreement with Opus Bank. Pursuant to the terms of Amendment Number Eight, the debt facilities mature on the earliest of (a) the maturity date in the Convertible Note, (b) May 31, 2018 or (c) such earlier date upon which the obligations may be accelerated in accordance with terms of the credit agreement. We will need to raise additional funds and/or amend or refinance our credit facility in order to satisfy our obligations under our credit agreement with Opus Bank. In addition, upon the occurrence of certain events of default under our current credit facility, including failure to meet certain monthly revenue and EBITDA targets, our lender may elect to declare all amounts outstanding to be immediately due and payable and terminate all commitments to extend further credit. A default under the agreement could result in default and cross-acceleration under other indebtedness. In February 2018, the Company entered into a Purchase Agreement. If the transactions contemplated by the Purchase Agreement are consummated, the Company expects that the proceeds to be received by the Company would be sufficient to pay off its outstanding debt and credit facilities. The Company will hold a special shareholder meeting on May 31, 2018 to seek shareholder approval for the Share Purchase and, subject to the receipt of requisite shareholder approval and meeting the other closing conditions contained therein (including Purchaser’s receipt of adequate funding to close the Share Purchase), anticipates the transaction will close shortly thereafter. There can be no guarantee that we will be able to raise additional funds or amend or refinance our debt and credit facilities on favorable terms or at all, nor can there be any guarantee that the Company’s shareholders will approve the Share Purchase.
If any of these events occurs or the Company is unable to generate sufficient cash from operations or financing sources, the Company may be forced to liquidate assets where possible and/or curtail, suspend or cease planned programs or operations generally or possibly seek bankruptcy protection, which would have a material adverse effect on the Company’s business, results of operations, financial position and liquidity.
Our cash and other sources of liquidity will not be sufficient to fund our operations beyond May 31, 2018. If we raise additional funding through sales of equity or equity-based securities, your shares will be diluted. If we need additional funding for operations and we are unable to raise it, we may be forced to liquidate assets and/or curtail or cease operations.
Management has projected that cash on hand will not be sufficient to allow the Company to continue operations beyond May 31, 2018 if the Company is unable to amend, refinance, or pay off its debt and credit facilities. In February 2018, the Company entered into the Purchase Agreement. If the transactions contemplated by the Purchase Agreement are consummated, the Company expects that the proceeds to be received by the Company would be sufficient to pay off its outstanding debt and credit facilities. The Company will hold a special shareholder meeting on May 31, 2018 to seek shareholder approval for the Share Purchase and, subject to the receipt of requisite shareholder approval and meeting the other closing conditions contained therein (including Purchaser’s receipt of adequate funding to close the Share Purchase), anticipates the transaction will close shortly thereafter. There can be no guarantee that we will be able to raise additional funds or amend or refinance our debt and credit facilities on favorable terms or at all, nor can there be any guarantee that the Company’s shareholders will approve the Share Purchase or that the Share Purchase will ultimately be consummated. Significant changes from the Company’s current forecasts, including but not limited to: (i) any delay in the closing of the Share Purchase after May 31, 2018 (including as a result of a failure to receive the appropriate shareholder vote, the failure of the Purchaser to obtain funding adequate to fund the Purchase Price, or the failure to satisfy any closing conditions), (ii) failure to comply with the financial covenants in its credit facilities; (iii) shortfalls from projected sales levels; (iv) unexpected increases in product costs; (v) increases in operating costs; (vi) changes in the historical timing of collecting accounts receivable; and (vii) inability to maintain compliance with the requirements of the NASDAQ Capital Market and/or


inability to maintain listing with the NASDAQ Capital Market could have a material adverse impact on the Company’s ability to access the level of funding necessary to continue its operations at current levels. If any of these events occurs or the Company is unable to generate sufficient cash from operations or financing sources, the Company may be forced to liquidate assets where possible and/or curtail, suspend or cease planned programs or operations generally or possibly seek bankruptcy protection, which would have a material adverse effect on the Company’s business, results of operations, financial position and liquidity.
If we raise additional funds by selling additional shares of our capital stock, or securities convertible into shares of our capital stock, the ownership interest of our existing shareholders will be diluted. The amount of dilution could be increased by the issuance of warrants or securities with other dilutive characteristics, such as anti-dilution clauses or price resets.
We urge you to review the additional information about our liquidity and capital resources in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this report. If our business ceases to continue as a going concern due to lack of available capital or otherwise, it could have a material adverse effect on our business, results of operations, financial position, and liquidity.
Risks Related to Our Public Company Status and Our Common Shares
If our common shares are delisted from the NASDAQ Capital Market, our business, financial condition, results of operations and share price could be adversely affected, and the liquidity of our common shares and our ability to obtain financing could be impaired.
We have in the past and may in the future fail to comply with the minimum $1.00 per share closing bid price requirement for continued listing on the NASDAQ Capital Market.
Maintaining the listing of our common shares on the NASDAQ Capital Market requires that we comply with the closing bid price requirement, amongst other certain listing requirements. If our common shares cease to be listed for trading on NASDAQ for any reason, it may harm our share price, increase the volatility of our share price, decrease the level of trading activity and make it more difficult for investors to buy or sell shares of our common shares. Our failure to maintain a listing on NASDAQ may constitute an event of default under our outstanding indebtedness as well as any future indebtedness, which would accelerate the maturity date of such debt or trigger other obligations. In addition, certain institutional investors that are not permitted to own securities of non-listed companies may be required to sell their shares, which would adversely affect the trading price of our common shares. If we are not listed on NASDAQ, we will be limited in our ability to raise additional capital we may need.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On March 29, 2018, the Company issued 344,959 common shares under Section 4(a)(2) of the Securities Act of 1933, as amended, for the settlement of accrued interest expense.None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.

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Item 6. Exhibits.
ExhibitFiledIncorporated by Reference
NumberDescriptionHerewithFormFile No.Date Filed
ExhibitFiledIncorporated by Reference
NumberDescriptionHerewithFormFile No.Date Filed
2.23.18-K001-365322/21/2018
3.16-K001-365323/25/2015
3.26-K001-365327/17/2017
3.38-K001-3653210/2/2018
3.48-K001-3653211/5/2018
3.58-K001-3653211/14/2018
3.68-K001-365327/12/2019
3.78-K001-3653211/8/2019
3.88-K001-365325/8/2020
3.98-K001-365329/29/2020
3.106-K001-365321/7/2021
3.116-K001-365327/15/2021
3.126-K001-3653210/4/2021
3.138-K001-365326/28/2023
3.146-K001-365327/17/2017
3.43.156-K001-365322/1/2022
3.168-K001-365321/13/2023
3.176-K001-365325/12/2017
10.14.1S-8333-2146051/29/2018
10.2S-8333-2052361/29/2018
10.38-K001-365328/14/2023
10.18-K001-365323/19/2018
10.4X
10.5X8-K001-365324/21/2023
31.110.28-K001-365324/21/2023
10.38-K001-365324/21/2023
10.410-Q001-365325/11/2023
10.58-K001-365328/14/2023
44


10.68-K001-365328/14/2023
31.1X
31.2X
3232.1X
32.2X
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL documentX
101.SCHInline XBRL Taxonomy Extension SchemaX
101.CALInline XBRL Taxonomy Extension Calculation LinkbaseX
101.DEFInline XBRL Taxonomy Extension Definition LinkbaseX
101.LABInline XBRL Taxonomy Extension Label LinkbaseX
101.PREInline XBRL Taxonomy Presentation LinkbaseX
104Cover Page Interactive Data File (formatted as inline XBRL as contained in Exhibit 101)X

___________


* The Company has omitted schedules and other similar attachments to such agreement pursuant to Item 601(b) of Regulation S-K. The Company will furnish a copy of such omitted document to the Securities and Exchange Commission upon request.
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SIGNATURE
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.
Date:August 14, 2023Sphere 3D Corp.By:/s/ Patricia Trompeter
Patricia Trompeter
Date:May 10, 2018By:/s/    Kurt L. KalbfleischChief Executive Officer
Kurt L. Kalbfleisch
Senior Vice President and Chief Financial Officer
(Principal Financial and AccountingExecutive Officer)

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