DarkHorse Technologies Inc 10-Q for FY2020 Q3

DarkHorse Technologies Inc. (DRK)

10-Q 2020-11-16 For: 2020-09-30

Added on April 11, 2026

About this 10-Q

DarkHorse Technologies Inc filed this 10-Q on November 16, 2020, covering the quarter ended September 30, 2020 (FY2020 Q3).

Headline figures

Quarter ended September 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $890K; down 34.9% from $1.37M a year earlier
Net loss: $1.19M; compared with net income of $885K a year earlier

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Ontario, Canada						98-1220792
(State or other jurisdiction of incorporation or organization)						(IRS Employer Identification No.)

895 Don Mills Road, Bldg. 2, Suite 900
Toronto, Ontario, Canada, M3C 1W3
(Address of principal executive offices)


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Shares	ANY	NASDAQ Capital Market


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

	(Unaudited)				(Unaudited)
Revenue	$	890	$	1,368	$	2,791	$	4,461
Cost of revenue	356		883		1,352		3,036
Gross profit	534		485		1,439		1,425
Operating expenses:
Sales and marketing	336		550		872		1,494
Research and development	264		460		947		1,673
General and administrative	1,590		801		4,406		2,814
	2,190		1,811		6,225		5,981
Loss from operations	(1,656)		(1,326)		(4,786)		(4,556)
Other income (expense):
Interest expense, related party	(191)		(41)		(309)		(327)
Interest expense	(57)		(9)		(142)		(24)
Other income, net	715		2,261		1,002		2,283
(Loss) income before income taxes	(1,189)		885		(4,235)		(2,624)
Provision for income taxes	1		—		4		—
Net (loss) income	$	(1,190)	$	885	$	(4,239)	$	(2,624)
Net (loss) income per share:
Net (loss) income per share basic	$	(0.17)	$	0.33	$	(0.81)	$	(1.09)
Net (loss) income per share diluted	$	(0.17)	$	0.10	$	(0.81)	$	(1.09)
Shares used in computing net (loss) income per share:
Basic	6,949,010		2,668,311		5,240,003		2,403,373
Diluted	6,949,010		8,909,761		5,240,003		2,403,373


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

	(Unaudited)				(Unaudited)
Net (loss) income	$	(1,190)	$	885	$	(4,239)	$	(2,624)
Other comprehensive income (loss):
Foreign currency translation adjustment	12		(8)		(31)		34
Total other comprehensive income (loss)	12		(8)		(31)		34
Comprehensive (loss) income	$	(1,178)	$	877	$	(4,270)	$	(2,590)


	September 30, 2020		December 31, 2019

Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	2,896	$	149
Accounts receivable, net	259		369
Inventories	659		753
Other current assets	998		670
Total current assets	4,812		1,941
Investment in affiliate	2,100		2,100
Intangible assets, net	3,091		2,301
Goodwill	1,385		1,385
Other assets	3,636		679
Total assets	$	15,024	$	8,406
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	2,360	$	4,113
Accrued liabilities	2,457		475
Accrued payroll and employee compensation	405		340
Deferred revenue	719		1,069
Debt	1,103		—
Debt, related party	311		—
Line of credit	489		491
Other current liabilities	153		158
Total current liabilities	7,997		6,646
Deferred revenue, long-term	283		485
Long-term debt	667		—
Other non-current liabilities	45		35
Total liabilities	8,992		7,166
Commitments and contingencies (Note 13)
Shareholders’ equity:
Preferred shares, no par value, unlimited shares authorized, 9,355,778 and 8,443,778 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively	11,769		8,444
Common shares, no par value; unlimited shares authorized, 7,597,186 and 3,850,105 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively	191,898		186,161
Accumulated other comprehensive loss	(1,800)		(1,769)
Accumulated deficit	(195,835)		(191,596)
Total shareholders’ equity	6,032		1,240
Total liabilities and shareholders’ equity	$	15,024	$	8,406







Sphere 3D Corp.
Condensed Consolidated Statements of Cash Flows (continued)
(in thousands of U.S. dollars)

	Nine Months Ended September 30,
	2020		2019
Supplemental disclosures of cash flow information:	(Unaudited)
Cash paid for interest	$	25	$	32
Supplemental disclosures of non-cash financing activities:
Issuance of common shares for settlement of liabilities	$	2,034	$	105
Issuance of common shares for acquisition of intangible asset	$	1,560	$	—
Issuance of common stock for conversion of convertible debt	$	783	$	—
Issuance of common stock for conversion of preferred shares	$	510	$	—
Issuance of convertible debt-related party for prepaid business advisory services	$	150	$	—
Issuance of common shares for settlement of related party liabilities	$	379	$	529


	Preferred Shares			Common Shares			Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Shareholders' Equity
	Shares	Amount		Shares	Amount
Balance at January 1, 2020	8,443,778	$	8,444	3,850,105	$	186,161	$	(1,769)	$	(191,596)	$	1,240
Issuance of common shares pursuant to the vesting of restricted stock units	—	—		20,420	—		—		—		—
Issuance of common shares for the settlement of liabilities	—	—		146,300	130		—		—		130
Share-based compensation	—	—		—	5		—		—		5
Other comprehensive income	—	—		—	—		(71)		—		(71)
Net loss	—	—		—	—		—		(1,103)		(1,103)
Balance at March 31, 2020	8,443,778	8,444		4,016,825	186,296		(1,840)		(192,699)		201
Issuance of preferred shares, net	1,244,000	808		—	—		—		—		808
Issuance of common shares for conversion of preferred shares	—	—		450,000	292		—		—		292
Issuance of common shares for conversion of convertible debt	—	—		580,580	377		—		—		377
Issuance of common shares for the settlement of liabilities	—	—		480,000	1,194		—		—		1,194
Issuance of stock options for the settlement of liabilities	—	—		—	54		—		—		54
Exercise of stock options	—	—		30,000	75		—		—		75
Other comprehensive income	—	—		—	—		28		—		28
Net loss	—	—		—	—		—		(1,946)		(1,946)
Balance at June 30, 2020	9,687,778	9,252		5,557,405	188,288		(1,812)		(194,645)		1,083
Issuance of preferred shares	3,000	2,735		—	—		—		—		2,735
Issuance of common shares	—	—		260,000	268		—		—		268
Issuance of common shares for conversion of preferred shares	(335,000)	(218)		335,000	218		—		—		—
Acquisition of intangible asset	—	—		480,000	1,560		—		—		1,560
Issuance of common shares for conversion of convertible debt	—	—		625,240	406		—		—		406
Issuance of common shares for the settlement of liabilities	—	—		339,541	1,157		—		—		1,157
Exercise of stock options	—	—		—	1		—		—		1
Other comprehensive loss	—	—		—	—		12		—		12
Net income	—	—		—	—		—		(1,190)		(1,190)
Balance at September 30, 2020	9,355,778	$	11,769	7,597,186	$	191,898	$	(1,800)	$	(195,835)	$	6,032
See accompanying notes to condensed consolidated financial statements.


Sphere 3D Corp.
Condensed Consolidated Statements of Shareholders’ Equity (Deficit) (continued)
(in thousands of U.S. dollars, except shares)
(unaudited)

	Preferred Shares			Common Shares			Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Shareholders' Deficit
	Shares	Amount		Shares	Amount
Balance at January 1, 2019	—	$	—	2,219,141	$	183,524	$	(1,816)	$	(187,315)	$	(5,607)
Issuance of common shares pursuant to the vesting of restricted stock units	—	—		38,930	—		—		—		—
Issuance of restricted stock awards for the settlement of liabilities	—	—		42,000	105		—		—		105
Share-based compensation	—	—		—	124		—		—		124
Other comprehensive income	—	—		—	—		40		—		40
Net loss	—	—		—	—		—		(1,844)		(1,844)
Balance at March 31, 2019	—	—		2,300,071	183,753		(1,776)		(189,159)		(7,182)
Issuance of common shares pursuant to the vesting of restricted stock units	—	—		3,017	—		—		—		—
Share-based compensation	—	—			117		—		—		117
Other comprehensive loss	—	—		—	—		2		—		2
Net loss	—	—		—	—		—		(1,665)		(1,665)
Balance at June 30, 2019	—	—		2,303,088	183,870		(1,774)		(190,824)		(8,728)
Issuance of preferred shares	5,843,778	5,844		—	—		—		—		5,844
Issuance of common shares	—	—		240,000	480		—		—		480
Issuance of common shares for the settlement of related party debt	—	—		410,158	529		—		—		529
Issuance of common shares pursuant to the vesting of restricted stock units	—	—		10,545	—		—		—		—
Share-based compensation	—	—		—	238		—		—		238
Other comprehensive income	—	—		—	—		(8)		—		(8)
Net loss	—	—		—	—		—		885		885
Balance at September 30, 2019	5,843,778	$	5,844	2,963,791	$	185,117	$	(1,782)	$	(189,939)	$	(760)


	September 30, 2020		December 31, 2019
Raw materials	$	120	$	92
Work in process	166		137
Finished goods	373		524
	$	659	$	753


	September 30, 2020		December 31, 2019
Prepaid services	$	632	$	23
Prepaid insurance	169		184
Transition service agreement	78		345
Deferred cost - service contracts	108		118
Other	11		—
	$	998	$	670


	September 30, 2020		December 31, 2019
Convertible promissory note receivable long-term	$	3,128	$	—
Prepaid insurance and services	418		519
Deferred cost – service contracts	75		154
Other	15		6
	$	3,636	$	679


	September 30, 2020		December 31, 2019
Developed technology	$	13,323	$	13,323
Supplier agreement	1,560		—
Channel partner relationships	730		730
Capitalized development costs(1)	2,959		3,047
Customer relationships	380		380
	18,952		17,480
Accumulated amortization:
Developed technology	(13,038)		(12,682)
Supplier agreement	(17)		—
Channel partner relationships	(446)		(355)
Capitalized development costs(1)	(2,303)		(2,094)
Customer relationships	(337)		(328)
	(16,141)		(15,459)
Total finite-lived assets, net	2,811		2,021
Indefinite-lived intangible assets - trade names	280		280
Total intangible assets, net	$	3,091	$	2,301


Date issued	Contractual life (years)	Exercise price	Number outstanding		Expiration
October 2015	5	$466.00	2,010		October 14, 2020
December 2015	5	$500.00	5,138		December 15, 2020
December 2015	5	$216.00	7,500		December 4, 2020
March 2016	5	$500.00	150		March 4, 2021
August 2017	5	$42.00	37,500		August 11, 2022
August 2017	5	$42.00	11,876		August 16, 2022
August 2017	5	$42.00	25,625		August 22, 2022
April 2018	5	$5.60	111,563		April 17, 2023
March 2020	3	$0.60	1,005,820		March 23, 2023
April 2020	5	$0.92	1,694,000		April 30, 2025
			2,901,182	(1)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Numerator:
Net (loss) income	$	(1,190)	$	885	$	(4,239)	$	(2,624)
Denominator:
Weighted average common shares outstanding for basic (loss) income per share	6,949,010		2,668,311		5,240,003		2,403,373
Net effect of dilutive common share equivalents	—		6,241,450		—		—
Weighted average common shares outstanding for diluted net (loss) income per share	6,949,010		8,909,761		5,240,003		2,403,373
Net (loss) income per share:
Basic	$	(0.17)	$	0.33	$	(0.81)	$	(1.09)
Diluted	$	(0.17)	$	0.10	$	(0.81)	$	(1.09)


	Deferred Revenue
Liability at January 1, 2020	$	1,109
Settlements made during the period	(689)
Change in liability for warranties issued during the period	371
Change in liability for pre-existing warranties	—
Liability at September 30, 2020	$	791
Current liability	508
Non-current liability	283
Liability at September 30, 2020	$	791


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenue	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenue	40.0		64.5		48.4		68.1
Gross profit	60.0		35.5		51.6		31.9
Operating expenses:
Sales and marketing	37.8		40.2		31.2		33.5
Research and development	29.7		33.6		33.9		37.5
General and administrative	178.7		58.6		157.9		63.1
	246.2		132.4		223.0		134.1
Loss from operations	(186.2)		(96.9)		(171.4)		(102.2)
Interest expense	(27.9)		(3.7)		(16.2)		(7.8)
Other income, net	80.3		165.3		35.9		51.2
Loss before income taxes	(133.8)		64.7		(151.7)		(58.8)
Provision for income taxes	0.1		—		0.1		—
Net loss	(133.9)	%	64.7	%	(151.8)	%	(58.8)	%


	Maturity Date	Interest Rate	Amount Outstanding
Secured promissory note payable	12/30/2020	1.68%	$	1,117
Paycheck Protection Program (PPP) Small Business Administration Loan	4/9/2022	1.0%	$	671
Note payable related party, net	1/28/2021	8.0%	$	311
Line of credit	12/31/2020	6.5%	$	489


1			I have reviewed this quarterly report on Form 10-Q of Sphere 3D Corp.;


2			Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3			Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;


4			The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:


			(a)			Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


			(b)			Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


			(c)			Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


			(d)			Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and


			(a)			All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and


			(b)			Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.


/s/ Peter Tassiopoulos
Peter Tassiopoulos
Chief Executive Officer


/s/ Kurt L. Kalbfleisch
Kurt L. Kalbfleisch
Senior Vice-President and
Chief Financial Officer


•						The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
•						The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.