Good afternoon, and welcome to the Sphere 3D First Quarter 2015 Financial Results Call. Today's conference is being recorded. I would now like to turn the presentation over to Mr. Jim Byers at MKR Group.

Thank you, operator. Good afternoon, everyone, and welcome to this afternoon's conference call to discuss Sphere 3D's first quarter 2015 financial results for the period ended March 31, 2015. I would like to note that management, during the course of our discussion today, including the Q&A section of this call, will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Management may discuss future plans and prospects for revenue, product introductions, market conditions, competitive conditions, gross profit margins, spending levels, other financial metrics and relationships with third parties. We caution you that forward-looking statements relating to these and other subjects we may discuss, involve risks, uncertainties and assumptions that are difficult to predict. They are not guarantees of performance, and the company's actual results could differ materially from those contained in such statements. There are many factors that could cause or contribute to such differences, we refer you to the risk factors and cautionary language contained in today's press release announcing Sphere 3D results as well as company's filings with the Securities and Exchange Commission, including the risk factors, management's discussion and analysis and other sections of the company's periodic reports, currently on file with the SEC. We remind you that the company's forward-looking statements are based on current expectations and speak only as of this date. Sphere 3D undertakes no obligation to publicly update any forward-looking statements to reflect new information, events or circumstances after the date of this release and conference call. On the call today from Sphere 3D are Eric Kelly, Chairman and CEO; Peter Tassiopoulos, Vice Chairman and President; and Kurt Kalbfleisch, Chief Financial Officer. Eric and Peter will begin by providing an update on Sphere 3D's business and product strategy and Kurt will then follow and review Sphere's first quarter results. After Kurt concludes, Eric will have some closing remarks, after which, he will open the call for questions. Now with that said, I would like to turn the call over to Sphere 3D's CEO, Eric Kelly.

Thanks, Jim. Good afternoon, everyone. Welcome to our First Quarter 2015 Earnings Call. During our fourth quarter 2014 earnings call on March 30, we discussed quite a few things and initiatives that we wanted to recap. One, we talked about the integration of our product portfolio that we'd be delivering our innovation solutions to address the growing markets. We talked about the cloud markets, virtualization as well as the data storage. We also highlighted our growth strategy, expanding our strategic partnerships, specifically around our Microsoft alliance, would be able to allow us both to deliver on unique cloud offerings. We focused on investments on key growth areas. Our cloud virtualization, both public and private; our converged infrastructure, integrating -- integration of our broad IP portfolio; and then leveraging our global distribution and reselling network. We also talked about introducing new products to our installed base, which represents over 1 million units installed today. And then we talked about developing our key vertical markets, our education, vertical market, our healthcare vertical market and our government vertical market. And we really just talked about our vision, and I'd like to just address that again. Our vision is to support organizations and individuals to have access to applications on any device, anywhere around the world. And we're doing that by leveraging the 3D technology and providing -- that provides -- and delivering unique ways to create, manage and retain information, all driven forward so we can actually improve the productivity of our work in our lives. And one -- another thing that we talked about was through the transformation and the acquisition that we did with Overland really expanding our estimated addressable market. So today, when you look at the market that we're able to address, it's over $50 billion. One of the…

Thanks, Eric. First off, everyone, let me thank you guys for joining us today, taking the time out of your busy schedule to hear about what we've been working on. I think Eric didn't mention it, but I'll mention it. I'm sure you guys can tell, this is not a taped call. For those who understand from the last call, we decided it's probably best to do this one live and give you guys also a much longer opportunity to ask some questions today, so I'm going to try to keep it brief. So I just wanted to do a quick recap. A couple of verticals that we've been focusing on, why they matter to us, and some of the recent success. First off, of course, you guys are probably quite familiar with how much work we've been putting into going after that educational vertical market. Just to sort of recap why, I mean, we're talking about a market that's spending about $19 billion globally on technology for the classroom. If you look at the trends in the market today, I don't think you could pick up a newspaper and not read an article about another school or school district who's buying devices for their students or trying a bring-your-own-device deployment to try to put technology in the hands of these kids and help them find new ways to learn and access information. So if we look at that, let's just do a quick recap, some of the news you've already seen. As you know, we had announced a school district who deployed Glassware earlier. And just recently, we announced something about a region who have actually partnered with us to deliver our technology into their region. Now this particular region is in the Southern U.S. It's about 1 million…

Thank you, Peter. It's interesting as we're preparing for the call, we realized it was just 30 days ago when we actually had our last earnings update. And it's amazing on the -- the amount of progress and the momentum that we've picked up in 30 days. And we're making a pretty strong pivot. The company is pivoting to become a software company, focused on virtualization, cloud and mobility. We're going to continue to leverage our foundation in terms of our channel, our partners and our technology and our installed base. But we're focusing on our high-growth areas. We're shedding the areas in the businesses that we are -- that we consider commodities, our low-margin businesses, and focusing on the technology and the growth ahead of us. I just expect to see -- just what we rolled out, you should expect to see similar progress in the next 30 days. And I just want to say thanks to the team on behalf of the executive team and the employees on behalf of the work that they've been doing as they've been working around the clock. And I look forward to seeing everyone in New York on the 15th of June. Now I'd like to turn the call over to Kurt Kalbfleisch to give you the update on the financials.

Thank you, Eric. Good afternoon, everybody. Let me provide some detail on our financial results. Please note that following our financial highlights of our first quarter 2015, our reported financial results reflect the addition of Overland operations for the full 3 months, as the acquisition was completed on December 1, 2014. This is the first full quarter of results for the combined company. Total revenue for the first quarter of 2015 was $20.1 million compared to $0.9 million in the same quarter of 2014. OEM revenue for the quarter was $4.1 million or 20.4% of total revenue, with branded product revenue of $13.1 million or 65.2%, and warranty and service revenue of $2.9 million or 14.4% of total revenue for the quarter. Regionally, the branded product revenue was 14% in APAC, 30% in the Americas and 56% in EMEA. As Europe branded product shipments are currently sold and billed in euros, there was a negative impact on revenue during the quarter due to the exchange rate fluctuation. The change in exchange rates during the quarter reduced our total top line revenue by approximately $1 million during the first quarter. Total product revenue for the first quarter was $17.2 million, while warranty and service revenue in the first quarter totaled $2.9 million. Total product revenues from the same period last year was $0.8 million, and there was $0.1 million of warranty and service revenue. Disk systems and virtualization revenue was $10 million in the first quarter of fiscal 2015 compared to $0.8 million for the first quarter of 2014. Tape automation and other tape-related products was $7.2 million. As this category of products was contributed from our acquisition in December 2014, there is no comparable amount in Q1 of 2014. Our gross margin for the first quarter was 29.6% compared to…

Thank you, Kurt. What I'd like to just recap with is, when you -- when I mentioned the third platform, that's really the definition by IDC in terms of mobile, Big Data and social, which is applications. We actually call it internally kind of the next-gen architecture which is beyond the cloud. But I think what I'd like to do now is turn the call over to the operator, so we can open up and answer your questions. Operator?

[Operator Instructions] And our first question comes from Krishna Shankar with Roth Capital.

Eric and Peter, can you talk about the timeline for ramping up revenues with some of these new, strategic arrangements that you have with the Microsoft Azure, and also with the 2 vertical markets you have talked about, education and healthcare, in terms of the timeline of rollout of both the cloud virtualization and storage offerings, kind of how the revenues will ramp?

Chris. It's Eric. Yes, I'll start, and I'll let Peter jump in. I think in terms of the timeline of the rollout, we actually said a week from today, and hope you're going to join us in Silicon Valley, we'll be rolling out and announcing and showcasing our Glassware and Azure. We'll be showing our software-defined storage platform inside of Azure as well as how the hybrid solution works. And we have -- with the announcement that we just made today, I think we highlighted that we will have a 90-day rollout, and we'll continue to roll out the solutions at Novarad. So it's really just running as fast as we can, Krishna. We have more opportunity than we can actually handle. So we're pretty excited about that. We haven't given any forward-looking projections in terms of the revenue, but I think just understanding, putting your platform inside of Microsoft Azure, you now have a global footprint. So you look at the customers, if you don't have access to your technology, both on the virtual app side as well as the virtual storage side. We have signed a pretty significant contract with Novarad. So a lot of opportunities, but we haven't really started giving forward-looking projections in terms of the timeline of the revenue. I don't know, Peter, if you like to add that to that as well?

No, I mean, the one thing I can tell you is that, as you know, Krishna, with the new models come -- new revenue models, obviously, having the consumption model out of the cloud will allow us to ramp up probably a little bit quicker than what we've seen so far. We spent a fair bit of time trying to lay the foundation, so that the ramp-up period gets shrunk to the lowest possible period.

Okay. And then in terms of the traditional standalone products, whether it is storage, the tape backup, can you talk about how those are doing in the new organization and some of the headwinds that you've seen in terms of the macro, whether it's Europe or FX? So can you talk about those trends and how they will shape up in the second quarter?

Well, so I'll let Kurt talk about the FX, but the exciting thing, Krishna, and what we're seeing happening, and Peter just gave an example. As we broaden our solutions, both from a physical to a hybrid solution, the cloud is actually increasing the demand for the traditional product line. Because if you think about if you want to have storage, you either want to have it on-prem or in the cloud. And a lot of times, they want to have both. They want to have a enterprise solution, where they can have disaster-recovery footprint, either on-premise or in the cloud. So by -- if you just think of the hybrid-converged market, I mean, I think that's growing over 30% year-over-year. So we're hitting some really strong inflection points. We're seeing some really strong pain points in terms of what's happening. But as Peter highlighted, you started off with Glassware, but then they looked at -- they needed to use it -- our virtual desktop. And by the way, they need storage. So if you think about the strategy that we laid out, it's actually coming into fruition in terms of having that complete solution. And to be frank, I mean, when you look at the IP that we have, I mean, we're one of the few companies that actually can deliver that full suite of solutions from a virtualized application to a virtualized desktop to a virtualized storage infrastructure. And that was the -- I talked about this, Krishna, for quite some time, the overall strategy in terms of how you pull all this IP together, how you make sure you to have what IDC calls "the third platform." And I can tell you when we met with them, they didn't expect Sphere 3D to be the leader in the third platform. And so you see a lot of that happening, and I think it's helping us on both sides of the equation. Sort of a long answer to your question. I think you'll want -- Kurt can talk about the FX impact, because we do have a major part of our business in Europe.

Krishna, yes, this quarter was a bit unique obviously versus anything that the company had experienced in the past, related to the significant move in the Euro and dollar relationship during the quarter as compared to the prior quarter. And with all of the number of sales that we have going into Europe that are built that way, that's why I pointed it out in my prepared remarks, that this was a unique quarter in that respect, and we obviously have not seen that type of movement since that time. And so obviously, not knowing what's going to happen in the future, but we certainly are keeping an eye on it in relation to our practices on a quarterly basis.

And we have made -- and Krishna, this is Peter. We have made some adjustments as well since the first quarter to account for the change in the FX.

Okay. And then just one follow-on question, Kurt. I see the press release regarding the private placement that you did to your -- this afternoon. So can you talk about kind of the cash position now and what kind of the OpEx trends and the cash burn might be near term in the June quarter?

Yes. We've obviously, we were able to hold the number basically flat on our cash between December and March with what we had in place. We felt it was important in order to make sure that we can support the growth objectives that we have out there, that we did a little bit more on the capitalization side. And that's why we went forward with this private placement as well as the expansion of the existing line of credit that we have with FBC. We have an agreement in principal on that as well to allow the ability to operate moving forward.

And we'll go next to Sammy Milton, private investor.

I wanted to ask about the Microsoft relationship in regards to after the roadshow and so on, and showcasing the Glassware technology at the Microsoft Centers, whether you see Microsoft further on marketing, sort of the Glassware solutions up to -- also actively from their side.

Sammy, this is Eric. Yes, the relationship and the alliance we have with Microsoft is long term. I mean, what we've rolled out you is Phase 1. So it's going to be a much -- we're very happy with the relationship. I mean, Microsoft and -- has been very instrumental, understanding our technology. They see the requirement, not just here in the U.S., but on a global footprint, in terms of what Glassware, what our virtual enterprise NAS solutions can provide to their customer base as well as ours. So this is a long-term partnership. And I think what you're seeing now, I can tell you is just the beginning.

And we'll go next to Hubert Mak with Cormark Securities.

As you guys indicated here, you have new products being launched as going forward here in the next few weeks and going forward. Some of these are coming from partnerships like Microsoft and -- or Novarad. How do think about the sales pipelines building here? And how quickly can these turn into revenue here? And then as well, earlier this year, you provided sort of a goal here for Q4 around $40 million in revenue or $160 million annualized run rate. Like how much are these partnerships accounting for that ramp from what we have today, about $21 million revenue to your goal here in Q4?

Sure. It's Eric. I think it was a 2-part question. I don't know, Peter, if you want to take the first part.

Sure, absolutely.

Okay.

So as you know, Hubert, putting together these types of relationships, as is evidenced by the time it took for us to announce the Novarad rollout schedule, they take some time. So when we sat back and looked at what this year would look like and set organizationally our targets, we obviously were familiar with the projects we were working on, right? And so naturally, what we were working on from a cloud perspective, what we're working on and -- with Novarad, and what we're working on with many others are all part of contributing to that growth ramp. And of course, we've been at this for quite some time, so we took those into account as to where the growth is going to come from. It includes some of the new products that you're seeing right now, yes.

I think that was part 1 and part 2.

I think it's important to reiterate what Eric said as well is, it's also -- there is some shedding that's taking place of what we consider -- are products that we don't consider part of our core, right, and products that we don't really see as being part of our approach to the virtual workspace and solution-based selling. And that's also sort of accounted for in terms of what we've been doing.

Okay. And then, on the cost side, what's the thought here on the gross margin? Should we expect that to move up as these new products get rolled out hitting in the back half of this year. And sorry, I may have missed the answer on the earlier question, but -- as well. I guess that related -- is the OpEx here, obviously, the question is, are there -- is there going to be any increase in OpEx with these new products -- like to support these new product launches?

Yes, this is Kurt. I'll take those. As we move forward, we haven't given you any specific indication obviously, of percentages. But we do expect to see, over the course of the year, improvements in gross margin as the product mix changes and moves more towards the cloud offerings, et cetera, as a percent of the total revenue. And I believe that was the first question, and I'm sorry, your second?

It's regarding the OpEx, whether there is any recent, I guess, sales or marketing or any of infrastructure increases.

Hubert, this is Eric. I mean, when you look at where we are today, I mean, the exciting thing is that we are hitting a pretty amazing inflection point. You think about the opportunities, whether it's with Novarad, whether it's with the school district that has over 1 million students, and you think about all the other opportunities that we discussed in the past, you start looking at the requirements to make sure that you can manage the growth. And so I don't know if it's a OpEx spend, but it's definitely going to be opportunities where we're going to have to leverage our balance sheet to make sure we can handle the growth. And that's the exciting part, right? I mean, that's what, quite frankly, we've all been waiting for to hitting this inflection point, so we can achieve kind of the opportunities that we've laid out. I don't know, Kurt, if you want to add to that or...?

No, the only thing I'd state is, specifically related to OpEx, we've made some adjustments since the combination in December. And we're going to be very strategic as our spending goes forward, and that was -- that will be laid out in more detail. But going forward, we don't expect to see significant expansion on the OpEx line.

And we'll go next to Jim Kennedy with Marathon Capital.

I want to drill down a little bit more on what Hubert was referring to. Help me with one thing first. We reported a stub at the end of '14 of about $9 million top line, if I recall correctly, and that was for about a 30-day period. Kind of -- can you reconcile that for me as to why I could not say, quarterize that into a $25 million, $27 million quarter? What was -- what happened in December that did not happen in the first quarter?

Yes, Jim, this is Kurt. Let me go ahead...

Kurt, hang on a second, because I can give you a very simple one, Kurt, before you go a long road. I think there is, and I've heard this question a couple of times, Jim, so thank you for asking it in a forum where everybody can get the answer. That was 30 days of the Overland business and 90 days of the Sphere business. So a simple times 3 wouldn't equate to the quarter, is the answer.

Okay. So that was 30 days of Overland...?

Right, because there was 30 days of Overland, but a full 90 days of Sphere 3D. So if you just multiplied it by 3, that wouldn't be a true reflection. The other part is -- for your having been I guess, an Overland shareholder for a while, as you know the third month is usually slightly above -- not always, but quite often, could be a little bit higher than the first couple of months of a quarter. But it's not -- unfortunately, it's not 100% linear to multiply it by 3, because there was different businesses for different periods of time at different cycles of the quarter. So you need the full quarter to start to assess it in order to look at what the actual quarter-by-quarter comparisons are. Kurt, how did I do?

Okay. This quarter going forward, are you going to delineate the revenue based on either the areas that Eric talked about, or the Sphere versus storage areas?

Jim, let me go ahead -- let me just expand on Peter was talking about in your first question. Historically, when you look at the business related to the acquired side from Overland, usually, better than 50% of the quarter was driven in that final month of any quarter for us. And that was stuff we'd made public. That wasn't a secret, so that -- in addition to the specifics around the full 90 days related to Sphere and the 30 days related to Overland, that third month in the December quarter is usually about 50% of the total revenue, if not better, related to the acquired assets.

Okay, fair enough. Now on a go-forward basis, will you be providing some clarity on the revenue in terms of the sources?

At this point, at a future date, we probably will. But we don't have that in the plan right now. We're currently going to continue to report on the distributions we have and not bifurcate those sections further at this point.

Okay, and coming back to Hubert's question about the $40 million last quarter. Are you -- I mean, I can't imagine any reason why we would be going backward from a top line perspective. If $40 million is the target for the last quarter, should we expect something somewhat linear? Or are you looking at this thing being very back-end loaded?

Yes, Jim. Thanks for asking the question. When you look at kind of the foundation we laid, it's going to be back-end loaded. I mean, what we're looking at, if you think about the ramp with what we've laid out with Novarad, we laid out with Microsoft, et cetera. It won't be linear. And I would not expect kind of then -- I have never seen an inflection point linear. So I wouldn't expect this one to be linear. But you -- what we've been trying to do and -- is provide the measurement so everyone can see what -- how the foundation is being laid out, such as the contract with Novarad, such as the contract with the school regent. I mean, so you can start looking at how we're layering the revenue plan to accomplish what we laid out. And just to kind of highlight a little bit more from, and Peter will probably weigh in on this as well. In terms of -- from a competitive standpoint, we want to make sure. That we don't lay out too much detail in terms of how the virtualization business is growing relative to the rest of it. And if you look at, I think Amazon just made their announcement. I think it was the first time that they've ever broke it out after billions of dollars of revenue. So we're trying to make sure. That you get as much visibility into kind of different parts of the business, but not put us at a competitive disadvantage as we start running the table on some of the things that we're working on.

Okay. And then on the OpEx side, I can't quite tell from the release, I'm sure it will be in the Q, but approximately what's our OpEx run rate?

Jim, the run rate this last quarter we were at $13.3 million in -- I'm sorry, $13.6 million in OpEx. And that, as we stated in my remarks, includes about $1 million worth of amortization associated with the intangibles.

Okay. So that's a GAAP number?

The $13.6 million is a GAAP number.

Okay. And non-GAAP was -- I you see you got, what, about $2 million in depreciation and amortization?

Yes. In total, our depreciation and amortization is $2 million.

Okay. So you've got -- it looks like about $2.6 million coming out of that. So your non-GAAP OpEx is somewhere in the $11 million range?

Yes, I think in the $11 million to $11.5 million, and on an annualized basis, it will be around that $45 million run rate based on the first quarter.

Okay. And I'm sorry, I think this may have been answered earlier, but do we expect that number to trend down or we're not commenting on that yet?

We're not commenting on the exact trend, but I would not expect to see it trend down.

And We'll go next to Patrick Lauder [ph] with P&L Consultants.

Yes. Just a couple of questions. One is could you update us on the project that you're having with Ericsson to create a point of concept. I think it's something that we're all interested in. And the other thing is -- well, I'll let you deal with that and I'll ask the second next.

Peter, you want to take that?

Yes, sure. So Patrick [ph], unfortunately, we're not actually in a position to discuss where we sit with Ericsson, other then what's already been announced. So I'd love to, but I can't give you any more color at this point around Ericsson. Anything changes, obviously, we would definitely be out there either through PR or through our next update to keep our shareholders up to date. But there is not much that I can add at this point, unfortunately.

It's still in place the other thing [indiscernible]?

Correct. Yes, yes. No, there has been -- we're still involved. I just can't give you an update as to what that means.

But will we be getting an update at one point this year?

Well, we do our best to try to keep our shareholders as informed as possible. And certainly, anything that we do that requires us to come out and talk about we will, without a doubt.

The other question is are you still standing by that goal of $160 million run rate by the end of the year?

Yes, absolutely. So that's still our plan. And we're trying to -- I'm sorry, go ahead.

And over time, this year, will you actually make a -- make that more solid from a goal to an actual sort of official -- I forget the word. It escapes me. But make it a bit more solid than just your goal is to make that type of thing?

I'm not sure what you mean by that Patrick. Can you kind of make it solid versus a goal. Can you update that?

Yes, well, usually something just come out with an amount that the stock market come to what that is as the earnings come out type of thing that make a bit more solid in goals.

Eric, I think Patrick [ph] is asking you whether it's deemed guidance.

That's it. Guidance is, in fact [indiscernible]. Sorry, I'm getting so old here.

Okay. No, I mean, Kurt, you can address that if you like. But we've come out with our kind of with our benchmark in terms of what we're planning for. And I'm not sure, what else you would like us to say about that, Patrick [ph]. [indiscernible]

Patrick [ph], this is Kurt. As we move through the year, we will certainly be providing some additional details on the forthcoming quarters. But at this point, I think that's about all we can say.

Okay. The last question is, I guess you couldn't talk about this, but I'll ask it anyway. Is there any involvement with you and Microsoft in their actual server operating system with the containerization stuff?

Yes, well, we think you already answered that question.

Sorry. Well, just in case, no, we can't answer that. Okay? Sorry, Patrick [ph].

[Operator Instructions] We'll go next to Michael Cappuccitti with Foster & Associates.

Fortunately, I suppose, gross margins FX and the private placement were all answered. So...

It's amazing how fast 30 days go by. And when we, I'd say, when we were preparing, it was amazing that we just we just -- we just talked on March 30. And it's amazing. And again, hats off to the team and the 24/7 hours they're spending. And I would just say hats off to our partners. I mean, once they saw what we were doing, I mean, I think anyone who's been in technology, I've been in technology for over 30 years. I won't to tell you, it's almost 35 years. And when you have an alliance partner, such as Microsoft or -- and they move that fast, it kind of gives you indication on their belief and the market opportunity with the technology and the partnership. Because it wasn't just us moving fast, 30 days. There was our friends and our partners there in Redmond moving just as fast.

And we'll take a follow-up question from Hubert Mak with Cormark Securities.

Just a quick question here on this Novarad announcement you just had today, are you able to give us sort of the relative size of this deal, given you guys kind of talked about 400 facilities, like you don't have to give me an exact number but can you kind of us a range of the relative size of this. And then just so we can frame it compared to other partnerships like Microsoft? Like what was this -- right, can you give us color on that?

So I'll do my best. Obviously, we can't disclose the financial metrics or else we would have loved to have done so, right, in the press release. What I can say is understand that these 400 locations vary in size dramatically. And they're everything from small radiology clinics to substantial hospitals that are using this Novarad product within their radiology departments. What it does do for us is give us a foothold. And I haven't done the homework on this so don't quote me on this one, Hubert, but I haven't come across a single multisite deployment of virtualization anywhere near the scale, not in the sense necessarily of end points in terms of just sheer number of locations. And when we're done, what Novarad will have completed, is basically have put in place the ability to upsell and continue to deliver end points as users require them and given our product and brand access to probably the largest single, again, deployment for virtualization across healthcare facilities. Even though, again, like I said, it's not from a number of endpoints. I think as the third quarter rolls out, then you'll start to see probably some more metrics around what each location is worth. And I think we'd have to leave it at that but we could probably walk you through maybe just some of the sizes of their customers when they're willing to disclose that and you could probably do your own math from there.

Yes, okay. And just a quick follow-up on that as well. Obviously, there's a combination of products here. Are there any recurring revenue opportunities?

Yes. There is. Absolutely, yes. Yes.

But is the majority -- like is there a relative size of it, more storage or...?

Without getting into the exact detail, there is opportunity in storage because storage, obviously, acts as a razor-razor blade model. But we're talking about virtualization. So there's definitely an opportunity for recurring revenue.

And our next question comes from Wesley Root [ph], private investor.

I have a question regarding -- first of all, it was, for me, a disappointing quarter. I'm not sure that's a great comment but just based on a general overview, it seems like Sphere 3D didn't crank up the software capabilities very quickly. In conjunction like with the app, as a further question, one of the things that concerns me about some containerization, Microsoft seems to promote the partnership aspects of Docker and/or other complements, if you will. At the same time Peter Bookman, who is associated with your company, talks about Sphere 3D being the first and only capability with Microsoft. Do you have any comments on that?

Yes, Wesley [ph] ...

This is Peter.

Go ahead, Peter. Go ahead. Thanks for asking the question, Wes. Go ahead, Peter. Go ahead.

Yes, so let's talk about that. And so I believe that Peter had wrote a blog, and I can't wait to see it actually published. And his blog was titled "What's in a name? That which we call a rose by any other name, would smell as sweet." And really, the interesting thing about that is, containers, as referred to, for Docker are Linux-based containers with no heads on them. No head means no UI. We are the only container technology out there that can fully containerize and deliver a full functioning end user computing-based application. Part of the confusion in the market is using the word application. I say app to you, and depending on the context, you're either thinking about Angry Birds, or you're thinking about a microservices running in a server room, or if you're thinking about virtualization, you're actually thinking about Microsoft Office. But they're all called apps. And this is where the confusion starts around containerizing apps. Being able to deliver Microsoft-based containers for Microsoft workloads that include a head or UI, something that you or me would use on our desktop is something that is unique to us. And the fact that you can run a Linux-based container on Microsoft server doesn't give you the ability to bring Microsoft Office and put it inside of Docker. You're not going to run Microsoft Office in Docker. You just aren't. And so...

So can we run [indiscernible] Docker application that would otherwise be innocuous to what's going on with what's they're able to offer through Microsoft?

What -- so what -- again, what they're offering through Microsoft is the ability to take a Linux-based kernel and put it inside of a VM sort of run Microsoft.

I heard you on that. I asked you a further question. Can we then use that application and make that available on Microsoft?

Correct.

Okay. That's what I was asking.

Absolutely, yes. Absolutely. Sorry, I misunderstood the question, Wesley [ph]. But -- yes, so I'm hoping that gives a little clarity because I know this question has been asked before. It is a very unique thing to ask. And when you hear about Nano Server, which I believe they announced about a week ago to optimize the use of containers, you're talking about no UI. So Nano Server won't even support anything with a UI.

So this is all beating[ph] all of this then you're saying? Was that their offering [indiscernible] next week or what?

Our technology is the only container-based technology that will allow you to run full functioning Microsoft workloads. The kind of workload that you and I would use in a workstation [indiscernible].

So is there something on the 20th or the 27th then?

I can't comment on what we'll be talking about on 20, 27. However, hopefully, you can make it out.

And we'll go next to Brian Sim [ph] with Dan Rogen Management Group [ph].

Yes, I have a couple of questions. One, it's been discussed a number of times about this $160 million run rate. Do you expect this to be backloaded towards the final quarter in the year or can we expect a steady increase quarter-by-quarter?

Brian [ph], this is Kurt. I think Eric previously answered that, but you may have missed it. We -- He did state that we do expect the year to be more back-end loaded. But that's not to state that there will not be incremental increases between here and there.

Okay. Second question. I noticed in the financial report, as reported, that now it shows 35 million shares outstanding. Does this reflect the most recent $1.2 million financing you just announced?

It does not.

Can we expect further dilution then to come?

Yes. At this point, we're -- we wouldn't comment on any future type of offerings that we may or may not go on and that's why wanted to make sure that the activities that we close out were out there today for everybody's consumption.

And we'll go next to Jim Kennedy with Marathon Capital.

Quick follow-up. On the financing, how many different folks were involved there? Was that 1 investor or multiple investors? And are they current shareholders?

Jim, this is Eric. Yes. They're both current shareholders, strong supporters. It was 2 investors.

We will go next to Scott Shafer [ph], private investor.

The Peer Set technology, last week was the announcement on 2 patents, which -- they weren't new, but you talked about this Peer Set technology. Can you explain what it does and the problem it solves for storage?

Sure. Scott [ph], this is Eric. Yes. The combination of those patents really solidified kind of our claim to the Peer Set technology. And what it allows you to do is a couple of things: one, it allows you to have what we kind of claim as the next level of high availability because if you think about this and you have one device replicating to another device. Our architecture allows you to have one device replicating to multiple advices, which means if one -- if the drives go down or 1 node goes down or a second node goes down. So you have much higher availability. It also allows you to have what we call geocluster, which now you can have 3 nodes, 3 nodes in 2 different -- or 3 different geographies, but all thinking together. So it really is kind of the next generation of cluster filesystem that you're able to deliver. The other thing you're able to deliver, Scott [ph], is to be able to have these nodes in really dispersed geo, so New York, San Francisco, et cetera. It also allows you to really scale. So if you think about this, we now have the architectures of 36-node -- 36,000-node capability, which means we can scale this to hundreds and hundreds of petabytes. And you think about the current architectures out there, they may get to maybe 20% of that, 30% of that, scalability. So it's an architecture that's been developed by us for, I would say 7, 8 years. And it's one that we're pretty excited about. We actually just made an announcement, a case study with a firm in France that selected us over the competitors because of the salability because of the performance and because of the high availability, which they needed. So it's setting a new standard out there. And hope we find the answer to -- I'm sorry, go ahead.

And who would be the typical customer? And how quickly would it be installed? And how quickly could you generate revenue from it?

Well, I mean, the good news about it is it's very straightforward to install. So the complexity is really inside not outside so you can drop it into your current infrastructure. The sales process really varies. Typically they will start off with a 3-node cluster, half populated and then it will grow. For example, the case study we announced just recently. They started very small and they grew to over 100 terabytes, just over several months. So you'll start seeing more traction with that. You'll start seeing even some more technology...

Any examples of companies that would need this?

Yes, sure. I'm sorry. So I mean, and pretty much anyone that wants high availability, let's say, Bank of America, Chevron, any corporation that looks -- that needs high availability, I just named those companies off the top of my head. So don't take it as we're engaged with them but it's companies that need high availability cluster file systems. It can be Sphere 3D with our global footprint. So you can start with medium-sized companies all the way to the large Fortune X corporations.

And let me add to that, Scott [ph], because this is very, very important. With the Peer Set technology, the Stripe In [ph] technology, the speed at which we can actually store data and the fact that it's designed for unstructured data more so than structured, 80% of the data being created today falls into the category that would need a product, that would look like SnapScale versus some of the current bell weathers that are selling some pretty big numbers, but their product's not necessarily geared up towards this type of growth. And so if you look at it, which is kind of unique, if somebody wants to tell you the company that is going to be able to offer the most scalable architecture for storage in the world, it's actually Sphere 3D, I mean, would you believe it? And the reality of it is that not by a little but by a lot. And so if we look at the capacity for what we do for SnapScale, we're not only the most scalable product in the market, up and out, which is unique to us. It's by a significant factor.

Okay. Can you shift your data between public and private?

It becomes a cluster. So you can actually cluster up and have data storing to the cloud back to your device. They see them as nodes. And so today, Eric's talked about virtual Snap. And being able to put it up in the cloud, your device and your location, Scott [ph], will see that cloud-based virtual version as a node. And it will write to it as if it's local. And if you're logged in to your virtual one, you can assign a local node and it will see it as part of its cluster. And absolutely, yes. It's very exciting.

So you can split it up?

Absolutely.

Yes, if I can just add to that, Scott [ph], because I mean, that's one of the unique and exciting features, that if you think about owning your own operating system, that was one of the key partnerships with Microsoft. Because we actually can put that market -- that operating system on our physical device. It also can see -- be in a virtual environment in the cloud and they can talk to each other whether they're physical and virtual. And so you have the replication going back and forth, you have the high availability both on-premise and also from a global footprint. So yes, I mean, you're absolutely right in terms of kind of where we've taken this technology. I mean, so when people talk about software-defined storage. They really didn't think about the next generation software-defined storage that's also the hybrid solutions in the cloud or on any physical device. And so, you'll see that...

Okay. When you write the data, you're using software. So this is software?

It's all software. It's our own operating system. It's all software.

License, channel revenue share, how are you -- what's the revenue model with that?

All of the above.

We have -- it's a perpetual as well as a subscription depending on what side of the fence you're staying on, whether you're in the cloud or on-premise.

These cloud offerings will actually build by the hour, Scott [ph]. Literally, they will build by the hour.

Okay. So when you see this offering, Peter kind of hinted to it, you now have the ability, not just a subscription model for the year, for the month. It can be by the hour. And so when you have burst requirement and you have your physical device and you're maxed out, you now can leverage that in the cloud and vice versa. So it's very exciting, it's very exciting.

So what you're doing, from apps, desktops to storage, you're doing it all? And as a final -- the end part, the storage part is really the biggie, where you're able to shift the data around, where you want -- have access to it. And with Glassware, you'd be able to retrieve it, any device in the operating system. So you're kind of soup to nuts and all the way back again with this?

Soup to nuts, the entire workflow and yes, there is kind of a thesis that's out there. If you have someone using your applications and they're using your infrastructure, they're going to use your storage and vice versa. So you want -- soup to nuts is probably the best way to describe it.

And our last question comes from Patrick Lauder [ph] with P&L Consultants.

Just a final follow-up question. There's a lot of discussion on the web and the chat boards and stuff about your role with Microsoft and people are trying to down -- some people are trying to downplay it, thinking it's just like any other standard partnership that Microsoft has with thousands and thousands of companies that are trying to sell their apps. So basically, without divulging, I know you can't divulge it too much. But will we understand that relationship by the end of this year. And will we understand the relationship more starting on the 20th and the 27th, or will we understand it more deeply after the 15th?

Well, I mean, the good news, Patrick [ph], I don't go to the chat boards. I don't know what they're saying. But I can tell you in terms of the partnership that we have and the relationship we have and the alliance we have with Microsoft is brought from technology to productization, to marketing, to sales. And we're collaborating on all fronts. So in my 30 years, I've had a lot of opportunities to work with Microsoft and other companies like them. And this is as broad as it gets. So...

Yes, if I could add to that, Patrick [ph], and not just specifically to Microsoft, we don't see any reason that we would announce on the agreement, where somebody became just our supplier. So I think, if that's what you're alluding to, that's not what this is.

Okay. And will we know more about it as the year goes on. I mean, will you give...

Absolutely.

Absolutely.

Over time. Absolutely.

And Patrick [ph], where are you located?

I'm up in Montreal, Canada.

Okay. I was going to say...

June 17 in Toronto. It's not that far. It's only a 5-hour drive.

June 17. And if you need to come sooner, come down to New York on the 27th.

Yes, I think I have another visit on, actually, June 15 at New York ringing the bell there. That's the one that sounds interesting. Could I just ask a -- possibly if you can help us out with this question. On your site, because there was a note saying that Microsoft was going to be a keynote speaker and then all of a sudden it disappeared. Are they the keynote speaker that day?

Well, we will roll that out. But if you saw it on the site, it was probably just we just got a little ahead of ourselves. But yes, I think I may have mentioned it on the call, we do have a special event. They will be there with us on the 15. And so definitely come down to...

Yes, that's what I'd be coming down to. [indiscernible]

Come on down, you will -- we expect it to be standing room only but we have a lot of things to show. The executive team, Peter will be there. So you have a chance to meet all of us in person. So yes.

Sounds good. It's not every company that Microsoft attends and is a keynote -- they're ringing the bell now. Just -- you seem to stand out just because of that.

Well, it's kind of what Peter said. It's just not a typical partnership or a typical supplier announcement.

And we have no more questions in queue.

Well, operator, I think what I'd like to do is just hold for just a few minutes because last time we disconnected too quick, and there may be some questions coming up. So we want to make sure that we don't do that again. So we'll just see for a few seconds if there's any other questions before we disconnect.

[Operator Instructions] And we do have another question. We'll go to Chris Wilson [ph], Chorus Connection [ph].

Just a real quick one. With regards to the CUSIP change that you made, has there been any resolution to that at this point of time? Or on top of that, any resolution or reconciliation of the delist potential shares that were down the TSX, when you made that move?

Sure. I can handle that one. So Chris [ph], I'm not sure exactly what you're asking but from a resolution perspective, if you're referring to whether or not the number of shares reported short on the NASDAQ system reconciled previous activity in Toronto, the answer to that is not that I'm aware of. No. Not sure how the regulator goes about doing that reconciliation and from a corporate perspective, really, there's not much that we can do to address it. So at this point, unfortunately, the answer is no, I don't believe it's addressed it and no, there really isn't much that we can do, but it's not something within our control.

Is it something that's of concern to you because counterfeit shares, in general, tend to be a concern to most other large, say, funds and things, other entities that might be interested in either covering your product or sorry, covering your company or taking a position in the company. Until that gets resolved, some might be a little bit scared away from doing anything.

I can't comment on what would drive those types of decision processes, but we have to have faith in the regulatory bodies to do their job. And there's really not much else we can do as a company.

And we will take a follow-up question from Patrick Lauder [ph] with P&L Consultants.

Yes. I was just going to ask the same question he did but now that has been answered. I'd just like to say that the conference call this time was outstanding. Last time we suffered a bit, we couldn't ask any questions but this time the whole presentation for me [indiscernible] very good.

And we'll go next to John Bach with Whitmore Advisors.

Yes, you certainly have made great progress on the last 30 days. I was just wondering, if you could give any color on the Glassware client product that might be sold through Promark to individual end users. Has there been any more development on that? And the second question is a little more pointed. Is Microsoft a customer user of Sphere 3D products or will they simply be having an embellished partnership?

Eric, I could probably take both. John, true to form, we knew you'd ask questions that we probably can't answer. But let me start with the first one. We don't actually intend on doing a consumer direct type product through Promark, if that's the question that you're asking. Is Promark a distributor? Yes. They're an extension of Ingram Micro and absolutely, there is Glassware transactional business that takes place through distribution but it's to authorized partners. And so you have to be an authorized partner to get access to the product. And so that's how we do that. But I don't believe we have any intentions on actually delivering, at this stage, a product that will be geared towards a consumer even prosumer. Having said that, when Glassware is available from the cloud, anybody who wants to go out and put up, stand up a VM with Glassware is more than capable to do so. And as for the second, I can't expand on the relationship. I think we've already covered so much on our relationship there. And in fairness, we're doing a lot more than just Microsoft. But at this point, we really can't. We can't really disclose any more than we already have.

All right. One other question with regard to your storage product. Obviously, there've been a lot in the papers about, see, police departments and their -- I guess, go -- like Go Pro cameras. And I have had many discussions with a major department and they have outlined that the biggest problem is not spending $4 million, $5 million on the cameras but the storage, thereafter, and -- is what their bigger issue is because it will grow exponentially because they have to save those -- all of the film for an indeterminate amount of time at the present time. So what, if any, strides have you made in the government/security policing vertical?

John, thanks for the question. I mean, one of our verticals that we do very well in is on the video surveillance side. And when you look at the entire solution, you hit right on the button. They're using our storage Nav [ph] product. And they're also combining that with our tape library because if you think about short-term versus long-term archival, they have to make sure they have all that storage for 20, 30, 40, 50 years. And the best place to do that and the only place to do that is on your long-term archival solution. So that is, again, you look at the suite of products, I mean, it fits the total -- it fits that market perfectly. And we're having success, not just here in U.S., but we're having it throughout Europe as well in terms of home video surveillance and what's going on, not just police departments, but just -- all of the security issues throughout Europe, where they're trying to make sure they store that data and they keep it and need to have access to it real-time, in case something does happen.

And John, just so you know, the last -- earlier in the call, I mentioned one of our school districts purchased storage with the enhanced security that was specifically designed around the new requirements, schools are putting cameras on buses. And so this has to do with our archiving footage from a surveillance -- for child safety on the buses. So yes, incredible opportunities for storage. And let's face it, Internet of Things is around the corner outside of what it's going to do. The networks in the world, it's -- from a storage perspective, I mean, what an incredible opportunity for us.

We will go next to Scott Shafer [ph], private investor.

A follow-up here. Can you walk us through a school purchase -- say, the announcement yesterday with the southern state. When a school -- you have 1 million students, do they come to you and say, we need to virtualize such and such program, you provide it. Then you tell the school what device it goes on or is it the device is there and then you put Glassware on the device? Who determines the device?

So that's a great question, Scott [ph]. What we're seeing right now is interesting. It's mostly schools that are either already purchased their device or in the process of a multi-segmented device purchase. And as you know, many schools they pull budget over a period of time. And so they may buy, if they have a 1,000 students, they may by 300 this year, 300 next year, 300 the year after that. In most cases, what we're seeing is the schools have the devices or a portion of devices on hand is how they started. What's transpired in the last probably 60 days is request coming from schools' pre-device purchase, wanting to make sure that we're compatible with the device they're contemplating, which is really exciting for us, right, to be in that position. But in most cases, what will happen, the school will come to you. They'll tell you the applications that they need to be delivered in a virtual setting. They will tell you the multiple endpoints that they need those delivered to. And then what you will do is you'll price it in 2 manners: one, for what their anticipated concurrent use case is; and two, if they have any burstible requirements. And what I mean by burstible is a school may turn around and say, "Look, I have --" and I'm just using round numbers again. "I have 1,000 kids in my school and in any given time, 1/3 of those kids are using an application. So I need concurrent use for 333 kids. However, when it comes time to testing all 1,000 are going to be on. So I want you to give me some kind of capability to also do 1,000 tests." And so we will go in, and in this case, we go in with somewhat overbuilt appliances that have special enterprise licensing designed for that bursting. In the future, we'll offer them the ability to use on a per hour basis out of the cloud. And therefore, they can buy the appliance for their concurrent users, closer to their kids, less latency because there's no network involved. And when it comes time to testing, they can burst to the cloud and pay per hour during testing. And that's the model that's being deployed now.

The bandwidth issue, how -- are you guys able to overcome a lot of -- you see a lot of problems with schools not having a proper network. Are you able to overcome that?

So the schools, once they move to the device world, they upgrade their network. They have really no choice. Have we come across network issues? Of course, right? Anytime, you try to put an additional 10,000 devices on a network, you're going to see some problems, but these are reached prior to our involvement, right? I mean, this is part of what gets scoped during the actual decision to deploy the devices locally, right, because those devices are going to connect to their network whether Glassware or virtualization's on board or not.

Okay. One last question. It's going to be tough here, but -- bookings, can you give us an idea of what you have, any $160 million run rate by the end of -- by the fourth quarter? Is there any way we can break down each division, where the biggest growth is coming from, where you're most excited, where are you seeing the biggest demand? Can you give us a sense of...

Not yet but, Kurt, have we given an indication of how we feel about the tape part of our business?

What we've stated on the tape part is we don't expect to see significant growth but we hope to hold it relatively consistent throughout the year. So based on that and the 2 categories that we've laid out in our financials, that can lead you where the growth is going to be coming from.

Well, it's not as granular as you like, Scott. I can tell you that the growth is not going to come from tape. That's not our intent. Okay? I'm sure that doesn't help.

You said $160 million run rate or Eric said $160 million run rate a while ago. That was before Microsoft, Novarad and the school -- the states deal. So did that...

Did it go up? If that's -- so we're not prepared to comment, because if we do, it's like giving you guidance, right? The only way I can capture this is some of what we were working on, we were working on a while ago. So we knew what we were doing in terms of what we were including or not including. But if we get any more granular, it's like changing the number, and we're not ready do that.

And we will take a follow-up question from Patrick Lauder [ph] with P&L Consultants.

Sorry about that. I'm a consultant, an IP consultant, through a cable company out here in Québec, which also has major offices in Ontario. And I'm not too far from your Ontario office. Now how busy are you guys, I mean, because I've been trying to -- I've been -- already made initial efforts to get the people of where I'm working to contact you because we're rolling out products that your product could help us. We're selling to commercial, commercial clients and stuff and selling them applications and stuff, small companies don't have IP. I mean, could I have a -- are you guys are too busy to handle other clients? Because at some point we were trying to get a hold of you and...

Patrick [ph], we're never too busy to have new customers. So I think we have your phone number, we'll call you after this.

Because I have a person, he is almost a VP and he was open -- I had a big, long discussion with him at a sight I've set and he was very open to it. But I think I need some sort of -- they put these things on the desk and they never get to them. But if I could person that I could actually contact. May I have his name and contact information?

That will be great. I'm sure my sales team is probably listening to this and they're going to run into the room right after this, and there's where you can get the contact. I mean, we're -- as you know, we're having a lot of demand. We have a lot of interest in the platforms and technology but we will definitely follow up and make sure that we address your customer and make sure we take care of him. Absolutely.

And we have no more questions in queue.

All right. So with that one, I guess, we can -- and thanks, Eric, for pausing before your last time. So with that one, this time we can sign off saying, "Okay. I'm glad we had the opportunity to address your questions." And make ourselves available to your questions and follow-up. And Eric, I'll turn it over to you for any closing remarks.

No. I think, again -- I thank everyone for their time. I mean, we wanted to make sure. We understood where we were, kind of our direction, kind of just how much traction and what's happened over the last 30 days. And I can tell you this on our side. We're excited about what's happening, we're amazed that 30 days went by so fast and we're looking forward to updating you on our progress the next quarter. And so with that, operator, I will conclude the call. And again, thank you for your time and thank you for interest in Sphere 3D.

This concludes today's call. Have a wonderful day.