Form 10-Q Sysorex, Inc. For: Jun 30
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For the quarterly period
ended
OR
For the transition period from to
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| Emerging growth company |
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As of August 14, 2022, there were
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022
TABLE OF CONTENTS
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
AND OTHER INFORMATION CONTAINED IN THIS REPORT
This report contains forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “may” or other similar expressions in this report. In particular, these include statements relating to future actions; prospective products, applications, customers and technologies; future performance or results of anticipated products; and projected expenses and financial results. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:
| ● | our ability to successfully integrate acquired businesses or new products, or to realize anticipated synergies in connection with mergers and acquisitions; |
| ● | the effect of COVID-19, closure of offices and site location(s); on our ability to service our customers resulting in less revenues; |
| ● | our cash position and our history of losses; |
| ● | our ability to achieve profitability; |
| ● | customer demand for the products and services we offer; |
| ● | the impact of competitive or alternative services, products, technologies, and pricing; |
| ● | increased delays in delivery of product due to worldwide strain on supply chain primarily due to labor, raw material, and chip shortages; |
| ● | general economic conditions and events and the impact they may have on us, on our customers, and on our potential customers; |
| ● | a security breach, through cyber-attack, cyber intrusion, insider threats or otherwise, or other significant disruption of our IT networks and related systems; |
| ● | decrease in value of digital assets; |
| ● | general cryptocurrency risks; |
| ● | technological changes and developments in the blockchain and cryptocurrencies; |
| ● | risks related to changes of rules and regulations in connection with cryptocurrencies in general and Ethereum in particular; |
| ● | risks related to Ethereum’s transition from “proof-of-work” to “proof-of-stake” model that may render mining activities within Ethereum blockchain obsolete; |
| ● | risks related to the loss of assets of our cryptocurrency mining facility held with a third party; |
ii
| ● | competition for blockchain platforms and technologies, including but not limited to non-fungible tokens (“NFTs”); |
| ● | our ability to obtain adequate financing in the future; |
| ● | our ability to continue as a going concern; |
| ● | our ability to complete strategic transactions, which may include acquisitions, mergers, dispositions, joint ventures, or investments; |
| ● | lawsuits and other claims by third parties; |
| ● | the restatement of our financial statements in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2021, and the impact of such restatement on our future financial statements and other financial measures; and the material weaknesses we identified in our internal control over financial reporting, our efforts to remediate such material weaknesses and the timing of remediation; |
| ● | our success at managing the risks involved in the foregoing items; |
| ● | authorized shares will be insufficient to convert debenture holders; and |
| ● | other factors discussed in this report. |
The forward-looking statements are based upon management’s beliefs and assumptions and are made as of the date of this report. We undertake no obligation to publicly update or revise any forward-looking statements included in this report. You should not place undue reliance on these forward-looking statements.
Unless otherwise stated or the context otherwise requires, the terms “Sysorex,” “we,” “us,” “our,” and the “Company” refer collectively to Sysorex, Inc. and its subsidiaries, TTM Digital Assets & Technologies, Inc. (“TTM Digital”) and Sysorex Government Services, Inc. (“SGS”).
iii
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information which are the accounting principles that are generally accepted in the United States of America and in accordance with the instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, the unaudited condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, results of operations, and cash flows of the Company for the interim periods presented.
The results for the period ended June 30, 2022, are not necessarily indicative of the results of operations for the full year. These interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes for the years ended December 31, 2021, and 2020 included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 14, 2022, as amended by Amendment No. 1 on Form 10-K filed on May 23, 2022, to restate the Company’s previously issued consolidated financial statements and financial information as of and for the fiscal year ended December 31, 2021, as well as to provide restated interim financial information as of September 30, 2021 and for the three and nine months then ended, and Amendment No. 2 on Form 10-K filed on June 1, 2022.
1
Sysorex, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands of dollars, except number of shares and par value data)
| June 30, 2022 | December 31, 2021 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Digital assets, net | ||||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Assets held for sale | ||||||||
| Total Current Assets | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Pre-funded right- in Ostendo | ||||||||
| Operating lease right-of-use asset, net | ||||||||
| Other assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | ||||||||
| Accrued liabilities | ||||||||
| Short-term debt | ||||||||
| Conversion feature derivative liability | ||||||||
| Operating lease obligation, current | ||||||||
| Common stock derivative liability | - | |||||||
| Deferred revenue | ||||||||
| Total Current Liabilities | ||||||||
| Operating lease obligation - noncurrent | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Deficit | ||||||||
| Common stock, par value $ | ||||||||
| Treasury stock, at cost, | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
2
Sysorex, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands of dollars, except number of shares and per share data)
(Unaudited)
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | ||||||||||||||||
| Product revenue | $ | $ | ||||||||||||||
| Services revenue | ||||||||||||||||
| Total Revenues | ||||||||||||||||
| Operating costs and expenses | ||||||||||||||||
| Product cost | ||||||||||||||||
| Services cost | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Impairment of digital assets | - | - | ||||||||||||||
| Management fees | ||||||||||||||||
| Depreciation | - | |||||||||||||||
| Amortization of intangibles | ||||||||||||||||
| Total Operating Costs and Expenses | ||||||||||||||||
| Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expenses) | ||||||||||||||||
| Merger charges | ( | ) | - | ( | ) | |||||||||||
| Debt Restructuring fee | ( | ) | - | ( | ) | |||||||||||
| Interest (expense) income | ( | ) | ( | ) | ||||||||||||
| Realized gain on sale of digital assets | ||||||||||||||||
| Revaluation of conversion feature derivative liability | ( | ) | - | ( | ) | |||||||||||
| Loss on extinguishment of debt | ( | ) | - | ( | ) | |||||||||||
| Change in fair value of shares issued | ( | ) | - | ( | ) | |||||||||||
| Other (expense) income, net | ( | ) | ( | ) | ( | ) | ||||||||||
| Total Other Expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss from continuing operations before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax benefit | - | |||||||||||||||
| Loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| (Loss) income from discontinued operations | ( | ) | ||||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| $ | ( | ) | $ | $ | $ | |||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
3
Sysorex, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Deficit
For the Six Months Ended June 30, 2022, and 2021
(In thousands of dollars, except share data)
(Unaudited)
| Common Stock | Treasury Stock | Additional Paid-In |
Subscription | Accumulated | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Receivables | Deficit | Total | |||||||||||||||||||||||||
| Balance – December 31, 2020 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Distributions to shareholders | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Payments of subscription receivables | - | - | ||||||||||||||||||||||||||||||
| Exercise of Moon warrants | ||||||||||||||||||||||||||||||||
| Net Income | - | - | ||||||||||||||||||||||||||||||
| Balance – March 31, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Shares issued for: | ||||||||||||||||||||||||||||||||
| Mining equipment | ||||||||||||||||||||||||||||||||
| Sysorex recapitalization | ||||||||||||||||||||||||||||||||
| TTM digital/Sysorex merger | ||||||||||||||||||||||||||||||||
| Professional services | ||||||||||||||||||||||||||||||||
| Net Loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance – June 30, 2021 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||||||
| Balance – December 31, 2021 | - | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Convertible debt conversions | - | |||||||||||||||||||||||||||||||
| Reclassification of equity contracts to liabilities | - | - | ( |
) | - | ( | ||||||||||||||||||||||||||
| Professional services | - | |||||||||||||||||||||||||||||||
| Exercise of Pre-funded warrants | ||||||||||||||||||||||||||||||||
| Cashless exercise of warrants | ||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||
| Vesting of restricted stock | ||||||||||||||||||||||||||||||||
| Net Loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance – March 31, 2022 | $ | $ | $ | - | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||||
| Convertible debt conversions | - | |||||||||||||||||||||||||||||||
| Issuance of restricted stock | - | - | - | - | ||||||||||||||||||||||||||||
| Net Loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance – June 30, 2022 | $ | $ | $ | - | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
4
Sysorex, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands of dollars)
(Unaudited)
| For the Six Months Ended | ||||||||
| June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation expense | - | |||||||
| Amortization of right of use asset | - | |||||||
| Realized gain on sale of digital assets | ( | ) | ( | ) | ||||
| Loss on extinguishment of debt | - | |||||||
| Change in fair value of debt conversion feature | ||||||||
| Gain on settlement of vendor liabilities | ( | ) | - | |||||
| Impairment of digital assets | - | |||||||
| Issuance of shares in exchange for services | ||||||||
| Merger charges | - | |||||||
| Debt restructuring expense | - | |||||||
| Change in fair value of share derivative liability | - | |||||||
| Changes in assets and liabilities: | ||||||||
| Prepaid assets and other current assets | ||||||||
| Accounts receivable and other receivables | ||||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued liabilities and other current liabilities | ||||||||
| Operating lease liability | - | |||||||
| Net cash provided by operating activities – continuing operations | ( | ) | ( | ) | ||||
| Net cash (used in) provided by operating activities – discontinued operations | ( | ) | ( | ) | ||||
| Net cash used in operating activities | $ | ( | ) | $ | ( | ) | ||
| Cash Flows from Investing Activities | ||||||||
| Proceeds from sale of digital assets | $ | $ | ||||||
| Reverse acquisition of Sysorex business | - | |||||||
| Pre-funded right in Ostendo | ( | ) | - | |||||
| Net cash provided by investing activities -continuing operations | ||||||||
| Net cash provided by (used in) investing activities – discontinued operations | ( | ) | ||||||
| Net cash provided by investing activities | $ | $ | ||||||
| Cash Flows from Financing Activities | ||||||||
| Repayment of loans | $ | - | $ | ( | ) | |||
| Payment of subscription receivable | ||||||||
| Net cash provided by (used in) financing activities- continuing operations | $ | $ | ( | ) | ||||
| Net cash provided by financing activities – discontinued operations | - | |||||||
| Net cash provided by (used in) financing activities | $ | - | $ | ( | ) | |||
| Net (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | - | |||||
| Income taxes | ||||||||
| Supplemental disclosure of noncash investing and financing activities: | ||||||||
| Conversion of debt to equity | $ | $ | - | |||||
| Settlement of loan with mining equipment | ||||||||
| Sysorex recapitalization | - | |||||||
| Distributions of digital assets to members | ||||||||
| Reclassification of equity contracts to liabilities | - | |||||||
| Settlement of share derivative liability | - | |||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
5
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Nature and Description of Business
Description of Business
Sysorex, Inc., through its wholly owned subsidiary, Sysorex Government Services, Inc., (“SGS”), (unless otherwise stated or the context otherwise requires, the terms “SGS” “we,” “us,” “our” and the “Company” refer collectively to Sysorex, Inc. and SGS), provides information technology solutions primarily to the public sector. These solutions include cybersecurity, professional services, engineering support, IT consulting, enterprise level technology, networking, wireless, help desk, and custom IT solutions.
In addition to SGS, the Company has another wholly owned subsidiary, TTM Digital Assets & Technologies, Inc. (“TTM Digital”), TTM Digital’s focus is to mine Ethereum and opportunities related to the Ethereum blockchain. As discussed in the Heads of Terms agreement below, the Company is in discussion with a third party to sell its Ethereum mining assets and certain associated real property (“Assets”). The Company continues to operate its wholly owned subsidiaries. The Company is headquartered in Virginia.
Heads of Terms Agreement
On March 24, 2022, Sysorex, Inc. (“Company”) executed Heads of Terms (“Heads of Terms”) with Ostendo Technologies, Inc. (“Ostendo”) which includes certain binding and non-binding provisions. Pursuant to the Heads of Terms, the Company and Ostendo agreed to certain terms related to the Company’s sale of its Ethereum mining assets and certain associated real property (“Assets”) to Ostendo for Ostendo preferred stock. The Assets to be sold will not include the Company’s Ether funds generated prior to and held at Closing. The definitive terms of the sale of Assets will be set forth in definitive transaction agreements (the “Definitive Documentation”) to be executed by the parties. The closing of the TTM Digital Asset sale, which the Heads of Terms provides would occur no later than May 24, 2022, will be subject to the satisfaction or waiver of customary closing conditions.
Additionally,
pursuant to the Heads of Terms, the Company has agreed to make a non-refundable deposit of $
On June 10, 2022, the Company executed an Amendment No. 1 to Heads of Terms (“Amendment 1”) with Ostendo and the Company’s wholly owned subsidiary TTM Digital Assets & Technologies, Inc. (“Seller”, and together with the Company, the “Seller Parties”). Pursuant to the Amendment 1, the parties agreed to amend and restate certain terms contained in the Heads of Terms, including, among other things:
| 1) |
The closing of the transaction is to occur no later than June 30, 2022, unless mutually extended in writing by the parties. |
| 2) |
| 3) | The first sentence of the section of the Heads of Terms entitled “Purchase Price Consideration” was amended and restated to read: “The Purchase Price shall be comprised of the issuance to the Seller of |
On June 30, 2022, the Company executed an Amendment No. 2 to Heads of Terms (“Amendment 2”) with Ostendo and the Company’s wholly owned subsidiary TTM Digital Assets & Technologies, Inc. (“Seller”, and together with the Company, the “Seller Parties”). Pursuant to the Amendment 2, the parties agreed to amend certain terms contained in the Heads of Terms and Amendment 1, including:
| 1) | The closing of the transaction is to occur no later than July 31, 2022, unless mutually extended in writing by the parties. |
| 2) |
The term “Expiration Date” in the section of the Heads of Term entitled “Exclusivity” is hereby amended to be the earlier of July 31, 2022, or the date on which Ostendo notifies the Company in writing that it is terminating negotiations regarding the transactions (and Ostendo agrees to give such notification promptly upon making a determination to terminate negotiations). |
As of August 15, 2022, the parties have not yet entered into Definitive Documentation, and have not amended the Heads of Terms, as amended, to extend the closing date; however, the parties continue to negotiate toward completion of Definitive Documentation.
6
Note 2 — Going Concern
As of June 30, 2022, the Company had an approximate
cash balance of $
The Company does not believe that its capital resources as of June 30, 2022, its ability to settle convertible debt obligations through issuance of the Company’s shares, availability on the SouthStar facility to finance purchase orders and invoices, reauthorization of key vendors and credit limitation improvements will be sufficient to fund planned operations during the next twelve months. As a result, the Company will need additional funds to support its obligations. The Company continues to explore a number of other possible solutions to its financing needs, including efforts to raise additional capital as needed, through the issuance of equity, equity-linked or debt securities, as well as possible transactions with other companies, strategic partnerships, and other mechanisms for addressing our financial condition. The Company will utilize its current contracts that are not limited to a single branch of government or a specific agency. These contracts can provide the Company an opportunity to attain new solutions and service type orders. The Company will also utilize SGS’s small business status to partner with prime contractors on larger orders. The Company currently has utilized SouthStar to finance purchase orders and it also has the ability to factor its receivables if needed to fund operations. In addition, the Company will need to increase its authorized common stock to settle convertible debt conversions.
If the Company is unable to raise additional capital on terms acceptable to the Company and on a timely basis, or is unable to attain new vendors, the Company will be required to downsize or wind down its operations through liquidation, bankruptcy, or sale of its assets. In addition, until the sale of the TTM Assets is consummated, the Company will be subject to changes in the Ethereum Network. The Ethereum network is in the process of implementing software upgrades and other changes to its protocol, which are intended to be a new iteration of the Ethereum network that changes its consensus mechanism from “proof of work” to “proof of stake”, which may decrease the reliance on computing power as an advantage to validating blocks. The move to a proof of stake mechanism will shift the network from mining utilizing computing power to staking, in which Ethereum holders can deposit their Ethereum in exchange for rewards. The switch to a proof of stake model would adversely affect the Company’s operations and ability to sustain operations. In addition, as of June 30, 2022, the Company has been reliant on its ability to liquidate Ethereum to continue to fund operations when needed, and as such, the Company does not currently have enough Ethereum on hand to fund operations through the next twelve months.
Note 3 — Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles that are generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of the Company’s operations for the three and six months ended June 30, 2022, are not necessarily indicative of the results to be expected for the year ending December 31, 2022. These interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes for the years ended December 31, 2021, and 2020 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 14, 2022, as amended by Amendment No. 1 to the Company’s Annual Report on Form 10-K/A filed with the Securities and Exchange Commission (the “SEC”) on May 23, 2022, and Amendment No. 2 on Form 10-K filed with the SEC on June 1, 2022.
TTM Digital Reverse Merger and Sysorex Recapitalization
On April 8, 2021, the Company, TTM Digital, and TTM Acquisition Corp., a Nevada corporation, and a wholly owned subsidiary of Sysorex (“MergerSub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). Under the terms of the Merger Agreement, the parties agreed that Sysorex would acquire TTM Digital by way of a reverse triangular merger, subject to certain closing conditions (the “Merger”). On April 14, 2021 (the “Effective Time”), the closing conditions delineated in the Merger Agreement were satisfied and the Merger closed. At the Effective Time, the MergerSub was merged with and into TTM Digital with TTM Digital surviving the Merger.
7
Under the terms of the Merger Agreement, the shareholders
of TTM Digital received a right to receive an aggregate of
Discontinued Operations
As discussed in Note 5 – Discontinued Operation, the Company made the decision to divest its mining equipment and the data center of the TTM Digital reporting unit (“TTM Assets”) and commenced discussions with a third party to execute an asset sale. As a result of the decision to divest operating assets of the TTM Digital reporting unit, the Company has determined that the subject assets met the definition of assets held for sale as defined by ASC 205-20 – Presentation of Financial Statements – Discontinued Operations. As of December 31, 2021, the Company determined the TTM Assets represented discontinued operations as it constituted a disposal of a significant component and a strategic shift that will have a material effect on the Company’s operations and financial results. As a result, the Company reclassified the balances and activities of the TTM Assets from their historical presentation to assets held for sale and assets and liabilities – discontinued operations on the Condensed Consolidated balance sheets and to gain from discontinued operations on the Condensed Consolidated statements of operations for the periods presented.
On June 10, 2022, the definition of “TTM Assets” was amended and restated to read “(i) all of the Seller Parties’ GPUs and related assets, supporting equipment and software (including software licenses, if any). As a result, all of TTM assets have been classified and reported as assets held for sale in the condensed consolidated balance sheets, and all associated revenues and costs are reported as discontinued operations in the condensed consolidated statement of operations. The TTM Assets to be sold will not include the Company’s Ether funds generated prior to and held at Closing. As of the date of this report, no transaction has been consummated.
Note 4 — Summary of Significant Accounting Policies
Principles of Consolidation
The unaudited condensed consolidated financial statements have been prepared using the accounting records of Sysorex, TTM Digital and SGS. All inter-company balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during each of the reporting periods. Actual results could differ from those estimates. The Company’s significant estimates consist of:
| ● | Revenue recognition | |
| ● | Fair value of digital assets | |
| ● | Fair value of the Company’s common stock | |
| ● | Expected useful lives and valuation of long lived-assets | |
| ● | Fair value of derivative liabilities |
8
Impairment of Long-lived Assets
The Company reviews its long-lived assets, including
mining equipment, for impairment whenever events or changes in circumstances indicate the carrying value of an asset or group of assets
may not be recoverable. The carrying amount is considered not recoverable if the sum of the undiscounted cash flows to be generated from
the use and eventual disposition of the asset group is less than the carrying amount of the asset group. If the carrying amount exceeds
the undiscounted cash flows, then the carrying amount is compared to the fair value and an impairment loss is recorded for the difference
between the fair value and the carrying amount. For the three and six months ended June 30, 2022, the Company incurred $
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. To achieve this core principle, five basic criteria must be met before revenue can be recognized:
| ● | Identification of the contract, or contracts, with a customer; |
| ● | Identification of the performance obligations in the contract; |
| ● | Determination of the transaction price; |
| ● | Allocation of the transaction price to the performance obligations in the contract; and |
| ● | Recognition of revenue when, or as, the Company satisfies a performance obligation. |
Mining Revenue
TTM Digital has entered into mining pools with the operators to provide computing power to the mining pool. The Company is entitled to a fractional share of the fixed cryptocurrency award the mining pool operator receives (less transaction fees to the mining pool operator) for successfully adding a block to the blockchain. The Company’s fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm. Providing computing power in digital asset transaction verification services is an output of the Company’s ordinary activities. The provision of such computing power is the only performance obligation in the Company’s contracts with mining pool operators The transaction consideration the Company receives, if any, is non-cash consideration. The transaction price of the Company’s share of the cryptocurrency award is measured at fair value on the date received, which is not materially different than the fair value at the time the Company has earned the award from the mining pool. The consideration is all variable under the definition within ASC 606. Because it is not probable that a significant reversal of cumulative revenue will not occur, the consideration is constrained until the Company successfully places a block and the Company receives confirmation of the consideration it will receive, at which time revenue is recognized. There is no significant financing component in these transactions.
Fair value of the digital asset award received is determined using the quoted price of the related digital asset at the time of receipt. There is currently no specific definitive guidance under GAAP or alternative accounting framework for the accounting for digital assets recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could impact the Company’s Condensed Consolidated financial position and results from operations.
9
Hardware and Software Revenue Recognition
SGS is a primary resale channel for a large group of vendors and suppliers, including original equipment manufacturers (“OEMs”), software publishers and wholesale distributors.
The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are established, the contract has commercial substance and collectability of consideration is probable. The Company evaluates the following indicators amongst others when determining whether it is acting as a principal in the transaction and recording revenue on a gross basis: (i) the Company is primarily responsible for fulfilling the promise to provide the specified product or service, (ii) the Company has inventory risk before the specified good or service has been transferred to a customer or after transfer of control to the customer and (iii) the Company has discretion in establishing the price for the specified good or service. If the terms of a transaction do not indicate the Company is acting as a principal in the transaction, then the Company is acting as an agent in the transaction and the associated revenues are recognized on a net basis.
The Company recognizes revenue once control has passed to the customer. The following indicators are evaluated in determining when control has passed to the customer: (i) the Company has a right to payment for the product or service, (ii) the customer has legal title to the product, (iii) the Company has transferred physical possession of the product to the customer, (iv) the customer has the significant risk and rewards of ownership of the product and (v) the customer has accepted the product. The Company’s products can be delivered to customers in a variety of ways, including (i) as physical product shipped from the Company’s warehouse, (ii) via drop-shipment by the vendor or supplier or (iii) via electronic delivery of keys for software licenses. The Company’s shipping terms typically specify F.O.B. destination.
The Company leverages drop-shipment arrangements with many of its vendors and suppliers to deliver products to its customers without having to physically hold the inventory at its warehouse. The Company is the principal in the transaction and recognizes revenue for drop-shipment arrangements on a gross basis.
The Company may provide integration of products from multiple vendors as a solution it sells to the customer. In this arrangement, the Company provides direct warranty to the customer with the Company’s own personnel as the customer requires warranty on the solution and not individual vendor products. This type of warranty is sold integral to the overall solution quoted to the customer. The Company considers these service-type warranties to be performance obligations of the principal from the underlying products that make up a solution and therefore is acting as a principal in the transaction and records revenue on a gross basis over time.
License and Maintenance Services Revenue Recognition
SGS provides a customized design and configuration solution for its customers and in this capacity resells hardware, software and other IT equipment license and maintenance services in exchange for fixed fees. The Company selects the vendors and sells the products and services, including maintenance services, that best fit the customer’s needs. For sales of maintenance services and warranties, the customer obtains control at the point in time that the services to be provided by a third-party vendor are purchased by the customer and therefore the Company’s performance obligation to provide the overall systems solution is satisfied at that time. The Company’s customers generally pay within 30 to 60 days from the receipt of a customer-approved invoice.
For resale of services, including maintenance services, warranties, and extended warranties, the Company is acting as an agent as the primary activity for those services are fulfilled by a third party. While the Company may facilitate and act as a first responder for these services, the third-party service providers perform the primary maintenance and warranty services for the customer. Therefore, the Company is not primarily responsible for performing these services and revenue is recorded on a net basis.
SGS’s professional services include fixed fee contracts. Fixed fees are paid monthly, in phases, or upon acceptance of deliverables. For fixed fee contracts, the Company recognizes revenue evenly over the service period using a time-based measure because the Company is providing continuous service. Anticipated losses are recognized as soon as they become known. For the three and six months ended June 30, 2022, SGS did not incur any such losses. These amounts are based on known and estimated factors. Revenues from time and material or firm fixed price long-term and short-term contracts are derived principally with various United States government agencies.
10
Digital Assets
Digital assets (predominantly Ethereum) are included in current assets in the accompanying Condensed Consolidated balance sheets. The classification of digital assets as a current asset has been made after the Company’s consideration of the consistent daily trading volume on cryptocurrency exchange markets, there are no limitations or restrictions on Company’s ability to sell Ethereum, and the pattern of actual sales of Ethereum by the Company. Digital assets purchased are recorded at cost and cryptocurrencies awarded to the Company through its mining activities are accounted for in connection with the Company’s revenue recognition policy disclosed above.
Digital assets held are accounted for as intangible
assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment
annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived
asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the
digital asset at the time its fair value is being measured. In testing for impairment, the Company has the option to first perform a
qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not
more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise,
it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new
cost basis of the asset. Subsequent reversal of impairment losses is not permitted. During the three and six months ended June 30, 2022,
the Company recorded impairment of $
Digital assets awarded to the Company through its mining activities are included within operating activities on the accompanying Condensed Consolidated statements of cash flows. The sales of digital assets are included within investing activities in the accompanying Condensed Consolidated statements of cash flows. The Company accounts for its gains or losses in accordance with the first in first out (FIFO) method of accounting.
Fair Value
The Company follows the accounting guidance under FASB’s ASC 820, Fair Value Measurements for its fair value measurements of financial assets and liabilities measured at fair value on a recurring basis. Under this accounting guidance, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements, ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:
Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 — observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and
Level 3 — assets and liabilities whose significant value drivers are unobservable.
Observable inputs are based on market data obtained from independent sources, while unobservable inputs are based on the Company’s market assumptions. Unobservable inputs require significant management judgment or estimation. In some cases, the inputs used to measure an asset or liability may fall into different levels of the fair value hierarchy. In those instances, the fair value measurement is required to be classified using the lowest level of input that is significant to the fair value measurement. Such determination requires significant management judgment.
The carrying amounts of the Company’s financial assets and liabilities, such as cash and cash equivalents, accounts receivable, accrued liabilities, and accounts payable, approximate fair value due to the short-term nature of these instruments.
11
Derivative Liabilities
The Company evaluates its convertible instruments, options, warrants, or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, Derivatives and Hedging. The Company evaluates whether the amount of common stock on a as converted basis is in excess of its authorized share total which, if in excess, would result in derivative accounting treatment. The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to a liability at the fair value of the instrument on the reclassification date.
Held for Sale and Discontinued Operations Classification
The Company classifies a business as held for sale in the period in which management commits to a plan to sell the business, the business is available for immediate sale in its present condition, an active program to complete the plan to sell the business is initiated, the sale of the business within one year is probable and the business is being marketed at a reasonable price in relation to its fair value.
Newly acquired businesses that meet the held-for-sale classification criteria upon acquisition are reported as discontinued operations. Upon a business’ classification as held for sale, net assets are measured for impairment. Goodwill impairment is measured in accordance with the method described in the accounting policy. An impairment loss is recorded for long-lived assets held for sale when the carrying amount of the asset exceeds its fair value less cost to sell. Other assets and liabilities are generally measured for impairment by comparing their carrying values to their respective fair values. A long-lived asset shall not be depreciated or amortized while it is classified as held for sale.
Convertible Debt
The Company’s debt instruments contain a host liability, freestanding warrants, and an embedded conversion feature. The Company uses the guidance under FASB ASC Topic 815 Derivatives and Hedging (“ASC 815”) to determine if the embedded conversion feature must be bifurcated and separately accounted for as a derivative under ASC 815. It also determines whether any embedded conversion features requiring bifurcation and/or freestanding warrants qualify for any scope exceptions contained within ASC 815. Generally, contracts issued or held by a reporting entity that are both (i) indexed to its own stock, and (ii) classified in shareholders equity, would not be considered a derivative for the purposes of applying ASC 815. Any embedded conversion features and/or freestanding warrants that do not meet the scope exception noted above are classified as derivative liabilities, initially measured at fair value, and remeasured at fair value each reporting period with change in fair value recognized in the Condensed Consolidated statements of operations. Any embedded conversion features and/or freestanding warrants that meet the scope exception under ASC 815 are initially recorded at their relative fair value in paid-in-capital and are not remeasured at fair value in future periods.
The host debt instrument is initially recorded at its relative fair value in long-term debt. The host debt instrument is accounted for in accordance with guidance applicable to non-convertible debt under FASB ASC Topic 470 Debt (“ASC 470”) and is accreted to its face value over the term of the debt with accretion expense and periodic interest expense recorded in the unaudited condensed consolidated statements of operations.
Issuance costs are allocated to each instrument in the same proportion as the proceeds that are allocated to each instrument. Issuance costs allocated to the debt hosted instrument are netted against the proceeds allocated to the debt host. Issuance costs allocated to freestanding warrants classified in equity are recorded in paid-in-capital.
12
Net Loss per Share
Basic loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding, plus potentially dilutive common shares. Convertible debt, restricted stock, stock options and warrants are excluded from the diluted net loss per share calculation when their impact is antidilutive. The Company reported a net loss for the three and six months ended June 30, 2022, and as a result, all potentially dilutive common shares are considered antidilutive for this period.
The Company includes potentially issuable shares in the Weighted-average common shares – basic that include warrants and other agreements that are exercisable for little or no consideration without substantive contingencies and others once any contingencies relative to the issuance of the shares is resolved.
Computations of basic and diluted weighted average common shares outstanding were as follows for the periods reported:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Weighted-average common shares outstanding | ||||||||||||||||
| Weighted-average potential common shares considered outstanding | ||||||||||||||||
| Weighted-average common shares outstanding - basic | ||||||||||||||||
| Dilutive effect of options, warrants and restricted stock units | ||||||||||||||||
| Weighted-average common shares outstanding - diluted | ||||||||||||||||
| Options, restricted stock units, and warrants and convertible debt excluded from the computation of diluted loss per share because the effect of inclusion would be anti-dilutive | ||||||||||||||||
Emerging Growth Company
Sysorex is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”). As such, Sysorex is eligible to take advantage of certain exemptions from various reporting requirements that apply to other public companies that are not emerging growth companies, including compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended. In addition, Section 107 of the JOBS Act provides that an emerging growth company may take advantage of the extended transition period provided in Section 13(a) of the Securities Exchange Act of 1934, as amended, for complying with new or revised accounting standards, meaning that Sysorex, as an emerging growth company, can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Sysorex has elected to take advantage of this extended transition period, and therefore our financial statements may not be comparable to those of companies that comply with such new or revised accounting standards.
13
Note 5 — Discontinued Operations
The carrying value of the TTM Digital asset disposal
group was $
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Mining equipment and facilities, net | $ | $ | ||||||
| Investment in Style Hunter | ||||||||
| Total Current Assets | $ | $ | ||||||
| Total Assets associated with discontinued operations | $ | $ | ||||||
The following table presents the TTM Digital assets statement of operations line items classified as discontinued operations included within gain (loss) from discontinued operations for the three and six months ended June 30, 2022, and 2021 (in thousands):
| For the Three Months | For the Three Months | For the Six Months | For the Six Months | |||||||||||||
| Ended June 30, | Ended June 30, | Ended June 30, | Ended June 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | ||||||||||||||||
| Mining income | $ | 1,286 | $ | $ | $ | |||||||||||
| Hosting income | 14 | |||||||||||||||
| Total revenues | 1,300 | |||||||||||||||
| Operating costs and expenses | ||||||||||||||||
| Mining cost | 402 | |||||||||||||||
| General and administrative | 223 | |||||||||||||||
| Impairment of fixed assets | 961 | - | - | |||||||||||||
| Depreciation | 453 | |||||||||||||||
| Total operating costs and expenses | 2,039 | |||||||||||||||
| Gain (loss) from Operations | (739 | ) | ||||||||||||||
| Other Income (Expenses) | ||||||||||||||||
| Interest expense | - | ( | ) | - | ( | ) | ||||||||||
| Loss on disposal of fixed assets | - | ( | ) | |||||||||||||
| Income (loss) before taxes and equity method investee | (739 | ) | ||||||||||||||
| Provision for income taxes | - | |||||||||||||||
| Income (loss) before equity method investee | (739 | ) | ||||||||||||||
| Share of net loss of equity method investee | - | - | ||||||||||||||
| Net income (loss) from discontinued operations | $ | (739 | ) | $ | $ | $ | ||||||||||
The following table summarizes the net cash flows from discontinued operations of TTM Digital (in thousands):
| For the Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Net cash used in operating activities – discontinued operations | ( | ) | ( | ) | ||||
| Net cash provided by investing activities – discontinued operations | ( | ) | ||||||
| Net cash provided by financing activities – discontinued operations | ||||||||
14
Note 6 — Intangible Assets
Intangible assets as of June 30, 2022, consist of the following:
| Gross | Net | |||||||||||
| Carrying | Accumulated | Carrying | ||||||||||
| Amount | Amortization | Amount | ||||||||||
| Trade name | $ | $ | ( | ) | $ | |||||||
| Customer relationships | ( | ) | ||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | |||||||
Intangible assets as of December 31, 2021, consist of the following:
| Gross | Net | |||||||||||
| Carrying | Accumulated | Carrying | ||||||||||
| Amount | Amortization | Amount | ||||||||||
| Trade name | $ | $ | ( | ) | $ | |||||||
| Customer relationships | ( | ) | ||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | |||||||
The estimated future amortization expense associated with intangible assets is as follows:
| Calendar Years Ending December 31, | Amount | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total | $ | |||
Note 7 — Credit Risk and Concentrations
Financial instruments that subject the Company to credit risk consist principally of trade accounts receivable and cash. The Company performs certain credit evaluation procedures and does not require collateral for financial instruments subject to credit risk. The Company believes that credit risk is limited because the Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk of its customers, establishes an allowance for uncollectible accounts and, consequently, believes that its accounts receivable credit risk exposure beyond such allowances is limited.
The Company maintains cash deposits with financial institutions, which, from time to time, may exceed federally insured limits. The Company has not experienced any losses and believes it is not exposed to any significant credit risk from cash.
The following table sets forth the percentages
of sales derived by the Company from those customers that accounted for at least
| For the Six Months Ended June 30, 2022 |
For the Six Months Ended June 30, 2021 |
|||||||||||||||
| $ | % | $ | % | |||||||||||||
| Customer A | % | % | ||||||||||||||
| Customer B | % | % | ||||||||||||||
15
The following table sets forth the percentages
of sales derived by the Company from those customers that accounted for at least
| For the Three Months Ended June 30, 2022 | For the Three Months Ended June 30, 2021 | |||||||||||||||
| $ | % | $ | % | |||||||||||||
| Customer A | % | % | ||||||||||||||
| Customer B | % | % | ||||||||||||||
| Customer C | % | |||||||||||||||
As of June 30, 2022, Customers A and B represented
approximately
For the six months ended June 30, 2022, two vendors
represented approximately
For the six and three months ended June 30, 2021,
Mining equipment purchased from one TTM vendor
during the six months ended June 30, 2021, was $
Geographic and Technology Concentration
The Company had geographic diversity between April 1, 2021, and June 30, 2022, using a colocation datacenter in North Carolina. Subsequent to June 30, 2022, the Company had consolidated its mining operations exclusively in New York. Any legislation that restricts or bans the mining of proof-of-work related digital asset mining in New York State would have a negative impact on the Company’s ability to operate and generate revenues.
Further, the Company had concentrated exposure to the Ethereum blockchain infrastructure through its mining operations during the periods presented. There is a possibility of digital asset mining algorithms transitioning to proof-of-stake validation and other mining related risks, which could make us less competitive and ultimately adversely affect our business and our ability to generate revenues. When and if Ethereum switches to proof-of stake the Company’s GPUs will no longer be able to mine Ethereum. Additionally, on August 5, 2021, the London Hard Fork protocol went into effect which includes changes in Ethereum’s handling of transaction fees. These changes had an impact on the Company’s future potential Ethereum revenue stream due to less Ethereum being distributed per mined block, if not offset by an increase in the value of ETH and/or additional transaction tipping, the process by which a user can pay an additional amount to ensure a transaction is processed very quickly. The Company saw a financial impact during the first half of 2022. While the Company doubled mining capacity in the first half of 2021, the difficulty to mine increased. This resulted in a steady decrease of average mining rewards, along with the market price of Ethereum, particularly during the second half of 2021 and into the first half of 2022.
16
Note 8 — Short-term debt
Short-term debt as of June 30, 2022, and December 31, 2021, consisted of the following (in thousands):
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Convertible Debentures & Warrants, including interest payable to the Convertible Debenture Holders (A) | $ | $ | ||||||
| Revolving Credit Facility (B) | ||||||||
| Total Short-Term Debt | $ | $ | ||||||
(A) 2021 Convertible Debentures & Warrants
On July 7, 2021, the Company consummated the initial
closing of a private placement offering (the “Offering”) pursuant to the terms and conditions of a Securities Purchase Agreement
for up to $
On August 13, 2021, the Company consummated the
second closing of the offering pursuant to the same terms and conditions of the Securities Purchase Agreement dated July 7, 2021. At
the second closing, the Company sold the purchasers (i)
Under the conversion terms of the Debentures,
the Debenture is convertible, in whole or in part, into shares of Common Stock at the option of the Holder at any time until the Debenture
is no longer outstanding. The Holder executes a conversion by delivering to the Company a Notice of Conversion specifying the principal
amount to be converted and the date on which the conversion is to be executed. The Conversion Price is set at the lower of
17
Debenture Default
The Debentures provide that any monetary judgment
filed against the Company for more than $
On January 7, 2022, the Company received a notice
of default (the “Default Notice”) from the Placement Agent stating that the Company defaulted under the Purchase Agreement
as a result of: (i) the Company failing to disclose certain material indebtedness of the Company outstanding as of the date of the Purchase
Agreement; and (ii) the filing of a judgment relating to such material indebtedness. Due to such events of default, (i) the Debentures
are now deemed to have begun bearing interest at the default interest rate of
(B) Revolving Credit Facility
Non-Recourse Factoring and Security Agreement
Effective
as June 19, 2020 (the “Effective Date”), the Company and SouthStar Financial, LLC (“SouthStar”) entered into
a financing purchase order agreement. Through SouthStar,
18
Note 9 — Fair Value Measurement
Fair value measurements are determined based on assumptions that a market participant would use in pricing an asset or a liability. A three-tiered hierarchy distinguishes between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3). The following table presents the placement in the fair value hierarchy measured at fair value on a recurring basis as of June 30, 2022, and December 31, 2021 (in thousands):
| Fair value measurement at reporting date using | ||||||||||||||||
| Quoted prices in | Significant | |||||||||||||||
| active markets | other | Significant | ||||||||||||||
| for identical | observable | unobservable | ||||||||||||||
| Balance | assets (Level 1) | inputs (Level 2) | inputs (Level 3) | |||||||||||||
| As of June 30, 2022: | ||||||||||||||||
| Recurring fair value measurements: | ||||||||||||||||
| Derivative Liabilities: | ||||||||||||||||
| Conversion feature derivative liability | $ | $ | $ | $ | ||||||||||||
| Common stock derivative liability | ||||||||||||||||
| Total derivative liabilities | $ | $ | $ | $ | ||||||||||||
| Total recurring fair value measurements | $ | $ | $ | $ | ||||||||||||
| As of December 31, 2021 | ||||||||||||||||
| Recurring fair value measurements | ||||||||||||||||
| Derivative liability: | ||||||||||||||||
| Conversion feature derivative liability | $ | $ | $ | $ | ||||||||||||
| Common stock derivative liability | ||||||||||||||||
| Total derivative liabilities | $ | $ | $ | $ | ||||||||||||
| Total recurring fair value measurements | $ | $ | $ | $ | ||||||||||||
The conversion feature of the convertible Debentures
was separately accounted for at fair value as a derivative liability under guidance in ASC 815 that is remeasured at fair value on a
recurring basis using Level 3 inputs. The Company uses a probability weighted expected return model (“PWERM”) valuation technique
to measure the fair value of the conversion feature with any changes in the fair value of the conversion feature liability recorded in
earnings. Significant inputs to the model include estimated time to conversion events, estimated interest converted at the event, the
implied yield, the discount rate for the conversion, and the probability of the conversion events. For the three and six months ended
June 30, 2022, the Company recorded a loss of approximately $
As discussed in Note 11 – Equity below, the Company exceeded its authorized share limit with respect to potentially issuable shares under the equity contracts described with the Share Derivative Liabilities section. The Company estimates the fair value of the Common stock derivative liability based on the fair value of the potentially issuable shares for the warrants, stock options and RSUs vested but unissued. This liability excludes the fair value of the potentially convertible shares for the convertible Debentures which are accounted for through the carrying value of the debt and the separate conversion feature derivative liability.
19
The Company recorded the common stock derivative liability at fair value as of June 30, 2022, through a transfer from equity to the common stock derivative liability. Changes in the fair value of the liability in future periods will be included in other income (expense) in the consolidated statements of operations.
The change in Level 3 fair value of the Company’s derivative liabilities is as follows:
| Conversion feature derivative liability | Common stock derivative liability | Total level 3 derivative liability | ||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | |||||||||
| Transferred to equity on debt conversion | ( | ) | ( | ) | ( | ) | ||||||
| Transferred from equity on recognition of derivative liability | ||||||||||||
| Increase in fair value included in earnings | ||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | |||||||||
Note 10 — Digital Assets
The following tables present the roll forward of digital asset activity from continuing and discontinued operations during the periods ended:
| Six months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Opening Balance | $ | $ | ||||||
| Revenue from mining | ||||||||
| Purchase of mining equipment with digital assets | ( | ) | ||||||
| Mining pool operating fees | ( | ) | ( | ) | ||||
| Impairment of digital assets | ( | ) | ||||||
| Management fees | ( | ) | ||||||
| Owners’ distributions | ( | ) | ||||||
| Proceeds from sale of digital assets | ( | ) | ( | ) | ||||
| Transaction fees | ( | ) | ||||||
| Realized gain on sale of digital assets | ||||||||
| Ending Balance | $ | $ | ||||||
| Three months ended June 30, |
||||||||
| 2022 | 2021 | |||||||
| Opening Balance | $ | $ | ||||||
| Revenue from mining | ||||||||
| Purchases of Mining equipment with digital assets | ( |
) | ||||||
| Mining pool operating fees | ( |
) | ( |
) | ||||
| Impairment of digital assets | ( |
) | ||||||
| Proceeds from sale of digital assets | ( |
) | ( |
) | ||||
| Transaction fees | ( |
) | ||||||
| Realized gain on sale of digital assets | ||||||||
| Ending Balance | $ | $ | ||||||
20
Note 11 — Equity
As discussed in Note 3 Basis of Presentation the
Company completed a reverse merger of Sysorex and TTM Digital with TTM Digital being the accounting acquirer and reporting entity. In
a reverse merger, the capital accounts of the reporting entity (TTM Digital) are restated to reflect the legal capital structure of the
legal acquirer (Sysorex). As a result, the share data of the reporting entity has been retroactively restated for all periods presented
to the equivalent share values of Sysorex for the capital transaction activity of TTM Digital, as if the reverse merger occurred on January
1, 2020. The share data of the reporting entity has been retroactively stated for all periods presented to the equivalent share values
of Sysorex. The Company is authorized to issue
Stock Options
A summary of stock option activity for the six months ended June 30, 2022, is as follows:
| Number of Options (in Shares) | Weighted Average Exercise Price | |||||||
| Outstanding, January 1, 2022 | $ | |||||||
| Granted | $ | |||||||
| Exercised | ||||||||
| Forfeited or cancelled | ||||||||
| Outstanding, June 30, 2022 | $ | |||||||
| Exercisable, June 30, 2022 | $ | |||||||
Warrants
The following table represents the activity related to the Company’s warrants during the three-month period ended June 30, 2022:
| Number of Warrants (in Shares) | Weighted Average Exercise Price | |||||||
| Outstanding, January 1, 2022 | $ | * | ||||||
| Granted | - | |||||||
| Exercised | ( | ) | ||||||
| Outstanding, June 30, 2022 | $ | |||||||
The weighted average contractual term as of June 30, 2022, is
If at any time after the six month anniversary
of the closing date as disclosed in Note 8 Short-term debt, 2021 convertible debenture and warrants, there is no effective registration
statement registering the warrant shares granted to the convertible debenture holders and placement agent, then, for each thirty days
following the six month anniversary of the their respective closing date or portion of any thirty day period thereafter in which no effective
registration statement is available, the amount of warrant shares shall be automatically increased by five percent over the warrant shares
available on such dates. As such, the Company is obligated to grant
| * | The exercise price will be determined by a 5-day VWAP price calculation on the exercise date. |
21
Restricted Stock Units
The following table represents the activity related to the Company’s restricted stock awards granted to employees and directors during the six months ended June 30, 2022:
| Number of Restricted Stock Shares | Weighted Average Grant Date Fair Value | |||||||
| Outstanding, January 1, 2022 | $ | |||||||
| Granted | ||||||||
| Vested | ||||||||
| Unvested, June 30, 2022 | $ | |||||||
The unrecognized stock compensation at June 30,
2022 is $
Share Derivative Liabilities
As the amount of common stock on an as converted basis as of June 30, 2022, exceeded our authorized share amount, the Company’s outstanding warrants, stock options and vested but unissued restricted stock shares (“RSUs”) were reclassified to derivative liabilities in the consolidated financial statements. This results in non-cash gains or losses each period during the term of the warrants, stock options, RSU vesting period and convertible debt. The table below summarizes the reclassified share derivative liabilities as of June 30, 2022 (dollars in thousands):
| June 30, 2022 | ||||
| Warrants | $ | |||
| Stock options | ||||
| RSUs vested but unissued | ||||
| Total share derivative liability | $ | |||
Note 12 — Commitments and Contingencies
Contractual Commitments
On September 5, 2017, prior to the merger and
as a result of a spinoff from Sysorex’s previous parent, a computer hardware supplier threatened legal action against the Company
and demanded approximately $
On January 22, 2018, a software vendor filed a
motion for entry of default judgment (the “Motion”) against SGS in the Circuit Court of Fairfax County, Virginia. The Motion
alleges that SGS failed to respond to a complaint served on November 22, 2017. The Motion requests a default judgment in the amount of
$
The Company entered into a Registration Rights
Agreement (the “RRA”) dated April 13, 2021. The Company had ninety (90) calendar days following the closing date of its Merger
with TTM Digital Assets & Technologies, Inc. on April 14, 2021, to file an initial registration statement covering the Shares. The
ninety (90) calendar day filing date was July 13, 2021 (“Filing Deadline”). The Company did not fulfil its obligation to
file a registration statement covering the Shares by July 13, 2021, nor any date and therefore has accounted for an accrued liability
in the amount of $
22
The Company entered into a Promissory Judgment
Note dated as of August 15, 2018 (the “Note”), with Tech Data Corporation (“Tech Data”), pursuant to which the
Company promised to pay the principal sum of $
On December 14, 2021,
Following a negotiation with Tech Data, the Company
was able to reduce the Award by in excess of $
On June 3, 2022, the Company became aware that
a Complaint had been entered against the Company in the United States District Court Southern District of New York by ProActive Capital
Partners, L.P, a convertible debenture holder. The Complaint is entered for injunctive relief to honor is stock conversion, recover damages,
and receive payments due under the Debenture agreement. The convertible debenture principal and interest of $
Operating Leases/Right-of-Use Assets and Lease Liability
On December 8, 2021, the Company’s principal
executive offices moved to 13880 Dulles Corner Lane, Suite 120, Herndon, Virginia 20171.
As of June 30, 2022, future minimum operating leases commitments are as follows:
| Calendar Years Ending December 31, | Amount | |||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Total future lease payments | ||||
| Less: interest expense at incremental borrowing rate | ( | ) | ||
| Net present value of lease liabilities | $ | |||
Other assumptions and pertinent information related to the Company’s accounting for operating leases are:
| Weighted average remaining lease term: | ||||
| Weighted average discount rate used to determine present value of operating lease liability: | % |
23
Litigation
Certain conditions may exist as of the date the financial statements are issued which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company, or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements.
If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed, unless they involve guarantees, in which case the guarantees would be disclosed. There can be no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
Note 13 — Related Party Transactions
Effective April 1, 2021, the Company entered a variety of contracts with CoreWeave, Inc. (“CoreWeave”).
Hosting Facilities Services Order
The Hosting Facility Services Order (the “Hosting
Contract”) provided for the provision of hosting facility space and services by CoreWeave. The services are paid for in advance
of the service month and the initial term of the hosting services is through June 30, 2022, and renews automatically for successive one
year renewal terms unless either party terminates within sixty (60) days of the expiration of the then current term.
Services Agreement
Bespoke Growth Partners, Inc. (“Bespoke”)
Effective as of April 15, 2021, the Company entered
into a consulting agreement with Bespoke.
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Effective as of January 13, 2022, the Company
entered into a consulting agreement with Bespoke. Under the terms of the consulting agreement, the Company is to pay Bespoke a gross
advisory fee of $
Ressense LLC
On August 4, 2021, the Company
executed a six (6) month business advisory services agreement with Ressense LLC. The services to be provided include potential business
activities including acquisition, merger and reverse merger opportunities. As compensation for the performance of services, the Company
paid and recorded $
One Percent Investments, Inc.
On June 21, 2022, the Company executed a four (4)
month business advisory services agreement with One Percent Investments, Inc. The services to be provided include potential future merger
and/or acquisition activities, strategic alliances, joint ventures, and advisory services in connection with the Company’s desire
to up-list to a national stock exchange. As a compensation for the performance of services, the Company paid $
Note 14 — Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following as of June 30, 2022, and December 31, 2021:
| June 30, 2022 | December 31, 2021 | |||||||
| Consultants | $ | $ | ||||||
| Rent | ||||||||
| Vendor Payments | ||||||||
| Insurance | ||||||||
| License and Maintenance Contracts | ||||||||
| Other | ||||||||
| $ | $ | |||||||
Note 15 — Subsequent Events
On August 10, 2022, the Company entered into Amendment
No. 2 (“Amendment No. 2”) to Employment Agreement, by and between the Company and Vincent Loiacono, the Company’s Chief
Financial Officer. Pursuant to the terms of Amendment No. 2, the parties amended the termination provisions of the original employment
agreement, as amended. Amendment No. 2 provides that the Company, in its sole discretion, may terminate Mr. Loiacono’s employment
for any reason without Just Cause (as defined in the employment agreement, as amended) at any time. If (a) the Company terminates Mr.
Loiacono’s employment without Just Cause, or (b) within 24 months following a change of control, Mr. Loiacono resigns as a result
of and upon a material diminution of his duties, responsibilities, authority, and position, or a material reduction of his compensation
and benefits, or if he ceases to hold the position of Chief Financial Officer after a change of control, the Company will, among other
things: (l) continue to pay Mr. Loiacono’s base salary for one month for every two months of employment after the effective date
up to a maximum of 12 months (as opposed to six months under the original agreement, as amended); and (2) within 45 days of termination
or resignation, pay to Mr. Loiacono
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction the unaudited financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, and with the Company’s audited consolidated financial statements and notes for the years ended December 31, 2021 and 2021 included in Amendment No. 1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on May 23, 2022 (the “10-K Amendment”), and Amendment No. 2 on Form 10-K filed on June 1, 2022. In addition to historical information, the discussion and analysis here and throughout this Form 10-Q contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements due to a number of factors, including but not limited to, risks described in the section entitled “Risk Factors” in the 10-K Amendment, as the same may be updated from time to time.
Overview of the Company’s Subsidiaries
Sysorex Government Services
SGS is a provider of information technology solutions from multiple vendors, including hardware products, software, services, including warranty and maintenance support, offered through our dedicated sales force, ecommerce channels, existing federal contracts and service team. Since our founding, we have served our customers by offering products and services from key industry vendors such as Aruba, Cisco, Dell, GETAC, Lenovo, Microsoft, Panasonic, Samsung, Symantec, VMware and others. We provide our customers with comprehensive solutions incorporating leading products and services across a variety of technology practices and platforms such as cyber, cloud, networking, security, and mobility. We utilize our professional services, consulting services and partners to develop and implement these solutions. Our sales and marketing efforts in collaboration with our vendor partners, allow us to reach multiple customer public sector segments including federal, state and local governments, as well as educational institutions.
The unaudited condensed consolidated financial statements present the combined results of operations, financial condition, and cash flows of Sysorex and its subsidiaries. These financial statements were prepared on a combined basis because the operations were under common control. All intercompany accounts and transactions have been eliminated between the combined entities.
TTM Digital
TTM Digital is a digital asset technology and mining company that owns and operates a large number of specialized cryptocurrency mining processors and is currently focused on the Ethereum blockchain ecosystem.
As discussed in the Heads of Terms agreement below, the Company is in discussion with a third party to sell TTM Digital’s assets.
The Company made the decision to divest its mining equipment and the data center of the TTM Digital and commenced discussions with a third party to execute an asset sale. On March 24, 2022, the Company executed Heads of Terms (“Heads of Terms”) with Ostendo Technologies, Inc. (“Ostendo”) which includes certain binding and non-binding provisions. Pursuant to the agreement, the Company and Ostendo agreed to certain terms related to the Company’s sale of its Ethereum mining assets and certain associated real property. The Assets to be sold will not include the Company’s Ether funds generated prior to and held at Closing. The definitive terms of the sale of assets will be set forth in definitive transaction agreements (the “Definitive Documentation”) to be executed by the parties. The closing of the TTM Digital Asset sale will be subject to the satisfaction or waiver of customary closing conditions.
The parties have extended the closing of the transaction to July 31, 2022. As of August 15, 2022, the parties have not yet entered into Definitive Documentation, and have not amended the Heads of Terms, as amended, to extend the closing date; however, the parties continue to negotiate toward completion of Definitive Documentation.
Known Trends or Uncertainties
SGS experiences variability in our net sales and operating results on a quarterly basis as a result of many factors. SGS experiences some seasonal trends in our sales of technology solutions to government and educational institutions. For example, the fiscal year-ends of U.S. Public Sector customers vary for those in the federal government space and those in the state and local government and educational institution (“SLED”) space. SGS generally sees an increase in our second quarter sales related to customers in the U.S. SLED sector and in our third quarter sales related to customers in the federal government space as these customers close out their budgets for their fiscal year (June 30th and December 31st, respectively). SGS may experience variability in our gross profit and gross profit margin as a result of changes in the various vendor programs we participate in and its effect on the amount of vendor consideration we receive from a particular vendor or their authorized distributor/wholesaler, may be impacted by a number of events outside of our control.
26
TTM Digital, as noted above and disclosed in Note 1 – Nature and description of the Business, Heads of Terms agreement, has made the decision to divest its mining equipment and the data center of the TTM Digital reporting unit and commenced discussions with a third party to execute an asset sale. However, shall a sale not be consummated, to successfully continue in the industry, our business model may need to evolve to reflect the trends of the industry. Over time, we may be required to modify aspects of our business model relating to our strategy. We cannot offer any assurance that we will be successful or that the future industry or business operation changes will not result in harm to our business. We may not be able to manage growth effectively, which could damage our reputation, limit our growth and negatively affect our operating results. Management cannot provide any assurances that we will identify all emerging trends and growth opportunities in this business sector, and we may lose out on those opportunities to current or future competitors. As anticipated, any such circumstances could have a material adverse effect on our business, prospects, or operations
Three Months Ended June 30, 2022, Compared to Three Months Ended June 30, 2021
Summary of TTM Mining Result
The following table present the roll forward of digital asset activity from continuing and discontinued operations during the respective periods:
| Three months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Opening Balance | $ | 1,237 | $ | 14 | ||||
| Revenue from mining | 1,286 | 4,234 | ||||||
| Purchases of Mining equipment with digital assets | - | (1,019 | ) | |||||
| Mining pool operating fees | (13 | ) | (45 | ) | ||||
| Impairment of digital assets | (1,187 | ) | - | |||||
| Transaction fees | (23 | ) | - | |||||
| Proceeds from sale of digital assets | (1,246 | ) | (3,080 | ) | ||||
| Realized gain on sale of digital assets | 164 | 1 | ||||||
| Ending Balance | $ | 218 | $ | 105 | ||||
Discussion of Results of Operations of TTM Digital for the Three Months Ended June 30, 2022, and 2021
The activities for TTM revenues and costs for the three months ended June 30, 2022, represent discontinued operations. As noted above and disclosed in Note 5 to the financial statements, the Company continues to negotiate the closing of the Heads of Terms agreement.
Revenues from mining are impacted significantly by volatility in cryptocurrency prices and network difficulty. The average price of Ethereum mined during the three months ended June 30, 2022, was approximately $2,131 compared to approximately $2,596 during the three months ended June 30, 2021. Network difficulty was also significantly higher in 2022, resulting in lower total rewards from mining. Total Ethereum mined during the three months ended June 30, 2022, was approximately 561 ETH vs approximately 1,600 ETH during the three months ended June 30, 2021.
The estimated transition to proof of stake (“POS”) is currently September 19, 2022, and this date is subject to change based on voting in Ethereum Core Development meetings. Transition to proof of stake will have a direct negative impact on the company’s ability to generate revenue if the Heads of Terms agreement is not closed prior to POS.
Discussion of Results of Operations of SGS for the Three Months Ended June 30, 2022, and 2021
SGS operates on the resale of technology products and associated services related to those products. These products are resold through several contracts with the federal government in SGS’ portfolio of contracts. SGS suppliers include wholesale distributors of major technology products, small niche product suppliers, services from specialized partners, and services from SGS’ own resources.
The lifecycle of an order includes: solicitation of a requirement form the customer, quotation or proposal in response to the solicitation, evaluation of quote or proposal by the customer, awarding an order to SGS based on favorable evaluation, customer order is then entered in as a sales order, the SGS system then issues purchase orders to suppliers, suppliers delivers the goods to the customer and performs any services necessary to complete order obligations, customer provides acceptance, and SGS issues an invoice to the customer. Once a customer accepts the invoice the dollar amount is guaranteed and backed by the U.S. Treasury. Post invoice obligation may include warranty, maintenance, and telephonic support either directly by SGS or through the OEM directly. From acceptance until the period of performance is completed (warranty, maintenance, and/or telephonic support), SGS is responsible for the operability of the delivered goods. Once the period of performance is completed, the customer will contact SGS to complete a contract closeout.
27
SGS revenues for the three months ended June 30, 2022, and 2021, was approximately $3.5 million and 2.0 million. This includes approximately 80% of sales coming from the Company’s top two customers. SGS product and service costs for the three months ended June 30, 2022, and 2021, was approximately $3.2 million. This includes approximately 85% of product costs from the Company’s top two vendors.
SGS margins are affected by the diversity of our supplier. Supplier diversity allows companies such as SGS to seek better cost through competition of multiple suppliers of the same product. Currently, SGS does not have the supplier diversity that is required to increase margin. SGS is on a prepay basis with many suppliers and this requires SGS to finance cash advances to suppliers from our finance source, South Star Capital. Our financial source charges high fees and interest, which also affects our net margin.
SGS also reported for the three months ended June 30, 2022, and 2021, $0.3 million and in sales and marketing costs, $1.6 million in general and administrative costs, $0.1 million in amortization costs, resulting in a loss from operations of approximately $1.7 million. The Company continues to search for paths to drive costs down and increase its cash position.
Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021
Summary of TTM Mining Result
The following tables present the roll forward of digital asset activity from continuing and discontinuing operations during the periods ended:
| Six months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Opening Balance | $ | 5,202 | $ | 24 | ||||
| Revenue from mining | 3,268 | 6,252 | ||||||
| Purchase of mining equipment with digital assets | - | (1,019 | ) | |||||
| Mining pool operating fees | (33 | ) | (66 | ) | ||||
| Impairment of digital assets | (2,423 | ) | ||||||
| Management fees | - | (322 | ) | |||||
| Owners’ distributions | - | (1,521 | ) | |||||
| Transaction fees | (112 | ) | - | |||||
| Proceeds from sale of digital assets | (6,955 | ) | (3,331 | ) | ||||
| Realized gain on sale of digital assets | 1,271 | 88 | ||||||
| Ending Balance | $ | 218 | $ | 105 | ||||
Discussion of Results of Operations of TTM Digital for the Six Months Ended June 30, 2022, and 2021
The activities for TTM revenues and costs for the six months ended June 30, 2022, represent discontinued operations. As noted above and disclosed in Note 5 to the financial statements, the Company continues to negotiate the closing of the Heads of Terms agreement.
As disclosed in the notes to the financial statements, revenues from mining are impacted significantly by volatility in cryptocurrency prices and network difficulty. The average price of Ethereum mined during the six months ended June 30, 2022, was approximately $2,564 compared to approximately $2,071 during the six months ended June 30, 2021. While the average price of Ethereum during the six months ended June 30, 2022, was higher than the six months ended June 30, 2021, network difficulty was also significantly higher in 2022, resulting in lower total rewards from mining. Total Ethereum mined during the six months ended June 30, 2022, was approximately 1,235 ETH compared to approximately 2,917 ETH during the six months ended June 30, 2021.
28
The estimated transition to proof of stake (“POS”) is currently September 19, 2022, and this date is subject to change based on voting in Ethereum Core Development meetings. Transition to proof of stake will have a direct negative impact on the company’s ability to generate revenue if the Heads of Terms agreement is not closed prior to POS.
Discussion of Results of Operations of SGS for the Six Months Ended June 30, 2022, and 2021
SGS revenues for the six months ended June 30, 2022, and 2021, was approximately $8.6 million and $2.0 million. SGS revenues resulted from product sales to U.S. governmental agencies and local county governments. This includes approximately 95% of sales coming from the Company’s top two customers in 2022. As disclosed in the notes to the financial statements, Note 3 - Basis of Presentation, the acquisition/merger was effective April, 2021 which resulted in SGS’s reporting period of April 15, 2021 through June 30, 2021. As a result, the six months ended June 30, 2021, is not comparable in total months of operation to the six months ended June 30, 2022.
Product, and service costs for the six months ended June 30, 2022, of approximately $5.5 million included a gain on a vendor liability settlement of $1.5 million. Without this gain, product and service costs would approximate $7.1 million. The margin effect on the revenue and costs as presented is approximately 32%, however without the one-time settlement gain of $1.5 million, the margin is approximately 14%.
Selling, general, and administrative expenses (“SG&A”) for the six months ended June 30, 2022, was $3.1 million, which were associated with compensation and payroll tax costs, and professional fees related the Heads of Terms investment and sale of TTM assets and ongoing advisory services.
Other income and expense for the six months ended June 30, 2022, was approximately $4.6 million which included interest incurred on the Company’s convertible debt of approximately of $1.7 million, a loss on extinguishment of debt of $1.4 million, a realized gain on sale of digital assets $1.2 million and a conversion feature derivative liability valuation of $2.7 million. Other income and expenses for the six months ended June 30,2021 was approximately $24.0 million. SGS recorded approximately $22.0 million in merger charges and $2.0 million in debt restructuring fees for the period six months ended June 30, 2021, related to the acquisition as disclosed in Note 2 Basis of Presentation to the financial statements.
Liquidity and Capital Resources as of June 30, 2022
Going Concern
As of June 30, 2022, the Company had an approximate cash balance of $0.4 million, working capital deficit of approximately $21.7 million, and an accumulated deficit of approximately $59.3 million. The aforementioned factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern within one year after the date the condensed consolidated financial statements are issued.
The Company does not believe that its capital resources as of June 30, 2022, its ability to settle convertible debt obligations through issuance of the Company’s shares, availability on the SouthStar facility to finance purchase orders and invoices, reauthorization of key vendors and credit limitation improvements will be sufficient to fund planned operations during the next twelve months. As a result, the Company will need additional funds to support its obligations. The Company continues to explore a number of other possible solutions to its financing needs, including efforts to raise additional capital as needed, through the issuance of equity, equity-linked or debt securities, as well as possible transactions with other companies, strategic partnerships, and other mechanisms for addressing our financial condition. The Company will utilize its current contracts that are not limited to a single branch of government or a specific agency. These contracts can provide the Company an opportunity to attain new solutions and service type orders. The Company will also utilize SGS’s small business status to partner with prime contractors on larger orders. The Company currently has utilized SouthStar to finance purchase orders and it also has the ability to factor its receivables if needed to fund operations. In addition, the Company will need to increase its authorized common stock to settle convertible debt conversions.
If the Company is unable to raise additional capital on terms acceptable to the Company and on a timely basis, or is unable to attain new vendors, the Company will be required to downsize or wind down its operations through liquidation, bankruptcy, or sale of its assets. In addition, until the sale of the TTM Assets is consummated, the Company will be subject to changes in the Ethereum Network. The Ethereum network is in the process of implementing software upgrades and other changes to its protocol, which are intended to be a new iteration of the Ethereum network that changes its consensus mechanism from “proof of work” to “proof of stake”, which may decrease the reliance on computing power as an advantage to validating blocks. The move to a proof of stake mechanism will shift the network from mining utilizing computing power to staking, in which Ethereum holders can deposit their Ethereum in exchange for rewards. The switch to a proof of stake model would adversely affect the Company’s operations and ability to sustain operations. In addition, as of June 30, 2022, the Company has been reliant on its ability to liquidate Ethereum to continue to fund operations when needed, and as such, the Company does not currently have enough Ethereum on hand to fund operations through the next twelve months.
Our capital resources and operating results as of and through June 30, 2022, consist of the:
1) An overall working capital deficit of $21.7 million,
2) Cash and cash equivalents of $0.4 million,
3) Net cash used in operating activities of $5.6 million,
4) Net cash provided by investing activities of $5.4 million.
29
Liquidity and Capital Resources as of June 30, 2022, Compared to June 30, 2021
The Company’s net cash flow used in operating, investing and financing activities for the six months ended June 30, 2022, and 2021 and certain balances as of the end of those periods are as follows (in thousands):
| For the Six Months Ended June 30, | ||||||||
| (Thousands, except per share data) | 2022 | 2021 | ||||||
| Net cash used in operating activities | $ | (5,642 | ) | $ | (1,129 | ) | ||
| Net cash provided by investing activities | 5,355 | 3,256 | ||||||
| Net cash used in financing activities | - | (2,095 | ) | |||||
| Net (decrease) increase in cash | $ | (287 | ) | $ | 32 | |||
| June 30, 2022 | December 31, 2021 | |||||||
| Cash | $ | 372 | $ | 659 | ||||
| Working capital (deficit) | $ | (21,714 | ) | $ | (17,413 | ) | ||
Operating Activities:
Net cash used in operating activities during the six months ended June 30, 2022, and 2021, was $(5.6) million and $(1.1) million, respectively. Net cash used in operating activities during the six months ended June 30, 2022, consisted of the following (in thousands):
| Net loss | $ | (10,092 | ) | |
| Non-cash income and expenses | 4,529 | |||
| Net change in operating assets and liabilities | (79 | ) | ||
| Net cash used in operating activities | $ | (5,642 | ) |
The non-cash income and expenses of $4,529, consisted of (in thousands):
| $ | 288 | Depreciation and amortization | ||
| 83 | Amortization of right of use asset | |||
| 1,444 | Loss on extinguishment of debt | |||
| (1,533 | ) | Gain on settlement of vendor liabilities | ||
| (1,271 | ) | Realized gain on sale of digital assets | ||
| 2,423 | Impairment of digital assets | |||
| 2,706 | Change in fair value of debt conversion feature | |||
| 38 | Change in fair value of share derivative liability | |||
| 111 | Stock-based compensation | |||
| 240 | Issuance of shares in exchange for services | |||
| $ | 4,529 | Total non-cash income and expenses |
The net proceeds of cash due to changes in operating assets and liabilities totaled ($79) and consisted of the following (in thousands):
| $ | 818 | Decrease in accounts receivable and other receivables | ||
| 546 | Prepaid assets and other current assets | |||
| (1,094 | ) | Decrease in accounts payable | ||
| 834 | Increase in accrued liabilities and other payables | |||
| 8 | Operating lease liability | |||
| (1,191 | ) | Operating cash flows – discontinued operations | ||
| $ | (79 | ) | Net use of cash in the changes in operating assets and liabilities |
Investing Activities:
Net cash provided by investing activities during the six months ended June 30, 2022, was approximately $5.4 million, primarily driven from proceeds from the sale of digital assets of $7 million, offset by Pre–funded right in Ostendo of $1.6 million. Net cash provided by financing activities for the six months ended June 30, 2021, was approximately $3.3 million, also driven from the proceeds from the sale of digital assets.
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Financing Activities:
The company did not incur financing activities for the six months ended June 30, 2022. Net cash used in financing activities during the six months ended June 30, 2021, was approximately $2.1 million, primarily from the repayment of loans and offset by the payment of a subscription receivable.
Critical Accounting Policies and Estimates
We consider certain accounting policies related to Digital Assets, Impairment of Long-Lived Assets, Revenue Recognition, Derivative Liabilities, and Convertible debt to be critical accounting policies that require the use of significant judgements and estimates relating to matters that are inherently uncertain and may result in materially different results under different assumptions and conditions.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.
Recently Issued Accounting Standards
For a discussion of recently issued accounting pronouncements, please see the Recent Accounting Standards section of Note 3 to our condensed consolidated financial statements, which is included in this Form 10-Q in Item 1.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.
Recently Issued Accounting Standards
None
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”) and to ensure that information required to be disclosed is accumulated and communicated to management, including our principal executive officer and principal financial officer, with assistance from other members of management. Our management, with the participation of our principal executive officer and principal financial officer, evaluated our disclosure controls and procedures as of June 30, 2022, and based on this evaluation, our principal executive officer and principal financial officer concluded the disclosure controls and procedures were not effective as of that date due to the same material weaknesses in internal control over financial reporting that were disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on April 14, 2022 (the “Original 10-K”), as amended by Amendment No. 1 to the Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on May 23, 2022 (the “Amendment”), and Amendment No. 2 on Form 10-K filed on June 1, 2022.
As previously described in Part II, Item 9A of the Original 10-K and of the Amendment, we began implementing a remediation plan to address the material weaknesses. The material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Changes in Internal Control over Financial Reporting
The Company’s restated its audited consolidated financial statements and notes for the years ended December 31, 2021, and 2020 included in Amendment No. 1 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on May 23, 2022. The restatement on our financial statements, and the material weaknesses identified in our internal control over financial reporting identify that our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during the six months ended June 30, 2022, have not been effective. Following the closing of the Merger, our management is still in the process of evaluating any related changes to our internal control over financial reporting as a result of this integration. Except for any changes relating to this integration, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
31
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings as defined by Item 103 of Regulation S-K, to which we are a party or of which any of our property is the subject, other than ordinary routine litigation incidental to the Company’s business.
Sysorex, Inc., a Nevada corporation (the “Company”), entered into a Promissory Judgment Note dated as of August 15, 2018 (the “Note”), with Tech Data Corporation (“Tech Data”), pursuant to which the Company promised to pay the principal sum of $6,849,423.42 to Tech Data. The Note provides that interest shall accrue on the balance of the Note at the rate of 18% per annum. Due to miscommunication with Tech Data, the Company inadvertently failed to pay, when due, some of the installment payments in the aggregate principal amount of $3,341,801.80, as set forth in the Note and has defaulted under the Note.
On December 14, 2021, the Company became aware that a Confession of Judgment (the “Confession of Judgment”) had been entered against the Company in the Superior Court of the State of California, County of Santa Clara by Tech Data on September 24, 2021. The Confession of Judgement is entered for a total sum of $5,942,559.05, which is comprised of the principal sum of $3,341,801.80 and prejudgment interest in the sum of $2,600,757.25.
Following a negotiation with Tech Data, the Company was able to reduce the Award by in excess of $4.2 million, and on January 13, 2022, the Company and Tech Data entered into a Settlement and Release Agreement (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the Company paid $1,375,000 on January 14, 2022. The Company recognized a gain on settlement of $1.5 million.
The Award was deemed satisfied in full. Among other things, Tech Data agreed to file an acknowledgment of full satisfaction of judgment attached as an exhibit to the Settlement Agreement, not take any further action against the Company in connection with or relating to the Judgment, and release the Company and its representatives from any and all claims, including the Judgment, which Tech Data may have against the Company based upon any transaction that occurred at any time before the date of the Settlement Agreement.
On June 3, 2022, the Company became aware that a Complaint had been entered against the Company in the United States District Court Southern District of New York by ProActive Capital Partners, L.P, a convertible debenture holder. The Complaint is entered for injunctive relief to honor is stock conversion, recover damages, and receive payments due under the Debenture agreement. The convertible debenture principal and interest of $0.2 million is recorded in the unaudited condensed consolidated balance sheets – accrued liabilities for the period ended June 30, 2022. The notice of conversion to convert its convertible debt to shares of the Company’s stock will be honored upon issuance of the Company’s increase in authorized shares.
There are no proceedings in which any of the directors, officers, or affiliates of the Company, or any registered or beneficial holder of more than 5% of the Company’s voting securities, is an adverse party or has a material interest adverse to that of the Company.
Item 1A. Risk Factors
As a smaller reporting company, the Company is not required to disclose material changes to the risk factors that were contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as amended (the “2021 10-K”), as updated from time to time. However, the Company is voluntarily providing the risk factor below. Other than as set forth below, as of the filing date of this Quarterly Report on Form 10-Q, there have been no material changes to the risk factors faced by the Company from those previously disclosed in the 2021 10-K, as updated from time to time.
We do not currently have enough authorized shares of common stock under our Articles of Incorporation, as amended, to meet all of our potential obligations to third parties.
Our Articles of Incorporation, as amended, provide for 499,560,659 authorized shares of our common stock. As of August 14, 2022, we have 494,543,611 shares of common stock issued and outstanding. As of May 23, 2022, holders of our convertible debentures have delivered notices of conversion covering an aggregate of 329,723,023 shares of common stock. If we issued the shares that are subject to the notices of conversion that have been delivered, it would result in us issuing more shares than what we have authorized. Accordingly, in order to meet all of such obligations, we will need to amend our Articles of Incorporation, as amended, to increase the authorized shares of our common stock. We can give no assurance that we will obtain the requisite affirmative vote of our shareholders to so amend our Articles of Incorporation, as amended, which could materially adversely affect our financial condition and the market for our shares.
32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
See Note 8, Short-term debt—(A) 2021 Convertible Debentures & Warrants—Debenture Default, which information is incorporated herein by reference.
Item 4. Mine Safety Disclosure
Not applicable.
Item 5. Other Information
On August 10, 2022, the Company entered into Amendment No. 2 (“Amendment No. 2”) to Employment Agreement, by and between the Company and Vincent Loiacono, the Company’s Chief Financial Officer. Pursuant to the terms of Amendment No. 2, the parties amended the termination provisions of the original employment agreement, as amended. Amendment No. 2 provides that the Company, in its sole discretion, may terminate Mr. Loiacono’s employment for any reason without Just Cause (as defined in the employment agreement, as amended) at any time. If (a) the Company terminates Mr. Loiacono’s employment without Just Cause, or (b) within 24 months following a change of control, Mr. Loiacono resigns as a result of and upon a material diminution of his duties, responsibilities, authority, and position, or a material reduction of his compensation and benefits, or if he ceases to hold the position of Chief Financial Officer after a change of control, the Company will, among other things: (l) continue to pay Mr. Loiacono’s base salary for one month for every two months of employment after the effective date up to a maximum of 12 months (as opposed to six months under the original agreement, as amended); and (2) within 45 days of termination or resignation, pay to Mr. Loiacono 100% of the value of any accrued but unpaid bonus. Except as set forth in Amendment No. 2, the original employment agreement, as amended, remains in full force and effect.
The foregoing description of Amendment No. 2 does not purport to be complete and is qualified in its entirety by reference to Amendment No. 2, a copy of which is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q and which is incorporated herein by reference.
Item 6. Exhibits
EXHIBIT INDEX
| † | Management contract or compensatory plan or arrangement. |
| # | This exhibit is deemed not filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act. |
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 15, 2022 |
SYSOREX, INC. | |
| By: | /s/ Vincent Loiacono | |
| Vincent Loiacono | ||
| Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer) | ||
34
Exhibit 10.1
Amendment No. 2 to Employment Agreement
Dated as of August 10, 2022
This Amendment No. 2 to Employment Agreement (this “Amendment”) dated as of the date first set forth above (the “Amendment Date”) is entered into by and between Sysorex, Inc., a Nevada corporation (“Sysorex”) and Vincent Loiacono (“Employee”). Sysorex and Employee may collective be referred to as the “Parties” and each individually as a “Party”.
WHEREAS, the Parties are the parties to that certain Employment Agreement, dated as of August 31, 2018 as amended to date (as so amended, the “Original Agreement”), and now desire to amend the Original Agreement as set forth herein, and pursuant to Section 18 of the Original Agreement the Parties may amend the Original Agreement in writing;
NOW, THEREFORE, in consideration of the promises and of the mutual covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereby agree as follows:
| 1. | Defined Terms. Defined terms used herein without definition shall have the meanings given in the Original Agreement. |
| 2. | Amendment. Pursuant to Section 18 of the Original Agreement, the Original Agreement is hereby amended as follows, with such amendment to be deemed effective as of the Amendment Date: |
| (a) | Section 13(a) of the Original Agreement is hereby amended and restated in its entirety to provide as follows: |
| (a) | Termination Without Just Cause. |
(i) Sysorex, in its sole discretion, may terminate Employee’s employment hereunder for any reason without Just Cause (as defined below)) at any time, by notifying Employee in writing of its decision.
(ii) If (a) Sysorex terminates Employee’s employment hereunder with both Sysorex and SGS without Just Cause or (b) within the twenty four (24) month period following a Change of Control, Employee resigns from employment with both Sysorex and SGS as a result of and upon a material diminution of Employee’s duties, responsibilities, authority, and position with both Sysorex and SGS, or a material reduction of Employee’s compensation and benefits herein, or if Employee ceases to hold the position of Chief Financial Officer at Sysorex after a Change of Control, Sysorex shall: (l) continue to pay to Employee his Base Salary) subject to customary payroll practices and withholdings, for one month for every two months of employment after the Effective Date up to a maximum of twelve (12) months subject to and conditioned upon Employee signing a full general release of any and all known and unknown claims against Sysorex, SGS and their related parties in a form acceptable to Sysorex and SGS and its sole and absolute discretion; (2) within 45 days of termination or resignation, pay to Employee 100% of the value of any accrued but unpaid bonus that Employee otherwise would have received pursuant to Section 5 hereof through the date of termination; (3) upon termination or resignation, pay to Employee the value of any accrued but unpaid vacation time; and (4) upon termination or resignation, pay to Employee any unreimbursed business expenses and travel expenses that are reimbursable under this Agreement that have been incurred by Employee, subject to the submission of any required documentation; (5) an amount equal to the Company’s monthly COBRA premium in effect for the type of coverage in effect under such plan for the Employee (i.e., family coverage) on the date of termination for the number of months applicable to the Loiacono Severance Payment up to a maximum of twelve (12) months; and (6) to the extent required under the terms of any benefit plan or this Agreement, the vested portion of any benefit under such plan.
| 3. | Remainder in Force. Other than as amended herein, the Original Agreement shall remain in full force and effect until terminated in accordance with its terms. Any reference in the Original Agreement to the “Agreement” shall now be deemed a reference to the Original Agreement as amended by this Amendment. |
| 4. | Miscellaneous. |
| (a) | The headings in this Amendment are for reference only and shall not affect the interpretation of this Amendment. |
| (b) | This Amendment and the rights and obligations of the Parties shall be governed by and construed and enforced in accordance with the laws of the State of Nevada without giving effect to any choice or conflict of law provision or rule (whether of the State of Nevada or any other jurisdiction). |
| (c) | This Amendment may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Amendment delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Amendment. |
[Signatures appear on following page]
2
IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed as of the Amendment Date.
| Sysorex, Inc. | ||
| By: | /s/ Wayne Wasserberg | |
| Name: | Wayne Wasserberg | |
| Title: | Chief Executive Officer | |
| Vincent Loiacono | ||
| By: | /s/ Vincent Loiacono | |
| Name: | Vincent Loiacono | |
3
Exhibit 31.1
CERTIFICATION
I, Wayne Wasserberg, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Sysorex, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15-d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: August 15, 2022 | |
| /s/ Wayne Wasserberg | |
| Wayne Wasserberg | |
|
Chief Executive Officer (Principal Executive Officer) |
|
Exhibit 31.2
CERTIFICATION
I, Vincent Loiacono, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Sysorex, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15-d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: August 15, 2022 | |
| /s/ Vincent Loiacono | |
| Vincent Loiacono | |
|
Chief Financial Officer (Principal Financial and Accounting Officer) |
|
Exhibit 32.1
CERTIFICATION
In connection with the periodic report of Sysorex, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2022, as filed with the Securities and Exchange Commission (the “Report”), we, Wayne Wasserberg, Chief Executive Officer (Principal Executive Officer) of the Company, and Vincent Loiacono, Chief Financial Officer (Principal Financial and Accounting Officer) of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of our knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated. |
Date: August 15, 2022
| /s/ Wayne Wasserberg | |
| Wayne Wasserberg | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
| /s/ Vincent Loiacono | |
| Vincent Loiacono | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
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