Sphere 3D: Investors Falling For The Same Old Tricks, Fair Value Is Zero

Apr.14.14 | About: Sphere 3D (ANY)


Sphere 3D is a carbon copy of Biosign Technologies, with the same management team and tricks.

Chief Executive Officer Peter Tassiopoulos is a man with a checkered past.

Sphere 3D has never released a commercial product.

The company has paid out salaries that are 20 times its investment in R&D (which is only $200k since inception).

Microsoft is amongst a number of well-capitalized competitors.

Following questionable characters involved in past fraudulent schemes is one of the most successful approaches to identifying compelling short-selling candidates. A background check of the insiders at Sphere 3D (TSX:ANY, SPIHF) reveals what may be a hard pill to swallow for current investors: That Sphere 3D's management is most likely misleading you. Sphere 3D is a mirage! Not only that, the management has pulled this trick at least once before. Below, we will outline its shady history and how it is repeating what it did with Biosign Technologies (TSX:BIO, OTC:BITKF) during 2010 to 2011, but with a different shell company. The companies have the same CEO, the same management team, almost the same press releases, the same partners and are telling nearly identical stories. Long investors, you have been warned: get out now.

What Is Sphere 3D, and What Does It Do?

Sphere 3D is a development stage software company. Its flagship product, Glassware 2.0 (yet-to-be-released), is an ultra-thin application virtualization system that will allow any device to access any software virtualized on a private cloud. Sounds amazing, right? But there is another company that does the same thing. You may have heard of it: Microsoft (NASDAQ:MSFT). And while Microsoft has decades of successful products and billions in revenues and profits, Sphere 3D could not be more different. It has been around for five years and has lost at least $5.2 million since inception, with no meaningful intellectual property or revenues to date. It begs the question: How can a company that has spent less than $200k cash on R&D, which should be the core of any emerging cloud software company, possibly have a market cap of $209 million?

Let's examine Sphere 3D's history of de minimis revenues and persistent losses. As the table below presents, the company has generated only $671,000 in revenues during its entire existence, while losing a total of $5.2 million. But the true picture is even worse, as revenues have deteriorated to the point that revenue in the past twelve months is zero. In spite of this, the company is paying out salaries that account for more than half of its losses and are 20 times greater than its investment in R&D.

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Is There a Single Product?

The fact that Sphere 3D has no revenues should not be surprising to anyone, since its products have never amounted to more than a pile of words! Over and over again, the company announces that it is developing software, but since its inception in 2009, it hasn't commercially released a single product.

Here's a brief teaser on select software releases over the past few years.

  1. In December 2010, Sphere released Ralii Server Software 1.0, and promised chipset emulation software in early 2011. The company said: "We shall be placing it in a production environment in early 2011". Needless to say, nothing has been heard on the software since. The product never existed.
  2. More recently in March 2013, Sphere 3D released Surf To Go, an app that allows the use of Firefox on the iPad and was released in the Apple App Store on December 19, 2012. If you read closely, however, you will see it was not actually released by Sphere 3D. Instead, the product was released by a company named Imhotep Technologies, which is located in Mississauga (a city in Southern Ontario that also happens to be the headquarters of Sphere 3D). The product is no longer available. The company states "In the first 60 days, without any advertising or promotion, there were over 5,000 registration requests that came from a multitude of countries around the World. The registration rate has increased from less than 2 per day to over 300 per day in that period." These numbers are laughable - real apps, like BBM by Blackberry, which was released in October 2013 on Android and iPhone devices, had 10 million downloads in the first 24 hours. The app was subsequently pulled from the market - presumably to allow the company to develop a beta version. Once again, however, nothing about Surf To Go has been heard since. Sphere 3D has hinted that Surf To Go is a proof-of-concept product of its flagship Glassware 2.0 technology, but if the technology was ready in December 2012, why pull a beta version? Why has no one seen a Glassware 2.0 beta outside of company-controlled demonstrations? At the end of the day, it was as if the product never existed.
  3. Sphere 3D announced a "partnership" last July with Overland Storage (NASDAQ:OVRL) that looks very suspicious. I will spare you the details, but Overland shareholders should be asking their CEO where his loyalties lie. He was personally granted 850,000 options (with an exercise price of only $0.65), while Overland itself was issued a maximum of 769,231 shares. It is mind-boggling that the CEO would personally receive such significant compensation: he is currently sitting on a profit of at least $6 million, and his stake in Sphere 3D is at least seven times the value of his stake in his own company. Talk about a significant conflict of interest.
  4. Later in 2013, Sphere 3D established a partnership with Corel, the maker of Corel Office, a distant competitor to Microsoft in the office software space. Notwithstanding that Corel has no product in the app store, this press release makes it seem like the company is a reseller of Corel's product. "The Company believes in the power of portability and Corel® Office so strongly, that they will be offering a Sphere 3D Corel® Office Bonus Promotion - a complimentary bonus downloadable PC version of Corel® Office (valued at $49.99) to 5,000 randomly selected users that register before October 31st, 2013 at Sphere3D.com/RegisterforCorel". The press release also states "Sphere 3D will be launching the public beta version of their new Glassware 2.0™ app for Corel® Office in October". We are six months past October, and this beta product doesn't exist. Again, it's just another broken promise.
  5. Early in 2014, Sphere 3D announced the acquisition of V3 Systems, which sells Desktop Cloud Orchestrator (DCO) software and associated custom-built servers. Can anyone imagine Microsoft acquiring another company that designs word processors? Acquiring another DCO software and server company makes no business sense to Sphere, especially given it apparently already has both.
  6. The deal Sphere 3D announced last week with Dell appears to be nearly identical to a "deal" Biosign inked with Dell, as I will discuss further below.
  7. Finally, regarding Sphere 3D's flagship product, a few questions: Has anyone seen this thing in action outside of a company-controlled environment? What are the technical specifications of the software? Which partners is Sphere 3D working with? Who are the developers? How is this Glassware 2.0, when Glassware 1.0 is nowhere to be found? Has anyone seen Glassware 1.0? Investors holding Sphere 3D shares should definitely ask Peter Tassiopoulos these questions before sinking another dollar into its stock.

The Checkered Past of its CEO Makes the Stock a Screaming Sell

Peter Tassiopoulos has been a senior executive of multiple companies, and appears to be a perennial entrepreneur, but the reality could not be more different. Based on his track record, Peter's mere involvement in any publicly listed company should raise a huge red flag for investors, as his ventures have failed one after another. In fact, I can find no evidence that Tassiopoulos has ever been associated with even one successful business venture in the last 15 years.

Let's go through his business history:

  1. In the early 2000s, Tassiopoulos was an engaged consultant for Bach-Hauser Inc., which later became Financial Access Technologies, and then ABV Gold, and now Pharmacom Biovet (OTCPK:PHMB), which currently trades at hundredths of a penny (but Tassiopoulos did manage to walk away with some money). Bach-Hauser's key players, the people to whom Tassiopoulos had consulted, faced litigation from the SEC for illegal promotion, and later settled.
  2. Per a Biosign investor presentation, Tassiopoulos was formerly CEO of Healthanywhere Inc.:

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Note that Tassiopoulos does not have Biosign or Healthanywhere in his biography on the Sphere 3D website, nor does he mention that he was ever CEO of Biosign on his Linkedin profile. But Healthanywhere is very relevant, since it is basically a prior version of Sphere 3D. "Healthanywhere is a world leading innovative eHealth solutions provider…Clinical efficiencies are realized by providing healthcare professionals real-time health information… anytime, anywhere." Does this sound familiar? It should, "Glassware 2.0™ enables you to surf anywhere, anytime!". Tassiopoulos and his friends cannot even come up with new material for their latest scheme.

Déjà Vu

It is astonishing that Tassiopoulos and his team are running the same scam they perpetuated at Biosign - and investors are falling for it again! Biosign traded as high as $2.56 on February 11, 2011 - and has since fallen more than 98% to today's level of $0.04. So what happened? Tassiopoulos and his friends happened, that's what.

The playbook is nearly identical, starting with the same executives:

The stories are nearly identical as well:

Like Sphere 3D, Biosign announced multiple deals, all of which amounted to nothing: DynamiCARE in Mar 2010, DLF in April 2010, McMaster University in July 2010, ALQAEM International in August 2010, ALQAEM again in February 2011, Peconic Bay Medical in March 2011 and Dell in March 2011. Biosign even made a few acquisitions: Cloud Diagnostics LLC in June 2010 and Healthanywhere Inc. in October 2010. All of the promises between 2010 and 2011 ultimately pushed the stock to highs, but when the promises failed to turn into actual revenue and profits, the stock price collapsed.

Like Sphere 3D, Biosign suffered never-ending losses on negligible revenues, as shown in the table below.

Finally, when someone at Biosign smartened up, Tassiopoulos was fired in April. His friend, Director Jason Meretsky, followed him days later.

The most comical similarity is that Sphere 3D and Biosign apparently share press releases. Consider this Sphere 3D press release, which was apparently copied and pasted from a Biosign one, as the typo shows:

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For another example of a nearly identical press release, consider the deal Sphere 3D just announced with Dell, Here's an excerpt: "'The addition of Sphere 3D's solutions to Dell DRIVE Plus ensures that we are offering the most robust virtualization experience possible for our EHR customers,' said August Calhoun, Ph.D., vice president/general manager, Dell Healthcare and Life Sciences. 'Through this collaboration with industry leaders we are able to deliver a truly innovative reference architecture for healthcare systems.'"

The language is very similar to what was in the press release when Biosign announced a deal with Dell "'We are pleased to provide hosting and technical support to enhance the usability and availability of Biosign's health monitoring technologies', stated Berk Smith, Vice President & General Manager Dell Services Healthcare & Life Sciences. 'Dell and Biosign both recognize and seek to leverage the power of the cloud to provide meaningful global healthcare solutions to users around the globe.'"

Here is another copy-and-paste example: Sphere 3D has filed three patents that appear to be identical: Systems and Methods of Managing Access to Remote Resources, Systems and Methods of Optimizing Resources for Emulation and Systems and Methods for Managing Emulation Sessions.

Lastly, the software developers at Sphere 3D appears to have learned from Tassiopoulos' playbook. Kumar GK and Ganesh KK's LinkedIn profiles feature virtually identical backgrounds. (The identical parts are highlighted in red):

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The Use of Stock Promoters

On March 6, 2013, Sphere 3D hired the investor relations firm USA Investor Link for a fee of $10k/month and options worth $2 million. Please note that $2 million is more than the cumulative revenue to date in the history of the company! Does USA Investor Link even have any other current clients? Sphere 3D is also promoted by How to Find Big Stocks, and here's the pump report.

Background on Sphere 3D's Founders and Largest Shareholder

Sphere 3D's founders, Mario Biasini and John Morelli, started Sphere 3D by having the company pay for $695,000 to purchase their asset, which allegedly has the proprietary software that's at the heart of Sphere 3D today. Neither Biasini nor Morelli has significant public company experience, and Biasini can't even spell "cheif" (as in Cheif Technology Officer) on his LinkedIn profile. Meanwhile, Morelli has previously been charged with potential embezzlement of funds.

Sphere 3D's largest shareholder, Pinetree Capital (PNP.TO, PNPFF), is managed by Sheldon Inwentash, who happens to personally be the company's second-largest shareholder:

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This is very unusual. Is Inwentash breaching his fiduciary responsibility to his shareholders? This wouldn't be surprising given that he has been probed by the OSC.

Conclusion: Don't Be the Last Sucker Holding the Bag!

Before sinking a dollar into Sphere 3D, ask the following questions:

  1. Are any of Sphere 3D's announced partnerships real?
  2. What intellectual property does Sphere 3D actually own?
  3. If it does own any IP, how did it develop it without any material R&D spending?
  4. Why are salaries 20x spending on R&D?
  5. Will Sphere 3D ever release a product?
  6. With a story so similar to Biosign's, why would the outcome be any different?

In summary, Sphere 3D is nothing more than a promotion - and it's not even a very clever one. It's blindingly obvious. It has no technology, not even a beta version of it, and of course, no revenues - nothing but unending losses funded by gullible investors. The company and its stock are worthless.

Disclosure: I am short SPIHF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am also short ANY, which is the Canadian listed ticker for Sphere 3D