Sphere 3D Corp.

Previous wording

In January 2022, we commenced operations of our Bitcoin mining business and are dedicated to becoming a leader in the blockchain and cryptocurrency industry. We have established and continue to grow an enterprise-scale mining operation through the procurement of mining equipment and partnering with experienced service providers. In addition to Bitcoin mining, through December 28, 2023, we delivered data management and desktop and application virtualization solutions through hybrid cloud, cloud and on premise implementations by its reseller network. We achieved this through a combination of containerized applications, virtual desktops, virtual storage and physical hyper-converged platforms. On December 28, 2023, we sold our Service and Product segment which included HVE ConneXions and Unified ConneXions.

Current wording

In January 2022, we commenced operations of our Bitcoin mining business and are dedicated to becoming a leader in the blockchain and cryptocurrency industry. We have established and continue to grow an enterprise-scale mining operation through the procurement of mining equipment and partnering with experienced service providers.

Previous wording

We obtain Bitcoin as a result of our mining operations, and when necessary we sell Bitcoin to support our operations and strategic growth. We mine Bitcoin in Missouri, Texas and Iowa, which these states do not have any material state-specific regulatory restrictions on the mining of Bitcoin. However, it is possible that these states or other states in which we may seek to operate may create laws that would impede Bitcoin mining. We do not currently plan to engage in regular trading of Bitcoin other than sales to convert our Bitcoin into U.S. dollars. Decisions to hold or sell our Bitcoin is currently determined by management by analyzing forecasts and monitoring the market in real time. We have a hybrid treasury strategy to hold Bitcoin when possible, and sell to fund working capital requirements.

Current wording

We obtain Bitcoin as a result of our mining operations, and when necessary, we sell Bitcoin to support our operations and strategic growth. We mine Bitcoin in states that do not have any material state-specific regulatory restrictions on the mining of Bitcoin. However, it is possible that these states or other states in which we may seek to operate may create laws that would impede Bitcoin mining. We do not currently plan to engage in regular trading of Bitcoin other than sales to convert our Bitcoin into U.S. dollars. Decisions to hold or sell our Bitcoin is currently determined by management by analyzing forecasts and monitoring the market in real time. We have a hybrid treasury strategy to hold Bitcoin when possible and sell to fund working capital requirements.

Previous wording

As of December 31, 2024, we owned approximately 14,000 miners, of which approximately 6,300 were in service, and a total hashrate capacity of 0.76 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 developing a 8 megawatt (“MW”) site 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 third and fourth quarter of 2024 mining production 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 December 31, 2025, we owned approximately 12,600 miners, of which approximately 4,200 were in service and have 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 (“Iowa Site”). As of February 2026, with the sale of approximately 7,700 older generation miners not in service for 437 newer generation miners, we have approximately 5,300 miners and our refresh of our miner fleet is substantially complete. Vertically integrating with self-owned facilities, such as our 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 site, and refreshing our fleet with newer-generation machines.

Previous wording

As of December 31, 2024, we held approximately 14.9 Bitcoin. The fair value of our Bitcoin as of December 31, 2024 was approximately $1.4 million on our consolidated balance sheet. We account for Bitcoin as indefinite-lived intangible assets. Effective January 1, 2024, we early adopted ASU 2023-08, Intangibles - Goodwill - and Other - Crypto Assets (Subtopic 350-60): Accounting For and Disclosure of Crypto Assets(“ASU 2023-08”) and recorded a $20,000 decrease to the opening balance of accumulated deficit and an increase to cryptocurrency. The new guidance requires Bitcoin to be valued at fair value each reporting period with changes in fair value recorded in operating expenses in the consolidated statement of operations. The fair value of Bitcoin is measured using the period-end closing price from the Company’s principal market. When Bitcoin is sold, the gains and losses from such transactions are measured as the difference between the cash proceeds and the carrying basis of the Bitcoin as determined on a first in-first out (“FIFO”) basis and are recorded within the same line item, Change in fair value of Bitcoin, in the consolidated statements of operations.

Current wording

As of December 31, 2025, we held approximately 37.3 Bitcoin. The fair value of our Bitcoin as of December 31, 2025 was approximately $3.3 million on our consolidated balance sheet.

Previous wording

We had revenue of $16.6 million during 2024 compared to $21.9 million during 2023. The $5.3 million decrease in revenue is due to the decrease of $3.1 million in revenues from our Bitcoin mining operation and a decrease of $2.2 million in service and product. The Bitcoin mining revenue decreased 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 to relocate them and the majority of such machines are still pending redeployment. In addition, beginning the third quarter of 2024, we are in the process of removing our older mining equipment and replacing it with newer generation machines. This is expected to be an ongoing process through 2025, which may result in further fluctuations in exahash. There was also a decrease in revenues of $2.2 million related to our former Service and Product segment which was sold in December 2023.

Current wording

We had revenue of $11.2 million during 2025 compared to $16.6 million during 2024. The $5.4 million decrease in revenue is primarily due to the April 2024 halving event, and the process of removing our older mining equipment and replacing it with newer generation machines, offset by an increase in the fair value of Bitcoin. The refreshing of our mining equipment is expected to be an ongoing process through the beginning of 2026 which may result in further fluctuations in exahash. During the years ended December 31, 2025 and 2024, all of our revenue was derived from Bitcoin mining.

Previous wording

For the years ended December 31, 2024 and 2023, direct cost of revenues were $13.4 million and $15.9 million, respectively, representing a decrease of $2.5 million primarily due to lower hosting fees due to machines being taken offline to be relocated and the transition of removing older mining machines and replacing them with newer generation machines, as well the prior year disposal of our Service and Product segment.

Current wording

For the years ended December 31, 2025 and 2024, direct cost of revenues were $8.6 million and $13.4 million, respectively. The $4.8 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 and lower cost of revenue at our Iowa Site.

Previous wording

General and administrative expenses were $12.4 million and $15.8 million for the years ended December 31, 2024 and 2023, respectively. The decrease of $3.4 million was primarily due to a decrease of $1.2 million in legal fees associated with the 2023 litigation with Core Scientific Inc. and Gryphon Digital Mining Inc., a decrease of $0.9 million related to operating costs for our former special purpose acquisition company which no longer exists for 2024, a $0.7 million decrease associated with outside services related to our expansion into the cryptocurrency industry, a decrease of $0.6 million for employee and related expenses, a decrease of $0.4 million in investor relations, and a decrease of $0.3 million in insurance cost. These decreases were offset by an increase of $0.5 million in share-based compensation primarily related to awards to certain executives, and a $0.3 million increase in costs related to strategic business growth.

Current wording

General and administrative expenses were $8.3 million and $12.4 million for the years ended December 31, 2025 and 2024, respectively. The $4.1 million decrease was primarily due to a decrease of $2.0 million in share-based compensation primarily related to forfeited awards, a decrease in legal fees of $1.4 million related to the resolution of the Gryphon Digital Mining, Inc. litigation, a decrease of $0.7 million in employee and related expenses primarily related to a decrease in headcount, a $0.5 million decrease in insurance expense, and a $0.2 million decrease in directors’ fees. These decreases were offset by an increase of $0.8 million in costs related to strategic business growth efforts.

Previous wording

Depreciation and amortization expense was $7.1 million and $6.2 million for the years ended December 31, 2024 and 2023, respectively. The increase of $0.9 million was primarily due to depreciation related to our Bitcoin mining machines.

Current wording

Depreciation and amortization expense was $6.9 million and $7.1 million for the years ended December 31, 2025 and 2024, respectively. The decrease of $0.2 million was primarily due to less depreciation related to our Bitcoin mining machines due to the disposal of machines.

Previous wording

Impairment of property and equipment was $1.1 million and nil for the years ended December 31, 2024 and 2023, respectively, and related to idle mining equipment not expected to return to use.

Current wording

Impairment of property and equipment was $7.2 million and $1.1 million for the years ended December 31, 2025 and 2024, respectively. For the year ended December 31, 2025, an impairment of $7.2 million was recorded for the expected sales value of mining equipment primarily due to the decline in Bitcoin price. For the year ended December 31, 2024, an impairment of $1.1 million was recorded related to idle mining equipment not expected to return to use.

Previous wording

Loss on disposal of property and equipment was $3.5 million and $1.0 million for the years ended December 31, 2024 and 2023, respectively, and related to the sale of mining equipment. We sold 3,263 and 3,336 miners during the years ended December 31, 2024 and 2023, respectively, for proceeds of $1.0 million and $4.5 million, respectively.

Current wording

Loss on disposal of property and equipment was $1.7 million and $3.5 million for the years ended December 31, 2025 and 2024, respectively, and primarily related to the sale of mining equipment.

Previous wording

Impairment of other assets was $1.1 million and nil for the years ended December 31, 2024 and 2023, respectively, and primarily related to a $0.9 million impairment to our prepaid service fees held by Rebel Mining Company, and a $0.2 million impairment for an uncollectible other receivable.

Current wording

Impairment of other assets was $0.3 million and $1.1 million for the years ended December 31, 2025 and 2024, respectively. For the year ended December 31, 2025, an impairment of $0.3 million was recorded for the remaining portion of the Rebel Mining Company settlement that is in default. For the year ended December 31, 2024, an impairment of $0.9 million was recorded related to prepaid service fees held by Rebel Mining Company, and a $0.2 million impairment for an uncollectible other receivable.

Previous wording

Investment income was $9.0 million and nil for the years ended December 31, 2024 and 2023, respectively. In 2024, investment income related to a $4.1 million realized gain on the partial sale of our equity investment in Core Scientific Inc., and a $4.9 million unrealized gain on our equity investment in Core Scientific Inc.

Current wording

Investment income was $0.4 million and $9.0 million for the years ended December 31, 2025 and 2024, respectively, and related to realized and unrealized gains on our equity investment in Core Scientific Inc.

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 December 31, 2024, we had cash and cash equivalents of $5.4 million compared to $0.6 million at December 31, 2023. As of December 31, 2024, we had working capital of $13.9 million, reflecting an increase in current assets of $4.3 million and a decrease in current liabilities of $1.5 million primarily related to an increase in cash and the unrealized gain 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 our At-the-Market (“ATM”) facility. 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 December 31, 2025, we had cash and cash equivalents of $3.7 million compared to $5.4 million at December 31, 2024. As of December 31, 2025, we had working capital of $6.9 million, reflecting a decrease in current assets of $9.1 million primarily related to the sale of our investment in equity securities, and a decrease in current liabilities of $2.1 million primarily related to a decrease in accounts payable, accrued liabilities and employee compensation.

Previous wording

At-the-Market Offering Program. On January 3, 2025, we entered into a sales agreement (the “AGP Agreement”) with A.G.P./Alliance Global Partners (the “Sales Agent”). In accordance with the terms of the AGP Agreement, we may offer and sell from time to time through or to the Sales Agent, as agent or principal, the Company's common shares having an aggregate offering price of up to $8.0 million (the “Placement Shares”). The AGP Agreement can be terminated by either party by giving two days written notice. We expect that any proceeds received from the facility will be used primarily for working capital and general corporate purposes and in furtherance of our corporate strategy which may include to accelerate efficiency, for the purchase/upgrade of the Company’s mining fleet, and vertical integration of infrastructure.

Current wording

At-the-Market Offering Program. On January 3, 2025, we entered into a sales agreement (the “AGP Agreement”) with A.G.P./Alliance Global Partners (the “Sales Agent”). In accordance with the terms of the AGP Agreement, we may offer and sell from time to time through or to the Sales Agent, as agent or principal, our common shares having an aggregate offering price of up to $8.0 million (the “Placement Shares”). The AGP Agreement can be terminated by either party by giving two days written notice. We expect that any proceeds received from the facility will be used primarily for working capital and general corporate purposes and in furtherance of our corporate strategy which may include to accelerate efficiency, for the purchase/upgrade of our mining fleet, and vertical integration of infrastructure.

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.

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 year ended December 31, 2025, through the At-the-Market Offering program 112,791 common shares were issued for net proceeds of $0.7 million.

Previous wording

Management has projected that based on our recurring losses, negative cash flows from operating activities, and our hashing rate at December 31, 2024, cash on hand may not be sufficient to allow us to continue operations and there is substantial doubt about our ability to continue as a going concern within 12 months from the date of issuance of our financial statements 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. Included in our working capital is an investment in equity securities that we can liquidate as needed to assist in funding our operations. Our ability to raise additional funds for working capital through equity or debt financings or other sources may depend on the financial success of our business and successful implementation of our key strategic initiatives, financial, economic and market conditions and other factors, some of which are beyond our control. We require additional capital and if we are unsuccessful in raising that capital at a reasonable cost and at the required times, or at all, we may not be able to continue our business operations in the cryptocurrency mining industry or we may be unable to advance our growth initiatives, either of which could adversely impact our business, financial condition and results of operations. In an effort to mitigate these risks we expect to take steps to lower our cost of mining and also refresh our mining fleet to increase our mining efficiency.

Current wording

Management has projected that based on our recurring losses, negative cash flows from operating activities, and our hashing rate at December 31, 2025, cash on hand may not be sufficient to allow us to continue operations and there is substantial doubt about our ability to continue as a going concern within 12 months from the date of issuance of our financial statements 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 for working capital through equity or debt financings or other sources may depend on the financial success of our business and successful implementation of our key strategic initiatives, financial, economic and market conditions and other factors, some of which are beyond our control. We require additional capital and if we are unsuccessful in raising that capital at a reasonable cost and at the required times, or at all, we may not be able to continue our business operations in the cryptocurrency mining industry or we may be unable to advance our growth initiatives, either of which could adversely impact our business, financial condition and results of operations. In an effort to mitigate these risks we are taking steps to lower our cost of mining and also refresh our mining fleet to increase our mining efficiency.

Previous wording

Significant changes from our current forecasts, including but not limited to: (i) shortfalls from projected mining earning levels; (ii) increases in operating costs; (iii) decreases in the value of cryptocurrency; and (iv) if we do not maintain compliance with the requirements of Nasdaq and/or we do not maintain our listing with Nasdaq could have a material adverse impact on our ability to access the level of funding necessary to continue its operations at current levels. These factors, among others, should they occur may result in our inability to continue as a going concern within 12 months from the date of issuance of our financial statements. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and do not include any adjustments that might result from the outcome of this uncertainty.

Current wording

Significant changes from our current forecasts, including but not limited to: (i) shortfalls from projected mining earning levels; (ii) increases in operating costs; (iii) decreases in the value of cryptocurrency; and (iv) if we do not maintain compliance with the requirements of Nasdaq and/or we do not maintain our listing with Nasdaq it could have a material adverse impact on our ability to access the level of funding necessary to continue our operations at current levels. These factors, among others, should they occur may result in our inability to continue as a going concern within 12 months from the date of issuance of our financial statements. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and do not include any adjustments that might result from the outcome of this uncertainty.

Previous wording

Net cash used in operating activities. The use of cash during 2024 was primarily a result of our net loss of $9.5 million, offset by $6.4 million in noncash items, which primarily included an unrealized gain on investment in equity securities, realized gain on investment in equity securities, depreciation and amortization, share-based compensation expense, impairment of property and equipment, loss on disposal of property and equipment, impairment of other assets, change in fair value of Bitcoin, Bitcoin issued for services, and change in fair value of warrant liabilities.

Current wording

Net cash used in operating activities. The use of cash during 2025 was primarily a result of our net loss of $21.5 million, offset by $17.0 million in noncash items, which primarily included an impairment of property and equipment, a realized gain on sale of investment in equity securities, depreciation and amortization, share-based compensation expense, loss on disposal of property and equipment, provision for loss on other assets, change in fair value of Bitcoin, and nonemployee share-based compensation performance award expense.

Previous wording

Net cash provided by investing activities. During 2024, we received $11.4 million from proceeds from the sale of investment in equity securities and $1.5 million from proceeds from the sale of Bitcoin, offset by $7.1 million of payments for the purchase of property and equipment consisting of newer generation mining machines and $1.8 million in payments for construction in progress primarily for the mining site we have partnered with Simple Mining LLC to acquire and operate. During 2023, we sold 3,336 miners originally included in mining equipment, for cash proceeds of $4.5 million, our SPAC received $10.3 million from the redemption of the trust account and paid $10.4 million for the redemption of the redeemable non-controlling interest related to MEOA, and we paid $1.6 million towards Bitcoin mining machines and shipping costs.

Current wording

Net cash provided by investing activities. During 2025, we received $9.0 million from proceeds from the sale of Bitcoin, $8.0 million from proceeds from the sale of investment in equity securities, and $0.6 million for the sale of miners originally included in mining equipment, offset by $7.5 million of payments for the purchase of property and equipment consisting of newer generation mining machines and infrastructure for our Iowa Site completed in 2025. During 2024, we received $11.4 million from proceeds from the sale of investment in equity securities and $1.5 million from proceeds from the sale of Bitcoin, offset by $7.1 million of payments for the purchase of property and equipment consisting of newer generation mining machines and $1.8 million in payments for construction in progress primarily for our Iowa Site completed in 2025.

Previous wording

Net cash provided by financing activities. During 2024, we received $5.4 million, net, from the issuance of common shares and warrants. During 2023, we received $3.0 million from the issuance of preferred shares and warrants, $0.8 million, net, from the issuance of a convertible note, and $0.6 million from the exercise of stock options. These inflows were offset by $1.3 million of payments made on our convertible debt which was paid in full in August 2023.

Current wording

Net cash provided by financing activities. During 2025, we received $3.7 million of net proceeds from a warrant inducement transaction, and we received $0.7 million of net proceeds from the issuance of common shares through our At-the-Market Offering program. During 2024, we received $5.4 million, net, from the issuance of common shares and warrants.

Previous wording

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. We review our estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are outlined in Note 2 to the Consolidated Financial Statements included in this Annual Report on Form 10-K.

Current wording

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. We review our estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. Management has determined that there are no critical accounting estimates that require disclosure. Our significant accounting policies are outlined in Note 2 to the Consolidated Financial Statements included in this Annual Report on Form 10-K.