Assets

Current

Cash and cash equivalents

Investments

Subscriptions receivable

Sales tax recoverable

Amounts receivable

Property and equipment

Investments

Liabilities

Current

Shareholders' Deficiency

Common share capital (note 7)

Other equity (note 8)

Revenue

Expenses

Cost of goods sold

Salaries and consulting

Professional fees

General and administrative

Technology development

Public company expenses

Amortization of intangibles

Amortization of property and equipment

Loss from operations

Financial income (expenses)

Interest income

Interest expense

Net comprehensive loss for the period

Loss per share

Basic and diluted

Weighted average number of common shares

Cash flow from operating activities

Net comprehensive loss for the period

Items not affecting cash

   Adjustment for depreciation

   Adjustment for amortization

   Stock compensation expenses

   Interest on long term investments

Change in working capital:

   Change in investments

   Change in sales tax recoverable

   Change in accounts receivables

   Change in inventory

   Change in prepaid and sundry assets

   Change in trade and other payables

   Change in deferred revenue

   Change in subscriptions received

Net cash used in operating activities

Cash flow from investing activities

Acquisition of property and equipment

Investment in technology

Net cash used in investing activities

Cash flow from financing activities

Proceeds from common shares, net of issue costs

Net cash used financing activities

Net increase/(decrease) in cash and cash equivalents

Cash and cash equivalents at opening

Cash and cash equivalents at closing

General Information

Sphere 3D Corporation (the "Company") was incorporated under the Business Corporations Act (Ontario) on May 2, 2007 as T.B. Mining Ventures Inc. The Company is listed on the TSXV, under the trading symbol “ANY” and has its main and registered office of the Company is located at 240 Matheson Blvd. East, Mississauga, Ontario, L4Z 1X1.

On December 21, 2012, the Company completed its Qualifying transaction (the “Transaction”) with Sphere 3D Inc. (“Sphere 3D”) and changed its name to Sphere 3D Corporation. The Transaction resulted in the Company acquiring 100% of the issued and outstanding securities of Sphere 3D through a securities exchange (see note 6). Accordingly, the former security-holders of Sphere 3D acquired control of the Company through a reverse takeover. The accounting parent in the reverse takeover was Sphere 3D. Therefore, the consolidated financial statements are presented from the perspective of Sphere 3D and the comparative figures presented prior to December 21, 2012 are those of Sphere 3D. The results of operations of the legal parent, Sphere 3D Corporation, are included from the date of the reverse takeover.

Sphere 3D Inc. is a technology development company focused on establishing its patent pending emulation and virtualization technology. These condensed consolidated interim statements include the financial statements of the Company, its wholly-owned subsidiary, Sphere 3D Inc., which was incorporated under the Canada Business Corporation Act on October 20, 2009, and its wholly owned subsidiary, Frostcat Technologies Inc., which was incorporated under the Business Corporations Act (Ontario) on February 13, 2012.

These consolidated financial statements have been prepared on a going concern basis which presumes the realization of assets and discharge of liabilities in the normal course of business for the foreseeable future. At June 30, 2013, the Company had working capital of $562,892 and an accumulated deficit of $4,719,261.

The Company’s future operations are dependent upon its ability to secure additional funds or secure sales contracts (or both), which provide the Company with adequate funds to cover the cash flows projected for the next year. If the Company does not secure such contracts, or if it cannot secure additional financing, the Company will have to consider additional strategic alternatives which may include, among other strategies, exploring the monetization of certain intangible assets, modification of planned operating expenditures, or the sale of the Company or its subsidiaries. It is not possible to predict whether the Company will be successful in securing new contracts or securing additional financing. These factors raise substantial doubt as to the Company’s ability to continue as a going concern. These consolidated financial statements do not include adjustments to the amounts and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.

Statement of Compliance

These condensed interim financial statements have been prepared using the same accounting policies and methods of computation as were applied in our most recent audited annual financial statements for the year ended December 31, 2012.

These condensed interim financial statements have been prepared in accordance with International Accounting Standards (“IAS”) 34 “Interim Financial Reporting” (“IAS 34”) using accounting policies consistent with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).

Statement of Compliance (continued)

These condensed interim financial statements do not include all of the information required of a full annual financial report and are intended to provide users with an update in relation to events and transactions that are significant to an understanding of the changes in financial position and performance of the Company since the end of the last annual reporting period. It is therefore recommended that these condensed interim financial statements be read in conjunction with the most recent audited annual financial statements of the Company for the year ended December 31, 2012, which are available at www.sedar.com.

These condensed consolidated interim financial statements were approved by the Board of Directors on July 31, 2013.

Basis of Preparation and New Accounting Standards

Basis of preparation

The condensed consolidated interim financial statements of the Company have been prepared on an accrual basis and are based on historical costs, modified where applicable. The financial statements are presented in Canadian dollars unless otherwise noted.

Significant estimates and assumptions

The preparation of condensed interim financial statements in accordance with IFRS requires the Company to make estimates and assumptions concerning the future. The Company’s management reviews these estimates and underlying assumptions on an ongoing basis, based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in the period in which the estimates are revised.

Estimates and assumptions where there is significant risk of material adjustments to assets and liabilities in future accounting periods include the useful lives of equipment, the recoverability of the carrying value of intangible assets, fair value measurements for financial instruments, the recoverability and measurement of deferred tax assets, and contingent liabilities.

Critical judgments exercised in applying accounting policies that have the most significant effect on the amounts recognized in these condensed interim consolidated financial statements are:

Significant judgments

The preparation of financial statements in accordance with IFRS requires the Company to make judgments, apart from those involving estimates, in applying accounting policies. The most significant judgments in applying the Company’s financial statements include:

Basis of Preparation and New Accounting Standards (continued)

Intangible Assets

Investment in technology

On December 31, 2010, the Company acquired all rights and assets related to the emulation and virtualization technology from Promotion Depot Inc., in a non-arms length transaction, in exchange for 1,000,000 shares of the Company’s common stock. Since the fair value of the assets received are not readily determinable, the investment was valued based on the $695,000 fair value of the shares received by Promotion Depot Inc. The technology acquired is still in the development stage and not in commercial use. As such, amortization of this asset has not commenced.

Patents

On January 16, 2012, the Company filed 3 preliminary patents in Canada based on the technology acquired in the investment in technology. In January 2013, the Company extended those preliminary patents to the United States and in March 2013, the Company filed an additional 3 preliminary patents in the United States.

Balance at December 31, 2011

Additions

Balance at December 31, 2012

Additions

Accumulated

Balance at December 31, 2011

Additions

Balance at December 31, 2012

Additions

Date of completion of the Qualifying Transaction

Date of issuance of TSXV exchange bulletin announcing the commencement of trading of the Company’s stock.

On March 4, 2013, the directors of the Company approved the award of 100,000 options, which vest in 4 equal quarterly amounts, exercisable for 5 years, with a value of $18,500. The fair value of the options issued was estimated at the date of grant using the Black-Scholes model with the following weighted average assumptions: (I) dividend yield of 0%; (II) expected volatility of 60%; (III) a risk free interest rate of 1.71% (IV) an expected life of 3 years; (V) an exercise price of $0.85 and (VI) a share price of $0.60. Expected volatility was based on comparable companies.

On March 5, 2013, the directors of the Company approved the award of 320,000 options, which vest in 4 equal quarterly amounts, exercisable for 5 years. The related contract was subsequently cancelled, during its trail period, and the options expired prior to any vesting.

Share Capital (continued)

On April 17, 2013, the directors of the Company approved a fiscal 2013 compensation plan for the Independent directors of the Company. The plan calls for the payment of $7,500 per quarter to the Independent directors, which can be paid by cash or the issuance of common stock, at the Company’s discretion, subject to TSXV approval. In addition, each of the independent directors was awarded options to purchase 25,000 shares of the

Company’s common shares. The award of 75,000 fully vested options, exercisable for 10 years, was valued at $14,000. The fair value of the options issued was estimated at the date of grant using the Black-Scholes model with the following weighted average assumptions: (I) dividend yield of 0%; (II) expected volatility of 60%; (III) a risk free interest rate of 1.71% (IV) an expected life of 3 years; (V) an exercise price of $0.85 and (VI) a share price of $0.60. Expected volatility was based on comparable companies.

Related Party Transactions

Related parties of the Company include the Company’s key management personnel and independent directors.

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly, including any director (whether executive or otherwise).

Legal services of $30,394 (2012 - $39,232) were provided by a legal firm affiliated with a director of the Company.

Amounts owing to related parties at quarter end included in accounts payable total $12,714 (2012 - $2,039)

Subsequent Events

On July 16, 2013, the Company entered into a Supply Agreement and a Technology Licensing Agreement with Overland Storage, Inc. (“Overland”), and which grants Overland the licensing rights for the enterprise market.

Pursuant to the Supply Agreement, the Company has agreed to procure cloud infrastructure solutions from Overland, for the next ten years. Furthermore, during the first three years of the Supply Agreement, the Company is permitted to pay for purchases through a combination of cash and stock. During this period, half of any purchases will be paid in cash and half in stock, up to a maximum of $3 million in total purchases.

The first $500,000 in stock, which was issued at closing of the Agreement, has been satisfied through the issuance of 769,231 common shares of the Company, at an ascribed price of $0.65. Sphere shall pay an additional $500,000 in common shares of Sphere 3D on each of the first and second anniversaries of the Agreement. The number of common shares to be issued shall be calculated based on the 10 day average of the closing price per common share of Sphere 3D ending 3 trading days prior to each of the anniversary dates; up to a maximum of 769,231 common shares will be issued on each date. Such Sphere 3D shares shall be subject to a four months and one day hold period from the date of issuance in accordance with applicable Canadian securities laws.

Pursuant to the Technology License Agreement, the Company has granted a license for its

Glassware 2.0™ technology to Overland for the enterprise and business market. In return, Overland paid a fee to the Company of $500,000. The fee was satisfied through the payment of $250,000 in cash and $250,000 in shares of Overland. Additionally, the Company shall receive a royalty on future sales of the licensed technology.

On July 16, 2013, the Company’s directors elected Mr. Eric L. Kelly to the board of directors and appointed Mr. Kelly as Chairman of the board. Mr. Kelly is a director of Overland Storage, Inc. and its Chief Executive Officer and President. Mr. Kelly’s appointment is intended to assist in the commercialization of the Company’s technology.

In conjunction with Mr. Kelly’s appointment, the board has, subject to regulatory and shareholder approval, agreed to award Mr. Kelly stock options to purchase 850,000 share of common stock of the Company, at an exercise price of $0.65 per share. The options, which vest quarterly, subject to certain rights of acceleration, and are exercisable for up to 10 years, require the approval of the shareholders for both an amendment of the option plan, from a “rolling” 10% plan to a fixed 20% plan, and the number of options awarded.