Sphere 3D Corp.ANY
Sphere 3D Corp. Income Taxes Disclosure
Income Taxes
At December 31, 2025, the Company had U.S. federal and state net operating loss carryforwards of $183.5 million and $16.3 million, respectively. U.S. federal net operating losses do not expire and will be carried forward indefinitely until utilized. State net operating loss carryforwards begin to expire in 2043. At December 31, 2025, the Company had Canadian net operating loss carryforwards of $260.8 million. These carryforwards will begin expiring December 31, 2031, unless previously utilized. The Company also has net capital loss carryforwards in Canada of $37.8 million, which are available indefinitely to offset taxable capital gains.
The Company is subject to taxation in Canada and in the United States (“U.S.”). Sphere 3D Corp. is a Canadian entity that files tax returns in Canada and the U.S. as it carries on a trade or business in various states in the United States. The Company's tax returns for calendar year 2018 and forward are subject to examination by the Canadian tax authorities. The Company's tax returns for fiscal year 2022 and forward are subject to examination by the U.S. federal and state tax authorities.
The Company recognizes the impact of an uncertain income tax position on its income tax return at the largest amount that is “more likely than not” to be sustained upon audit by the relevant taxing authority. An uncertain tax position will not be recognized if it has less than a 50% likelihood of being sustained.
At December 31, 2025, there were no unrecognized tax benefits. The Company believes it is reasonably possible that, within the next 12 months, the amount of unrecognized tax benefits may remain unchanged. The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. The Company had no material accrual for interest and penalties on its consolidated balance sheets at December 31, 2025 and 2024, and recognized no material interest and/or penalties in the consolidated statements of operations for the years ended December 31, 2025 and 2024.
The components of loss before income taxes were as follows (in thousands):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Domestic | $ | (20,094) | $ | (9,320) | |||||||
| Foreign | (1,386) | — | |||||||||
| Net loss before income taxes | $ | (21,480) | $ | (9,320) | |||||||
The components of provision for income taxes were as follows (in thousands):
| Year Ended December 31, 2025 | |||||
| Foreign: | |||||
| Current | $ | 2 | |||
| Deferred | — | ||||
| Total provision for income taxes | $ | 2 | |||
On July 4, 2025, the U.S. enacted tax legislation referred to as the One Big Beautiful Bill (“OBBB”). The OBBB included significant changes to U.S. income tax laws, including accelerated depreciation on eligible capital expenditures and other tax law changes impacting 2025 with certain changes effective in 2026. The OBBB did not have a material impact on the Company’s 2025 effective tax rate.
The following is a reconciliation of the federal statutory income tax rate to the effective tax rate (in thousands):
| Year Ended December 31, 2025 | |||||||||||
| Value | Percent | ||||||||||
| Income tax at statutory rate | $ | (5,691) | 26.5 | % | |||||||
| Foreign tax effects | |||||||||||
| United States | |||||||||||
| Statutory tax rate difference between U.S. and Canada | (4,131) | 19.2 | |||||||||
State and local taxes net of U.S. federal income tax effect (1) | (1,121) | 5.2 | |||||||||
| Change in valuation allowance | 7,960 | (37.1) | |||||||||
| Changes in state tax rates | (2,523) | 11.7 | |||||||||
| Other | 183 | (0.8) | |||||||||
| Change in valuation allowance | 4,822 | (22.4) | |||||||||
| Nontaxable or nondeductible items | |||||||||||
| Share-based compensation expense | 193 | (0.9) | |||||||||
| Other | 310 | (1.4) | |||||||||
| Provision for income taxes | $ | 2 | — | % | |||||||
______________
(1) The tax effect in this category primarily reflects state and local taxes in California and Connecticut.
Prior to the adoption of ASU 2023-09, a reconciliation of income taxes computed by applying the federal statutory income tax rate of 26.5% to loss before income taxes to the total income tax provision is as follows (in thousands):
| Year Ended December 31, 2024 | |||||
| Income tax at statutory rate | $ | (2,470) | |||
| Change in valuation allowance | 48,752 | ||||
| Tax impact of U.S. permanent establishment | (44,819) | ||||
| Foreign rate differential | (1,801) | ||||
| State income taxes, net of federal benefit | 82 | ||||
| Change to provision and other true-ups | (446) | ||||
| Share-based compensation expense | 651 | ||||
| Other differences | 201 | ||||
| Provision for income taxes | $ | 150 | |||
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are shown below. A valuation allowance has been recorded, as realization of such assets is uncertain.
Deferred income taxes are comprised as follows (in thousands):
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss and capital loss carryforwards | $ | 113,396 | $ | 109,300 | |||||||
| Intangible assets | 26,943 | 25,912 | |||||||||
| Impairment of investments | 7,645 | 6,976 | |||||||||
| Provision for losses on notes receivable | 2,413 | 2,096 | |||||||||
| Share-based compensation | 482 | 511 | |||||||||
| Provision for losses on deposits due to vendor bankruptcy filings | 180 | 332 | |||||||||
| Other | 2,549 | 1,014 | |||||||||
| Deferred tax assets, gross | 153,608 | 146,141 | |||||||||
| Valuation allowance for deferred tax assets | (149,990) | (137,208) | |||||||||
| Deferred tax assets, net of valuation allowance | 3,618 | 8,933 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Property and equipment | (3,618) | (7,630) | |||||||||
| Investment in equity securities | — | (1,303) | |||||||||
| Deferred tax liabilities | (3,618) | (8,933) | |||||||||
| Net deferred tax assets (liabilities) | $ | — | $ | — | |||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 27, 2026 | Showing above |
| 2024 | Mar 28, 2025 | |
| 2023 | Mar 13, 2024 | |
| 2022 | Mar 31, 2023 | |
| 2019 | May 14, 2020 | |
| 2018 | Apr 1, 2019 | |
| 2017 | Mar 21, 2018 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.