Filed Pursuant to Rule 424(b)(4)
Registration No. 333-238531
PROSPECTUS
July 6, 2020
Sphere 3D Corp.
Common Stock
This prospectus
relates to the sale or other disposition from time to time by the selling stockholders identified in this prospectus of up to
13,136,666 shares of common stock. All of the shares, when sold, will be sold by these selling stockholders. The shares
of common stock offered for resale by this prospectus include (i) up to 1,694,000 shares of common stock underlying our Series
D Preferred Stock, (ii) up to 2,899,820 shares of common stock underlying Warrants to purchase shares of common stock, (iii) 6,962,026
shares of common stock purchasable by Oasis Capital, LLC (“Oasis Capital”) pursuant to the terms and conditions of
an Equity Purchase Agreement that we entered into with Oasis Capital on May 15, 2020 (the “Equity Purchase Agreement”),
(iv) up to 1,205,820 shares of common stock underlying a Convertible Debenture we issued to certain investors on March 23, 2020
and (v) 375,000 shares of common stock purchasable by ROK Consulting Inc. (“ROK”) pursuant to the terms and conditions
of a Consulting Agreement that we entered into with ROK on April 24, 2020 (the “Consulting Agreement”). Subject to
the terms and conditions of the Equity Purchase Agreement, we have the right to “put”, or sell at our discretion,
up to $11,000,000 worth of shares of our common stock to Oasis Capital. This arrangement is sometimes referred to herein as the
“Equity Line” or the “Oasis Equity Line.”
We are not selling any
common stock under this prospectus and will not receive any of the proceeds from the sale or other disposition of shares by the
selling stockholders. However, we may receive up to an aggregate of $11,000,000 in proceeds from the sale of our common stock
to Oasis Capital pursuant to the Equity Line.
The prices at which the
selling stockholders may sell the shares of our common stock will be determined by prevailing market prices or at prices that
may be obtained in negotiated transactions. The selling stockholders may sell or otherwise dispose of the shares of common stock
covered by this prospectus in a number of different ways. We provide more information about how the selling stockholders may sell
or otherwise dispose of their shares of common stock in the section entitled “Plan of Distribution” on page 42.
Discounts, concessions, commissions and similar selling expenses attributable to the sale of shares of common stock covered by
this prospectus will be borne by the selling stockholders. We will pay the expenses incurred in registering the shares of common
stock covered by this prospectus, including legal and accounting fees. We will not be paying any underwriting discounts or commissions
in this offering.
Our common stock trades
on the Nasdaq Capital Market, or Nasdaq, under the symbol “ANY.” On June 24, 2020, the last reported sale price of
our common stock on Nasdaq was $2.21 per share.
Investing in our common
stock involves risks. See “Risk Factors” beginning on page 9.
We have not registered
the sale of the shares under the securities laws of any state. Brokers or dealers effecting transactions in the shares of common
stock offered hereby should confirm that the shares have been registered under the securities laws of the state or states in which
sales of the shares occur as of the time of such sales, or that there is an available exemption from the registration requirements
of the securities laws of such states.
We have not authorized
anyone, including any salesperson or broker, to give oral or written information about this offering, Sphere 3D Corp., or the
shares of common stock offered hereby that is different from the information included in this prospectus. You should not assume
that the information in this prospectus, or any supplement to this prospectus, is accurate at any date other than the date indicated
on the cover page of this prospectus or any supplement to it.
Neither the Securities
and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved of these securities
or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
TABLE OF CONTENTS
PROSPECTUS SUMMARY
This summary highlights
information contained elsewhere in this prospectus and may not contain all of the information that you should consider before
investing in the shares. You are urged to read this prospectus in its entirety, including the information under “Risk Factors”
and our financial statements and related notes included elsewhere in this Prospectus.
Our Company
Sphere 3D Corp. (“Sphere
3D” or 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.”. Sphere 3D provides solutions
for stand-alone storage and technologies that converge the traditional silos of compute, storage and network into one integrated
hyper-converged or converged solution. We provide enterprise storage management solutions, and the ability to connect to public
cloud services such as Microsoft Azure for additional delivery options and hybrid cloud capabilities. Our integrated solutions
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 purpose-built appliances, deliver solutions
designed to provide application mobility, security, data integrity and simplified management. These solutions can be deployed
through a public, private or hybrid cloud and are delivered through a global reseller network and professional services organization.
We have a portfolio of brands including SnapServer®, HVE ConneXions (“HVE”) and UCX ConneXions
(“UCX”), dedicated to helping customers achieve their IT goals. In November 2018, we divested ourselves of Overland
Storage, Inc. and its subsidiaries (“Overland”) and associated product portfolio for long term archive as well as
the RDX® removable disk product portfolio. We undertook this divestiture in order to facilitate the
significant reduction of secured debt and to allow us to focus greater resources to our converged and hyper-converged product
portfolio.
Discontinued Operations
In February 2018, the
Company, Overland, and Silicon Valley Technology Partners, Inc. (formerly Silicon Valley Technology Partners LLC) (“SVTP”),
a Delaware corporation established by Eric Kelly, the Company’s former Chief Executive Officer and Chairman of the Board
of Directors, entered into a share purchase agreement (as amended by that certain First Amendment to Share Purchase Agreement
dated August 21, 2018, and as further amended by that certain Second Amendment to Share Purchase Agreement dated November 1, 2018,
the “Purchase Agreement”), pursuant to which the Company agreed to sell to SVTP all of the issued and outstanding
shares of capital stock of Overland.
On November 13, 2018,
pursuant the Purchase Agreement, the Company sold to SVTP all of the issued and outstanding shares of capital stock of Overland
in consideration for (i) the issuance to the Company of shares of Series A Preferred Stock of SVTP representing 19.9% of the outstanding
shares of capital stock of SVTP as of the closing with a value of $2.1 million, (ii) the release of the Company from outstanding
debt obligations totaling $41.7 million assumed by SVTP, and (iii) $1.0 million in cash proceeds from SVTP.
In connection with
the closing of the Purchase Agreement, we filed an articles of amendment to our articles of amalgamation setting forth the rights,
privileges, restrictions and conditions of a new series of non-voting preferred shares of the Company (the “Series A Preferred Shares”)
and entered into a Conversion Agreement, by and between the Company and FBC Holdings SARL (“FBC Holdings”), a related
party, pursuant to which $6.5 million of the Company’s outstanding secured debt was converted into 6,500,000 Series A Preferred
Shares.
Warrant Exchange
Agreement
On March 16, 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 (the “Securities Act”), pursuant to which the Company issued 178,875 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.
Reverse Stock Split
On October 24, 2018,
the Board of Directors of the Company authorized a share consolidation (also known as a reverse stock split) of the Company’s
issued and outstanding common shares at a ratio of 1-for-8, which became effective on November 5, 2018. All share and per share
amounts in the accompanying consolidated financial statements and the notes thereto have been restated for all periods to reflect
the share consolidation.
Oasis Equity Line
On May 15, 2020, we entered into the Equity
Purchase Agreement with Oasis Capital, which provides that, upon the terms and subject to the conditions and limitations set forth
therein, Oasis Capital is committed to purchase up to an aggregate of $11,000,000 of shares of common stock over the 36-month
term of the Equity Purchase Agreement. Concurrently with entering into the Equity Purchase Agreement, we also entered into a registration
rights agreement with Oasis Capital (the “Registration Rights Agreement”), in which we agreed to file one or more
registration statements, as permissible and necessary to register under the Securities Act, the resale of the shares of common
stock that may be issued to Oasis Capital under the Equity Purchase Agreement. The purpose of the equity line is to provide us
with proceeds as may be necessary for working capital and general corporate purposes.
Under the Equity Purchase Agreement, after
the SEC has declared effective the registration statement referred to above, on any trading day selected by us (such date, the
“Put Date), we have the right, in our sole discretion, to present Oasis Capital with a purchase notice (each, a “Put
Notice”), directing Oasis Capital (as principal) to purchase up to the lesser of, (i) if the closing bid price of our common
stock is less than $2.00 per share of common stock (a) 120,000 shares of common stock or (b) 20% of the average trading
volume of common stock in the 10 trading days immediately preceding the date of such Put Notice or (ii) if the closing bid price
of our common stock is greater than or equal to $2.00, (a) 140,000 shares of common stock or (b) 20% of the average trading
volume of common stock in the 10 trading days immediately preceding the date of such Put Notice at a per share price (the “Purchase
Price”) equal to the lesser of (i) the lowest traded price of our common stock on the Clearing Date (defined below) or (ii)
the average of the lowest three closing sale prices of our common stock during the 12 consecutive trading days immediately preceding
the Clearing Date (each, an “Option 1 Put”), provided that the aggregate amount of all Option 1 Puts and Option 2
Puts (as defined below) does not exceed $750,000.
In addition, on any date on which Oasis
Capital receives shares of common stock in connection with a Put Notice (the “Clearing Date”), we also have the right,
in our sole discretion, to present Oasis Capital with a Put Notice (each, an “Option 2 Put”) directing Oasis Capital
to purchase an amount of common stock equal to the lesser of (i) such amount that equals 10% of the daily trading volume
of the common stock on the date of such Put Notice and (ii) $200,000, provided that the aggregate amount of the Option
1 Put and Option 2 Put on any Put Date or Clearing Date does not exceed $750,000 and the aggregate amount of all Option 1 Puts,
Option 2 Puts and Option 3 Puts (defined below) does not exceed $11,000,000. The purchase price per share pursuant to such Option
2 Put is equal to the lesser of (i) 91% of the lowest traded price of our common stock during the ten consecutive trading days
immediately preceding the Clearing Date and (ii) 93% of the daily volume weighted average price of our common stock on the Clearing
Date. We also have the right, solely in the event that the closing price for our common stock on the day prior to the delivery
of the Put Notice is greater than or equal to $2.50 per share, to present Oasis Capital with a Put Notice (each, an “Option
3 Put”) directing Oasis Capital to purchase an amount of common stock equal to 10% of the daily trading volume of the common
stock during the ten trading days immediately preceding the date on which the Put Notice is delivered, at a purchase price equal
to $2.00 per share. The Threshold Price (defined below) and the Purchase Price will be adjusted for any reorganization, recapitalization,
non-cash dividend, stock split, reverse stock split or other similar transaction occurring during the period(s) used to compute
the Threshold Price or the Purchase Price.
The Equity Purchase
Agreement provides that we and Oasis Capital shall not affect any sales under the Equity Purchase Agreement on any purchase date
where the lowest traded price of the common stock on both such date and on the immediately preceding trading day is less than
$1.58 (the “Threshold Price”). We will control the timing and amount of sales of common stock to Oasis Capital; provided
that we shall not deliver any Option 1 Put, Option 2 Put or Option 3 Put that would result in Oasis Capital beneficially owning
a number of shares of common stock in excess of 9.99% of the shares of common stock then outstanding or a violation of the rules
of Nasdaq. Oasis Capital has no right to require any sales by us, but is obligated to make purchases from us as we direct in accordance
with the Equity Purchase Agreement. There are no limitations on use of proceeds, financial or business covenants, rights of first
refusal, or participation rights in the Equity Purchase Agreement. We may terminate the Equity Purchase Agreement at any time,
at our discretion, without any cost to us. Oasis Capital has agreed that neither it nor any of its agents, representatives and
affiliates shall engage in any direct or indirect short-selling or hedging of common stock during any time prior to the termination
of the Equity Purchase Agreement.
Assuming a Put
Date and Clearing Date of June 5, 2020, we would issue 52,992 common shares at a price per share of $1.81 for total gross proceeds
of $95,916 with respect to the Option 1 Put, 16,500 common shares at a price per share of $1.71 for total gross proceeds of $28,215
with respect to the Option 2 Put and 15,271 common shares at a price per share of $2.00 for total gross proceeds of $30,542 with
respect to the Option 3 Put. In calculating the per share price of the Option 1 Put, we used the closing price of our common shares
on Nasdaq from May 19 to June 4. The per share price for the Option 2 Put was calculated based on the closing price of our common
shares on Nasdaq between May 21 and June 4. The number of shares for the Option 3 Put was calculated using the average daily trading
volume of our common shares on Nasdaq from May 21 to June 4.
Subscription Agreements
On March 23, 2020,
we entered into subscription agreements with certain investors, including Torrington Financial Services Ltd. (the “Advisor”),
a related party, for the purchase and sale of 725 units (collectively, the “Units” and individually, a “Unit”)
for aggregate gross proceeds of up to $725,000 (the “Offering”), with each Unit consisting of (a) a 6% convertible
debenture in the principal amount of $1,000, which is convertible at $0.6495 per share into 1,540 of our common shares, and (b)
a warrant to purchase 1,540 of our common shares exercisable at any time on or before the third year anniversary date at an exercise
price of $0.60 per share. The warrant includes a provision restricting the warrant holder from exercising it if the aggregate
number of common shares held by the warrant holder equals or exceeds 5.0% of our issued and outstanding shares of common stock,
calculated on a partially converted basis (i.e., assuming the conversion of all rights to receive our common shares held by the
warrant holder).
In connection with
the Offering and as compensation for the Advisor’s services, we issued to the Advisor convertible debentures equal to $58,000
and convertible into 89,320 common shares and a warrant to purchase 89,320 common shares and with other terms also substantially
the same as the investors. We received cash proceeds of $575,000 from the Offering, and a participant of the offering, a related
party, paid directly $150,000 to a financial consultant for a prepayment of future services to us. We intend to use the remaining
proceeds from the Offering for general corporate and working capital purposes.
Between April 7,
2020 and April 24, 2020, we converted $377,000 of convertible debentures and issued 580,580 common shares, of which 271,040 common
shares were issued to related parties.
Consulting Agreements
On April 24, 2020,
we entered into a consulting agreement (the “ROK Consulting Agreement”) with ROK Consulting Inc. (“ROK”)
to provide consulting services to us in the area of corporate finance, investor communications and financial and investor public
relations. As compensation for ROK’s services to be provided pursuant to the Consulting Agreement, in addition to cash compensation,
we have agreed to issue to ROK 375,000 shares of our common stock. 150,000 of such shares were due at signing of the Consulting
Agreement, while the remaining 225,000 shares are to be issued upon the completion of the three month term of the Consulting Agreement.
On June 19, 2020, the Company issued 150,000 common shares of the Company with a fair value of $360,000 to ROK per the terms of
the ROK Consulting Agreement.
On June 1, 2020,
we entered into a consulting agreement (the “Groupe P Consulting Agreement”) with Groupe Parameus Corp. (“Groupe
P”) to provide consulting services to us for one year in the area of corporate finance, investor communications and financial
and investor public relations. As compensation for Groupe P’s services to be provided pursuant to the Groupe P Consulting
Agreement, in addition to a prepayment of $150,000 in cash, we granted 100,000 restricted stock awards, 100,000 common shares
pursuant to the terms of Regulation D under the Securities Act, and a non-qualified stock option for the purchase of 50,000 common
shares at an exercise price of $2.52 per share with a vest period over six months. On June 16, 2020, we issued 200,000 common
shares to Groupe P with a fair value of $504,000.
In the second quarter
of 2020, we entered into various other consulting agreements for business advisory services. On June 16, 2020, we granted 130,000
of restricted stock awards and issued 130,000 common shares with a fair value of $327,000 in lieu of cash payment to certain business
advisors for future services to be performed. We granted to the same business advisors, in the aggregate, non-qualified stock
options for the purchase of 80,000 common shares with an exercise price of $2.52 per share for future services to be performed
for us.
Products and Service
Disk Systems
HVE Converged
and Hyper-converged Infrastructure
In 2017, we acquired
HVE, a technology provider of next generation converged and hyper-converged infrastructure dedicated to creating Manageable, Scalable,
Reproducible, and Predictable (“MSRP”) solutions based on virtualization technologies running on high-performance,
next generation platforms. HVE solutions are engineered, purpose-built converged and hyper-converged virtual workspace and server
solutions that support a distributed architecture, scalable with predictable performances, and come bundled with continuous active
monitoring. HVE product can include support for our Desktop Cloud Orchestrator™ (“DCO”) based on customer requirements.
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The HVE-STACK high density server provides the computer
and storage appliance for the data center and is ideal for high performance computing, cloud computing and virtual desktop infrastructure
(“VDI”). The modular design and swappable components include hard drives and power supplies intended to improve the
efficiency of data center deployment.
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The HVE-VELOCITY High Availability Dual Enclosure storage
area network (“SAN”) provides data reliability and integrity for optimal data storage, protection and recovery. It
also provides a unified network attached storage (“NAS”) and SAN solution with thin provisioning, compression and
deduplication. The HVE-VELOCITY platform is designed to eliminate single points of failure. The 12GSAS SSD design allows for faster
access to data. It is optimized for mission-critical, enterprise-level storage applications.
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The HVE 3DGFX is a VDI solution that offers hardware
and software technologies to provide an appliance that can handle from eight to up to 128 high demand users in a single 2U appliance.
The HVE 3DGFX was designed and engineered as a purpose-built solution based upon the MSRP engineering approach.
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G-Series Appliance
and G-Series Cloud
The G-Series appliance
powered by Glassware containerization technology is designed to simplify Windows application migration and to enable access from
any device including Macintosh, Windows, iOS, Chrome OS, and Android. The G-Series appliance is optimized for simplicity, flexibility
and scalability. Through Glassware, a Microsoft Windows® based container technology, organizations looking to migrate
applications to the cloud can quickly deploy a solution for virtualizing 16-bit, 32-bit, or 64-bit applications with their native
functionality intact. For the provisioning of a 16-bit application to the G-Series appliance, users will often require advanced
technical skills to set-up the application, or can contract professional services from the Company, or one of our certified system
integrators. End users can access the containerized applications from cloud-connected devices (iOS, Android or Windows), through
a lightweight downloadable app or simply from a browser. The G-Series appliance is designed to eliminate the complex tasks of
designing, implementing, and maintaining application hosting environments and provides improved application session density and
scale when compared to traditional hypervisor-based virtualization solutions.
G-Series Cloud is an
offering available through Microsoft Azure and was developed to provide a virtual appliance that can be deployed from the Azure
Marketplace to eliminate the task of designing, implementing, and maintaining localized application-hosting environments and their
related hardware. G-Series Cloud is pre-configured, can be deployed in minutes and provides for a billing model based on usage.
Glassware Open
Virtual Appliance and Open Virtual Format
Our most recent version
of Glassware is compatible with the Open Virtual Appliance (“OVA”) and Open Virtual Format (“OVF”) open
standards, supporting deployments of existing VMWare environments. Similar to the G-Series Cloud offering, OVA and OVF versions
were developed to provide access to a virtual appliance from within VMWare virtual machines. While Glassware is not open source
software, OVA and OVF open standards are supported for deployment. All Glassware products are delivered with a user interface
allowing quick application deployments and integration with existing work flows and technologies.
SnapServer®
Network Attached Storage Solutions
Our SnapServer®
solutions are a platform for primary or nearline storage, and deliver stability and integration with Windows®,
UNIX/Linux, and Macintosh environments. For virtual servers and database applications, the SnapServer® family supports
iSCSI block-level access with Microsoft VSS and VDS integration to simplify Windows management. For data protection, the SnapServer®
family offers RAID protection, and snapshots for point-in-time data recovery. The SnapServer XSR Series™
products support DynamicRAID® and traditional RAID levels 0, 1, 5, 6, and 10. The Snap family of products,
SnapCLOUD®, and SnapServer®, have integrated data mobility tools to enable customers to build
private clouds for sharing and synchronizing data for anytime, anywhere access.
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The SnapServer® XSR40 is a 1U server that
can be configured with up to four SATA III and SSD drives, and can scale to 400 TB of storage capacity by adding up to three SnapExpansion
XSR™ enclosures.
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The SnapServer® XSR120 is a 2U server that
can be configured with up to 12 SATA III, SAS and SSD drives, and can scale to 960 TB of storage capacity by adding up to seven
SnapExpansion XSR™ enclosures.
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Our GuardianOS®
storage software is designed for the SnapServer® family of enterprise-grade NAS systems and delivers
simplified data management and consolidation throughout distributed information technology environments by combining cross-platform
file sharing with block-level data access on a single system. The flexibility and scalability of GuardianOS®
reduces the total cost of ownership of storage infrastructures for small and medium businesses to large Fortune 500 enterprises.
In addition to a unified storage architecture, GuardianOS® offers highly differentiated data integrity and
storage scalability through features such as DynamicRAID®, centralized storage management, and a comprehensive
suite of data protection tools.
Our Snap Enterprise
Data Replicator (“Snap EDR”) provides multi-directional WAN-optimized replication. Administrators can automatically
replicate data between SnapServer®, Windows, and Linux systems for data distribution, data consolidation, and disaster
recovery.
During 2017, we announced
the availability of our SnapServer® Hybrid and All Flash Array solutions, which is designed to allow information
technology departments to modernize their data center, as well as provide the small and medium businesses access to the reliability,
security, and performance of flash. In addition, we launched our SnapServer® solutions pre-configured and optimized
to work with IP video surveillance cameras and create a new standard for simplicity and integration between IP networked video
surveillance systems and data storage.
Service
Customer service and
support are key elements of our strategy and critical components of our commitment in making enterprise-class support and services
available to companies of all sizes. Our technical support staff is trained to assist our customers with deployment and compatibility
for any combination of virtual desktop infrastructures, hardware platforms, operating systems and backup, data interchange and
storage management software. Our application engineers are trained to assist with more complex customer issues. We maintain global
toll-free service and support phone lines. Additionally, we also provide self-service and support through our website support
portal and email.
Our service offerings
provide for on-site service and installation options, round-the-clock phone access to solution experts, and proof of concept and
architectural design offerings. We are able to provide comprehensive technical assistance on a global scale.
Discontinued Operations
The following product
lines were part of the Overland divestiture completed in November 2018 and are not included in the above Product and Service disclosures.
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Disk Systems - RDX® Removable Disk Solutions
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Tape Automation Systems - NEO® Tape-Based
Backup and Long-Term Archive Solutions
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Production
A significant number
of our components and finished products are manufactured or assembled, in whole or in part, by a limited number of third parties.
For certain products, we control the design process internally and then outsource the manufacturing and assembly in order to achieve
lower production costs.
We purchase disk drives
and chassis from outside suppliers. We carefully select suppliers based on their ability to provide quality parts and components
which meet technical specifications and volume requirements. We actively monitor these suppliers but we are subject to substantial
risks associated with the performance of our suppliers. For certain components, we qualify only a single source, which magnifies
the risk of shortages and may decrease our ability to negotiate with that supplier.
Sales and Distribution
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Distribution channel - We have distribution
partners in North America. We sell through a two-tier distribution model where distributors sell our products to system integrators,
value-added resellers (“VARs”) or direct market resellers (“DMRs”), who in turn sell to end users. We
support these distribution partners through our dedicated sales force and engineers. In 2019, two distribution partners accounted
for, in the aggregate, 24.5% of net revenue.
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Reseller channel - Our worldwide reseller
channel includes systems integrators, VARs and DMRs. Our resellers may package our products as part of complete application and
desktop virtualization solutions data processing systems or with other storage devices to deliver complete enterprise information
technology infrastructure solutions. Our resellers also recommend our products as replacement solutions when systems are upgraded,
or bundle our products with storage management software specific to the end user’s system. We support the reseller channel
through our dedicated sales representatives, engineers and technical support organizations.
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Cloud Marketplace - Since 2015, we have utilized
the Microsoft Azure Cloud Marketplace as an additional channel for our cloud solutions to sell to end-users directly with the
pay-per-use model, supported through the Microsoft Azure Cloud.
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Patents and Proprietary Rights
We rely on a combination
of patents, trademarks, trade secret and copyright laws, as well as contractual restrictions, to protect the proprietary aspects
of our products and services. Although every effort is made to protect Sphere 3D’s intellectual property, these legal protections
may only afford limited protection.
We may continue to
file for patents regarding various aspects of our products, services and delivery method at a later date depending on the costs
and timing associated with such filings. We may make investments to further strengthen our copyright protection going forward,
although no assurances can be given that it will be successful in such patent and trademark protection endeavors. We seek to limit
disclosure of our intellectual property by requiring employees, consultants, and partners with access to our proprietary information
to execute confidentiality agreements and non-competition agreements (when applicable) and by restricting access to our proprietary
information. Due to rapid technological change, we believe that establishing and maintaining an industry and technology advantage
in factors such as the expertise and technological and creative skills of our personnel, as well as new services and enhancements
to our existing services, are more important to our company’s business and profitability than other available legal protections.
Despite our efforts
to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our services or to obtain and use information
that we regard as proprietary. The laws of many countries do not protect proprietary rights to the same extent as the laws of
the U.S. or Canada. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade
secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement.
Any such litigation could result in substantial costs and diversion of resources and could have a material adverse effect on our
business, operating results and financial condition. There can be no assurance that our means of protecting our proprietary rights
will be adequate or that our competitors will not independently develop similar services or products. Any failure by us to adequately
protect our intellectual property could have a material adverse effect on our business, operating results and financial condition.
Competitive Conditions
We believe that our
products are unique and innovative and afford us various advantages in the market place; however, the market for information technology
is highly competitive. Competitors vary in size from small start-ups to large multi-national corporations which may have substantially
greater financial, research and development, and marketing resources. Competitive factors in these markets include performance,
functionality, scalability, availability, interoperability, connectivity, time to market enhancements, and total cost of ownership.
Barriers to entry vary from low, such as those in traditional disk-based backup products, to high, in virtualization software.
The markets for all of our products are characterized by price competition and as such we may face price pressure for our products.
Our Corporate Information
Sphere 3D is located
at 895 Don Mills Road, Building 2, Suite 900, Toronto, Ontario, Canada, M3C 1W3. Our telephone number is +1 (858) 571-5555 and
our Internet website address is www.sphere3d.com. The information contained on, or that can be accessed through, our website
is not incorporated by reference into this prospectus. We have included our web address as an inactive textual reference
only.
About This Offering
This prospectus
relates to the resale by the selling stockholders identified in this prospectus of up to 13,136,666 shares of common stock, of
which (i) 1,694,000 shares were issuable upon the conversion of our Series D Preferred Stock, (ii) 2,899,820 were issuable upon
the exercise of the outstanding warrants as of June 19, 2020, (iii) 6,962,026 shares of common stock purchasable by Oasis Capital
pursuant to the terms and conditions of the Equity Purchase Agreement, (iv) up to 1,205,820 shares of common stock underlying
a Convertible Debenture and (v) 375,000 shares of common stock purchasable by ROK pursuant to the terms and conditions of the
ROK Consulting Agreement. All of the shares, when sold, will be sold by these selling stockholders. The shares offered by this
prospectus may be sold by the selling stockholders in the open market at prevailing prices, through privately negotiated transactions
or a combination of these methods. We will not receive any proceeds from the sale of the shares of common stock by the selling
stockholders.
Common
Stock Offered
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13,136,666
shares
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Common Stock Outstanding
at June 19, 2020(1)
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5,527,405 shares
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Use of Proceeds
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We will not receive
any of the proceeds from the sale of the shares by the selling stockholders. We will receive proceeds from the sale of shares
to Oasis Capital under the Equity Line. Oasis Capital has committed to purchase, subject to certain terms and conditions,
up to $11,000,000 worth of our shares of common stock over the 36 month term of the Equity Purchase Agreement.
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Risk Factors
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Prospective investors should carefully consider “Risk Factors”
beginning on page 9 before buying the shares of our common stock.
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Nasdaq Capital Market
Symbol
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ANY
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The number of shares of common stock outstanding
as of June 19, 2020 excludes:
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131,175
shares underlying stock options with an average weighted price of $9.51;
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9,687,778
shares underlying outstanding shares of our preferred stock;
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3,101,182
shares underlying outstanding warrants with an average weighted exercise price of $3.63;
and
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76,041
shares of common stock reserved for issuance under our equity incentive plans.
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RISK FACTORS
An investment in our
in our common stock involves a high degree of risk. The risks described below include all material risks to our company or to
investors in this offering that are known to our company. You should carefully consider such risks before participating in this
offering. If any of the following risks actually occur, our business, financial condition and results of operations could be materially
harmed. As a result, the trading price of our common stock could decline, and you might lose all or part of your investment. When
determining whether to buy our common stock, you should also refer to the other information in this prospectus, including our
financial statements and the related notes included elsewhere in this prospectus.
Risks Relating To Our Business
In addition to the other
information in this prospectus, you should carefully consider the following factors in evaluating us and our business. This prospectus
contains, in addition to historical information, forward-looking statements that involve risks and uncertainties, some of which
are beyond our control. Should one or more of these risks and uncertainties materialize or should underlying assumptions prove
incorrect, our actual results could differ materially. Factors that could cause or contribute to such differences include, but
are not limited to, those discussed below, as well as those discussed elsewhere in this prospectus, including the documents incorporated
by reference.
In addition to risks
which could apply to any company or business, you should also consider the business we are in and the following:
The extent to which the coronavirus
(“COVID-19”) outbreak and measures taken in response thereto impact our business, results of operations and financial
condition will depend on future developments, which are highly uncertain and cannot be predicted.
Global health concerns
relating to the coronavirus outbreak have been weighing on the macroeconomic environment, and the outbreak has significantly increased
economic uncertainty. Risks related to consumers and businesses lowering or changing spending, which impact domestic and international
spend. The outbreak has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans
and restrictions, quarantines, shelter in place orders, and business shutdowns. These measures have not only negatively impacted
consumer spending and business spending habits, they have also adversely impacted and may further impact our workforce and operations
and the operations of our customers, suppliers and business partners. These measures may remain in place for a significant period
of time and they are likely to continue to adversely affect our business, results of operations and financial condition.
The spread of the coronavirus
has caused us to modify our business practices (including employee travel, employee work locations, and cancellation of physical
participation in meetings, events and conferences), and we may take further actions as may be required by government authorities
or that we determine are in the best interests of our employees, customers and business partners. There is no certainty that such
measures will be sufficient to mitigate the risks posed by the virus or otherwise be satisfactory to government authorities.
The extent to which
the coronavirus outbreak impacts our business, results of operations and financial condition will depend on future developments,
which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its
severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating
conditions can resume. Even after the coronavirus outbreak has subsided, we may continue to experience materially adverse impacts
to our business as a result of its global economic impact, including any recession that has occurred or may occur in the future.
There are no comparable
recent events which may provide guidance as to the effect of the spread of the coronavirus and a global pandemic, and, as a result,
the ultimate impact of the coronavirus outbreak or a similar health epidemic is highly uncertain and subject to change. We do
not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. However, the effects
could have a material impact on our results of operations, and we will continue to monitor the coronavirus situation closely.
Our cash and other sources of liquidity
will not be sufficient to fund our operations beyond August 31, 2020. We may not be successful in raising additional capital necessary
to meet expected increases in working capital needs. 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 or seek bankruptcy protection or be subject to an involuntary bankruptcy petition.
Management has projected
that cash on hand will not be sufficient to allow us to continue operations beyond August 31, 2020 if we are unable to 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 through equity or debt financings or other sources may depend on the financial
success of our current business and successful implementation of our key strategic initiatives, financial, economic and market
conditions and other factors, some of which are beyond our control. No assurance can be given that we will be successful in raising
the required capital at 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 continue our
business operations and advance our growth initiatives, which could adversely impact our business, financial condition and results
of operations.
Significant changes
from our current forecasts, including but not limited to: (i) failure to comply with the financial covenants in its debt facilities;
(ii) shortfalls from projected sales levels; (iii) unexpected increases in product costs; (iv) increases in operating
costs; (v) changes in the historical timing of collecting accounts receivable; and (vi) inability to maintain compliance
with the requirements of Nasdaq and/or inability to maintain listing with Nasdaq could have a material adverse impact on our ability
to access the level of funding necessary to continue our operations at current levels. If any of these events occurs or we are
unable to generate sufficient cash from operations or financing sources, we may be forced to liquidate assets where possible and/or
curtail, suspend or cease planned programs or operations generally or seek bankruptcy protection or be subject to an involuntary
bankruptcy petition, any of, which would have a material adverse effect on our 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.
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.
We have granted security interests
over certain of our assets in connection with various debt arrangements.
We have granted security
interests over certain of our assets in connection with our line of credit, and we may grant additional security interests to
secure future borrowings. If we are unable to satisfy our obligations under these arrangements, we could be forced to sell certain
assets that secure these loans, which could have a material adverse effect on our ability to operate our business. In the event
we are unable to maintain compliance with covenants set forth in these arrangements or if these arrangements are otherwise terminated
for any reason, it could have a material adverse effect on our ability to access the level of funding necessary to continue operations
at current levels. If any of these events occur, management may be forced to make reductions in spending, extend payment terms
with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could materially
harm our business, results of operations and future prospects.
We face a selling cycle of variable
length to secure new purchase agreements for our products and services, and design wins may not result in purchase orders or new
customer relationships.
We face a selling cycle
of variable lengths to secure new purchase agreements. Even if we succeed in developing a relationship with a potential new customer
and/or obtaining design wins, we may not be successful in securing new sales for our products or services, or new customers. In
addition, we cannot accurately predict the timing of entering into purchase agreements with new customers due to the complex purchase
decision processes of some large institutional customers, such as healthcare providers or school districts, which often involve
high-level management or board approvals. Consequently, we have only a limited ability to predict the timing of specific new customer
relationships.
We have a history of net losses.
We may not achieve or maintain profitability.
We have limited non-recurring
revenues derived from operations. Our near-term focus has been in actively developing reference accounts and building sales, marketing
and support capabilities. HVE and UCX, which we acquired in January 2017, also have a history of net losses. We expect to continue
to incur net losses and we may not achieve or maintain profitability. We may see continued losses during 2020 and as a result
of these and other factors, we may not be able to achieve, sustain or increase profitability in the near future.
We are subject to many
risks common to early-stage enterprises, including under-capitalization, cash shortages, limitations with respect to personnel,
financial, and other resources, technology, and market acceptance issues. There is no assurance that we will be successful in
achieving a return on shareholders’ investment and the likelihood of success must be considered considering our stage of
operations.
Our plans for growth will place
significant demands upon our resources. If we are unsuccessful in achieving our plan for growth, our business could be harmed.
We are actively pursuing
a plan to market our products domestically and internationally. The plan will place significant demands upon managerial, financial,
and human resources. Our ability to manage future growth will depend in large part upon several factors, including our ability
to rapidly:
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build or leverage, as applicable, a network of channel
partners to create an expanding presence in the evolving marketplace for our products and services;
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build or leverage, as applicable, a sales team to keep
end-users and channel partners informed regarding the technical features, issues and key selling points of our products and services;
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attract and retain qualified technical personnel in order
to continue to develop reliable and flexible products and provide services that respond to evolving customer needs;
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develop support capacity for end-users as sales increase,
so that we can provide post-sales support without diverting resources from product development efforts; and
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expand our internal management and financial controls significantly,
so that we can maintain control over our operations and provide support to other functional areas as the number of personnel and
size increases.
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Our inability to achieve
any of these objectives could harm our business, financial condition and results of operations.
Our market is competitive and dynamic.
New competing products and services could be introduced at any time that could result in reduced profit margins and loss of market
share.
The technology industry
is very dynamic, with new technology and services being introduced by a range of players, from larger established companies to
start-ups, on a frequent basis. Our competitors may announce new products, services, or enhancements that better meet the needs
of end-users or changing industry standards. Further, new competitors or alliances among competitors could emerge. Increased competition
may cause price reductions, reduced gross margins and loss of market share, any of which could have a material adverse effect
on our business, financial condition and results of operations.
Furthermore, the worldwide
storage market is intensely competitive. A number of manufacturers of disk-based storage solutions compete for a limited number
of customers. Barriers to entry are relatively low in these markets, and some of our competitors in this market have substantially
greater financial and other resources, larger research and development staffs, and more experience and capabilities in manufacturing,
marketing and distributing products. Ongoing pricing pressure could result in significant price erosion, reduced profit margins
and loss of market share, any of which could have a material adverse effect on our business, results of operations, financial
position and liquidity.
Our success depends on our ability
to anticipate technological changes and develop new and enhanced products.
The markets for our
products are characterized by rapidly changing technology, evolving industry standards and increasingly sophisticated customer
requirements. The introduction of products embodying new technology and the emergence of new industry standards can negatively
impact the marketability of our existing products and can exert price pressures on existing products. It is critical to our success
that we are able to anticipate and react quickly to changes in technology or in industry standards and to successfully develop,
introduce, manufacture and achieve market acceptance of new, enhanced and competitive products on a timely basis and cost-effective
basis. We invest substantial resources towards continued innovation; however, there can be no assurance that we will successfully
develop new products or enhance and improve our existing products, that new products and enhanced and improved existing products
will achieve market acceptance or that the introduction of new products or enhanced existing products by others will not negatively
impact us. Our inability to develop products that are competitive in technology and price and that meet end-user needs could have
a material adverse effect on our business, financial condition or results of operations.
Development schedules
for technology products are inherently uncertain. We may not meet our product development schedules, and development costs could
exceed budgeted amounts. Our business, results of operations, financial position and liquidity may be materially and adversely
affected if the products or product enhancements that we develop are delayed or not delivered due to developmental problems, quality
issues or component shortage problems, or if our products or product enhancements do not achieve market acceptance or are unreliable.
We or our competitors will continue to introduce products embodying new technologies, such as new sequential or random access
mass storage devices. In addition, new industry standards may emerge. Such events could render our existing products obsolete
or not marketable, which would have a material adverse effect on our business, results of operations, financial position and liquidity.
Our business is dependent on the
continued market acceptance and usage of disk-based solutions. The impact of recent storage technology trends on our business
is uncertain.
The industry in which
we operate has experienced significant historical growth due to the continuing increase in the demand for storage by consumers,
enterprises and government bodies around the world. While information technology spending has fluctuated periodically due to technology
transitions and changing economic and business environments, overall growth in demand for storage has continued. Recent technology
trends, such as the emergence of hosted storage, software as a service and mobile data access are driving significant changes
in storage architectures and solution requirements. The impact of these trends on overall long-term growth patterns is uncertain.
Nevertheless, if the general level of historic industry growth, or if the growth of the specific markets in which we compete,
were to decline, our business and results of operations could suffer.
Our management team
continually reviews and evaluates our product portfolio, operating structure, and markets to assess the future viability of our
existing products and market positions. We may determine that the infrastructure and expenses necessary to sustain an existing
product offering are greater than the potential contribution margin that we would realize. As a result, we may determine that
it is in our best interest to exit or divest one or more existing product offerings, which could result in costs incurred for
exit or disposal activities and/or impairments of long-lived assets. Moreover, if we do not identify other opportunities to replace
discontinued products or operations, our revenues would decline, which could lead to further net losses and adversely impact the
market price of our common shares.
In addition, we could
incur charges for excess and obsolete inventory. The value of our inventory may be adversely affected by factors that affect our
ability to sell the products in our inventory. Such factors include changes in technology, introductions of new products by us
or our competitors, the current or future economic downturns, or other actions by our competitors. If we do not effectively forecast
and manage our inventory, we may need to write off inventory as excess or obsolete, which adversely affects cost of sales and
gross profit. Our business has previously experienced, and we may in the future experience, reductions in sales of older generation
products as customers delay or defer purchases in anticipation of new products that we or our competitors may introduce. We have
established reserves for slow moving or obsolete inventory. These reserves, however, may prove to be inadequate, which would result
in additional charges for excess or obsolete inventory.
Our products may contain defects
in components or design, and our warranty reserves may not adequately cover our warranty obligations for these products.
Although we employ
a vigorous testing and quality assurance program, our products may contain defects or errors, particularly when first introduced
or as new versions are released. We may not discover such defects or errors until after a solution has been released to a customer
and used by the customer and end-users. Defects and errors in our products could materially and adversely affect our reputation,
result in significant costs, delay planned release dates and impair our ability to sell our products in the future. The costs
incurred in correcting any solution defects or errors may be substantial and could adversely affect our operating margins. While
we plan to continually test our products for defects and errors and work with end-users through our post-sales support services
to identify and correct defects and errors, defects or errors in our products may be found in the future.
We have also established
reserves for the estimated liability associated with product warranties. However, we could experience unforeseen circumstances
where these or future reserves may not adequately cover our warranty obligations. For example, the failure or inadequate performance
of product components that we purchase could increase our warranty obligations beyond these reserves.
The failure to attract, hire, retain
and motivate key personnel could have a significant adverse impact on our operations.
Our success depends
on the retention and maintenance of key personnel, including members of senior management and our technical, sales and marketing
teams. Achieving this objective may be difficult due to many factors, including competition for such highly skilled personnel;
fluctuations in global economic and industry conditions; changes in our management or leadership; competitors’ hiring practices;
and the effectiveness of our compensation programs. The loss of any of these key persons could have a material adverse effect
on our business, financial condition or results of operations. As an example, in the first quarter of 2019, our financial controller,
and certain other members of our finance team, resigned from employment to seek other opportunities, which has required us to
retain finance consultants while we search for full-time replacements, and we cannot guaranty that we will be able to retain such
consultants or find adequate replacements.
Our success is also
dependent on our continuing ability to identify, hire, train, motivate and retain highly qualified management, technical, sales,
marketing and finance personnel. Any such new hire may require a significant transition period prior to making a meaningful contribution.
Competition for qualified employees is particularly intense in the technology industry, and we have in the past experienced difficulty
recruiting qualified employees. Our failure to attract and to retain the necessary qualified personnel could seriously harm our
operating results and financial condition. Competition for such personnel can be intense, and no assurance can be provided that
we will be able to attract or retain highly qualified technical and managerial personnel in the future, which may have a material
adverse effect on our future growth and profitability. We do not have key person insurance.
Our financial results may fluctuate
substantially for many reasons, and past results should not be relied on as indications of future performance.
Our revenues and operating
results may fluctuate from quarter to quarter and from year to year due to a combination of factors, including, but not limited
to:
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varying size, timing and contractual terms of orders for
our products, which may delay the recognition of revenue;
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competitive conditions in the industry, including strategic
initiatives by us or our competitors, new products or services, product or service announcements and changes in pricing policy
by us or our competitors;
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market acceptance of our products and services;
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our ability to maintain existing relationships and to create
new relationships with channel partners;
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the discretionary nature of purchase and budget cycles
of our customers and end-users;
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the length and variability of the sales cycles for our
products;
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general weakening of the economy, from the pandemic or otherwise, resulting in a decrease in
the overall demand for our products and services or otherwise affecting the capital investment levels of businesses with
respect to our products or services;
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timing of product development and new product initiatives;
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changes in customer mix;
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increases in the cost of, or limitations on, the availability
of materials;
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fluctuations in average selling prices;
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changes in product mix; and
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increases in costs and expenses associated with the introduction
of new products.
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Further, the markets
that we serve are volatile and subject to market shifts that we may be unable to anticipate. A slowdown in the demand for workstations,
mid-range computer systems, networks and servers could have a significant adverse effect on the demand for our products in any
given period. In the past, we have experienced delays in the receipt of purchase orders and, on occasion, anticipated purchase
orders have been rescheduled or have not materialized due to changes in customer requirements. Our customers may cancel or delay
purchase orders for a variety of reasons, including, but not limited to, the rescheduling of new product introductions, changes
in our customers’ inventory practices or forecasted demand, general economic conditions affecting our customers’ markets,
changes in our pricing or the pricing of our competitors, new product announcements by us or others, quality or reliability problems
related to our products, or selection of competitive products as alternate sources of supply.
Thus, there can be
no assurance that we will be able to reach profitability on a quarterly or annual basis. We believe that our revenue and operating
results will continue to fluctuate, and that period-to-period comparisons are not necessarily indications of future performance.
Our revenue and operating results may fail to meet the expectations of public market analysts or investors, which could have a
material adverse effect on the price of our common shares. In addition, portions of our expenses are fixed and difficult to reduce
if our revenues do not meet our expectations. These fixed expenses magnify the adverse effect of any revenue shortfall.
Our plans for implementing
our business strategy and achieving profitability are based upon the experience, judgment and assumptions of our key management
personnel, and available information concerning the communications and technology industries. If management’s assumptions
prove to be incorrect, it could have a material adverse effect on our business, financial condition or results of operations.
We rely on indirect sales channels
to market and sell our branded products. Therefore, the loss of, or deterioration in, our relationship with one or more of our
distributors or resellers could negatively affect our operating results.
We have relationships
with third party resellers, original equipment manufacturers (“OEMs”), system integrators and enterprise application
providers that facilitate our ability to sell and implement our products. These business relationships are important to extend
the geographic reach and customer penetration of our sales force and ensure that our products are compatible with customer network
infrastructures and with third party products.
We believe that our
success depends, in part, on our ability to develop and maintain strategic relationships with resellers, independent software
vendors, OEMs, system integrators, and enterprise application providers. Should any of these third parties go out of business,
or choose not to work with us, we may be forced to increase the development of those capabilities internally, incurring significant
expense and adversely affecting operating margins. Any of these third parties may develop relationships with other companies,
including those that develop and sell products that compete with ours. We could lose sales opportunities if we fail to work effectively
with these parties or they choose not to work with us. Most of our distributors and resellers also carry competing product lines
that they may promote over our products. A distributor or reseller might not continue to purchase our products or market them
effectively, and each determines the type and amount of our products that it will purchase from us and the pricing of the products
that it sells to end user customers. Further, the long-term success of any of our distributors or resellers is difficult to predict,
and we have no purchase commitments or long-term orders from any of them to assure us of any baseline sales through these channels.
Therefore, the loss
of, or deterioration in, our relationship with one or more of our distributors or resellers could negatively affect our operating
results. Our operating results could also be adversely affected by a number of factors, including, but not limited to:
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a change in competitive strategy that adversely affects
a distributor’s or reseller’s willingness or ability to stock and distribute our products;
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the reduction, delay or cancellation of orders or the return
of a significant amount of our products;
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the loss of one or more of our distributors or resellers;
and
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any financial difficulties of our distributors or resellers
that result in their inability to pay amounts owed to us.
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If our suppliers fail to meet our
manufacturing needs, it would delay our production and our product shipments to customers and this could negatively affect our
operations.
Some of our products
have a large number of components and subassemblies produced by outside suppliers. We depend greatly on these suppliers for items
that are essential to the manufacturing of our products, including disk drives and chassis. We work closely with our regional,
national and international suppliers, which are carefully selected based on their ability to provide quality parts and components
that meet both our technical specifications and volume requirements. For certain items, we qualify only a single source, which
magnifies the risk of shortages and decreases our ability to negotiate with that supplier on the basis of price. From time to
time, we have in the past been unable to obtain as many drives as have needed due to drive shortages or quality issues from certain
of our suppliers. If these suppliers fail to meet our manufacturing needs, it would delay our production and our product shipments
to customers and negatively affect our operations.
We are subject to laws, regulations
and similar requirements, changes to which may adversely affect our business and operations.
We are subject to laws,
regulations and similar requirements that affect our business and operations, including, but not limited to, the areas of commerce,
intellectual property, income and other taxes, labor, environmental, health and safety, and our compliance in these areas may
be costly. While we have implemented policies and procedures to comply with laws and regulations, there can be no assurance that
our employees, contractors, suppliers or agents will not violate such laws and regulations or our policies. Any such violation
or alleged violation could materially and adversely affect our business. Any changes or potential changes to laws, regulations
or similar requirements, or our ability to respond to these changes, may significantly increase our costs to maintain compliance
or result in our decision to limit our business or products, which could materially harm our business, results of operations and
future prospects.
The Dodd-Frank Wall
Street Reform and Consumer Protection Act includes provisions regarding certain minerals and metals, known as conflict minerals,
mined from the Democratic Republic of Congo and adjoining countries. These provisions require companies to undertake due diligence
procedures and report on the use of conflict minerals in its products, including products manufactured by third parties. Compliance
with these provisions will cause us to incur costs to certify that our supply chain is conflict free and we may face difficulties
if our suppliers are unwilling or unable to verify the source of their materials. Our ability to source these minerals and metals
may also be adversely impacted. In addition, our customers may require that we provide them with a certification and our inability
to do so may disqualify us as a supplier.
We have made a number of acquisitions
in the past and we may make acquisitions in the future. Our ability to identify complementary assets, products or businesses for
acquisition and successfully integrate them could affect our business, financial condition and operating results.
In the future, we may
continue to pursue acquisitions of assets, products or businesses that we believe are complementary to our existing business and/or
to enhance our market position or expand our product portfolio. There is a risk that we will not be able to identify suitable
acquisition candidates available for sale at reasonable prices, complete any acquisition, or successfully integrate any acquired
product or business into our operations. We are likely to face competition for acquisition candidates from other parties including
those that have substantially greater available resources. Acquisitions may involve a number of other risks, including:
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diversion
of management’s attention;
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disruption
to our ongoing business;
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failure
to retain key acquired personnel;
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difficulties
in integrating acquired operations, technologies, products or personnel;
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unanticipated
expenses, events or circumstances;
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assumption
of disclosed and undisclosed liabilities; and
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inappropriate
valuation of the acquired in-process research and development, or the entire acquired
business.
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If we do not successfully
address these risks or any other problems encountered in connection with an acquisition, the acquisition could have a material
adverse effect on our business, results of operations and financial condition. Problems with an acquired business could have a
material adverse effect on our performance or our business as a whole. In addition, if we proceed with an acquisition, our available
cash may be used to complete the transaction, diminishing our liquidity and capital resources, or shares may be issued which could
cause significant dilution to existing shareholders.
We have implemented cost reduction
efforts. We may need to implement additional cost reduction efforts, which could materially harm our business.
We have implemented
certain cost reduction efforts. There can be no assurance that these cost reduction efforts will be successful. As a result, we
may need to implement further cost reduction efforts across our operations, such as further reductions in the cost of our workforce
and/or suspending or curtailing planned programs, either of which could materially harm our business, results of operations and
future prospects.
Risks Related to Intellectual Property
Our ability to compete depends in
part on our ability to protect our intellectual property rights.
Our success depends
in part on our ability to protect our rights in our intellectual property. We rely on various intellectual property protections,
including copyright, trade-mark and trade secret laws and contractual provisions, to preserve our intellectual property rights.
We have filed a number of patent applications and have historically protected our intellectual property through trade secrets
and copyrights. As our technology is evolving and rapidly changing, current intellectual property rights may not adequately protect
us.
Intellectual property
rights may not prevent competitors from developing products that are substantially equivalent or superior to our products. Competitors
may independently develop similar products, duplicate our products or, if patents are issued to us, design around these patents.
To the extent that we have or obtain patents, such patents may not afford meaningful protection for our technology and products.
Others may challenge our patents and, as a result, our patents could be narrowed, invalidated or declared unenforceable. The patents
that are material to our business began expiring in November 2015. In addition, our current or future patent applications may
not result in the issuance of patents in the U.S. or foreign countries.
Although we believe we have a proprietary
platform for our technologies and products, we may in the future become subject to claims for infringement of intellectual property
rights owned by others. Further, to protect our own intellectual property rights, we may in the future bring claims for infringement
against others.
Our commercial success
depends, in part, upon not infringing intellectual property rights owned by others. Although we believe that we have a proprietary
platform for our technologies and products, we cannot determine with certainty whether any existing third party patents or the
issuance of any third party patents would require us to alter our technology, obtain licenses or cease certain activities. We
may become subject to claims by third parties that our technology infringes their intellectual property rights. While we provide
our customers with a qualified indemnity against the infringement of third party intellectual property rights, we may become subject
to these claims either directly or through indemnities against these claims that we routinely provide to our end-users and channel
partners.
Further, our customers
may use our products in ways that may infringe the intellectual property rights of third parties and/or require a license from
third parties. Although our customers are contractually obligated to use our products only in a manner that does not infringe
third party intellectual property rights, we cannot guarantee that such third parties will not seek remedies against us for providing
products that may enable our customers to infringe the intellectual property rights of others.
In addition, we may
receive in the future, claims from third parties asserting infringement, claims based on indemnities provided by us, and other
related claims. Litigation may be necessary to determine the scope, enforceability and validity of third party proprietary or
other rights, or to establish our proprietary or other rights. Furthermore, despite precautions, it may be possible for third
parties to obtain and use our intellectual property without our authorization. Policing unauthorized use of intellectual property
is difficult, and some foreign laws do not protect proprietary rights to the same extent as the laws of Canada or the U.S. To
protect our intellectual property, we may become involved in litigation. In addition, other companies may initiate similar proceedings
against us. The patent position of information technology firms is highly uncertain, involves complex legal and factual questions,
and continues to be the subject of much litigation. No consistent policy has emerged from the U.S. Patent and Trademark Office
or the courts regarding the breadth of claims allowed or the degree of protection afforded under information technology patents.
Some of our competitors
have, or are affiliated with companies having, substantially greater resources than us and these competitors may be able to sustain
the costs of complex intellectual property litigation to a greater degree and for a longer period of time than us. Regardless
of their merit, any such claims could:
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divert the attention of our management, cause significant
delays, materially disrupt the conduct of our business or materially adversely affect our revenue, financial condition and results
of operations;
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be time
consuming to evaluate and defend;
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result
in costly litigation and substantial expenses;
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cause product
shipment delays or stoppages;
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subject
us to significant liabilities;
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require
us to enter into costly royalty or licensing agreements;
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require
us to modify or stop using the infringing technology; or
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result in costs or other consequences that have a material
adverse effect on our business, results of operations and financial condition.
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Risks Related
to our Common Stock and this Offering
We have
received notification from Nasdaq that if we fall below Nasdaq’s continued listing requirement for the minimum value of
our stockholders’ equity on or before November 1, 2020, we will be notified of such non-compliance and will at that time
be afforded a hearing before a Nasdaq Hearings Panel (the “Panel”), which could result in our delisting. If our common
shares are delisted from Nasdaq, 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.
On November 12, 2018,
we received a letter from the Nasdaq Listing Qualifications department of The Nasdaq Stock Market LLC notifying us that we were
not in compliance with the requirement of Nasdaq Marketplace Rule 5550(b)(1) for continued inclusion on Nasdaq because our stockholders’
equity was below the required minimum of $2.5 million. On May 14, 2019, we received written notification from The NASDAQ Stock
Market, LLC notifying us that we had not regained compliance with the minimum value of our stockholders’ equity of $2.5
million. The Staff had determined that our common stock would be delisted from Nasdaq unless we timely request a hearing before
a Nasdaq Hearings Panel (the “Panel”). Accordingly, we requested a hearing before the Panel, which was held on July
11, 2019, and which was the basis for the Panel’s decision.
On July 22, 2019, the
Panel issued a decision granting our request for continued listing of our common stock on Nasdaq pursuant to an extension through
September 30, 2019 to demonstrate compliance with the $2.5 million stockholders’ equity requirement for continued listing.
As required pursuant to the Panel’s decision, on August 15, 2019, we reported to the Panel that we had completed certain
components of our compliance plan. On September 30, 2019, we requested an additional extension until October 30, 2019 to complete
the final components of our compliance plan, which the Panel granted in a letter to us on October 8, 2019.
On November 6, 2019,
we received notification from the Panel that we had regained compliance with the $2.5 million stockholders’ equity requirement
based on our disclosures contained in our Form 8-K filed with the Securities and Exchange Commission on November 1, 2019. The
Panel further advised that if we again fall below the $2.5 million stockholders’ equity requirement on or before November
1, 2020, we will be notified of such non-compliance and will at that time be afforded a hearing before the Panel, which could
result in our delisting.
We have received notification from
Nasdaq that we are not in compliance with the requirement of Nasdaq Marketplace Rule 5550(a)(2) for continued inclusion on Nasdaq
as a result of the closing bid price for our common stock being below $1.00 for 30 consecutive business days. If our common shares
are delisted from Nasdaq, 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.
On January 3, 2020,
we received a letter from the Nasdaq Listing Qualifications department of The Nasdaq Stock Market LLC notifying us that we were
not in compliance with the requirement of Nasdaq Marketplace Rule 5550(a)(2) for continued inclusion on Nasdaq as a result of
the closing bid price for our common stock being below $1.00 for 30 consecutive business days. This notification has no effect
on the listing of our common shares at this time.
In accordance with
the Nasdaq Marketplace Rules, we were provided an initial period of 180 calendar days, or until July 1, 2020, to regain compliance,
which will require a closing bid price for our common stock above $1.00 for a minimum of 10 consecutive business days. However,
due to recent market turmoil, Nasdaq has filed a rule change tolling the compliance periods for price-based listing requirements
through June 30, 2020, extending our compliance period until September 14, 2020. If we do not comply with Marketplace Rule 5550(a)(2)
by September 14, 2020, we may be eligible for additional time to demonstrate compliance with the bid price requirement. To
qualify, we will be required to meet the continued listing requirement for market value of publicly held shares and all other
initial listing standards for Nasdaq, with the exception of the bid price requirement, and will need to provide written notice
of our intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary. If
we meet these requirements, we will be granted an additional 180 days or until March 13, 2021 to become compliant. If we do not
qualify for the second compliance period or fail to regain compliance during the second 180-day period, then Nasdaq will notify
us of its determination to delist our common shares, at which point we would have an opportunity to appeal the delisting determination
to a Panel.
On May 19, 2020, we received notification from Nasdaq that we had regained compliance with Marketplace Rule 5550(a)(2), as
the closing price of our common stock was at least equal to $1.00 per share for each of the ten consecutive business days
between May 4, 2020 and May 18, 2020.
Sales of common shares issuable
upon exercise of outstanding warrants, the conversion of outstanding preferred shares, or the effectiveness of our registration
statement may cause the market price of our common shares to decline. Currently outstanding preferred shares could adversely affect
the rights of the holders of common shares.
As of June 19,
2020, we have 6,843,778 Series B Preferred Shares, 1,600,000 Series C Preferred Shares and 1,244,000 Series D Preferred Shares
outstanding. The conversion of the outstanding Series B, C and D Preferred Shares will result in substantial dilution to our common
shareholders. Pursuant to our articles of amalgamation, our Board of Directors has the authority to fix and determine the voting
rights, rights of redemption and other rights and preferences of preferred stock.
Pursuant to the articles
of amendment governing the rights and preferences of outstanding shares of Series B Preferred Shares, each preferred share (i)
subject to prior shareholder approval, are convertible into our common shares, at a conversion rate equal to $1.00 per share,
plus accrued and unpaid dividends, divided by an amount equal to 0.85 multiplied by a 15-day volume weighted average price per
share of common stock prior to the date the conversion notice is provided, subject to a conversion price floor of $0.80, (ii)
if we receive any cash dividends on our equity investment in Silicon Valley Technology Partners, Inc., in an amount equal to such
cash dividend received, cumulative cash dividends at a rate of 8% of the Series B Preferred Shares, (iii) after November 13, 2020,
fixed, preferential, cumulative cash dividends at the rate of 8% of the Series B Preferred Shares subscription price per year,
and (iv) carry a liquidation preference equal to the subscription price per Series B Preferred Share plus any accrued and unpaid
dividends.
Pursuant to the
articles of amendment governing the rights and preferences of outstanding shares of Series C Preferred Shares, each preferred
share, subject to prior shareholder approval, are convertible into our common shares, at a conversion rate in effect on the date
of conversion. Overland, the sole holder of the Series C Preferred Shares, may, at any time, convert all or any part of the Series
C Preferred Shares provided that after such conversion the common shares issuable, together with all the common shares held by
Overland in the aggregate would not exceed 19.9% of the total number of our outstanding common shares. On October 31, 2019, Overland
agreed that it would not exercise its conversion right with respect to its Series C Preferred Shares until the earlier of (i)
October 31, 2020 and (ii) such time that we file for bankruptcy or an involuntary petition for bankruptcy is filed against us
(unless such petition is dismissed or discharged within thirty (30) days).
Pursuant to the articles
of amendment governing the rights and preferences of outstanding shares of Series D Preferred Shares, each preferred share is
convertible at the option of the holder thereof, into that number of shares of our common stock determined by dividing the Stated
Value of such share of Series D Preferred Stock (which is $0.65) by the conversion price. The initial conversion price, which
is also $0.65, shall be adjusted in the event that we (i) pay a stock dividend or otherwise make a distribution or distributions
payable in shares of our common stock, (ii) subdivide outstanding shares of our common stock into a larger number of shares, (iii)
combine (including by way of a reverse stock split) outstanding shares of our common stock into a small number of shares, or (iv)
issue, in the event of a reclassification of shares of our common stock, any shares of our capital stock.
Additionally, as
of June 19, 2020 we have warrants outstanding for the purchase of up to 3,101,182 common shares having a weighted-average exercise
price of $3.63 per share. The sale of our common shares upon exercise of our outstanding warrants, the conversion of the preferred
shares into common shares, or the sale of a significant amount of the common shares issued or issuable upon exercise of the warrants
in the open market, or the perception that these sales may occur, could cause the market price of our common shares to decline
or become highly volatile.
The sale of our common stock to Oasis Capital may cause
substantial dilution to our existing stockholders and the sale of the shares of common stock acquired by Oasis Capital could cause
the price of our common stock to decline.
We have registered
for sale 6,962,026 shares of common stock that we may sell to Oasis Capital under the Equity Purchase Agreement. It is anticipated
that these shares will be sold over a period of up to approximately 36 months from the date of this prospectus. The number
of shares ultimately offered for sale by Oasis Capital under this prospectus is dependent upon the number of shares we elect to
sell to Oasis Capital under the Equity Purchase Agreement. Sales by Oasis Capital of shares acquired pursuant to the Equity Purchase
Agreement under the registration statement, of which this prospectus is a part, may result in dilution to the interests of other
holders of our common stock.
The sale of a substantial number of shares
of our common stock by Oasis Capital in this offering, or anticipation of such sales, could cause the trading price of our common
stock to decline or make it more difficult for us to sell equity or equity-related securities in the future at a time and at a
price that we might otherwise desire. Following the issuance of shares of common stock under the Equity Line, Oasis Capital
may offer and resell the shares at a price and time determined by them. This may cause the market price of our common stock to
decline, and the timing of sales and the price at which the shares are sold by Oasis Capital could have an adverse effect upon
the public market for our common stock.
There is an increased potential for short sales of our
common stock due to the sale of shares pursuant to the Equity Purchase Agreement, which could materially affect the market price
of our common stock.
Downward pressure on the market price of
our common stock that likely will result from resales of the common stock issued pursuant to the Equity Purchase Agreement could
encourage short sales of common stock by market participants other than the selling stockholder. Generally, short selling means
selling a security not owned by the seller. The seller is committed to eventually purchase the security previously sold. Short
sales are used to capitalize on an expected decline in the security’s price — typically, investors who sell short
believe that the price of the stock will fall, and anticipate selling at a price higher than the price at which they will buy
the stock. Significant amounts of such short selling could place further downward pressure on the market price of our common stock.
We may not be able to access sufficient
funds under the Equity Purchase Agreement with Oasis Capital when needed.
Our ability to sell
shares to Oasis Capital and obtain funds under the Equity Purchase Agreement is limited by the terms and conditions in the Equity
Purchase Agreement, including restrictions on when we may sell shares to Oasis Capital, restrictions on the amounts we may sell
to Oasis Capital at any one time, and a limitation on our ability to sell shares to Oasis Capital to the extent that it would cause
Oasis Capital to beneficially own more than 9.99% of our outstanding common stock. In addition, any amounts we sell under the Equity
Purchase Agreement may not satisfy all of our funding needs, even if we are able and choose to sell all $11,000,000 under the Equity
Purchase Agreement.
The extent we rely
on Oasis Capital as a source of funding will depend on a number of factors including, the prevailing market price and trading volume
of our common stock and the extent to which we are able to secure working capital from other sources. If obtaining sufficient funding
from Oasis Capital were to prove unavailable or prohibitively dilutive, we will need to secure another source of funding in order
to satisfy our working capital needs. Even if we sell all 6,962,026 Purchase Shares to Oasis
Capital, we may still need additional capital to fully implement our business, operating and development plans. Should the financing
we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, the consequences
could be a material adverse effect on our business, operating results, financial condition and prospects.
The market price of our common shares
is volatile.
The market price for
common shares may be volatile and subject to wide fluctuations in response to numerous factors, many of which are beyond our control,
including the following:
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price and
volume fluctuations in the overall stock market from time to time;
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volatility
in the market prices and trading volumes of technology stocks;
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changes in operating performance and stock market valuations
of other technology companies generally, or those in our industry in particular;
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future
capital raising activities;
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sales of
common shares by the selling stockholders;
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failure of securities analysts to maintain coverage of
us, changes in financial estimates by securities analysts who follow us, or our failure to meet these estimates or the expectations
of investors;
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the financial projections we may provide to the public,
any changes in those projections or our failure to meet those projections;
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market
acceptance of our products and technologies;
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announcements
by us or our competitors of new products or services;
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the public’s reaction to our press releases, other
public announcements and filings with the SEC and the applicable Canadian securities regulatory authorities;
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rumors
and market speculation involving us or other companies in our industry;
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actual
or anticipated changes in our operating results or fluctuations in our operating results;
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actual or anticipated developments in our business, our
competitors’ businesses or the competitive landscape generally;
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litigation involving us, our industry or both, or investigations
by regulators into our operations or those of our competitors;
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developments
or disputes concerning our intellectual property or other proprietary rights;
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announced
or completed acquisitions of businesses or technologies by us or our competitors;
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new laws or regulations or new interpretations of existing
laws or regulations applicable to us and our business;
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changes
in accounting standards, policies, guidelines, interpretations or principles;
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any significant
change in our executive officers and other key personnel or Board of Directors;
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general
economic conditions and slow or negative growth of our markets;
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release
of transfer restrictions on certain outstanding common shares; and
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news reports relating to trends, concerns or competitive
developments, regulatory changes and other related issues in our industry or target markets.
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Financial markets may
experience price and volume fluctuations that affect the market prices of equity securities of companies and that are unrelated
to the operating performance, underlying asset values or prospects of such companies. Accordingly, the market price of the common
shares may decline even if our operating results, underlying asset values or prospects have not changed. As well, certain institutional
investors may base their investment decisions on consideration of our governance and social practices and performance against
such institutions’ respective investment guidelines and criteria, and failure to meet such criteria may result in a limited
or no investment in our common shares by those institutions, which could adversely affect the trading price of our common shares.
There can be no assurance that fluctuations in price and volume will not occur due to these and other factors.
In the past, plaintiffs
have often initiated securities class action litigation against a company following periods of volatility in the market price
of its securities. We may in the future be a target of similar litigation. Securities litigation could result in substantial costs
and liabilities and could divert management’s attention from day-to-day operations and consume resources, such as cash.
In addition, the resolution of those matters may require us to issue additional common shares, which could potentially result
in dilution to our existing shareholders. Expenses incurred in connection with these matters (which include fees of lawyers and
other professional advisors and potential obligations to indemnify officers and directors who may be parties to such actions)
could adversely affect our cash position.
We must comply with the financial
reporting requirements of a public company, as well as other requirements associated with being listed on Nasdaq.
We are subject to reporting
and other obligations under applicable Canadian securities laws, SEC rules and the rules of Nasdaq. These reporting and other
obligations, including National Instrument 52-102 - Continuous Disclosure Obligations and National Instrument 52-109 - Certification
of Disclosure in Issuers’ Annual and Interim Filings, place significant demands on our management, administrative, operational
and accounting resources. Moreover, any failure to maintain effective internal controls could cause us to fail to meet our reporting
obligations or result in material misstatements in our consolidated financial statements. If we cannot provide reliable financial
reports or prevent fraud, our reputation and operating results could be materially harmed, which could also cause investors to
lose confidence in our reported financial information, which could result in a lower trading price of our common shares.
Management does not
expect that our disclosure controls and procedures and internal controls over financial reporting will prevent all errors and
all fraud. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance
that its objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems,
no evaluation of controls can provide absolute assurance that all control issues within a company are detected. The inherent limitations
include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors
or mistakes. Controls can also be circumvented by individual acts of some persons, by collusion of two or more people or by management
override of the controls. Due to the inherent limitations in a cost-effective control system, misstatements due to error, or fraud
may occur and not be detected.
We may be treated as a Passive Foreign
Investment Company.
There is also an ongoing
risk that we may be treated as a Passive Foreign Investment Company (“PFIC”), for U.S. federal income tax purposes.
A non-U.S. corporation generally will be considered to be a PFIC for any taxable year in which 75% or more of its gross income
is passive income, or 50% or more of the average value of its assets are considered “passive assets” (generally, assets
that generate passive income). This determination is highly factual, and will depend upon, among other things, our market valuation
and future financial performance. We believe that we were classified as a PFIC during the tax year ended December 31, 2013. However,
based on current business plans and financial expectations, we expect that we will not be a PFIC for our current tax year
ending December 31, 2020 and for the foreseeable future. If we were to be classified as a PFIC for any future taxable year,
holders of our common shares who are U.S. taxpayers would be subject to adverse U.S. federal income tax consequences.
Certain of our directors, officers
and management could be in a position of conflict of interest.
Certain of our directors,
officers and members of management may also serve as directors and/or officers of other companies. We may contract with such directors,
officers, members of management and such other companies or with affiliated parties or other companies in which such directors,
officers or members of management own or control. These persons may obtain compensation and other benefits in transactions relating
to us. Consequently, there exists the possibility for such directors, officers and members of management to be in a position of
conflict. Any decision made by any of such directors, officers and members of management involving us are being made in accordance
with their duties and obligations to deal fairly and in good faith with a view to our best interests.
Future sales of common shares by
directors, officers and other shareholders could adversely affect the prevailing market price for common shares.
Subject to compliance
with applicable securities laws, officers, directors and other shareholders and their respective affiliates may sell some or all
of their common shares in the future. No prediction can be made as to the effect, if any, such future sales will have on the market
price of the common shares prevailing from time to time. However, the future sale of a substantial number of common shares by
our officers, directors and other shareholders and their respective affiliates, or the perception that such sales could occur,
could adversely affect prevailing market prices for the common shares.
We may issue an unlimited number
of common shares. Future sales of common shares will dilute your shares.
Our articles of amalgamation
permit the issuance of an unlimited number of common shares, and shareholders will have no pre-emptive rights in connection with
such further issuances. Our directors have the discretion to determine the price and the terms of issue of further issuances of
common shares in accordance with applicable laws.
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
Some of the statements
under “Prospectus Summary,” “Risk Factors,” “Business,” and elsewhere in this prospectus constitute
forward-looking statements. These statements involve risks known to us, significant uncertainties, and other factors which may
cause our actual results, levels of activity, performance, or achievements to be materially different from any future results,
levels of activity, performance, or achievements expressed or implied by those forward-looking statements.
You can identify forward-looking
statements by the use of the words “may,” “will,” “should,” “could,” “expects,”
“plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,”
“potential,” “proposed,” or “continue” or the negative of those terms. These statements are
only predictions. In evaluating these statements, you should specifically consider various factors, including the risks outlined
above. These factors may cause our actual results to differ materially from any forward-looking statement.
Although we believe that
the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity,
performance or achievements.
USE OF PROCEEDS
We will not receive any
proceeds from the sale of the shares of our common stock by the selling stockholders. However, we may receive up to an aggregate
of $11,000,000 in proceeds from the sale of our common stock to Oasis Capital pursuant to the Equity Line. The proceeds received
from the sales of the shares under the Equity Line will be used for working capital and general corporate purposes. This anticipated
use of proceeds from the sale of our common stock to Oasis Capital under the Equity Line represents our intentions based upon
our current plans and business conditions.
Oasis Capital will
pay any underwriting discounts and commissions and expenses incurred by it for brokerage, accounting, tax or legal services or
any other expenses incurred by it in disposing of the shares. We will bear all other costs, fees and expenses incurred in effecting
the registration of the shares covered by this prospectus, including, without limitation, all registration and filing fees, fees
and expenses of our counsel, and our independent registered public accountants.
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS
Market for Common Stock
Our common stock
is traded on the Nasdaq Capital Market under the symbol “ANY.” The last reported sale price of our common stock on
June 19, 2020 on the Nasdaq Capital Market was $2.40 per share.
Holders
As of June 19,
2020, there were 42 holders of record of our common stock. We believe that additional beneficial owners of our common stock hold
shares in street name.
Dividend Policy
We have never paid or
declared any dividend on our common stock and we do not anticipate paying cash dividends in the foreseeable future.
BUSINESS
Our Company
Sphere 3D Corp. (“Sphere
3D” or 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.”. Sphere 3D and provides solutions
for stand-alone storage and technologies that converge the traditional silos of compute, storage and network into one integrated
hyper-converged or converged solution. We provide enterprise storage management solutions, and the ability to connect to public
cloud services such as Microsoft Azure for additional delivery options and hybrid cloud capabilities. Our integrated solutions
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 purpose-built appliances, deliver solutions
designed to provide application mobility, security, data integrity and simplified management. These solutions can be deployed
through a public, private or hybrid cloud and are delivered through a global reseller network and professional services organization.
We have a portfolio of brands including SnapServer®, HVE ConneXions (“HVE”) and UCX ConneXions
(“UCX”), dedicated to helping customers achieve their IT goals. In November 2018, we divested ourselves of Overland
Storage, Inc. and its subsidiaries (“Overland”) and associated product portfolio for long term archive as well as
the RDX® removable disk product portfolio. We undertook this divestiture in order to facilitate the
significant reduction of secured debt and to allow us to focus greater resources to our converged and hyper-converged product
portfolio.
Discontinued Operations
In February 2018, the
Company, Overland, and Silicon Valley Technology Partners, Inc. (formerly Silicon Valley Technology Partners LLC) (“SVTP”),
a Delaware corporation established by Eric Kelly, the Company’s former Chief Executive Officer and Chairman of the Board
of Directors, entered into a share purchase agreement (as amended by that certain First Amendment to Share Purchase Agreement
dated August 21, 2018, and as further amended by that certain Second Amendment to Share Purchase Agreement dated November 1, 2018,
the “Purchase Agreement”), pursuant to which the Company agreed to sell to SVTP all of the issued and outstanding
shares of capital stock of Overland.
On November 13, 2018,
pursuant the Purchase Agreement, the Company sold to SVTP all of the issued and outstanding shares of capital stock of Overland
in consideration for (i) the issuance to the Company of shares of Series A Preferred Stock of SVTP representing 19.9% of the outstanding
shares of capital stock of SVTP as of the closing with a value of $2.1 million, (ii) the release of the Company from outstanding
debt obligations totaling $41.7 million assumed by SVTP, and (iii) $1.0 million in cash proceeds from SVTP.
In connection with
the closing of the Purchase Agreement, we filed an articles of amendment to our articles of amalgamation setting forth the rights,
privileges, restrictions and conditions of a new series of non-voting preferred shares of the Company (the “Series A Preferred Shares”)
and entered into a Conversion Agreement, by and between the Company and FBC Holdings SARL (“FBC Holdings”), a related
party, pursuant to which $6.5 million of the Company’s outstanding secured debt was converted into 6,500,000 Series A Preferred
Shares.
The full text of the
Purchase Agreement is filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on February 21, 2018, the full
text of the First Amendment to Share Purchase Agreement is filed as Exhibit 2.1 to the Company’s Current Report on Form
8-K filed on August 21, 2018, and the full text of the Second Amendment to Share Purchase Agreement is filed as Exhibit 2.1 to
the Company’s Current Report on Form 8-K filed on November 2, 2018.
Warrant Exchange
Agreement
On March 16, 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 178,875 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.
Reverse Stock Split
On October 24, 2018,
the Board of Directors of the Company authorized a share consolidation (also known as a reverse stock split) of the Company’s
issued and outstanding common shares at a ratio of 1-for-8, which became effective on November 5, 2018. All share and per share
amounts in the accompanying consolidated financial statements and the notes thereto have been restated for all periods to reflect
the share consolidation.
Oasis Equity Line
On May 15, 2020, we entered into the Equity
Purchase Agreement with Oasis Capital, which provides that, upon the terms and subject to the conditions and limitations set forth
therein, Oasis Capital is committed to purchase up to an aggregate of $11,000,000 of shares of common stock over the 36-month
term of the Equity Purchase Agreement. Concurrently with entering into the Equity Purchase Agreement, we also entered into a registration
rights agreement with Oasis Capital (the “Registration Rights Agreement”), in which we agreed to file one or more
registration statements, as permissible and necessary to register under the Securities Act, the resale of the shares of common
stock that may be issued to Oasis Capital under the Equity Purchase Agreement. The purpose of the equity line is to provide us
with proceeds as may be necessary for working capital and general corporate purposes.
Under the Equity Purchase Agreement, after
the SEC has declared effective the registration statement referred to above, on any trading day selected by us (such date, the
“Put Date), we have the right, in our sole discretion, to present Oasis Capital with a purchase notice (each, a “Put
Notice”), directing Oasis Capital (as principal) to purchase up to the lesser of, (i) if the closing bid price of our common
stock is less than $2.00 per share of common stock (a) 120,000 shares of common stock or (b) 20% of the average trading
volume of common stock in the 10 trading days immediately preceding the date of such Put Notice or (ii) if the closing bid price
of our common stock is greater than or equal to $2.00, (a) 140,000 shares of common stock or (b) 20% of the average trading
volume of common stock in the 10 trading days immediately preceding the date of such Put Notice at a per share price (the “Purchase
Price”) equal to the lesser of (i) the lowest traded price of our common stock on the Clearing Date (defined below) or (ii)
the average of the lowest three closing sale prices of our common stock during the 12 consecutive trading days immediately preceding
the Clearing Date (each, an “Option 1 Put”), provided that the aggregate amount of all Option 1 Puts and Option 2
Puts (as defined below) does not exceed $750,000.
In addition, on any date on which Oasis
Capital receives shares of common stock in connection with a Put Notice (the “Clearing Date”), we also have the right,
in our sole discretion, to present Oasis Capital with a Put Notice (each, an “Option 2 Put”) directing Oasis Capital
to purchase an amount of common stock equal to the lesser of (i) such amount that equals 10% of the daily trading volume
of the common stock on the date of such Put Notice and (ii) $200,000, provided that the aggregate amount of the Option
1 Put and Option 2 Put on any Put Date or Clearing Date does not exceed $750,000 and the aggregate amount of all Option 1 Puts,
Option 2 Puts and Option 3 Puts (defined below) does not exceed $11,000,000. The purchase price per share pursuant to such Option
2 Put is equal to the lesser of (i) 91% of the lowest traded price of our common stock during the ten consecutive trading days
immediately preceding the Clearing Date and (ii) 93% of the daily volume weighted average price of our common stock on the Clearing
Date. We also have the right, solely in the event that the closing price for our common stock on the day prior to the delivery
of the Put Notice is greater than or equal to $2.50 per share, to present Oasis Capital with a Put Notice (each, an “Option
3 Put”) directing Oasis Capital to purchase an amount of common stock equal to 10% of the daily trading volume of the common
stock during the ten trading days immediately preceding the date on which the Put Notice is delivered, at a purchase price equal
to $2.00 per share. The Threshold Price (defined below) and the Purchase Price will be adjusted for any reorganization, recapitalization,
non-cash dividend, stock split, reverse stock split or other similar transaction occurring during the period(s) used to compute
the Threshold Price or the Purchase Price.
The Equity Purchase
Agreement provides that we and Oasis Capital shall not affect any sales under the Equity Purchase Agreement on any purchase date
where the lowest traded price of the common stock on both such date and on the immediately preceding trading day is less than
$1.58 (the “Threshold Price”). We will control the timing and amount of sales of common stock to Oasis Capital; provided
that we shall not deliver any Option 1 Put, Option 2 Put or Option 3 Put that would result in Oasis Capital beneficially owning
a number of shares of common stock in excess of 9.99% of the shares of common stock then outstanding or a violation of the rules
of Nasdaq. Oasis Capital has no right to require any sales by us, but is obligated to make purchases from us as we direct in accordance
with the Equity Purchase Agreement. There are no limitations on use of proceeds, financial or business covenants, rights of first
refusal, or participation rights in the Equity Purchase Agreement. We may terminate the Equity Purchase Agreement at any time,
at our discretion, without any cost to us. Oasis Capital has agreed that neither it nor any of its agents, representatives and
affiliates shall engage in any direct or indirect short-selling or hedging of common stock during any time prior to the termination
of the Equity Purchase Agreement.
Assuming a Put
Date and Clearing Date of June 5, 2020, we would issue 52,992 common shares at a price per share of $1.81 for total gross proceeds
of $95,916 with respect to the Option 1 Put, 16,500 common shares at a price per share of $1.71 for total gross proceeds of $28,215
with respect to the Option 2 Put and 15,271 common shares at a price per share of $2.00 for total gross proceeds of $30,542 with
respect to the Option 3 Put. In calculating the per share price of the Option 1 Put, we used the closing price of our common shares
on Nasdaq from May 19 to June 4. The per share price for the Option 2 Put was calculated based on the closing price of our common
shares on Nasdaq between May 21 and June 4. The number of shares for the Option 3 Put was calculated using the average daily trading
volume of our common shares on Nasdaq from May 21 to June 4.
Subscription Agreements
On March 23, 2020,
we entered into subscription agreements with certain investors, including Torrington Financial Services Ltd. (the “Advisor”),
a related party, for the purchase and sale of 725 units (collectively, the “Units” and individually, a “Unit”)
for aggregate gross proceeds of up to $725,000 (the “Offering”), with each Unit consisting of (a) a 6% convertible
debenture in the principal amount of $1,000, which is convertible at $0.6495 per share into 1,540 of our common shares, and (b)
a warrant to purchase 1,540 of our common shares exercisable at any time on or before the third year anniversary date at an exercise
price of $0.60 per share. The warrant includes a provision restricting the warrant holder from exercising it if the aggregate
number of common shares held by the warrant holder equals or exceeds 5.0% of our issued and outstanding shares of common stock,
calculated on a partially converted basis (i.e., assuming the conversion of all rights to receive our common shares held by the
warrant holder).
In connection with
the Offering and as compensation for the Advisor’s services, we issued to the Advisor convertible debentures equal to $58,000
and convertible into 89,320 common shares and a warrant to purchase 89,320 common shares and with other terms also substantially
the same as the investors. We received cash proceeds of $575,000 from the Offering, and a participant of the offering, a related
party, paid directly $150,000 to a financial consultant for a prepayment of future services to us. We intend to use the remaining
proceeds from the Offering for general corporate and working capital purposes.
Between April 7,
2020 and April 24, 2020, we converted $377,000 of convertible debentures and issued 580,580 common shares, of which 271,040 common
shares were issued to related parties.
Consulting Agreements
On April 24, 2020,
we entered into a consulting agreement (the “ROK Consulting Agreement”) with ROK Consulting Inc. (“ROK”)
to provide consulting services to us in the area of corporate finance, investor communications and financial and investor public
relations. As compensation for ROK’s services to be provided pursuant to the Consulting Agreement, in addition to cash compensation,
we have agreed to issue to ROK 375,000 shares of our common stock. 150,000 of such shares were due at signing of the Consulting
Agreement, while the remaining 225,000 shares are to be issued upon the completion of the three month term of the Consulting Agreement.
On June 19, 2020, the Company issued 150,000 common shares of the Company with a fair value of $360,000 to ROK per the terms of
the ROK Consulting Agreement.
On June 1, 2020,
we entered into a consulting agreement (the “Groupe P Consulting Agreement”) with Groupe Parameus Corp. (“Groupe
P”) to provide consulting services to us for one year in the area of corporate finance, investor communications and financial
and investor public relations. As compensation for GROUPE P’s services to be provided pursuant to the Groupe P Consulting
Agreement, in addition to a prepayment of $150,000 in cash, we granted 100,000 restricted stock awards, 100,000 common shares
pursuant to the terms of Regulation D under the Securities Act, and a non-qualified stock option for the purchase of 50,000 common
shares at an exercise price of $2.52 per share with a vest period over six months. On June 16, 2020, we issued 200,000 common
shares to Groupe P with a fair value of $504,000.
In the second quarter
of 2020, we entered into various other consulting agreements for business advisory services. On June 16, 2020, we granted 130,000
of restricted stock awards and issued 130,000 common shares with a fair value of $327,000 in lieu of cash payment to certain business
advisors for future services to be performed. We granted to the same business advisors, in the aggregate, non-qualified stock
options for the purchase of 80,000 common shares with an exercise price of $2.52 per share for future services to be performed
for us.
Products and Service
Disk Systems
HVE Converged
and Hyper-converged Infrastructure
In 2017, we acquired
HVE, a technology provider of next generation converged and hyper-converged infrastructure dedicated to creating Manageable, Scalable,
Reproducible, and Predictable (“MSRP”) solutions based on virtualization technologies running on high-performance,
next generation platforms. HVE solutions are engineered, purpose-built converged and hyper-converged virtual workspace and server
solutions that support a distributed architecture, scalable with predictable performances, and come bundled with continuous active
monitoring. HVE product can include support for our Desktop Cloud Orchestrator™ (“DCO”) based on customer requirements.
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The HVE-STACK high density server provides the computer
and storage appliance for the data center and is ideal for high performance computing, cloud computing and virtual desktop infrastructure
(“VDI”). The modular design and swappable components include hard drives and power supplies intended to improve the
efficiency of data center deployment.
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The HVE-VELOCITY High Availability Dual Enclosure storage
area network (“SAN”) provides data reliability and integrity for optimal data storage, protection and recovery. It
also provides a unified network attached storage (“NAS”) and SAN solution with thin provisioning, compression and
deduplication. The HVE-VELOCITY platform is designed to eliminate single points of failure. The 12GSAS SSD design allows for faster
access to data. It is optimized for mission-critical, enterprise-level storage applications.
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●
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The HVE 3DGFX is a VDI solution that offers hardware and
software technologies to provide an appliance that can handle from eight to up to 128 high demand users in a single 2U appliance.
The HVE 3DGFX was designed and engineered as a purpose-built solution based upon the MSRP engineering approach.
|
G-Series Appliance
and G-Series Cloud
The G-Series appliance
powered by Glassware containerization technology is designed to simplify Windows application migration and to enable access from
any device including Macintosh, Windows, iOS, Chrome OS, and Android. The G-Series appliance is optimized for simplicity, flexibility
and scalability. Through Glassware, a Microsoft Windows® based container technology, organizations looking to migrate
applications to the cloud can quickly deploy a solution for virtualizing 16-bit, 32-bit, or 64-bit applications with their native
functionality intact. For the provisioning of a 16-bit application to the G-Series appliance, users will often require advanced
technical skills to set-up the application, or can contract professional services from the Company, or one of our certified system
integrators. End users can access the containerized applications from cloud-connected devices (iOS, Android or Windows), through
a lightweight downloadable app or simply from a browser. The G-Series appliance is designed to eliminate the complex tasks of
designing, implementing, and maintaining application hosting environments and provides improved application session density and
scale when compared to traditional hypervisor-based virtualization solutions.
G-Series Cloud is an
offering available through Microsoft Azure and was developed to provide a virtual appliance that can be deployed from the Azure
Marketplace to eliminate the task of designing, implementing, and maintaining localized application-hosting environments and their
related hardware. G-Series Cloud is pre-configured, can be deployed in minutes and provides for a billing model based on usage.
Glassware Open
Virtual Appliance and Open Virtual Format
Our most recent version
of Glassware is compatible with the Open Virtual Appliance (“OVA”) and Open Virtual Format (“OVF”) open
standards, supporting deployments of existing VMWare environments. Similar to the G-Series Cloud offering, OVA and OVF versions
were developed to provide access to a virtual appliance from within VMWare virtual machines. While Glassware is not open source
software, OVA and OVF open standards are supported for deployment. All Glassware products are delivered with a user interface
allowing quick application deployments and integration with existing work flows and technologies.
SnapServer®
Network Attached Storage Solutions
Our SnapServer®
solutions are a platform for primary or nearline storage, and deliver stability and integration with Windows®,
UNIX/Linux, and Macintosh environments. For virtual servers and database applications, the SnapServer® family supports
iSCSI block-level access with Microsoft VSS and VDS integration to simplify Windows management. For data protection, the SnapServer®
family offers RAID protection, and snapshots for point-in-time data recovery. The SnapServer XSR Series™
products support DynamicRAID® and traditional RAID levels 0, 1, 5, 6, and 10. The Snap family of products,
SnapCLOUD®, and SnapServer®, have integrated data mobility tools to enable customers to build
private clouds for sharing and synchronizing data for anytime, anywhere access.
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●
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The SnapServer® XSR40 is a 1U server that
can be configured with up to four SATA III and SSD drives, and can scale to 400 TB of storage capacity by adding up to three SnapExpansion
XSR™ enclosures.
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|
●
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The SnapServer® XSR120 is a 2U server that
can be configured with up to 12 SATA III, SAS and SSD drives, and can scale to 960 TB of storage capacity by adding up to seven
SnapExpansion XSR™ enclosures.
|
Our GuardianOS®
storage software is designed for the SnapServer® family of enterprise-grade NAS systems and delivers
simplified data management and consolidation throughout distributed information technology environments by combining cross-platform
file sharing with block-level data access on a single system. The flexibility and scalability of GuardianOS®
reduces the total cost of ownership of storage infrastructures for small and medium businesses to large Fortune 500 enterprises.
In addition to a unified storage architecture, GuardianOS® offers highly differentiated data integrity and
storage scalability through features such as DynamicRAID®, centralized storage management, and a comprehensive
suite of data protection tools.
Our Snap Enterprise
Data Replicator (“Snap EDR”) provides multi-directional WAN-optimized replication. Administrators can automatically
replicate data between SnapServer®, Windows, and Linux systems for data distribution, data consolidation, and disaster
recovery.
During 2017, we announced
the availability of our SnapServer® Hybrid and All Flash Array solutions, which is designed to allow information
technology departments to modernize their data center, as well as provide the small and medium businesses access to the reliability,
security, and performance of flash. In addition, we launched our SnapServer® solutions pre-configured and optimized
to work with IP video surveillance cameras and create a new standard for simplicity and integration between IP networked video
surveillance systems and data storage.
Service
Customer service and
support are key elements of our strategy and critical components of our commitment in making enterprise-class support and services
available to companies of all sizes. Our technical support staff is trained to assist our customers with deployment and compatibility
for any combination of virtual desktop infrastructures, hardware platforms, operating systems and backup, data interchange and
storage management software. Our application engineers are trained to assist with more complex customer issues. We maintain global
toll-free service and support phone lines. Additionally, we also provide self-service and support through our website support
portal and email.
Our service offerings
provide for on-site service and installation options, round-the-clock phone access to solution experts, and proof of concept and
architectural design offerings. We are able to provide comprehensive technical assistance on a global scale.
Discontinued Operations
The following product
lines were part of the Overland divestiture completed in November 2018 and are not included in the above Product and Service disclosures.
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●
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Disk Systems
- RDX® Removable Disk Solutions
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●
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Tape Automation
Systems - NEO® Tape-Based Backup and Long-Term Archive Solutions
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Production
A significant number
of our components and finished products are manufactured or assembled, in whole or in part, by a limited number of third parties.
For certain products, we control the design process internally and then outsource the manufacturing and assembly in order to achieve
lower production costs.
We purchase disk drives
and chassis from outside suppliers. We carefully select suppliers based on their ability to provide quality parts and components
which meet technical specifications and volume requirements. We actively monitor these suppliers but we are subject to substantial
risks associated with the performance of our suppliers. For certain components, we qualify only a single source, which magnifies
the risk of shortages and may decrease our ability to negotiate with that supplier.
Sales and Distribution
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●
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Distribution channel - We have distribution
partners in North America. We sell through a two-tier distribution model where distributors sell our products to system integrators,
value-added resellers (“VARs”) or direct market resellers (“DMRs”), who in turn sell to end users. We
support these distribution partners through our dedicated sales force and engineers. In 2019, two distribution partners accounted
for, in the aggregate, 24.5% of net revenue.
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Reseller channel - Our worldwide reseller
channel includes systems integrators, VARs and DMRs. Our resellers may package our products as part of complete application and
desktop virtualization solutions data processing systems or with other storage devices to deliver complete enterprise information
technology infrastructure solutions. Our resellers also recommend our products as replacement solutions when systems are upgraded,
or bundle our products with storage management software specific to the end user’s system. We support the reseller channel
through our dedicated sales representatives, engineers and technical support organizations.
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Cloud Marketplace - Since 2015, we have utilized
the Microsoft Azure Cloud Marketplace as an additional channel for our cloud solutions to sell to end-users directly with the
pay-per-use model, supported through the Microsoft Azure Cloud.
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Patents and Proprietary Rights
We rely on a combination
of patents, trademarks, trade secret and copyright laws, as well as contractual restrictions, to protect the proprietary aspects
of our products and services. Although every effort is made to protect Sphere 3D’s intellectual property, these legal protections
may only afford limited protection.
We may continue to
file for patents regarding various aspects of our products, services and delivery method at a later date depending on the costs
and timing associated with such filings. We may make investments to further strengthen our copyright protection going forward,
although no assurances can be given that it will be successful in such patent and trademark protection endeavors. We seek to limit
disclosure of our intellectual property by requiring employees, consultants, and partners with access to our proprietary information
to execute confidentiality agreements and non-competition agreements (when applicable) and by restricting access to our proprietary
information. Due to rapid technological change, we believe that establishing and maintaining an industry and technology advantage
in factors such as the expertise and technological and creative skills of our personnel, as well as new services and enhancements
to our existing services, are more important to our company’s business and profitability than other available legal protections.
Despite our efforts
to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our services or to obtain and use information
that we regard as proprietary. The laws of many countries do not protect proprietary rights to the same extent as the laws of
the U.S. or Canada. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade
secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement.
Any such litigation could result in substantial costs and diversion of resources and could have a material adverse effect on our
business, operating results and financial condition. There can be no assurance that our means of protecting our proprietary rights
will be adequate or that our competitors will not independently develop similar services or products. Any failure by us to adequately
protect our intellectual property could have a material adverse effect on our business, operating results and financial condition.
Competitive Conditions
We believe that our
products are unique and innovative and afford us various advantages in the market place; however, the market for information technology
is highly competitive. Competitors vary in size from small start-ups to large multi-national corporations which may have substantially
greater financial, research and development, and marketing resources. Competitive factors in these markets include performance,
functionality, scalability, availability, interoperability, connectivity, time to market enhancements, and total cost of ownership.
Barriers to entry vary from low, such as those in traditional disk-based backup products, to high, in virtualization software.
The markets for all of our products are characterized by price competition and as such we may face price pressure for our products.
Legal Proceedings
From time to time,
we are 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 our results of operations, financial position or cash flows.
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 Sphere 3D, and vicarious liability against us, in connection
with stock purchase agreements and other related agreements that would have been entered into between Mr. Lupis and Sphere
3D in 2012. In March 2019, we entered into a settlement agreement with Mr. Lupis pursuant to which we agreed to pay Mr. Lupis
certain consideration, which is included in general and administrative expense, in exchange for a dismissal of the action. Currently,
we have a judgment against us for the outstanding balance of the settlement.
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”), post-confirmation liquidating trust established by V3’s
plan of liquidation, 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 alleged, among other things, that we breached the APA and engaged in certain other actions
and/or omissions that caused V3 to be unable to timely sell our common shares received by V3 pursuant to the APA. The UD Trust
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.
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
Utah Bankruptcy Court granted our motion to transfer venue on August 30, 2016, and the case was formally transferred to the Delaware
District Court on October 11, 2016. On November 13, 2018, the Delaware District Court referred the case to the Delaware Bankruptcy
Court. The Delaware Bankruptcy Court never set a hearing or decided our motion to dismiss.
In March 2018, UD Trust
filed a complaint in U.S. District Court for the Northern District of California (“California Complaint”) asserting
that two transactions involving us constitute fraudulent transfers under federal and state law. First, UD Trust alleges that the
consolidation of our and our subsidiaries’ indebtedness to the Cyrus Group into a debenture between FBC Holdings and us
in December 2014 constitutes a fraudulent transfer. Second, UD Trust alleges that the Share Purchase Agreement constitutes a fraudulent
transfer, and seeks to require that the proceeds of the transaction be placed in escrow until the V3 litigation is resolved. The
California Complaint also asserts a claim against our former CEO for breach of fiduciary duty, and a claim against the Cyrus Group
for aiding and abetting breach of fiduciary duty. On July 25, 2018, we filed a motion seeking to dismiss all of the claims asserted
against the us and our former CEO. On the same day, the Cyrus Group filed a motion seeking to dismiss all claims asserted against
the Cyrus Group. The UD Trust voluntarily dismissed this case without prejudice on February 5, 2020.
On October 22, 2019,
UD Trust filed an amended complaint in the Delaware Bankruptcy Court. The amended complaint includes all of the claims and parties
in the original complaint first filed in October 2015 in the Utah Bankruptcy Court as well as the claims and additional parties
in the California Complaint. We continue to believe this lawsuit to be without merit and intend to vigorously defend against the
action. On February 10, 2020, we filed a renewed motion seeking to dismiss the majority of the claims asserted by the UD Trust
in the amended complaint. On that same day, we also filed a counterclaim against the UD Trust in which we allege that V3 breached
numerous provisions of the APA. Our current and former officers and directors that were named as defendants in the amended complaint
as well as the Cyrus Group all filed motions seeking to dismiss all claims that the UD Trust alleged against them.
Available Information:
Sphere 3D is located
at 895 Don Mills Road, Building 2, Suite 900, Toronto, Ontario, Canada, M3C 1W3. Our telephone number is +1 (408) 283-4754 and
our Internet website address is www.sphere3d.com. The information contained on, or that can be accessed through, our website
is not incorporated by reference into this prospectus. We have included our web address as an inactive textual reference
only.
PRINCIPAL STOCKHOLDERS
Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters.
The following table
sets forth certain information with respect to the beneficial ownership of our common shares as of June 19, 2020 by each shareholder
known to us to beneficially own more than 5% of our common shares, each director, each executive officer, and all directors and
executive officers of Sphere 3D as a group:
Beneficial
Owner(1)
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Number
of Shares Beneficially Owned(2)
|
|
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Percent(3)
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|
|
|
|
|
|
|
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Peter Tassiopoulos
|
|
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1,000
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(4)
|
|
|
*
|
|
Kurt L. Kalbfleisch
|
|
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18,885
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(4)
|
|
|
*
|
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Joseph L. O’Daniel
|
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10,625
|
|
|
|
*
|
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Cheemin Bo-Linn
|
|
|
4,544
|
|
|
|
*
|
|
Duncan J. McEwan
|
|
|
3,596
|
|
|
|
*
|
|
Vivekanand Mahadevan
|
|
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3,185
|
|
|
|
*
|
|
Current directors and executive officers as a group (6 persons)
|
|
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41,835
|
(5)
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|
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*
|
|
Tyrell Global Acquisitions Inc.
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|
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462,000
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(6)
|
|
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7.84
|
%
|
Rutherglen Value Enhancement Inc.
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462,000
|
(7)
|
|
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7.84
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%
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1542082 Ontario Limited
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582,000
|
(8)
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|
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9.88
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%
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Gora Consulting Corp.
|
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1,058,745
|
(9)
|
|
|
17.22
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%
|
Southvale Global Acquisitions Inc.
|
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847,000
|
(10)
|
|
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13.77
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%
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ROK Consulting Inc.
|
|
|
375,000
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(11)
|
|
|
6.78
|
%
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Lallande Poydras Investment Partnership
|
|
|
462,000
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(12)
|
|
|
7.84
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%
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Torrington Financial Services Limited
|
|
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332,640
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(13)
|
|
|
5.75
|
%
|
|
(1)
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Except as otherwise indicated, the persons named in this
table have sole voting and investment power with respect to all common shares shown as beneficially owned by them. Unless otherwise
noted, the address for each beneficial owner is: c/o Sphere 3D Corp., 895 Don Mills Road, Bldg.2, Suite 900, Toronto, Ontario,
Canada M3C 1W3.
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|
(2)
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Under the rules of the Securities and Exchange Commission,
a person is deemed to be the beneficial owner of shares that can be acquired by such person within 60 days upon the exercise of
options or warrants and vesting of stock awards.
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|
(3)
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Calculated on
the basis of 5,527,405 shares of common stock outstanding as of June 19,
2020, provided that any additional shares of common stock that a stockholder has the
right to acquire within 60 days after June 19, 2020 are deemed to be outstanding
for the purpose of calculating that stockholder’s percentage beneficial ownership.
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|
(4)
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These
shares include the right to acquire shares upon exercise of 500 stock options.
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|
(5)
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These shares
include the right to acquire shares upon exercise of 1,000 stock options beneficially
owned by our executive officers.
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(6)
|
These shares
include the right to acquire 133,980 common shares upon conversion of debentures, 97,020 common shares acquired on April 7,
2020 following the conversion of debentures and the right to acquire 231,000 shares upon the exercise of a warrant. The warrant
held by the stockholder prohibits conversion to the extent that such conversion would cause the stockholder to hold more than
4.99% of our outstanding common shares. The address for the reporting person is 235 Victoria Avenue North, Lindsay, ON K9V
6C9. Gordon McWilliams is sole owner and Director of Tyrell Global Acquisitions Inc. and has voting and investment power over
these securities.
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(7)
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These shares
include the right to acquire 133,980 common shares upon conversion of debentures, 97,020 common shares acquired on April 7,
2020 following the conversion of debentures and the right to acquire 231,000 shares upon the exercise of a warrant. The warrant
held by the stockholder prohibits conversion to the extent that such conversion would cause the stockholder to hold more than
4.99% of our outstanding common shares. The address for the reporting person is 5863 Lesllie Street, Suite 216, Toronto, ON
M2H 1J8. Victoria Glynn is the sole owner and Director of Rutherglen Value Enhancement Inc. and has voting and investment
power over these securities.
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|
|
(8)
|
These shares
include the right to acquire 133,980 common shares upon conversion of debentures, 97,020 common shares acquired on April 7,
2020 following the conversion of debentures and the right to acquire 231,000 shares upon the exercise of a warrant. The warrant
held by the stockholder prohibits conversion to the extent that such conversion would cause the stockholder to hold more than
4.99% of our outstanding common shares. The address for the reporting person is 103 Gloucester Avenue, Oakville, ON L6J 3W3.
Kathryn Fell is the sole owner and Director of 1542082 Ontario Limited and has voting and investment power over these securities.
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|
|
(9)
|
These shares
include (i) the right to acquire 847,000 common shares upon conversion of Series D Preferred Shares and (ii) 211,745 common shares
held by Mr. Strang. The Series D Preferred Shares prohibit conversion to the extent that such conversion would cause the stockholder
to hold more than 4.99%, or 9.99% upon notice by the stockholder to us, of our outstanding common shares. The terms of the Series
D Preferred Shares also limit the conversion thereof into an aggregate of 800,000 common shares by all holders of Series D Preferred
Shares. As of June 19, 2020, the holders of Series D Preferred Shares have converted their Series D Preferred Shares into an aggregate
of 450,000 common shares. The address for the reporting person is 28 Cedarbank Crescent, Don Mills, Ontario M3B 3A4. Peter Strang
is the sole owner and Director of Gora Consulting Corp. and has voting and investment power over the securities held by Gora Consulting
Corp.
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|
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(10)
|
These shares
include the right to acquire 847,000 common shares upon conversion of Series D Preferred Shares. The Series D Preferred Shares
prohibit conversion to the extent that such conversion would cause the stockholder to hold more than 4.99%, or 9.99% upon notice
by the stockholder to us, of our outstanding common shares. The terms of the Series D Preferred Shares also limit the conversion
thereof into an aggregate of 800,000 common shares by all holders of Series D Preferred Shares. As of June 19, 2020, the holders
of Series D Preferred Shares have converted their Series D Preferred Shares into an aggregate of 450,000 common shares. The address
for the reporting person is 140 Marita Place, Concord, Ontario L4K 3J9. Sergio De Francesca is the sole owner and Director of
Southvale Global Acquisitions Inc. and has voting and investment power over these securities.
|
|
|
(11)
|
These shares
represent the common stock issuable pursuant to the Consulting Agreement between the Company and the reporting person. The
address for the reporting person is 6111 Peachtree-Dunwoody Road Building G, Suite 200 Atlanta, GA 30328. Justin Ouimet is
the sole owner and Director of ROK Consulting Inc. and has voting and investment power over these securities.
|
|
(12)
|
These
shares include the right to acquire 133,980 common shares upon conversion of debentures, 97,020 common shares acquired on April
7, 2020 following the conversion of debentures and the right to acquire 231,000 shares upon the exercise of a warrant. The warrant
held by the stockholder prohibits conversion to the extent that such conversion would cause the stockholder to hold more than
4.99% of our outstanding common shares. The address for the reporting person is 2 Toronto Street, Suite 231, Toronto, ON M5C 2B5. Brian
McWilliams is Managing Partner of Lallande Poydras Investment Partnership and has voting and investment power over these securities.
|
|
(13)
|
These
shares include the right to acquire 89,320 common shares upon conversion of debentures, 77,000 common shares acquired on April
7, 2020 following the conversion of debentures and the right to acquire 166,320 shares upon the exercise of two warrants. The
warrant held by the stockholder prohibits conversion to the extent that such conversion would cause the stockholder to hold more
than 4.99% of our outstanding common shares. The address for the reporting person is 105 Harrison Garden Boulevard, Suite GV105,
Toronto, ON M2N 0C3. Brian McWilliams is Chief Executive Officer and a Director of Torrington Financial Services Limited
and has voting and investment power over these securities.
|
DESCRIPTION OF SECURITIES
Our authorized
capital stock consists of unlimited shares of common stock, no par value, unlimited shares of Series B preferred stock, no par
value, unlimited shares of Series C preferred stock, no par value, and unlimited shares of Series D preferred stock, no par value.
As of June 19, 2020, 5,527,405 shares of common stock were issued and outstanding, 6,843,778 shares of Series B preferred stock
were issued and outstanding, 1,600,000 shares of Series C preferred stock were issued and outstanding and 1,244,000 shares of
Series D preferred stock were issued and outstanding. In addition, at such date, 3,101,182 shares of common stock were reserved
for issuance upon the exercise of outstanding common stock purchase warrants.
Common Stock
Voting, Dividend and
Other Rights. Each outstanding share of common stock entitles the holder to one vote on all matters presented to the shareholders
for a vote. Holders of shares of common stock have no cumulative voting, preemptive, subscription or conversion rights. All shares
of common stock to be issued pursuant to this registration statement will be duly authorized, fully paid and non-assessable. Our
Board of Directors determines if and when distributions may be paid out of legally available funds to the holders. To date, we
have not declared any dividends with respect to our common stock. Our declaration of any cash dividends in the future will depend
on our Board of Directors’ determination as to whether, in light of our earnings, financial position, cash requirements and
other relevant factors existing at the time, it appears advisable to do so. We do not anticipate paying cash dividends on the common
stock in the foreseeable future.
Rights Upon Liquidation.
Upon liquidation, subject to the right of any holders of preferred stock to receive preferential distributions, each outstanding
share of common stock may participate pro rata in the assets remaining after payment of, or adequate provision for, all our known
debts and liabilities.
Majority Voting.
Two holders representing not less than twenty five percent (25%) of the outstanding shares of common stock constitute a quorum
at any meeting of the shareholders. A plurality of the votes cast at a meeting of shareholders elects our directors. The common
stock does not have cumulative voting rights. Therefore, the holders of a majority of the outstanding shares of common stock can
elect all of our directors. In general, a majority of the votes cast at a meeting of shareholders must authorize shareholder actions
other than the election of directors.
Preferred Stock
Authority of Board
of Directors to Create Series and Fix Rights. Under our certificate of amalgamation, as amended, our Board of Directors can
issue an unlimited amount of preferred stock from time to time in one or more series. The Board of Directors is authorized to fix
by resolution as to any series the designation and number of shares of the series, the voting rights, the dividend rights, the
redemption price, the amount payable upon liquidation or dissolution, the conversion rights, and any other designations, preferences
or special rights or restrictions as may be permitted by law. Unless the nature of a particular transaction and the rules of law
applicable thereto require such approval, our Board of Directors has the authority to issue these shares of preferred stock without
shareholder approval.
Series D Preferred Stock
On May 6, 2020, we filed
articles of amendment to our certificate of amalgamation to create a series of preferred shares, being an unlimited number of shares
of Series D Preferred Stock.
The Series D Preferred
Stock is convertible, at any time from time to time, at the option of the holder thereof, into that number of shares of our common
stock determined by dividing the Stated Value of such share of Series D Preferred Stock (which is $0.65) by the conversion price.
The initial conversion price, which is also $0.65, shall be adjusted in the event that we (i) pay a stock dividend or otherwise
make a distribution or distributions payable in shares of our common stock, (ii) subdivide outstanding shares of our common stock
into a larger number of shares, (iii) combine (including by way of a reverse stock split) outstanding shares of our common stock
into a small number of shares, or (iv) issue, in the event of a reclassification of shares of our common stock, any shares of capital
stock of Sphere 3D.
The holders of Series
D Preferred Stock shall be entitled to receive, when, as and if declared by our Board of Directors, dividends as and when paid
to holders of our common stock.
The holders of Series
D Preferred Stock shall have no voting rights.
In the event of
any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of Series D Preferred
Stock shall be entitled to receive out of the assets of the Company the same amount that a holder of our common stock is entitled
to receive if the shares of Series D Preferred Stock were fully converted into shares of our common stock. Any such amounts are
to be paid pari passu with holders of our common stock.
Warrants
At June 19, 2020,
the following warrants were outstanding:
|
●
|
Warrants to purchase 1,694,000 shares of common stock at any time between October 30, 2020 and October 30, 2025 at an initial exercise price of $0.92 per share. Pursuant to the terms of such warrants, the exercise price of such warrants is subject to adjustment in the event of stock splits, combinations or the like of our common stock.
|
|
●
|
Warrants to purchase 111,563 shares of common stock until April 17, 2023 at an initial exercise price of $5.60 per share. Pursuant to the terms of such warrants, the exercise price of such warrants is subject to adjustment in the event of stock splits, combinations or the like of our common stock.
|
|
●
|
Warrants to purchase 1,205,820 shares of common stock until March 23, 2023 at an initial exercise price of $0.60 per share. Pursuant to the terms of such warrants, the exercise price of such warrants is subject to adjustment in the event of stock splits, combinations or the like of our common stock.
|
|
●
|
Warrants to purchase 25,625 shares of common stock until August 22, 2022 at an initial exercise price of $42.00 per share. Pursuant to the terms of such warrants, the exercise price of such warrants is subject to adjustment in the event of stock splits, combinations or the like of our common stock.
|
|
●
|
Warrants to purchase 11,876 shares of common stock until August 16, 2022 at an initial exercise price of $42.00 per share. Pursuant to the terms of such warrants, the exercise price of such warrants is subject to adjustment in the event of stock splits, combinations or the like of our common stock.
|
|
●
|
Warrants to purchase 37,500 shares of common stock until August 11, 2022 at an initial exercise price of $42.00 per share. Pursuant to the terms of such warrants, the exercise price of such warrants is subject to adjustment in the event of stock splits, combinations or the like of our common stock.
|
|
●
|
Warrants to purchase 150 shares of common stock until March 4, 2021 at an initial exercise price of $500.00 per share. Pursuant to the terms of such warrants, the exercise price of such warrants is subject to adjustment in the event of stock splits, combinations or the like of our common stock.
|
|
●
|
Warrants to purchase 188 shares of common stock until December 18, 2020 at an initial exercise price of 500.00 per share. Pursuant to the terms of such warrants, the exercise price of such warrants is subject to adjustment in the event of stock splits, combinations or the like of our common stock.
|
|
●
|
Warrants to purchase 4,950 shares of common stock until December 15, 2020 at an initial exercise price of $500.00 per share. Pursuant to the terms of such warrants, the exercise price of such warrants is subject to adjustment in the event of stock splits, combinations or the like of our common stock.
|
|
●
|
Warrants to purchase 7,500 shares of common stock until December 4, 2020 at an initial exercise price of $216.00 per share. Pursuant to the terms of such warrants, the exercise price of such warrants is subject to adjustment in the event of stock splits, combinations or the like of our common stock.
|
|
●
|
Warrants to purchase 2,010 shares of common stock until October 14, 2020 at an initial exercise price of $466.00 per share. Pursuant to the terms of such warrants, the exercise price of such warrants is subject to adjustment in the event of stock splits, combinations or the like of our common stock.
|
Transfer Agent and Registrar
The registrar and transfer
agent for our common stock is TSX Trust Company, located at 301 – 100 Adelaide Street West, Toronto, Ontario M5H 4H1.
SELLING sTOCKholders
The following table
sets forth information with respect to the maximum number of shares of common stock beneficially owned by the selling stockholders
named below and as adjusted to give effect to the sale of the shares offered hereby. The shares beneficially owned have been determined
in accordance with rules promulgated by the Securities and Exchange Commission, and the information is not necessarily indicative
of beneficial ownership for any other purpose. The information in the table below is current as of June 19, 2020. All information
contained in the table below is based upon information provided to us by the selling stockholders and we have not independently
verified this information. The selling stockholders are not making any representation that any shares covered by the prospectus
will be offered for sale. The selling stockholders may from time to time offer and sell pursuant to this prospectus any or all
of the common stock being registered.
|
|
Shares
of
Common
Stock
Beneficially
Owned
Prior
to
Offering(1)
|
|
|
Shares
Being
Offered
|
|
|
Shares
of
Common
Stock
Beneficially
Owned
After
Offering(2)
|
|
|
Percentage
of Common
Stock
Beneficially
Owned After
Offering(3)
|
|
Oasis Capital, LLC (4)
|
|
|
0
|
|
|
|
6,962,026
|
(5)
|
|
|
0
|
|
|
|
0
|
%
|
Lallande Poydras Investment Partnership
|
|
|
462,000
|
|
|
|
462,000
|
(6)
|
|
|
0
|
|
|
|
0
|
%
|
Torrington Financial Services Limited
|
|
|
332,640
|
|
|
|
332,640
|
(7)
|
|
|
0
|
|
|
|
0
|
%
|
Tyrell Global Acquisitions Inc.
|
|
|
462,000
|
|
|
|
462,000
|
(8)
|
|
|
0
|
|
|
|
0
|
%
|
Paul Saunders
|
|
|
231,000
|
|
|
|
231,000
|
(9)
|
|
|
0
|
|
|
|
0
|
%
|
Rutherglen Value Enhancement Inc.
|
|
|
462,000
|
|
|
|
462,000
|
(10)
|
|
|
0
|
|
|
|
0
|
%
|
1542082 Ontario Limited
|
|
|
582,000
|
|
|
|
462,000
|
(11)
|
|
|
120,000
|
|
|
|
2.17
|
%
|
Gora Consulting Corp.
|
|
|
1,905,745
|
|
|
|
1,694,000
|
(12)
|
|
|
211,745
|
|
|
|
3.83
|
%
|
Southvale Global Acquisitions Inc.
|
|
|
1,694,000
|
|
|
|
1,694,000
|
(13)
|
|
|
0
|
|
|
|
0
|
%
|
ROK Consulting Inc.
|
|
|
375,000
|
|
|
|
375,000
|
(14)
|
|
|
0
|
|
|
|
0
|
%
|
(1)
|
The number of shares of common stock beneficially owned by each selling stockholder prior to the offering assumes the (w) Warrants held by such selling stockholder have become exercisable and have been exercised in full, (x) conversion in full of all Series D Preferred Stock held by such selling stockholder, (y) the conversion in full of any Convertible Debenture held by such selling stockholder and (z) the purchase in full of the shares of common stock purchasable by such selling stockholder pursuant to the Equity Purchase Agreement and the Consulting Agreement.
|
(2)
|
Because
the selling shareholders identified in this table may sell some, all or none of the shares owned by them that are registered
under this registration statement, and because, to our knowledge, there are currently no agreements, arrangements or understandings
with respect to the sale of any of the shares registered hereunder, no estimate can be given as to the number of shares available
for resale hereby that will be held by the selling shareholders at the time of this registration statement. Therefore, unless
otherwise noted, we have assumed for purposes of this table that the selling shareholders will sell all of the shares beneficially
owned by them as of June 19, 2020, other than (x) 120,000 common shares held by 1542082 Ontario Limited and (y) 211,745 common
shares held by Peter Strang, the sole owner and Director of Gora Consulting Group.
|
(3)
|
The
number and percentage of shares beneficially owned are based on an aggregate of 5,527,405 shares of our common stock outstanding
as of June 19, 2020, and are determined under rules promulgated by the Securities and Exchange Commission. This information
is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes
any shares as to which the individual has sole or shared voting power or investment power and also any shares which the individual
has the right to acquire within 60 days through the exercise of any stock option or other right.
|
(4)
|
Adam
Long is the Manager of Oasis Capital. Mr. Long has voting and investment power over these securities. The address for the
reporting person is 208 Ponce de Leon Ave Ste 1600, San Juan, Puerto Rico 00918. We may elect in our sole discretion
to sell to Oasis Capital up to 6,962,026 shares under the Equity Purchase Agreement, but Oasis Capital does not presently
beneficially own such shares as determined in accordance with the rules of the SEC.
|
(5)
|
Represents
the amount of common stock issuable pursuant to the Equity Purchase Agreement assuming each sale is at the Threshold Price.
The shares issuable under the Equity Purchase Agreement is subject to a 9.99% blocker. See the description under the heading
“Oasis Equity Line” for more information about the Equity Purchase Agreement.
|
(6)
|
These shares
include the right to acquire 133,980 common shares upon conversion of debentures, 97,020 common shares acquired on April 7,
2020 following the conversion of debentures and the right to acquire 231,000 shares upon the exercise of a warrant. The warrant
held by the stockholder prohibits conversion to the extent that such conversion would cause the stockholder to hold more than
4.99% of our outstanding common shares. The address for the reporting person is 2 Toronto Street, Suite 231, Toronto, ON M5C
2B5. Brian McWilliams is Managing Partner of Lallande Poydras Investment Partnership and has voting and investment
power over these securities.
|
|
|
(7)
|
These shares
include the right to acquire 89,320 common shares upon conversion of debentures, 77,000 common shares acquired on April 7,
2020 following the conversion of debentures and the right to acquire 166,320 shares upon the exercise of two warrants. The
warrant held by the stockholder prohibits conversion to the extent that such conversion would cause the stockholder to hold
more than 4.99% of our outstanding common shares. The address for the reporting person is 105 Harrison Garden Boulevard, Suite
GV105, Toronto, ON M2N 0C3. Brian McWilliams is Chief Executive Officer and a Director of Torrington Financial
Services Limited and has voting and investment power over these securities.
|
|
|
(8)
|
These shares
include the right to acquire 133,980 common shares upon conversion of debentures, 97,020 common shares acquired on April 7,
2020 following the conversion of debentures and the right to acquire 231,000 shares upon the exercise of a warrant. The warrant
held by the stockholder prohibits conversion to the extent that such conversion would cause the stockholder to hold more than
4.99% of our outstanding common shares. The address for the reporting person is 235 Victoria Avenue North, Lindsay, ON K9V
6C9. Gordon McWilliams is sole owner and Director of Tyrell Global Acquisitions Inc. and has voting and investment power over
these securities.
|
|
|
(9)
|
These shares include
115,500 common shares acquired on April 24, 2020 following the conversion of debentures and the right to acquire 115,500 shares
upon the exercise of a warrant. The address for the reporting person is 82 Owen Blvd., Toronto, ON M2P 1G3.
|
|
|
(10)
|
These shares
include the right to acquire 133,980 common shares upon conversion of debentures, 97,020 common shares acquired on April 7,
2020 following the conversion of debentures and the right to acquire 231,000 shares upon the exercise of a warrant. The warrant
held by the stockholder prohibits conversion to the extent that such conversion would cause the stockholder to hold more than
4.99% of our outstanding common shares. The address for the reporting person is 5863 Lesllie Street, Suite 216, Toronto, ON
M2H 1J8. Victoria Glynn is the sole owner and Director of Rutherglen Value Enhancement Inc. and has voting and investment
power over these securities.
|
|
|
(11)
|
These shares
include the right to acquire 133,980 common shares upon conversion of debentures, 97,020 common shares acquired on April 7,
2020 following the conversion of debentures and the right to acquire 231,000 shares upon the exercise of a warrant. The warrant
held by the stockholder prohibits conversion to the extent that such conversion would cause the stockholder to hold more than
4.99% of our outstanding common shares. The address for the reporting person is 103 Gloucester Avenue, Oakville, ON L6J 3W3.
Kathryn Fell is the sole owner and Director of 1542082 Ontario Limited and has voting and investment power over these securities.
|
|
|
(12)
|
These shares
include (i) the right to acquire 847,000 common shares upon conversion of Series D Preferred Shares and (ii) 211,745 common shares
held by Mr. Strang. The Series D Preferred Shares prohibit conversion to the extent that such conversion would cause the stockholder
to hold more than 4.99%, or 9.99% upon notice by the stockholder to us, of our outstanding common shares. The terms of the Series
D Preferred Shares also limit the conversion thereof into an aggregate of 800,000 common shares by all holders of Series D Preferred
Shares. As of June 19, 2020, the holders of Series D Preferred Shares have converted their Series D Preferred Shares into an aggregate
of 450,000 common shares. The address for the reporting person is 28 Cedarbank Crescent, Don Mills, Ontario M3B 3A4. Peter Strang
is the sole owner and Director of Gora Consulting Corp. and has voting and investment power over the securities held by Gora Consulting
Corp.
|
|
|
(13)
|
These shares
include the right to acquire 847,000 common shares upon conversion of Series D Preferred Shares. The Series D Preferred Shares
prohibit conversion to the extent that such conversion would cause the stockholder to hold more than 4.99%, or 9.99% upon notice
by the stockholder to us, of our outstanding common shares. The terms of the Series D Preferred Shares also limit the conversion
thereof into an aggregate of 800,000 common shares by all holders of Series D Preferred Shares. As of June 19, 2020, the holders
of Series D Preferred Shares have converted their Series D Preferred Shares into an aggregate of 450,000 common shares. The address
for the reporting person is 140 Marita Place, Concord, Ontario L4K 3J9. Sergio De Francesca is the sole owner and Director of
Southvale Global Acquisitions Inc. and has voting and investment power over these securities.
|
|
|
(14)
|
These shares
represent the common stock issuable pursuant to the Consulting Agreement between the Company and the reporting person. The
address for the reporting person is 6111 Peachtree-Dunwoody Road Building G, Suite 200 Atlanta, GA 30328. Justin Ouimet is
the sole owner and Director of ROK Consulting Inc. and has voting and investment power over these securities.
|
PLAN OF DISTRIBUTION
We are registering the
shares of common stock on behalf of the selling stockholders. The selling stockholders may sell some or all of their shares directly
or through one or more underwriters, broker-dealers or agents. If the shares of common stock are sold through underwriters or broker-dealers,
the selling stockholders will be responsible for underwriting discounts or commissions or agent’s commissions. The shares
of common stock may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at
varying prices determined at the time of the sale, or at negotiated prices. Sales by stockholders may be effected at various times
in one or more of the following transactions, or in other kinds of transactions:
|
●
|
transactions on any national securities exchange or U.S. inter-dealer system of a registered national securities association on which the common stock may be listed or quoted at the time of sale;
|
|
●
|
in the over-the-counter market;
|
|
●
|
in private transactions and transactions otherwise than on these exchanges or systems or in the over-the-counter market;
|
|
●
|
in connection with short sales of the shares entered into after the effective date of the registration statement of which this prospectus is a part;
|
|
●
|
by pledge to secure or in payment of debt and other obligations;
|
|
●
|
through the writing of options, whether the options are listed on an options exchange or otherwise;
|
|
●
|
in connection with the writing of non-traded and exchange-traded call options, in hedge transactions and in settlement of other transactions in standardized or over-the-counter options; or
|
|
●
|
through a combination of any of the above transactions.
|
Each selling stockholder
and its successors, including its transferees, pledgees or donees or their successors, may sell the common stock directly to the
purchaser or through underwriters, broker-dealers or agents, who may receive compensation in the form of discounts, concessions
or commissions from the selling stockholder or the purchaser. These discounts, concessions or commissions as to any particular
underwriter, broker-dealer or agent may be in excess of those customary in the types of transactions involved.
Any securities covered
by this prospectus that qualify for sale pursuant to Rule 144 of the Securities Act may be sold under Rule 144 rather than pursuant
to this prospectus.
The selling stockholders
may from time to time pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured parties may offer and sell shares of common stock
from time to time under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision
of the Securities Act of 1933 amending the list of selling stockholders to include the pledgees, transferees or other successors
in interest as selling stockholders under this prospectus.
In connection with
the sale of our common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions
they assume. The selling stockholders may also sell shares of our common stock short and deliver these securities to close out
their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation
of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares
offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus
(as supplemented or amended to reflect such transaction). However, Oasis Capital has agreed that neither it nor any of its agents,
representatives and affiliates shall engage in any direct or indirect short-selling or hedging of common stock during any time
prior to the termination of the Equity Purchase Agreement.
Upon being notified in
writing by a selling stockholder that any material arrangement has been entered into with a broker-dealer for the sale of common
stock through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer,
we will file a supplement to this prospectus, if required, pursuant to Rule 424(b) under the Securities Act, disclosing (i) the
name of each such selling stockholder and of the participating broker-dealer(s), (ii) the number of shares involved, (iii) the
price at which such the shares of common stock were sold, (iv) the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any investigation to verify the information
set out or incorporated by reference in this prospectus, and (vi) other facts material to the transaction. In addition, upon being
notified in writing by a selling stockholder that a donee or pledgee intends to sell more than 500 shares of common stock, we will
file a supplement to this prospectus if then required in accordance with applicable securities law.
The selling stockholders
also may transfer shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners under an amendment to this prospectus under Rule 424(b)(3) or other applicable
provisions of the Securities Act of 1933 amending the list of selling stockholders to include the transferees, pledges or other
successors in interest as selling stockholders under this prospectus. For the avoidance of doubt, the rights of Oasis Capital
pursuant to the Equity Line are not transferable.
The selling stockholders
and any broker-dealers or agents that are involved in selling the shares are statutory underwriters within the meaning of the
Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any
profit on the resale of the shares purchased by them would be underwriting commissions or discounts under the Securities Act.
Discounts, concessions, commissions and similar selling expenses, if any, that can be attributed to the sale of common stock will
be paid by the selling stockholders and/or the purchasers. Each selling stockholder has represented and warranted to us that such
selling stockholder acquired the securities subject to this prospectus in the ordinary course of such selling stockholder’s
business and, at the time of its purchase of such securities, such selling stockholder had no agreements or understandings, directly
or indirectly, with any person to distribute any such securities.
With respect to
any shares of common stock issued pursuant to the Equity Line that are resold hereunder, Oasis Capital and any broker-dealers
that are involved in selling such shares are statutory underwriters within the meaning of the Securities Act in connection with
such sales. Any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by
them are underwriting commissions or discounts under the Securities Act, and such broker-dealers or agents will be subject to
the prospectus delivery requirements of the Securities Act.
We have advised each selling
stockholder that it may not use shares to be sold under this prospectus to cover short sales of common stock made prior to the
date on which the registration statement of which this prospectus forms a part shall have been declared effective by the Commission.
If a selling stockholder uses this prospectus for any sale of common stock, it will be subject to the prospectus delivery requirements
of the Securities Act. The selling stockholders will be responsible to comply with the applicable provisions of the Securities
Act and the Exchange Act, and the rules and regulations thereunder promulgated, including, without limitation, Regulation M, as
applicable to such selling stockholders in connection with resales of their respective shares under this prospectus.
CERTAIN U.S. FEDERAL
INCOME TAX CONSIDERATIONS
The
following discussion describes the material U.S. federal income tax consequences relating to the ownership and disposition
of common shares by U.S. Holders. This discussion applies to U.S. Holders that hold such common shares as capital assets.
This discussion is based on the U.S. Internal Revenue Code of 1986, as amended (the “Code”), U.S. Treasury regulations
promulgated thereunder and administrative and judicial interpretations thereof, all as in effect on the date hereof and all of
which are subject to change, possibly with retroactive effect. This discussion does not address all of the U.S. federal income
tax consequences that may be relevant to specific U.S. Holders in light of their particular circumstances or to U.S. Holders
subject to special treatment under U.S. federal income tax law (such as certain financial institutions, insurance companies,
broker-dealers and traders in securities or other persons that generally mark their securities to market for U.S. federal
income tax purposes, tax-exempt entities, retirement plans, regulated investment companies, real estate investment trusts, certain
former citizens or residents of the United States, holders who are subject to Section 451(b) of the Code, persons who
hold common shares as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security”
or integrated investment, persons that have a “functional currency” other than the U.S. dollar, persons that own
directly, indirectly or through attribution 10% or more of the voting power or value of our shares, corporations that accumulate
earnings to avoid U.S. federal income tax, partnerships and other pass-through entities (or arrangements treated as a
partnership for U.S. federal income tax purposes), and investors in such pass-through entities). This discussion does not
address any U.S. state or local or non-U.S. tax consequences or any U.S. federal estate, gift or alternative minimum
tax consequences.
As
used in this discussion, the term “U.S. Holder” means a beneficial owner of common shares that is, for U.S. federal
income tax purposes, (1) an individual who is a citizen or resident of the United States, (2) a corporation (or entity
treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States,
any state thereof, or the District of Columbia, (3) an estate, the income of which is subject to U.S. federal income
tax regardless of its source or (4) a trust (x) with respect to which a court within the United States is able to
exercise primary supervision over its administration and one or more United States persons have the authority to control all
of its substantial decisions or (y) that has elected under applicable U.S. Treasury regulations to be treated as a domestic
trust for U.S. federal income tax purposes.
If
an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds common shares, the U.S. federal
income tax consequences relating to an investment in the common shares will depend in part upon the status and activities of such
entity or arrangement and the particular partner. Any such entity or arrangement should consult its own tax advisor regarding the
U.S. federal income tax consequences applicable to it and its partners of the purchase, ownership and disposition of common shares.
Persons
considering an investment in common shares should consult their own tax advisors as to the particular tax consequences applicable
to them relating to the purchase, ownership and disposition of common shares, including the applicability of U.S. federal,
state and local tax laws and non-U.S. tax laws.
Passive Foreign
Investment Company Consequences
In
general, a corporation organized outside the United States will be treated as a PFIC for any taxable year in which either
(1) at least 75% of its gross income is “passive income” (the “PFIC income test”) or (2) on
average at least 50% of its assets, determined on a quarterly basis, are assets that produce passive income or are held for the
production of passive income (the “PFIC asset test”). Passive income for this purpose generally includes, among
other things, dividends, interest, royalties, rents, and gains from the sale or exchange of property that gives rise to passive
income. Assets that produce or are held for the production of passive income generally include cash, even if held as working capital
or raised in a public offering, marketable securities, and other assets that may produce passive income. Generally, in determining
whether a non-U.S. corporation is a PFIC, a proportionate share of the income and assets of each corporation in which it owns,
directly or indirectly, at least a 25% interest (by value) is taken into account.
We
do not believe we were a PFIC for the year ending December 31, 2019. While we also do not believe we will be a PFIC for the
current taxable year, because PFIC status is determined on an annual basis and generally cannot be determined until the end of
the taxable year, there can be no assurance that we will not be a PFIC for the current taxable year. Because we may hold a substantial
amount of cash and cash equivalents, and because the calculation of the value of our assets may be based in part on the value of
common shares, which may fluctuate considerably, we may be a PFIC in future taxable years under the PFIC asset test. Even if we
determine that we are not a PFIC for a taxable year, there can be no assurance that the U.S. Internal Revenue Service (the “IRS”)
will agree with our conclusion and that the IRS would not successfully challenge our position. Our status as a PFIC is a fact-intensive
determination made on an annual basis. Accordingly, our legal counsel expresses no opinion with respect to our PFIC status and
also expresses no opinion with regard to our expectations regarding our PFIC status.
If
we are a PFIC in any taxable year during which a U.S. Holder owns common shares, the U.S. Holder could be liable for
additional taxes and interest charges under the “PFIC excess distribution regime” upon (1) a distribution paid during
a taxable year that is greater than 125% of the average annual distributions paid in the three preceding taxable years, or, if
shorter, the U.S. Holder’s holding period for the common shares, and (2) any gain recognized on a sale, exchange or other
disposition, including a pledge, of the common shares, whether or not we continue to be a PFIC. Under the PFIC excess distribution
regime, the tax on such distribution or gain would be determined by allocating the distribution or gain ratably over the U.S. Holder’s
holding period for common shares. In the case of common shares obtained through the exercise of warrants, the holding period will
include the holding period of the underlying warrants. The amount allocated to the current taxable year (i.e., the year in
which the distribution occurs or the gain is recognized) and any year prior to the first taxable year in which we are a PFIC will
be taxed as ordinary income earned in the current taxable year. The amount allocated to other taxable years will be taxed at the
highest marginal rates in effect for individuals or corporations, as applicable, to ordinary income for each such taxable year,
and an interest charge, generally applicable to underpayments of tax, will be added to the tax.
If
we are a PFIC for any year during which a U.S. Holder holds common shares, we must generally continue to be treated as a PFIC
by that holder for all succeeding years during which the U.S. Holder holds the common shares, unless we cease to meet the
requirements for PFIC status and the U.S. Holder makes a “deemed sale” election with respect to the common shares
(no such election is available to warrants). If the election is made, the U.S. Holder will be deemed to sell the common
shares it holds at their fair market value on the last day of the last taxable year in which we qualified as a PFIC, and any gain
recognized from such deemed sale would be taxed under the PFIC excess distribution regime. After the deemed sale election, the
U.S. Holder’s common shares would not be treated as shares of a PFIC unless we subsequently become a PFIC.
If
we are a PFIC for any taxable year during which a U.S. Holder holds common shares and one of our non-U.S. corporate subsidiaries
is also a PFIC (i.e., a lower-tier PFIC), such U.S. Holder would be treated as owning a proportionate amount (by value)
of the shares of the lower-tier PFIC and would be taxed under the PFIC excess distribution regime on distributions by the lower-tier
PFIC and on gain from the disposition of shares of the lower-tier PFIC even though such U.S. Holder would not receive the
proceeds of those distributions or dispositions. Each U.S. Holder is advised to consult its tax advisors regarding the application
of the PFIC rules to our non-U.S. subsidiaries.
If
we are a PFIC, a U.S. Holder will not be subject to tax under the PFIC excess distribution regime on distributions or gain
recognized on common shares if such U.S. Holder makes a valid “mark-to-market” election for our common shares (but not
for our warrants). A mark-to-market election is available to a U.S. Holder only for “marketable stock.” Our common
shares will be marketable stock as long as they remain listed on Nasdaq and are regularly traded, other than in de minimis quantities,
on at least 15 days during each calendar quarter. If a mark-to-market election is in effect, a U.S. Holder generally
would take into account, as ordinary income each year, the excess of the fair market value of common shares held at the end of
such taxable year over the adjusted tax basis of such common shares. The U.S. Holder would also take into account, as an ordinary
loss each year, the excess of the adjusted tax basis of such common shares over their fair market value at the end of the taxable
year, but only to the extent of the excess of amounts previously included in income over ordinary losses deducted as a result of
the mark-to-market election. The U.S. Holder’s tax basis in common shares would be adjusted to reflect any income or loss
recognized as a result of the mark-to-market election. Any gain from a sale, exchange or other disposition of common shares in
any taxable year in which we are a PFIC would be treated as ordinary income and any loss from such sale, exchange or other disposition
would be treated first as ordinary loss (to the extent of any net mark-to-market gains previously included in income) and
thereafter as capital loss.
A
mark-to-market election will not apply to common shares for any taxable year during which we are not a PFIC, but will remain in
effect with respect to any subsequent taxable year in which we become a PFIC. Such election, however, will not apply to any non-U.S. subsidiaries
that we currently own, may organize or acquire in the future. Accordingly, a U.S. Holder may continue to be subject to tax
under the PFIC excess distribution regime with respect to any lower-tier PFICs that we currently own, may organize or acquire in
the future notwithstanding the U.S. Holder’s mark-to-market election for the common shares.
However,
a mark-to-market election generally cannot be made for equity interests in any lower-tier PFICs that we own, unless shares of such
lower-tier PFIC are themselves “marketable.” As a result, even if a U.S. Holder validly makes a mark-to-market election
with respect to our common shares, the U.S. Holder may continue to be subject to the PFIC rules with respect to its indirect
interest in any of our investments that are treated as an equity interest in a PFIC for U.S. federal income tax purposes.
U.S. Holders should consult their tax advisors as to the availability and desirability of a mark-to-market election, as well
as the impact of such election on interests in any lower-tier PFICs.
The
tax consequences that would apply if we are a PFIC would also be different from those described above if a U.S. Holder were
able to make a valid qualified electing fund (“QEF”) election (no such election is available to warrants). At this
time we do not expect to provide U.S. Holders with the information necessary for a U.S. Holder to make a QEF election,
prospective investors should assume that a QEF election will not be available.
Each
U.S. person that is an investor of a PFIC is generally required to file an annual information return on IRS Form 8621
containing such information as the U.S. Treasury Department may require. The failure to file IRS Form 8621 could result
in the imposition of penalties and the extension of the statute of limitations with respect to U.S. federal income tax.
The
U.S. federal income tax rules relating to PFICs are very complex. Prospective U.S. investors are strongly urged to consult
their own tax advisors with respect to the impact of PFIC status on the purchase, ownership and disposition of common shares, the
consequences to them of an investment in a PFIC, any elections available with respect to the common shares and the IRS information
reporting obligations with respect to the purchase, ownership and disposition of common shares of a PFIC.
Taxation of
Distributions
Subject
to the discussion above under “Passive Foreign Investment Company Consequences,” a U.S. Holder that receives a distribution
with respect to common shares generally will be required to include the gross amount of such distribution in gross income as a
dividend when actually or constructively received to the extent of the U.S. Holder’s pro rata share of our current and/or
accumulated earnings and profits (as determined under U.S. federal income tax principles). To the extent a distribution
received by a U.S. Holder is not a dividend because it exceeds the U.S. Holder’s pro rata share of our current and
accumulated earnings and profits, it will be treated first as a tax-free return of capital and reduce (but not below zero)
the adjusted tax basis of the U.S. Holder’s common shares. To the extent the distribution exceeds the adjusted tax basis of
the U.S. Holder’s common shares, the remainder will be taxed as capital gain. Because we may not account for our earnings
and profits in accordance with U.S. federal income tax principles, U.S. Holders should expect all distributions to be
reported to them as dividends. Distributions on common shares that are treated as dividends generally will constitute income from
sources outside the United States for foreign tax credit purposes and generally will constitute passive category income. Such
dividends will not be eligible for the “dividends received” deduction generally allowed to corporate shareholders with
respect to dividends received from U.S. corporations.
The
amount of any dividend income paid in foreign currency will be the U.S. dollar amount calculated by reference to the exchange
rate in effect on the date of actual or constructive receipt, regardless of whether the payment is in fact converted into U.S. dollars.
If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder should not be required to recognize
foreign currency gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or loss if the
dividend is converted into U.S. dollars after the date of receipt. Such gain or loss would generally be treated as U.S. source
ordinary income or loss. The amount of any distribution of property other than cash (and other than certain pro rata
distributions of common shares or rights to acquire common shares) will be the fair market value of such property on the date of
distribution.
Dividends
paid by a “qualified foreign corporation” are eligible for taxation at a reduced capital gains rate rather than the marginal
tax rates generally applicable to ordinary income provided that certain requirements are met. However, if we are a PFIC for the
taxable year in which the dividend is paid or the preceding taxable year (see discussion above under “Passive Foreign
Investment Company Consequences”), we will not be treated as a qualified foreign corporation, and therefore the reduced capital
gains tax rate described above will not apply. Each U.S. Holder is advised to consult its tax advisors regarding the availability
of the reduced tax rate on dividends with regard to its particular circumstances.
A
non-United States corporation (other than a corporation that is classified as a PFIC for the taxable year in which the dividend
is paid or the preceding taxable year) generally will be considered to be a qualified foreign corporation (a) if it is eligible
for the benefits of a comprehensive tax treaty with the United States which the Secretary of Treasury of the United States
determines is satisfactory for purposes of this provision and which includes an exchange of information provision, or (b) with
respect to any dividend it pays on common shares that are readily tradable on an established securities market in the United States.
We believe that we qualify as a resident of Canada for purposes of, and are eligible for the benefits of, the U.S. Treaty,
which the IRS has determined is satisfactory for purposes of the qualified dividend rules and that it includes an exchange of information
provision, although there can be no assurance in this regard. Further, our common shares will generally be considered to be readily
tradable on an established securities market in the United States if they are listed on Nasdaq, as we intend the common shares
to be. Therefore, subject to the discussion above under “Passive Foreign Investment Company Consequences,” if
the U.S. Treaty is applicable, or if the common shares are readily tradable on an established securities market in the United States,
dividends paid on common shares will generally be “qualified dividend income” in the hands of individual U.S. Holders,
provided that certain conditions are met, including conditions relating to holding period and the absence of certain risk reduction
transactions.
Sale, Exchange
or Other Disposition of Common Shares
Subject
to the discussion above under “Passive Foreign Investment Company Consequences,” a U.S. Holder generally will recognize
capital gain or loss for U.S. federal income tax purposes upon the sale, exchange or other disposition of common shares in
an amount equal to the difference, if any, between the amount realized (i.e., the amount of cash plus the fair market value
of any property received) on the sale, exchange or other disposition and such U.S. Holder’s adjusted tax basis in the common
shares. Such capital gain or loss generally will be long-term capital gain taxable at a reduced rate for non-corporate U.S. Holders
or long-term capital loss if, on the date of sale, exchange or other disposition, the common shares were held by the U.S. Holder
for more than one year. Any capital gain of a non-corporate U.S. Holder that is not long-term capital gain is taxed at ordinary
income rates. The deductibility of capital losses is subject to limitations. Any gain or loss recognized from the sale or other
disposition of common shares will generally be gain or loss from sources within the United States for U.S. foreign tax
credit purposes.
Medicare Tax
Certain
U.S. Holders that are individuals, estates or trusts and whose income exceeds certain thresholds generally are subject to
a 3.8% tax on all or a portion of their net investment income, which may include their gross dividend income and net gains from
the disposition of common shares. If you are a United States person that is an individual, estate or trust, you are encouraged
to consult your tax advisors regarding the applicability of this Medicare tax to your income and gains in respect of your investment
in common shares.
Information
Reporting and Backup Withholding
U.S. Holders
may be required to file certain U.S. information reporting returns with the IRS with respect to an investment in common shares,
including, among others, IRS Form 8938 (Statement of Specified Foreign Financial Assets). As described above under “Passive
Foreign Investment Company Consequences,” each U.S. Holder who is a shareholder of a PFIC must file an annual report
containing certain information. U.S. Holders paying more than US$100,000 for common shares may be required to file IRS Form 926
(Return by a U.S. Transferor of Property to a Foreign Corporation) reporting this payment. Substantial penalties may be imposed
upon a U.S. Holder that fails to comply with the required information reporting.
Dividends
on and proceeds from the sale or other disposition of common shares generally must be reported to the IRS unless the U.S. Holder
establishes a basis for exemption. Backup withholding may apply to amounts subject to reporting if the holder:
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fails to provide an accurate United States taxpayer
identification number or otherwise establish a basis for exemption, or
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is described in certain other categories of persons.
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However,
U.S. Holders that are corporations generally are excluded from these information reporting and backup withholding tax rules.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules generally will be allowed
as a refund or a credit against a U.S. Holder’s U.S. federal income tax liability if the required information is furnished
by the U.S. Holder on a timely basis to the IRS.
U.S. Holders
should consult their own tax advisors regarding the backup withholding tax and information reporting rules.
EACH
PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISOR ABOUT THE TAX CONSEQUENCES TO THE INVESTOR OF AN INVESTMENT IN OUR
COMMON SHARES IN LIGHT OF THE INVESTOR’S OWN CIRCUMSTANCES.
CERTAIN CANADIAN
FEDERAL INCOME TAX CONSIDERATIONS
The
following is a general summary of the principal Canadian federal income tax considerations under the Income Tax Act (Canada)
(the “Tax Act”) that apply to a purchaser who acquires, as a beneficial owner, common shares and who, at all
relevant times, for purposes of the Tax Act or any applicable income tax treaty or convention (1) is not, and is not
deemed to be, resident in Canada; (2) deals at arm’s length with the Company and is not affiliated with the Company; (3) does
not use or hold, and is not deemed to use or hold, the common shares in a business carried on, or deemed to be carried on, in Canada;
and (4) has not acquired the common shares in a transaction or transactions considered to be an adventure in the nature of
trade. A purchaser that meets all of the foregoing requirements is referred to as a “Holder” in this summary, and this
summary only addresses such Holders.
Special
rules, which are not discussed in this summary, may apply to a Holder that is (i) an insurer that carries on an insurance
business in Canada and elsewhere; or (ii) an “authorized foreign bank” (as defined in the Tax Act). All
such purchasers should consult their own tax advisors.
This
summary is based on the current provisions of the Tax Act, the regulations thereunder (the “Regulations”),
and where noted the current provisions of the Canada-United States Tax Convention (1980) (the “Canada-U.S. Tax
Treaty”) and the current administrative policies and assessing practices of the Canada Revenue Agency (the “CRA”)
published in writing prior to the date hereof. This summary takes into account all specific proposals to amend the Tax Act
and the Regulations and the Canada-U.S. Tax Treaty publicly announced by or on behalf of the Minister of Finance (Canada)
prior to the date hereof (the “Proposed Amendments”) and assumes that all Proposed Amendments will be enacted in
the form proposed. However, no assurances can be given that the Proposed Amendments will be enacted as proposed, or at all. This
summary does not otherwise take into account or anticipate any changes in law or administrative policies or assessing practice
of the CRA whether by legislative, regulatory, administrative or judicial decision or action, nor does it take into account other
federal or any provincial, territorial, state, or foreign tax legislation or considerations, which may be different from those
discussed herein.
This
summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular
purchaser, and no representations with respect to the income tax consequences to any purchaser are made. Prospective purchasers
should consult their own tax advisors for advice with respect to the tax consequences to them of acquiring common shares pursuant
to this offering having regard to their particular circumstances.
Currency Conversion
For
purposes of the Tax Act, all relevant amounts relating to the acquisition, holding or disposition of the common shares (including
adjusted cost base, proceeds of disposition, and dividends, if any) must generally be expressed in Canadian dollars. Accordingly,
amounts denominated in U.S. dollars must be converted into Canadian dollars based on the exchange rate quoted by the Bank
of Canada on the date such amounts arise or such other rate of exchange as is acceptable to the Minister of National Revenue (Canada).
Dividends
Dividends
paid or credited on the common shares or deemed to be paid or credited on the common shares to a Holder will generally be subject
to Canadian withholding tax at the rate of 25% of the gross amount of the dividend, subject to any reduction in the rate of withholding
under any applicable income tax treaty or convention between Canada and the country of residence of the Holder. Where the Holder
is a U.S. resident entitled to applicable benefits under the Canada-U.S. Tax Treaty and is the beneficial owner of the
dividends, the applicable rate of Canadian withholding tax is generally reduced to 15%. Holders who may be eligible for a reduced
rate of withholding on dividends pursuant to any applicable income tax treaty or convention should consult with their own tax advisors.
Disposition
of Common Shares
Generally,
a Holder will not be subject to tax under the Tax Act in respect of any capital gain realized by such Holder on a disposition
of common shares, nor will capital losses arising therefrom be recognized under the Tax Act, unless the common shares constitute
“taxable Canadian property” (as defined in the Tax Act) of the Holder at the time of disposition and the gain
is not exempt from tax pursuant to the terms of an applicable tax treaty or convention.
Provided
the common shares are listed on a “designated stock exchange” as defined in the Tax Act (which currently includes
Nasdaq) at the time a common shares are disposed of, the common shares will generally not constitute taxable Canadian property
to a Holder at a particular time, unless, at any time during the 60-month period immediately preceding the disposition the following
two conditions have been met concurrently: (i) the Holder, persons with whom the Holder did not deal with at arm’s length,
partnerships in which the Holder or persons with whom the Holder did not deal with at arm’s length holds a membership interest
directly or indirectly through one or more partnerships, or the Holder together with all such foregoing persons and partnerships,
owned 25% or more of the issued shares of any class or series of the Company’s capital stock, and (ii) more than 50% of the
fair market value of the common shares was derived, directly or indirectly, from one or any combination of real or immovable property
situated in Canada, “Canadian resource properties” (as defined in the Tax Act), “timber resource properties”
(as defined in the Tax Act), or options in respect of, or interests in, or civil law rights in such property, whether
or not such property exists.
Notwithstanding
the foregoing, in certain circumstances set out in the Tax Act, common shares which are not otherwise taxable Canadian property
could be deemed to be taxable Canadian property.
If
the common shares are taxable Canadian property to a Holder any capital gain realized on the disposition or deemed disposition
of such common shares may not be subject to Canadian federal income tax pursuant to the terms of an applicable income tax treaty
or convention between Canada and the country of residence of a Holder.
A
Holder whose common shares may be taxable Canadian property, should consult their own tax advisors with respect to the consequences
of disposing of a common share.
LEGAL MATTERS
The legality of the issuance
of the shares offered in this prospectus will be passed upon for us by Meretsky Law Firm, Toronto, Ontario, Canada M5H 3T9.
EXPERTS
The Company’s
consolidated financial statements as of December 31, 2019, and for the year then ended, appearing in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2019, have been audited by Smythe LLP, an independent registered public
accounting firm, as stated in their report, incorporated herein by reference. Such consolidated financial statements have been
so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
The Company’s consolidated
financial statements as of December 31, 2018, and for the year then ended, appearing in the Company’s Annual Report on Form
10-K for the year ended December 31, 2019, have been audited by Moss Adams LLP, an independent registered public accounting
firm, as stated in their report, incorporated herein by reference. Such consolidated financial statements have been incorporated
in reliance upon the report of such firm (which report expresses an unqualified opinion and includes explanatory paragraphs regarding
a going concern uncertainty and a change in accounting principle and an emphasis of a matter paragraph relating to discontinued
operations) given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the
Securities and Exchange Commission a registration statement on Form S-1 (including exhibits) under the Securities Act, with respect
to the shares to be sold in this offering. This prospectus does not contain all the information set forth in the registration statement.
For further information with respect to our company and the common stock offered in this prospectus, reference is made to the registration
statement, including the exhibits filed thereto, and the financial statements and notes filed as a part thereof. With respect to
each such document filed with the SEC as an exhibit to the registration statement, reference is made to the exhibit for a more
complete description of the matter involved.
We file quarterly and
annual reports, proxy statements and other information with the SEC. You may read and copy any document that we file at the public
reference facilities of the SEC in Washington, D.C. The SEC maintains a website that contains reports, proxy and other information
statements about issuers, including us, that file electronically with the SEC. The address of the website is http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE
The SEC allows us to
“incorporate by reference” information that we file with it into this prospectus, which means that we can disclose
important information to you by referring you to those documents. The information incorporated by reference is an important part
of this prospectus. The information incorporated by reference is considered to be a part of this prospectus, and information that
we file later with the SEC will automatically update and supersede information contained in this prospectus and any accompanying
prospectus supplement.
We incorporate by reference
the documents listed below that we have previously filed with the SEC:
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Our Annual Report on Form 10-K for the year ended December 31, 2019, filed on May 14, 2020 as amended by Amendment No. 1 to our Annual Report on Form 10-K/A filed on May 15, 2020;
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Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, filed on June 24,
2020;
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Our Current Reports
on Form 8-K filed on January
6, 2020, March 27, 2020, March
30, 2020, May 4, 2020, May
8, 2020, May 14, 2020, May
19, 2020 and May 20, 2020; and
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The description of our common stock contained in our Registration Statement on Form 8-A (File No. 001-36532), filed with the SEC on July 7, 2014, pursuant to Section 12(b) of the Exchange Act, including any amendment or report filed for the purpose of updating such description.
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In addition, all documents
subsequently filed by us with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination
of the offering, shall be deemed to be incorporated by reference into this prospectus; provided, however, that all reports, exhibits
and other information that we “furnish” to the SEC will not be considered incorporated by reference into this prospectus.
Any statement contained in a document incorporated by reference in this prospectus or any prospectus supplement shall be deemed
to be modified or superseded to the extent that a statement contained herein, therein or in any other subsequently filed document
that also is incorporated by reference herein or therein modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus or any prospectus supplement.
We will provide to
you at no cost a copy of any and all of the information incorporated by reference into the registration statement of which this
prospectus is a part. You may make a request for copies of this information in writing or by telephone. Requests should be directed
to:
Sphere 3D Corp.
895 Don Mills Road, Bldg. 2, Suite 900
Toronto, Ontario, Canada M3C 1W3
Attn: Peter Tassiopoulos, Chief Executive
Officer
(858) 571-5555
Exhibits to the filings
will not be sent, however, unless those exhibits have specifically been incorporated by reference in this prospectus.
No dealer, salesperson,
or other person has been authorized to give any information or to make any representation not contained in this prospectus, and,
if given or made, such information and representation should not be relied upon as having been authorized by us or the selling
stockholder. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered
by this prospectus in any jurisdiction or to any person to whom it is unlawful to make such offer or solicitation. Neither the
delivery of this prospectus nor any sale made hereunder shall under any circumstances create an implication that there has been
no change in the facts set forth in this prospectus or in our affairs since the date hereof.
Until July 31, 2020,
all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver
a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with
respect to their unsold overallotments or subscriptions.
13,136,666 Shares
SPHERE
3D Corp.
COMMON STOCK
PROSPECTUS
July 6,
2020
Sphere 3D (NASDAQ:ANY)
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From Aug 2024 to Sep 2024
Sphere 3D (NASDAQ:ANY)
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From Sep 2023 to Sep 2024