DarkHorse Technologies Inc 10-Q for FY2020 Q1

DarkHorse Technologies Inc. (DRK)

10-Q 2020-06-24 For: 2020-03-31

Added on April 11, 2026

About this 10-Q

DarkHorse Technologies Inc filed this 10-Q on June 24, 2020, covering the quarter ended March 31, 2020 (FY2020 Q1).

Headline figures

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $1.01M; down 52.6% from $2.13M a year earlier
Net loss: $1.1M; compared with a net loss of $1.84M 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



PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements:	Page

	Condensed Consolidated Statements of Operations (unaudited) - Three Months Ended March 31, 2020 and 2019	4

	Condensed Consolidated Statements of Comprehensive Loss (unaudited) - Three Months Ended March 31, 2020 and 2019	5

	Condensed Consolidated Balance Sheets (unaudited) - March 31, 2020 and December 31, 2019	6

	Condensed Consolidated Statements of Cash Flows (unaudited) - Three Months Ended March 31, 2020 and 2019	7

	Condensed Consolidated Statements of Shareholders’ Equity (Deficit) (unaudited)- Three Months Ended March 31, 2020 and 2019	8

	Notes to Condensed Consolidated Financial Statements (unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32

Item 4.	Controls and Procedures	32

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	33

Item 1A.	Risk Factors	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 3.	Defaults Upon Senior Securities	36

Item 4.	Mine Safety Disclosures	36

Item 5.	Other Information	36

Item 6.	Exhibits	37

	Signature	39



	Three Months Ended March 31,
	2020			2019

	(Unaudited)
Revenue	$	1,010		$	2,130
Cost of revenue	547			1,435
Gross profit	463			695
Operating expenses:
Sales and marketing	304			453
Research and development	339			697
General and administrative	984			1,252
	1,627			2,402
Loss from operations	(1,164		)	(1,707		)
Other income (expense):
Interest expense, related party	—			(142		)
Interest expense	(9		)	(3		)
Other income, net	70			8
Net loss	(1,103		)	(1,844		)
Net loss per share:
Basic and diluted	$	(0.28	)	$	(0.82	)
Shares used in computing net loss per share:
Basic and diluted	3,947,657			2,236,590



	Three Months Ended March 31,
	2020			2019

	(Unaudited)
Net loss	$	(1,103	)	$	(1,844	)
Other comprehensive (loss) income:
Foreign currency translation adjustment	(71		)	40
Total other comprehensive (loss) income	(71		)	40
Comprehensive loss	$	(1,174	)	$	(1,804	)



	March 31, 2020			December 31, 2019

Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	285		$	149
Accounts receivable, net	335			369
Inventories	694			753
Other current assets	666			670
Total current assets	1,980			1,941
Investment in affiliate	2,100			2,100
Intangible assets, net	1,976			2,301
Goodwill	1,385			1,385
Other assets	616			679
Total assets	$	8,057		$	8,406
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	4,151		$	4,113
Accrued liabilities	659			475
Accrued payroll and employee compensation	339			340
Deferred revenue	914			1,069
Line of credit	491			491
Other current liabilities	196			158
Total current liabilities	6,750			6,646
Deferred revenue, long-term	365			485
Convertible debt	375			—
Convertible debt-related party	350			—
Other non-current liabilities	16			35
Total liabilities	7,856			7,166
Commitments and contingencies (Note 13)
Shareholders’ equity:
Preferred shares, no par value, unlimited shares authorized, 8,443,778 shares issued and outstanding at both March 31, 2020 and December 31, 2019	8,444			8,444
Common shares, no par value; unlimited shares authorized, 4,016,825 and 3,850,105 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively	186,296			186,161
Accumulated other comprehensive loss	(1,840		)	(1,769		)
Accumulated deficit	(192,699		)	(191,596		)
Total shareholders’ equity	201			1,240
Total liabilities and shareholders’ equity	$	8,057		$	8,406



Supplemental disclosures of cash flow information:
Cash paid for interest	$	32	$	10
Supplemental disclosures of non-cash financing activities:
Issuance of convertible debt-related party for prepaid business advisory services	$	150	$	—
Issuance of common shares for settlement of liabilities	$	130	$	—
Issuance of common shares for settlement of related party liabilities	$	—	$	105



	Preferred Shares			Common Shares			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Shareholders' Equity
	Shares	Amount		Shares	Amount		Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Shareholders' Equity
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 restricted stock awards 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

	Preferred Shares			Common Shares			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Shareholders' Deficit
	Shares	Amount		Shares	Amount		Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Shareholders' Deficit
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	)



	March 31, 2020		December 31, 2019
Raw materials	$	124	$	92
Work in process	165		137
Finished goods	405		524
	$	694	$	753



	March 31, 2020		December 31, 2019
Transition service agreement	$	168	$	345
Deferred cost - service contracts	115		118
Prepaid insurance and services	378		207
Other	5		—
	$	666	$	670



	March 31, 2020			December 31, 2019
Developed technology	$	13,323		$	13,323
Channel partner relationships	730			730
Capitalized development costs⁽¹⁾	2,779			3,047
Customer relationships	380			380
	17,212			17,480
Accumulated amortization:
Developed technology	(12,803		)	(12,682		)
Channel partner relationships	(385		)	(355		)
Capitalized development costs⁽¹⁾	(1,997		)	(2,094		)
Customer relationships	(331		)	(328		)
	(15,516		)	(15,459		)
Total finite-lived assets, net	1,696			2,021
Indefinite-lived intangible assets - trade names	280			280
Total intangible assets, net	$	1,976		$	2,301


(1)	Includes the impact of foreign currency exchange rate fluctuations.



Date issued	Contractual life (years)	Exercise price	Number outstanding		Expiration
May 2015	5	$800.00	4,200		May 31, 2020
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	1,205,820		March 23, 2023
			1,411,382	(1)


(1)	Includes warrants to purchase up to 628,320 common shares, in the aggregate, outstanding to related parties at March 31, 2020.



	Deferred Revenue
Liability at January 1, 2020	$	1,109
Settlements made during the period	(271		)
Change in liability for warranties issued during the period	119
Change in liability for pre-existing warranties	—
Liability at March 31, 2020	$	957
Current liability	593
Non-current liability	364
Liability at March 31, 2020	$	957


1.	Organization and Business


2.	Significant Accounting Policies


3.	Certain Balance Sheet Items


5.	Investment in Affiliate


•	Between April 7, 2020 and April 24, 2020, the Company converted $377,000 of convertible debt and issued 580,580 common shares of the Company, of which $176,000 of debt converted was held by related parties, and they were issued in the aggregate 271,040 common shares.



	Maturity Date	Interest Rate	Amount Outstanding
Convertible debt	3/23/2023	6.0%	$	725
Line of credit	9/19/2020	6.5%	$	491



Exhibit		Filed	Incorporated by Reference
Number	Description	Herewith	Form	File No.	Date Filed

3.1	Certificate and Articles of Amalgamation of the Company		6-K	001-36532	3/25/2015

3.2	Certificate of Amendment to the Articles of Amalgamation of the Company		6-K	001-36532	7/17/2017

3.3	Certificate of Amendment to the Articles of Amalgamation of the Company		8-K	001-36532	10/2/2018

3.4	Certificate of Amendment to the Articles of Amalgamation of the Company		8-K	001-36532	10/5/2018

3.5	Certificate of Amendment to the Articles of Amalgamation of the Company		8-K	001-36532	11/5/2018

3.6	Certificate of Amendment to the Articles of Amalgamation of the Company		8-K	001-36532	11/14/2018

3.7	Certificate of Amendment to the Articles of Amalgamation of the Company		8-K	001-36532	7/12/2019

3.8	Certificate of Amendment to the Articles of Amalgamation of the Company		8-K	001-36532	11/8/2019

3.9	Certificate of Amendment to the Articles of Amalgamation of the Company		8-K	001-36532	5/8/2020

3.10	By-Law No. 1, as Amended		6-K	001-36532	7/17/2017

3.11	By-Law No. 2		6-K	001-36532	5/12/2017

4.1	Form of Debenture		8-K	001-36532	3/27/2020

4.2	Form of Warrant		8-K	001-36532	3/27/2020

4.3	Form of Warrant		8-K	001-36532	5/4/2020

10.1	Form of Subscription Agreement		8-K	001-36532	3/27/2020

10.2	Form of Purchase Agreement		8-K	001-36532	5/4/2020

10.3	Extension Letter dated March 3, 2020 between HVE Inc., a subsidiary of Sphere 3D Corp., and Citizens National Bank of Texas.		10-K	001-36532	5/14/2020

10.4	Business Advisory Agreement between Sphere 3D Corp. and Torrington Financial Services Ltd. dated February 13, 2020		10-K	001-36532	5/14/2020

10.5	U.S. Small Business Administration Note dated April 9, 2020 between the Company and Citizens National Bank of Texas		10-K	001-36532	5/14/2020

10.6	Equity Purchase Agreement dated May 15, 2020 between the Company and Oasis Capital, LLC		8-K	001-36532	5/19/2020

10.7	Registration Rights Agreement dated May 15, 2020 between the Company and Oasis Capital, LLC		8-K	001-36532	5/19/2020

10.8	Consulting Agreement dated April 24, 2020 between the Company and ROK Consulting Inc.		S-1	333-238531	5/20/2020



		Sphere 3D Corp.

Date:	June 24, 2020	By:	/s/ Peter Tassiopoulos
			Peter Tassiopoulos Chief Executive Officer (Principal Executive Officer)



COMPANY:
Sphere 3D Corp.
By:	/s/ Peter Tassiopoulos
Name: Title:	Peter Tassiopoulos CEO

INVESTOR:
Oasis Capital, LLC
By:	/s/ Adam Long
Name: Title:	Adam Long Managing Partner



Sphere 3D Corp. /s/ Peter Tassiopoulos Name: Peter Tassiopoulos Title: CEO	GROUPE PARAMEUS CORP. /s/ Samuel Kafkas Name: Title: President


a.	Advise and assist the company in developing and implementing appropriate plans and materials for presenting the Company and its business plan, strategy and personnel to the financial community.


b.	With the cooperation of the Company, maintain an awareness during the term of the agreement of the Company’s plan’s and strategy as it relates to the financial community.



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.



•		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.