Sphere 3D Corp.

Previous wording

The following quarterly management’s discussion and analysis (“MD&A”) should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes of Sphere 3D Corp. (the “Company”) for the three months ended March 31, 2025. The condensed consolidated financial statements have been presented in United States (“U.S.”) dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Unless the context otherwise requires, any reference to the “Company,” “Sphere 3D,” “we,” “our,” “us” or similar terms refers to Sphere 3D Corp. and its subsidiaries. Unless otherwise indicated, all references to “$” and “dollars” in this discussion and analysis mean U.S. dollars.

Current wording

The following quarterly management’s discussion and analysis (“MD&A”) should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes of Sphere 3D Corp. (the “Company”) for the three and six months ended June 30, 2025. The condensed consolidated financial statements have been presented in United States (“U.S.”) dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Unless the context otherwise requires, any reference to the “Company,” “Sphere 3D,” “we,” “our,” “us” or similar terms refers to Sphere 3D Corp. and its subsidiaries. Unless otherwise indicated, all references to “$” and “dollars” in this discussion and analysis mean U.S. dollars.

Previous wording

As of March 31, 2025, we owned approximately 13,000 miners, of which approximately 6,400 were in service, and a total hashrate capacity of 0.82 exahash per second (“EH/s”). We are strategizing for our future growth by refreshing a significant portion of our fleet with newer-generation machines to bolster efficiency, and as of March 2025, we have a self-owned 8 megawatt (“MW”) facility in Iowa. Vertically integrating with self-owned facilities, like the Iowa site, allows us to reduce our reliance on third-parties and decrease our overall cost to mine a Bitcoin. As a result of our strategic changes, during the latter part of 2024 and ongoing, mining production has decreased as we focused on our long-term strategic goals of transitioning to lower-cost hosting sites, vertically integrating to own our own sites, and refreshing our fleet with newer-generation machines

Current wording

As of June 30, 2025, we owned approximately 13,000 miners, of which approximately 5,600 were in service, and a total hashrate capacity of 0.73 exahash per second (“EH/s”). We are strategizing for our future growth by refreshing a significant portion of our fleet with newer-generation machines to bolster efficiency, and starting from March 2025, we have a self-owned 8 megawatt (“MW”) facility in Iowa. Vertically integrating with self-owned facilities, such as the Iowa site, allows us to reduce our reliance on third-parties and decrease our overall cost to mine a Bitcoin. As a result of our strategic changes, during the latter part of 2024 and ongoing, mining production has decreased as we focused on our long-term strategic goals of transitioning to lower-cost hosting sites, vertically integrating to own our own sites, and refreshing our fleet with newer-generation machines

Previous wording

In the first quarter of 2025, we mined 30.5 Bitcoin, which represented a slight decrease of 5.0% over the 32.1 Bitcoin we mined in the last quarter of 2024. The decrease was primarily due to our transition to lower-cost hosting sites and refreshing our fleet with newer-generation machines. Based on our existing operations and expected deployment of miners we have purchased, we anticipate having approximately 1.5 EH/s of total hashrate in operation during 2025. We plan to continue to acquire new generation miners as we expand our exahash. We do not have scheduled downtime for our miners. We periodically perform both scheduled and unscheduled maintenance on our miners. Depending on the type of repair, the miner may run at a reduced speed or be taken offline. We use multiple software programs to monitor the performance of our machines. The miners owned as of March 31, 2025 have an average efficiency (joules per terahash – “J/th”) of 26.9 J/th. The miner efficiency is an indication of how efficiently we can earn Bitcoin and minimize cost to run the miner. Currently, we intend only to mine Bitcoin and we hold no other cryptocurrency other than Bitcoin. We do not have any power purchase agreements for the supply of power.

Current wording

During the six months ended June 30, 2025, we mined 61.3 Bitcoin, which represented a decrease of 13.4% over the 70.8 Bitcoin we mined in the last six months of 2024. The decrease was primarily due to the April 2024 halving event, and our transition to lower-cost hosting sites and refreshing our fleet with newer-generation machines. Based on our existing operations and expected deployment of miners we have purchased, we anticipate continuing to increase exahash throughout 2025. We do not have scheduled downtime for our miners. We periodically perform both scheduled and unscheduled maintenance on our miners. Depending on the type of repair, the miner may run at a reduced speed or be taken offline. We use multiple software programs to monitor the performance of our machines. The miners owned as of June 30, 2025 have an average efficiency (joules per terahash – “J/th”) of 26.4 J/th. The miner efficiency is an indication of how efficiently we can earn Bitcoin and minimize cost to run the miner. Currently, we intend only to mine Bitcoin and we hold no other cryptocurrency other than Bitcoin.

Previous wording

As of March 31, 2025, we held approximately 22.7 Bitcoin. The fair value of our Bitcoin as of March 31, 2025 was approximately $1.9 million on our consolidated balance sheet.

Current wording

As of June 30, 2025, we held approximately 20.5 Bitcoin. The fair value of our Bitcoin as of June 30, 2025 was approximately $2.2 million on our consolidated balance sheet.

Previous wording

The First Quarter of 2025 Compared with the First Quarter of 2024

Current wording

The Second Quarter of 2025 Compared with the Second Quarter of 2024

Previous wording

For the first quarter of 2025 and 2024, we had revenues of $2.8 million and $6.9 million, respectively. The $4.1 million decrease in revenue is primarily due to one of our previous hosting providers taking approximately 3,300, or 22%, of our mining machines offline in the third quarter of 2024. In addition, beginning the third quarter of 2024, we are in the process of removing our older mining equipment and replacing them with newer generation machines. This is expected to be an ongoing process through the third quarter of 2025 which may result in further fluctuations in exahash. During the first quarter of 2025, all of our revenue was derived from Bitcoin mining.

Current wording

For the second quarter of 2025 and 2024, we had revenues of $3.0 million and $4.7 million, respectively. The $1.7 million decrease in revenue is primarily due to the April 2024 halving event, and the process of removing our older mining equipment and replacing them with newer generation machines. The refreshing of our mining equipment is expected to be an ongoing process through 2025 which may result in further fluctuations in exahash. During the second quarter of 2025 and 2024, all of our revenue was derived from Bitcoin mining.

Previous wording

For the first quarter of 2025 and 2024, direct cost of revenues were $2.2 million and $4.3 million, respectively. The $2.1 million decrease in cost of revenue was primarily due to lower hosting fees related to machines taken offline to be relocated and the transition of removing older mining machines and replacing them with newer generation machines.

Current wording

For the second quarter of 2025 and 2024, direct cost of revenues were $2.3 million and $4.0 million, respectively. The $1.7 million decrease in cost of revenue was primarily due to lower hosting fees related to machines taken offline to be relocated and the transition of removing older mining machines and replacing them with newer generation machines.

Previous wording

Depreciation and amortization expense was $1.6 million and $1.8 million for the first quarter of 2025 and 2024, respectively. The decrease of $0.2 million was primarily due to lessor depreciation related to our Bitcoin mining machines due to current year sales of machines and the impairment in the second quarter of 2024, resulting in a lower cost basis to be depreciated over the remaining useful life.

Current wording

Depreciation and amortization expense was $1.7 million and $1.8 million for the second quarter of 2025 and 2024, respectively. The decrease of $0.1 million was primarily due to less depreciation related to our Bitcoin mining machines due to the disposal of machines.

Previous wording

Change in fair value of Bitcoin was a loss of $0.2 million and a gain of $0.8 million for the first quarter of 2025 and 2024, respectively. The loss or gain is the change in fair value of the Bitcoin held, as well as the gains and losses from when the Bitcoin was sold.

Current wording

Change in fair value of Bitcoin was a gain of $0.5 million and a loss of $0.1 million for the second quarter of 2025 and 2024, respectively. The gain or loss was the change in fair value of Bitcoin held, as well as the gains and losses from when Bitcoin was sold.

Previous wording

Investment loss was $3.7 million and $2.7 million for the first quarter of 2025 and 2024, respectively, and related to unrealized losses on our equity investment in Core Scientific Inc.

Current wording

Investment gain was $4.3 million and $7.8 million for the second quarter of 2025 and 2024, respectively, and related to realized and unrealized gains on our equity investment in Core Scientific Inc.

Previous wording

General and administrative expenses were $3.2 million and $3.5 million for the first quarter of 2025 and 2024. The decrease of $0.3 million was due to a decrease of $1.0 million in share-based compensation primarily related to forfeited awards, a decrease of $0.3 million in employee and related expenses primarily related to a decrease in headcount, and a $0.2 million decrease in insurance and property tax expenses. These decreases were offset by an increase in legal fees of $0.8 million related to the Gryphon Digital Mining, Inc. litigation and an increase of $0.4 million in costs related to strategic business growth.

Current wording

General and administrative expenses were $5.3 million and $6.4 million for the first six months of 2025 and 2024, respectively. The decrease of $1.1 million was primarily due to a decrease of $1.5 million in share-based compensation primarily related to forfeited awards, a decrease of $0.4 million in employee and related expenses primarily related to a decrease in headcount, a $0.3 million decrease in insurance and property tax expenses, and a $0.2 million decrease in director fees. These decreases were offset by an increase of $0.8 million in costs related to strategic business growth efforts and an increase in legal fees of $0.4 million related to the Gryphon Digital Mining, Inc. litigation.

Previous wording

Loss on disposal of property and equipment was $0.8 million and nil for the first quarter of 2025 and 2024, respectively, and related to the sale of mining equipment.

Current wording

Loss on disposal of property and equipment was $0.9 million and $0.7 million for the first six months of 2025 and 2024, respectively, and primarily related to the sale of mining equipment.

Previous wording

Our principal sources of liquidity are our existing cash, cash equivalents and available-for-sale equity securities. We expect to fund our operations going forward with existing cash resources, anticipated revenue from our Bitcoin mining operation, and cash that we may raise through future financing transactions. At March 31, 2025, we had cash and cash equivalents of $2.8 million compared to cash and cash equivalents of $5.4 million at December 31, 2024. As of March 31, 2025, we had working capital of $6.2 million, reflecting a decrease of $7.7 million since December 31, 2024 primarily related to a decrease in cash and an unrealized loss on our investment in equity securities. Cash management continues to be a priority and we are phasing out high-cost hosting contracts, leveraging our access to capital, and reducing our overall mining costs.

Current wording

Our principal sources of liquidity are our existing cash, cash equivalents and available-for-sale equity securities. We expect to fund our operations going forward with existing cash resources, anticipated revenue from our Bitcoin mining operation, and cash that we may raise through future financing transactions. At June 30, 2025, we had cash and cash equivalents of $4.7 million compared to cash and cash equivalents of $5.4 million at December 31, 2024. As of June 30, 2025, we had working capital of $9.6 million, reflecting a decrease of $4.3 million since December 31, 2024 primarily related to sales of our available-for-sale equity securities. Cash management continues to be a priority and we are phasing out high-cost hosting contracts, leveraging our access to capital, and reducing our overall mining costs.

Previous wording

Neither us nor the Sales Agent are obligated to sell any Placement Shares pursuant to the AGP Agreement. Subject to the terms and conditions of the AGP Agreement, the Sales Agent will use commercially reasonable efforts, consistent with its normal trading and sales practices and applicable state and federal law, rules and regulations and the rules of The Nasdaq Capital Market (“Nasdaq”), to sell the Placement Shares from time to time based upon our instructions, including any price, time or size limits or other customary parameters or conditions we may impose. Sales of the Placement Shares, if any, will be made on Nasdaq at market prices by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 of the Securities Act of 1933, as amended. For the three months ended March 31, 2025, the Company issued 210,448 common shares for approximately $0.1 million net proceeds, under the AGP Agreement.

Current wording

Neither us nor the Sales Agent are obligated to sell any Placement Shares pursuant to the AGP Agreement. Subject to the terms and conditions of the AGP Agreement, the Sales Agent will use commercially reasonable efforts, consistent with its normal trading and sales practices and applicable state and federal law, rules and regulations and the rules of The Nasdaq Capital Market (“Nasdaq”), to sell the Placement Shares from time to time based upon our instructions, including any price, time or size limits or other customary parameters or conditions we may impose. Sales of the Placement Shares, if any, will be made on Nasdaq at market prices by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 of the Securities Act of 1933, as amended. For the three and six months ended June 30, 2025, the Company issued nil and 210,448 common shares, respectively, for nil and $0.1 million, respectively, of net proceeds under the AGP Agreement.

Previous wording

Net cash used in operating activities. The use of cash during the first three months of 2025 was primarily a result of our net loss of $8.8 million, offset by $6.3 million in non-cash items, which primarily included an unrealized loss on investment in equity securities, depreciation and amortization, share-based compensation expense, loss on disposal of property and equipment, change in fair value of Bitcoin, and change in fair value of warrant liabilities.

Current wording

Net cash used in operating activities. The use of cash during the first six months of 2025 was primarily a result of our net loss of $7.1 million, offset by $3.6 million in non-cash items, which primarily included a realized gain on sale of investment in equity securities, unrealized loss on investment in equity securities, depreciation and amortization, share-based compensation expense, loss on disposal of property and equipment, and change in fair value of Bitcoin.

Previous wording

Net cash provided by investing activities. During the first three months of 2025, we received $2.1 million from proceeds from the sale of Bitcoin, and $0.2 million for the sale of 950 miners originally included in mining equipment, offset by $1.0 million of payments for the purchase of property and equipment consisting of newer generation mining machines. During the first three months of 2024, we received $1.5 million from proceeds from the sale of Bitcoin.

Current wording

Net cash provided by investing activities. During the first six months of 2025, we received $5.3 million from proceeds from the sale of Bitcoin, $4.8 million from proceeds from the sale of investment in equity securities, and $0.2 million for the sale of 950 miners originally included in mining equipment, offset by $1.2 million of payments for the purchase of property and equipment consisting of infrastructure for our Iowa mining site completed in 2025. During the first six months of 2024, we received $5.5 million from proceeds from the sale of investment in equity securities and $1.5 million from proceeds from the sale of Bitcoin.

Previous wording

Net cash provided by financing activities. For the first three months of 2025, we received $0.1 million of net proceeds from the issuance of common shares through our AGP Agreement.

Current wording

Net cash provided by financing activities. For the first six months of 2025, we received $0.1 million of net proceeds from the issuance of common shares through our AGP Agreement.