UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Amendment No. 2)
(Mark One)
For
the Fiscal Year Ended
OR
For the transition period from ______________ to _______________
Commission
File Number
| (Exact name of registrant as specified in its charter) |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
Securities
registered pursuant to Section 12(g) of the Act:
(Title of Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ☐
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on
and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate
by check mark whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The
aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2021, the last
business day of the registrant’s most recently completed second fiscal quarter, was $
As of May 23, 2022, the registrant had
DOCUMENTS INCORPORATED BY REFERENCE
None.
EXPLANATORY NOTE
On May 23, 2022, Sysorex, Inc. (the “Company”) filed Amendment No. 1 (“Amendment No. 1”) to its Annual Report on Form 10-K for the fiscal year ended December 31, 2021, with the Securities and Exchange Commission (“SEC”). Amendment No. 1 contained a typographical error on the date of the audit report of Friedman LLP (“Friedman”), the Company’s independent registered public accounting firm. Although Friedman’s audit report was dated April 14, 2022, except for the effects of the restatement discussed in Note 1A, Note 12, Note 13, and Note 19 to the consolidated financial statements, as to which the date is May 23, 2022, the copy of Friedman’s audit report that was included in Amendment No. 1 incorrectly included a date of April 13, 2022 (instead of April 14, 2022). This Amendment No. 2 on Form 10-K (this “Amendment No. 2”) is being filed to correct the typographical error regarding the date on Friedman’s audit report, such that the date of Friedman’s audit report is April 14, 2022, except for the effects of the restatement discussed in Note 1A, Note 12, Note 13, and Note 19 to the consolidated financial statements, as to which the date is May 23, 2022.
The following items have been amended in this Amendment No. 2:
| ● | Part II, Item 8 (Financial Statements and Supplementary Data) (solely to revise the date on Friedman’s audit report, and to make certain non-material changes) |
| ● | Part IV, Item 15 (Exhibits, Financial Statement Schedules) (to provide updated certifications and an updated Friedman consent) |
Except as described above, no other changes have been made to Amendment No. 1, and Amendment No. 2 does not modify, amend or update in any way any of the financial information contained in Amendment No. 1. Notably, no changes have been made to the Company’s consolidated financial statements, as the same were filed with Amendment No. 1. Amendment No. 2 does not reflect events that may have occurred subsequent to the filing date of Amendment No. 1.
PART II
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Sysorex, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Sysorex, Inc. and subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the years ended December 31, 2021 and 2020, and the related notes and schedules (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years ended December 31, 2021 and 2020, in conformity with accounting principles generally accepted in the United States of America.
Restatement of Previously Issued Financial Statements
As discussed in Note 1A to the accompanying financial statements, the Company has restated its 2021 financial statements to correct an error.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has a working capital deficiency, an accumulated deficit, and has incurred significant losses and cash outflows from operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Emphasis of Matter- Digital Asset Activities
In forming our opinion, we have considered the adequacy of the disclosures and accounting policies included in the financial statements concerning among other things the risks and uncertainties related to the Company’s digital asset activities. The risks and rewards to be recognized by the Company associated with its digital asset activities will be dependent on many factors outside of the Company’s control. Uncertainties related to the regulatory regimes governing blockchain technologies, digital assets, cryptocurrency exchanges and new international, federal, state and local regulations or policies may materially adversely affect the Company. The currently uncertain and immature nature of the digital asset markets, including clearing, settlement, custody and trading mechanisms, the dependency on information technology to sustain digital asset continuity, as well as valuation and volume volatility all subject digital assets to unique risks of theft, loss or other misappropriation. Furthermore, these factors also contribute to the significant uncertainty with respect to the future viability and value of digital assets. Our opinion is not modified with respect to this matter.
/s/
We have served as the Company’s auditor since 2021.
April 14, 2022, except for the effects of the restatement discussed in Note 1A, Note 12, Note 13, and Note 19 to the consolidated financial statements, as to which the date is May 23, 2022.
PCAOB ID Number
F-1
Sysorex, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands of dollars, except number of shares and par value data)
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Assets | (As Restated) | |||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Digital assets | ||||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Assets held for sale | ||||||||
| Current assets – discontinued operations | ||||||||
| Total Current Assets | ||||||||
| Mining Equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Operating lease right-of-use asset, net | ||||||||
| Other assets | ||||||||
| Noncurrent assets - discontinued operations | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | ||||||||
| Accrued liabilities | ||||||||
| Short Term Debt | ||||||||
| Conversion feature derivative liability | ||||||||
| Operating lease obligation, current | ||||||||
| Deferred Revenue | ||||||||
| Current liabilities - discontinued operations | ||||||||
| Total Current Liabilities | ||||||||
| Operating lease obligation - noncurrent | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Equity | ||||||||
| Common stock, par value $ | ||||||||
| Treasury stock, at cost, | ||||||||
| Subscription receivables | ( | ) | ||||||
| Additional paid-in-capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ (Deficit) Equity | ( | ) | ||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements
F-2
Sysorex, Inc. and Subsidiaries
Consolidated Statement of Operations
(In thousands of dollars, except share and per share data)
| For the Year Ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenues | (As Restated) | |||||||
| Mining income | $ | $ | ||||||
| Product revenue | ||||||||
| Services revenue | ||||||||
| Total Revenues | ||||||||
| Operating costs and expenses | ||||||||
| Mining cost | ||||||||
| Product cost | ||||||||
| Services cost | ||||||||
| Sales and marketing | ||||||||
| General and administrative | ||||||||
| Management fee | ||||||||
| Depreciation | ||||||||
| Impairment of fixed assets | - | |||||||
| Impairment of digital assets | ||||||||
| Amortization of intangibles | ||||||||
| Total Operating Costs and Expenses | ||||||||
| Loss from Continuing Operations | ( | ) | ( | ) | ||||
| Other Income (Expense) | ||||||||
| Merger charges | ( | ) | ||||||
| Restructuring fee | ( | ) | ||||||
| Interest expense | ( | ) | ||||||
| Loss contingency on debt default | ( | ) | ||||||
| Revaluation of conversion feature derivative liability | ( | ) | ||||||
| Gain on sale of digital assets | ||||||||
| Other income, net | ||||||||
| Total Other Income (Expense) | ( | ) | ||||||
| Loss from continuing operations before Income taxes | ( | ) | ( | ) | ||||
| Income tax benefit | ||||||||
| Loss from continuing operations | ( | ) | ( | ) | ||||
| Gain from discontinued operations, net of tax | ||||||||
| Net (Loss) Income | $ | ( | ) | $ | ||||
| Net Loss per share - basic and diluted - continuing operations | $ | ( | ) | $ | ( | ) | ||
| Net Income per share - basic and diluted - discontinued operations | $ | $ | ||||||
| Weighted Average Shares Outstanding - basic and diluted | ||||||||
The accompanying notes are an integral part of these consolidated financial statements
F-3
Sysorex, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
For the Years Ended December 31, 2021, and 2020
(In thousands, except share data)
| Common Stock | Treasury Stock | Additional Paid-In | Subscription | Accumulated | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Receivables | Deficit | Total | |||||||||||||||||||||||||
| Balance – December 31, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Issuance of members’ equity | - | |||||||||||||||||||||||||||||||
| Distributions to shareholders | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net Income | - | - | ||||||||||||||||||||||||||||||
| Balance – December 31, 2020 | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Payment of subscription receivable | - | - | ||||||||||||||||||||||||||||||
| Distributions to shareholders | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Exercise of Moon warrants | ||||||||||||||||||||||||||||||||
| Shares issued: | - | |||||||||||||||||||||||||||||||
| Mining equipment | - | |||||||||||||||||||||||||||||||
| Sysorex Recapitalization | - | |||||||||||||||||||||||||||||||
| TTM digital/Sysorex merger | ||||||||||||||||||||||||||||||||
| Professional services | - | |||||||||||||||||||||||||||||||
| Up North/Bitworks transaction | - | |||||||||||||||||||||||||||||||
| Convertible debt warrants | - | - | ||||||||||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||
| Net Loss (As Restated) | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance - December 31, 2021 (As Restated) | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Sysorex, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2021, and 2020
(In thousands, except share data)
| For the Year Ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash Flows from Operating Activities | (As Restated) | |||||||
| 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 debt discount and debt issuance costs | ||||||||
| Realized gain on sale of digital assets | ( | ) | ( | ) | ||||
| Gain on settlement of vendor liabilities | ( | ) | ||||||
| Impairment of data mining assets | ||||||||
| Impairment of digital assets | ||||||||
| Loss contingency on debt default | ||||||||
| Change in fair value of debt conversion feature | ||||||||
| Issuance of shares in exchange for services | ||||||||
| Merger charges | ||||||||
| Debt restructuring fee | ||||||||
| Changes in assets and liabilities: | ||||||||
| Digital assets - mining net of pool fees and management fees | ( | ) | ( | ) | ||||
| Prepaid assets and other current assets | ( | ) | ||||||
| Accounts receivable and other receivables | ||||||||
| Accounts payable | ||||||||
| Accrued liabilities and other current liabilities | ||||||||
| Net cash used in operating activities- continuing operations | ( | ) | ( | ) | ||||
| Net cash provided by operating activities – discontinued operations | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Proceeds from sale of digital assets | ||||||||
| Purchase of mining equipment | ( | ) | ||||||
| Reverse acquisition of Sysorex business | ||||||||
| Up North business combination, net of cash received | ( | ) | ||||||
| Net cash provided by investing activities -continuing operations | ||||||||
| Net cash used in investing activities – discontinued operations | ( | ) | ( | ) | ||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash Flows from Financing Activities | ||||||||
| Repayment of loans | ( | ) | ||||||
| Payments for convertible debt transaction costs | ( | ) | ||||||
| Issuance of Members Interest | ||||||||
| Proceeds received from issuance of convertible debt | ||||||||
| Net cash provided by financing activities- continuing operations | ||||||||
| Net cash provided by financing activities – discontinued operations | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase 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: | ||||||||
| Sysorex recapitalization | $ | $ | ||||||
| Debt discount attributed to the fair value of the warrants | ||||||||
| Debt discount attributed to the fair value of the conversion option | ||||||||
| Equipment exchanged for equity | ||||||||
| Equipment acquired through lease purchase arrangement | ||||||||
| Digital assets received for members interest | ||||||||
| Distributions of digital assets to members | ||||||||
| Payments of short-term borrowing with digital assets | ||||||||
| Right of use assets exchanged for lease obligation | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-5
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Nature and description of Business
Description of Business
Sysorex, Inc. is a technology company focused on Ethereum mining and the Ethereum blockchain and information technology solutions primarily in the public sector segments including federal, state and local governments. The Company has two wholly owned subsidiaries: TTM Digital Assets & Technologies, Inc. (“TTM Digital”) and Sysorex Government Services, Inc. (“SGS”). Following the Company’s Merger with TTM Digital in April 2021, the Company shifted its business focus to the mining of Ethereum and opportunities related to the Ethereum blockchain. In addition to the mining of Ethereum, the Company continues to operate its wholly owned subsidiary, SGS, a business that provides information technology products, solutions, and services to federal, state, and local government, including system integrators. SGS provides these services to enable its customers to manage, protect, and monetize their enterprise assets whether on-premises, in the cloud, or via mobile technology. The Company is headquartered in Virginia.
TTM Digital was originally formed as a Delaware limited liability company on June 28, 2017, under the name of TTM Ventures LLC. Thereafter, on March 30, 2021, it filed a certificate of conversion to a non-Delaware entity with the Secretary of State of the State of Delaware together with Articles of Conversion and Articles of Incorporation with the Nevada Secretary of State filed on the same date. As a result, of such conversion, TTM Digital has become a Nevada corporation under the name of “TTM Digital Assets & Technologies, Inc
Note 1A — Restatement of Previously Issued Financial Statements
Background
Subsequent to the filing of the Original Form
10-K, on May 17, 2022, the Company’s management determined that its prior conclusion that the “conversion feature”
of the Company’s
The Company’s management and in agreement
with the audit committee have determined that the previously issued financial statements for the year ended December 31, 2021, and the
unaudited interim financial information for the three and nine month period ended September 30, 2021 “the Affected period should
no longer be relied upon due to this error and require restatement. The correction of this error is included in the accompanying Consolidated
Financial Statements in this Amended 10-K, the financial effect of this error from previously reported information for the year ended
December 31, 2021, has resulted in an increase in net loss of $
The amendment also includes restated unaudited financial information as of September 30, 2021, and for the three and nine months ended. See Note 20.
Restatement Adjustment
The table below presents the impact of the restatement adjustments on the Company’s previously reported consolidated balance sheet as of December 31, 2021 (in thousands):
| December 31, 2021 | ||||||||||||
| As Previously Reported | Adjustments | As Restated | ||||||||||
| Conversion Feature derivative liability | $ | $ | $ | |||||||||
| Total current liabilities | ||||||||||||
| Accumulated deficit | ( | ) | ( | ) | ( | ) | ||||||
| Total stockholders’ deficit | ( | ) | ( | ) | ( | ) | ||||||
F-6
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The table below presents the impact of the restatement adjustments on the Company’s previously reported consolidated statements of operations for the year ended December 31, 2021 (in thousands):
| Year ended December 31, 2021 | ||||||||||||
| As Previously Reported | Adjustments | As Restated | ||||||||||
| Other Income (Expense) | ||||||||||||
| Loss contingency on debt default | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Revaluation of conversion feature derivative liability | ( | ) | ( | ) | ||||||||
| Interest Expense | ( | ) | ( | ) | ( | ) | ||||||
| Net Loss – continuing operations | ( | ) | ( | ) | ( | ) | ||||||
| Net Loss per share - basic and diluted - continuing operations | $ | ( | ) | ( | ) | ( | ) | |||||
| Weighted Average Shares Outstanding - basic and diluted | ||||||||||||
The table below presents the impact of the restatement adjustments on the Company’s previously reported consolidated statement of cash flows for the year ended December 31, 2021 (in thousands):
| Year ended December 31, 2021 | ||||||||||||
| As Previously Reported | Adjustments | As Restated | ||||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Changes in adjustment to reconcile net loss to net cash used in operating activities | ||||||||||||
| Loss contingency on debt default | ||||||||||||
| Change in fair value of derivative liability | ||||||||||||
| Amortization of debt discount and debt issuance costs | ||||||||||||
| Net cash used in operating activities | $ | ( | ) | ( | ) | |||||||
Note 2 — Going Concern
As of December 31, 2021, the Company had an approximate
cash balance of $
The Company does not believe that its capital resources
as of December 31, 2021, its ability to mine cryptocurrency, its expected sale of certain mining assets and data center, availability
on the SGS SouthStar credit facility to finance purchase orders and invoices, reauthorization of key vendors and credit limitation improvements
will be sufficient to fund planned operations. As a result, the Company will need additional funds to support its obligations for the
next twelve months. The Company continues to explore a number of other possible solutions to its financing needs, including additional
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. As such, on March 24, 2022,
Company executed an agreement with a third party which includes certain binding and non-binding provisions. Pursuant to the agreement,
the Company and the third party agreed to certain terms related to the Company’s sale of approximately
If the Company is unable to raise additional capital on terms acceptable to the Company and on a timely basis, the Company will be required to downsize or wind down its operations through liquidation, bankruptcy, or sale of its assets.
Note 3 — Basis of Presentation
TTM Digital Reverse Merger and Sysorex Recapitalization
On April 8, 2021, the Company, TTM Digital, and TTM Acquisition Corp., a Nevada corporation, 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.
F-7
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Under the terms of the Merger Agreement, the shareholders of TTM Digital
received a right to receive an aggregate of
As discussed in Note 5 Segment Reporting after the completion of the Merger the Company reports two segments (“TTM Digital” and “Sysorex Government Services”) which are also defined as reporting units for impairment assessment purposes. See Note 5- Segment Reporting and Note 6, Discontinued Operations for additional information.
In the purchase price allocation of the fair
value of assets acquired and liabilities assumed, the Company has recognized an excess of net liabilities assumed over the determined
fair value of the Sysorex Government Services Reporting Unit. The excess of the purchase price over the net liabilities assumed was allocated
to goodwill in the amount of $
Subsequent to the Merger Agreement the
majority of the Sysorex debt, certain liabilities classified as current and a forward consulting contract with a former member Sysorex
board of director’s (the “Debt Items”) aggregating $
F-8
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the fair value of the identified assets acquired and liabilities assumed at the Merger date, the effect of the Sysorex Recapitalization on the assets acquired and liabilities assumed, and the net assets acquired, and liabilities assumed for the aggregate of the reverse acquisition and Merger Charges and Sysorex Recapitalization separate transactions:
| Reverse | Sysorex | Aggregate | ||||||||||
| Acquisition | Recapitalization | Fair | ||||||||||
| (In thousands of dollars) | Fair Value | Fair Value | Value | |||||||||
| Cash | $ | $ | $ | |||||||||
| Accounts receivable | ||||||||||||
| Prepaid assets and other current assets | ( | ) | ||||||||||
| Property and equipment | ||||||||||||
| Goodwill | ||||||||||||
| Customer Relationships Intangible | ||||||||||||
| Tradename Intangible | ||||||||||||
| Other assets | ||||||||||||
| Accounts payable | ( | ) | ( | ) | ||||||||
| Accrued liabilities | ( | ) | ( | ) | ||||||||
| Deferred revenue | ( | ) | ( | ) | ||||||||
| Short term debt | ( | ) | ( | ) | ||||||||
| Long term debt | ( | ) | ||||||||||
| Other liabilities | ( | ) | ( | ) | ||||||||
| Fair value allocated to net assets / (liabilities) | $ | ( | ) | $ | $ | ( | ) | |||||
| Fair value of consideration and recapitalization equity | $ | $ | $ | |||||||||
| Merger charges | ( | ) | ( | ) | ||||||||
| Debt restructuring fees | ( | ) | ( | ) | ||||||||
| Net Sysorex equity and charges to income (loss) | $ | ( | ) | $ | $ | ( | ) | |||||
For the year ended December 31, 2021, the Company incurred approximately
$
F-9
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Financial Information
The following proforma results of operations are presented for information
purposes. The proforma results of operations are not intended to present actual results that would have been attained had the reverse
merger and Sysorex Recapitalization been completed as of January 1, 2020, or to project potential operating results as of any future date
or for any future periods. The revenue and net loss of the reverse merger accounting acquiree for the year ended December 31, 2021, included
in the consolidated statement of operations amounted to approximately $
| December 31, | ||||||||
| 2021 (As Restated) | 2020 | |||||||
| Total Revenues | $ | $ | ||||||
| Net Loss (b) | ( | ) | ( | ) | ||||
| Net Loss per share - basic and diluted | ( | ) | ( | ) | ||||
| Weighted Average Shares Outstanding - basic and diluted | ||||||||
| Supplemental Pro forma Information (a) | ||||||||
| Merger charges | ||||||||
| Restructuring fee | ||||||||
| Transaction costs - Accounting acquirer and acquiree | ||||||||
| Total Nonrecurring Pro forma Adjustments | ||||||||
| (a) | Supplemental Pro forma Information consists of material, nonrecurring pro forma adjustments directly attributable to the reverse acquisition and Sysorex Recapitalization |
| (b) | Net Loss does not include supplemental pro forma information included in (a) above. |
Discontinued Operations
As discussed in Note 6 – Discontinued Operation, in the fall of December 2021, the Company made the decision to divest certain 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 certain 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. 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 consolidated balance sheets and to gain (loss) from discontinued operations on the consolidated statements of operations for the periods presented.
F-10
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 4 — Summary of Significant Accounting Policies
Principles of Consolidation
The 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. Up until November 2, 2021, the Company’s wholly owned subsidiary, TTM Digital had a
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“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 for mining revenue |
| ● | Expected useful lives and impairment of mining equipment |
| ● | Fair value of derivative liabilities |
| ● | Business combinations and reverse merger accounting |
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity from the date of purchase of years or less to be cash equivalents.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist primarily of cash. The Company’s cash is deposited with commercial banks in the United States but exceeds federally insured limits from time to time. The recorded carrying amount of cash and cash equivalents approximates their fair value. The Company uses a digital asset exchange to custody and liquidate its digital assets. If demand for digital assets decline the Exchange could be negatively impacted. The Company’s digital assets are not insured under the third-party custody provider or exchanges.
F-11
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Mining Equipment
Mining Equipment is stated at cost. Depreciation
is computed using the straight-line method regardless of the category of asset. The Company has determined that the useful life of graphics
processing units (“GPUs”) is
Expenditures for repairs and maintenance are charged to expense as incurred. Upon disposition, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected in the statement of operations.
The rate at which the Company generates digital assets and, therefore, consumes the economic benefits of its transaction verification servers are influenced by several factors including the following:
| - | the complexity of the transaction verification process which is driven by the algorithms contained within the Ethereum open-source software; |
| - | the general availability of appropriate computer processing capacity on a global basis (commonly referred to in the industry as hashing capacity which is measured in Terahash units); and |
| - | technological obsolescence reflecting rapid development in the transaction verification server industry such that more recently developed hardware is more economically efficient to run in terms of digital assets generated as a function of operating costs, primarily power costs. i.e., the speed of hardware evolution in the industry is such that later hardware models generally have faster processing capacity combined with lower operating costs and on average a lower cost of purchase. |
The Company operates in an emerging industry for which limited data is available to make estimates of the useful economic lives of specialized equipment. Management will review this estimate quarterly and will revise such estimates as and when data comes available.
To the extent that any of the assumptions underlying management’s estimate of useful life of its mining equipment are subject to revision in a future reporting period either because of changes in circumstances or through the availability of greater quantities of data then the estimated useful life could change and have a prospective impact on depreciation expense and the carrying amounts of these assets.
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. An impairment loss of $
F-12
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 a mining pool with the operator 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 arrangement 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 consolidated financial position and results from operations.
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.
F-13
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 years ended December 31, 2021, 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.
Contract Balances
The timing of revenue recognition may differ from the timing of payment
by customers. The Company records a receivable when revenue is recognized prior to payment and there is an unconditional right to payment.
Alternatively, when payment precedes the provision of the related services, the Company records deferred revenue until the performance
obligations are satisfied. The Company had deferred revenue of $
F-14
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Accounts Receivable, net
Account receivables are stated at the amount
the Company expects to collect. The Company recognizes an allowance for doubtful accounts to ensure accounts receivables are not overstated
due to un-collectability. Bad debt reserves are maintained for various customers based on a variety of factors, including the length
of time the receivables are past due, significant one-time events and historical experience. An additional reserve for individual accounts
is recorded when the Company becomes aware of a customer’s inability to meet its financial obligation, such as in the case of bankruptcy
filings, or deterioration in the customer’s operating results or financial position. If circumstances related to customers change,
estimates of the recoverability of receivables would be further adjusted. The Company’s allowance for doubtful accounts was $
Equity Method Investments
Equity method investments are equity securities in entities the Company does not control but over which it can exercise significant influence. These investments are accounted for under the equity method of accounting in accordance with ASC 323, Investments- Equity Method and Joint Ventures. Equity method investments are measured at cost minus impairment, if any, plus or minus the Company’s share of an investee’s income or loss. The Company’s equity method investment up through November 1, 2021, related to Up North Hosting, LLC is presented as discontinued operations. Refer to Note 7.
Investments
The Company accounts for its investments that represent
less than
Digital Assets
Digital assets (predominantly Ethereum) are included in current assets in the accompanying 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. The Company recorded a $
Digital assets awarded to the Company through its mining activities
are included within operating activities on the accompanying consolidated statements of cash flows. The sales of digital assets are included
within investing activities in the accompanying 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. The Company recognized realized gains (losses) through the sale and
disbursement of digital assets during the year ended December 31, 2021, and 2020 of $
Business Combinations
The Company applies the provisions of ASC Topic 805, Business Combinations (“ASC 805”) in the accounting for acquisitions of businesses. ASC 805 requires the Company to use the acquisition method of accounting by recognizing the identifiable tangible and intangible assets acquired and liabilities assumed, and any non-controlling interest in the acquired business, measured at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the aforementioned amounts.
F-15
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
While the company uses its best estimates and assumptions to accurately apply preliminary values to assets acquired and liabilities assumed at the acquisition date, these estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of the assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in the consolidated statements of operations. As of December 31, 2021, no adjustments have been made to the purchase price accounting under the Company’s transactions accounted for under ASC 805.
Accounting for business combinations requires management to make significant estimates and assumptions, especially at the acquisition date, including estimates for intangible assets. Although the Company believes the assumptions and estimates that have been made are reasonable and appropriate, they are based in part on historical experience and information obtained from the acquired companies and are inherently uncertain. Critical estimates in valuing certain of the intangible assets the Company has acquired include future expected cash flows, and discount rates.
Goodwill and Other Intangible Assets
The Company accounts for intangible assets under ASC 350-30, Intangibles-Goodwill and Other. Goodwill represents the cost of a business acquisition in excess of the fair value of the net assets acquired. Goodwill is not amortized and is reviewed for impairment annually as of December 31, or more frequently if facts and circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the company performs a quantitative test to identify and measure the amount of goodwill impairment loss. The Company compares the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds fair value, goodwill of the reporting unit is considered impaired, and that excess is recognized as a goodwill impairment loss.
Intangible assets with finite lives are comprised of customer contracts, and trademarks that are amortized on a straight-line basis over their expected useful lives. The carrying value of finite-lived assets and the remaining useful lives are reviewed at least annually to determine if circumstances exist which may indicate a potential impairment or revision to the amortization period.
Fair Value
The Company follows the accounting guidance under FASB’s Accounting Standards Codification 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.
Certain nonfinancial assets such as property and equipment, land and intangible assets are subject to nonrecurring fair value measurements if they are deemed to be impaired. The impairment models used for nonfinancial assets depend on the type of asset.
F-16
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2021, the Company recorded
impairment charges related to assets measured on a non-recurring basis of $
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.
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.
Stock Based Compensation
The Company accounts for its stock-based compensation awards to employees and directors in accordance with FASB ASC Topic 718, Compensation-Stock Compensation (“ASC 718”). ASC 718 requires all stock-based compensation to employees, including grants of employee stock options, and restricted stock, to be recognized in the consolidated statements of operations based on their grant date fair values. The fair value of stock options is estimated as of the date of grant using the Monte Carlo Simulation option pricing model. The fair value of restricted stock is calculated as the fair value of the Company’s common stock as of the date of grant. The expense is recognized on a straight-line basis over the requisite service period.
Income Taxes
The Company accounts for income taxes under the asset and liability method, in which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is required to the extent any deferred tax assets may not be realizable.
ASC 740-10, Accounting for Uncertainty in Income Taxes, defines uncertainty in income taxes and the evaluation of a tax position as a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely than-not threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. The Company had no uncertain tax positions as of December 31, 2021, and 2020.
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 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.
F-17
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 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.
Leases
The right of use asset (“ROU”) on the Company’s consolidated balance sheet represents a lessee’s right to use an asset over the life of a lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term, plus any lease payments made to the lessor before the lease commencement date, plus any initial direct costs incurred, minus any lease incentives received. The amortization period for the right of use asset is from the lease commencement date to the earlier of the end of the lease term or the end of the useful life of the asset. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has elected to exclude all short-term leases (i.e., leases with a term of 12 months or less) from recognition on the balance sheet.
The Company’s lease liabilities are determined by calculating the present value of all future lease payments using the rate implicit in the lease if it can be readily determined, or the lessee’s incremental borrowing rate. The Company uses its incremental borrowing rate at the inception of the lease to determine the present value of future lease payments as the rate implicit in its leases could not be readily determined.
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 year ended December 31, 2021, 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:
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| 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 | ||||||||
| Weighted-average common shares outstanding – diluted | ||||||||
| Options, restricted stock, and warrants and convertible debt excluded from the computation of diluted loss per share because the effect of inclusion would be anti-dilutive | ||||||||
F-18
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Standards
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies income tax accounting in various areas including, but not limited to, the accounting for hybrid tax regimes, tax implications related to business combinations, and interim period accounting for enacted changes in tax law, along with some codification improvements. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. Certain changes in the standard require retrospective or modified retrospective adoption, while other changes must be adopted prospectively. The Company implemented ASU 2019-12 and it did not have a material impact on our consolidated financial statements.
In January 2020, the FASB issued ASU 2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). The ASU amends and clarifies certain interactions between the guidance under Topic 321, Topic 323, and Topic 815, by reducing diversity in practice and increasing comparability of the accounting for these interactions. The amendments in the ASU should be applied on a prospective basis. The ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted, including early adoption in an interim period for which financial statements have not yet been issued. The new standard has not had a material impact on the consolidated financial statements or disclosures.
In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Most significantly, the new guidance removes from GAAP separation models for convertible debt that require the convertible debt to be separated into a debt and equity component, unless the conversion feature is required to be bifurcated and accounted for as a derivative or the debt is issued at a substantial premium. As a result, after adopting the guidance, entities will no longer separately present such embedded conversion features in equity and will instead account for the convertible debt wholly as debt. The new guidance also requires use of the “if-converted” method when calculating the dilutive impact of convertible debt on earnings per share, which is consistent with the Company’s current accounting treatment under the current guidance. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, but only at the beginning of the fiscal year. The Company has early adopted the new guidance on January 1, 2021, with no impact to prior period financial statements given that the first applicable instruments were not executed until the third quarter of 2021. See Note 12-Short Term Debt for further disclosure on the instrument.
Any new accounting standards, not disclosed above, that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.
Emerging Growth Company
Sysorex is an “emerging growth company” as defined in 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. 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 Exchange Act, 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.
Note 5 — Segment Reporting
Operating segments are defined as components of
an enterprise for which discrete financial information is available that is evaluated regularly by the chief operating decision maker
(CODM) for purposes of allocating resources and evaluating financial performance. The Company’s CODM is the chief financial officer
who reviews financial information presented at the subsidiary level for purposes of allocating resources and evaluating financial performance.
As such, the Company’s operations constitute
The following table reflects the results of continuing operations of the company’s segments consistent with the management and measurement system utilized within the company. Performance measurement is primarily based on revenue and gross profit. These results are used, in part, by the chief operating decision maker, both in evaluating the performance of, and in allocating resources to, each of the segments. The CODM does not evaluate performance or allocate resources based on segment asset data, and therefore such information is not included.
F-19
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table provides a summary of the revenues, and cost of revenues from continuing operations for our subsidiary segments for the year ended December 31, 2021 (in thousands):
| TTM Digital | Sysorex Government Services | Consolidated | ||||||||||
| Revenues | ||||||||||||
| Products Revenue | $ | $ | $ | |||||||||
| Services Revenue | ||||||||||||
| Mining Income | ||||||||||||
| Total Revenues | $ | $ | $ | |||||||||
| Costs of Revenues | ||||||||||||
| Product Cost of Revenue | $ | $ | $ | |||||||||
| Services Cost of Revenue | ||||||||||||
| Mining Cost of Revenue | ||||||||||||
| Other Operating Expenses | ||||||||||||
| Operating Income (Loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Total Segment Assets | $ | $ | $ | |||||||||
Note 6 — Discontinued Operations
In December 2021, the Company made the
decision to divest certain mining equipment, graphic processing units and data center and its assets of TTM Digital reporting unit
(“TTM Assets”) and commenced discussions with a third party to execute an asset sale. On March 24, 2022, the Company
executed Heads of Terms agreement with a third party which includes certain binding and non-binding provisions. Pursuant to the
Heads of Terms, the Company and the third party agreed to certain terms related to the Company’s sale of approximately
As a result of the decision to divest certain operating assets of the TTM Digital reporting unit, the Company has determined that subject assets met the definition of assets held for sale as defined by ASC 205-20 – Presentation of Financial Statements – Discontinued Operations. 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 consolidated balance sheets and to loss from discontinued operations on the consolidated statements of operations for the periods presented.
The carrying value of the TTM Digital asset disposal
group was $
| 2021 | 2020 | |||||||
| Current Assets | ||||||||
| Related Party receivables | $ | $ | ||||||
| Mining equipment and facilities, net | - | |||||||
| Investment in Style Hunter | ||||||||
| Total Current Assets | $ | $ | ||||||
| Noncurrent Assets | ||||||||
| Mining equipment and facilities, net | - | |||||||
| Investment in Up North Hosting, LLC | ||||||||
| Total Noncurrent Assets | - | |||||||
| Total Assets associated with discontinued operations | $ | $ | ||||||
| Liabilities associated with discontinued operations | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Related party loan | ||||||||
| Total Current Liabilities | ||||||||
| Total Liabilities associated with discontinued operations | $ | $ | ||||||
F-20
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the TTM Digital assets statement of operations line items classified as discontinued operations included within loss from discontinued operations for the years ended December 31, 2021, and 2020 (in thousands):
| 2021 | 2020 | |||||||
| Revenues | ||||||||
| Mining income | $ | $ | ||||||
| Other revenue | ||||||||
| Total Revenues | ||||||||
| Operating costs and expenses | ||||||||
| Mining cost | ||||||||
| General and administrative | ||||||||
| Depreciation | ||||||||
| Total Operating Costs and Expenses | ||||||||
| Gain from Discontinued Operations | ||||||||
| Other Income (Expenses) | ||||||||
| Gain (loss) on sale of fixed assets | ( | ) | ||||||
| Fair value loss on previously held equity interest | ( | ) | ||||||
| Other income (expenses), net | ( | ) | ||||||
| Total Other Income | ( | ) | ||||||
| Income before net loss of equity method investee | ||||||||
| Share of net loss of equity method investee | ( | ) | ( | ) | ||||
| Net income from discontinued operations | $ | $ | ||||||
F-21
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the net cash flows from discontinued operations of TTM Digital for years ended December 31,2021 and 2020 (in thousands):
| For the Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Net cash provided by operating activities – discontinued operations | ||||||||
| Net cash used in investing activities – discontinued operations | ( | ) | ( | ) | ||||
| Net cash provided by financing activities – discontinued operations | ||||||||
F-22
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 7 — Equity Method Investments
As discussed in Note 8 - Up North Business Combination / Bitworks Asset Acquisition, the acquisition by TTM Digital occurred on November 2, 2021; the schedule values below are up through November 1, 2021, immediately prior to the acquisition.
The Up North Hosting balance sheet is presented as of November 1, 2021, and December 31, 2020 (in thousands of dollars):
| November 1, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Current assets | $ | $ | ||||||
| Non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| Current liabilities | ||||||||
| Total liabilities | ||||||||
| Members’ equity | ||||||||
| Retained Earnings (Deficit) | ( | ) | ( | ) | ||||
| Total Members’ Equity | ||||||||
| Total Liabilities and Members’ Equity | $ | $ | ||||||
Fixed assets, net, which are owned by Up North Hosting, were comprised of the following (in thousands of dollars):
| November 1, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Building | $ | $ | ||||||
| Electrical Infrastructure Assets | ||||||||
| Machinery & Equipment Assets | ||||||||
| Mechanical (HVAC) Assets | ||||||||
| Server and Network Assets | ||||||||
| Gross value | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Property, plant, and equipment, net | $ | $ | ||||||
The Up North Hosting statement of operations for the period ending November 1, 2021, and December 31, 2020 (in thousands of dollars):
| 2021 | 2020 | |||||||
| Revenues | $ | $ | ||||||
| Cost of revenues, excluding depreciation | ||||||||
| Selling, general, and administrative | ||||||||
| Other (Income)/Expense | ( | ) | ( | ) | ||||
| Net loss | ( | ) | ( | ) | ||||
| Net loss attributable to TTM | $ | ( | ) | $ | ( | ) | ||
The Company’s main cost of revenues relates to the hosting and electricity expenses used to power the datacenter and the hosted equipment.
F-23
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 8 — Up North Business Combination / Bitworks Asset Acquisition
On November 2, 2021, the Company through a wholly owned subsidiary
of TTM Digital executed a Membership Interest Purchase Agreement (“Up North Agreement”) with BWP Holdings, LLC (“BWP”)
whereby the Company acquired the remaining
The total transaction consideration paid for the Acquisition was valued at $1.4 million. The transaction consideration was allocated to the UNH Acquisition and the Bitworks Equipment in the amounts of $705,900 and $694,100, respectively. The UNH Acquisition was accounted for as a business combination using the acquisition method in accordance with Accounting Standards Codification 805, Business Combinations. In accounting for the UNH Acquisition the purchase consideration consisted of the fair value of the Up North membership interest previously owned by the Company and accounted for as an equity method investment of $631,500 and the transaction consideration allocated of $705,900 and reduced by the effective settlement of intercompany transactions of $104,285 for net purchase consideration of $1,233,115. The previous membership interest in Up North had a carrying value of $649,462 resulting in the recognition of a loss on the conversion of the equity method investment of $17,962.
The following table summarizes the amounts of identified assets acquired and liabilities assumed relating to the Acquisition:
| (In thousands of dollars) | UNH Acquisition Fair Value | Bitworks Equipment Fair Value | Aggregate Fair Value | |||||||||
| Cash | $ | $ | $ | |||||||||
| Accounts receivable | ||||||||||||
| Prepaid assets and other current assets | ||||||||||||
| Property and equipment | ||||||||||||
| Property tax abatement intangible | ||||||||||||
| Other assets | ||||||||||||
| Accounts payable | ( | ) | ( | ) | ||||||||
| Accrued liabilities | ( | ) | ( | ) | ||||||||
| Fair value allocated to net assets / (liabilities) | $ | $ | $ | |||||||||
| Fair value of transaction consideration | $ | $ | $ | |||||||||
| Fair value of equity method investment exchanged | ||||||||||||
| Effective settlement of intercompany transactions | ( | ) | ( | ) | ||||||||
| Fair value of purchase consideration | $ | $ | $ | |||||||||
Up North’s primary asset consists of a data
center facility located in New York used for the hosting of cryptocurrency data mining operations. The value of the data center facility
building, and improvements installed for the data center operations are approximately $
F-24
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 9 — Mining Equipment, net
Mining equipment, net, was comprised of the following (in thousands of dollars):
| Balance as of | ||||||||
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Gross Mining Equipment: | ||||||||
| Mining Equipment (non-GPUs) | $ | $ | ||||||
| GPUs | ||||||||
| Accumulated Depreciation | ||||||||
| Mining Equipment (non-GPUs) | ( | ) | ||||||
| GPUs | ( | ) | ||||||
| Mining Equipment, net | $ | $ | ||||||
An Ethereum mining server consists of multiple
commodity Graphics Processing Units (GPUs) and ancillary components such as chassis, CPU, motherboard, and power supply. The GPUs are
solely responsible for the compute power to generate the cryptographic hashes for mining, while the other components act to support the
system. Depreciation expense was approximately $
The Company (TTM Digital) purchased approximately
Note 10 — 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 | $ | $ | ( | ) | $ | |||||||
| Calendar Years ending December 31, | Amount | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ | |||
F-25
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 11 — 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 SGS from those customers that accounted for at least
| For the Period April 15, | ||||||||
| 2021, through | ||||||||
| December 31, 2021 | ||||||||
| $ | % | |||||||
| Customer A | % | |||||||
| Customer B | % | |||||||
As of December 31, 2021, Customer A represented
approximately
For the period April 15, 2021, through December 31, 2021, three vendors
represented approximately
Mining equipment purchased from one TTM Digital
vendor during the year ended December 31, 2021, was $
Geographic and Technology Concentration
The Company had geographic concentration risk with mining operations being exclusively carried out within New York in the first Quarter of 2021 and throughout 2020, while the Company has added geographic diversity during April 2021 using a colocation datacenter in North Carolina. 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 could have 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 year ended December 31, 2021. While the Company doubled mining capacity in the first half of the year, 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 the year.
The Company has a mining pool optimized for the mining of ETH on the Ethereum blockchain. There are several factors taken into consideration when the Company elected to continue with exclusively mining ETH.
F-26
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 12 — Short Term Debt
Short term debt as of December 31, 2021, consisted of the following (in thousands):
| December 31, | ||||
| 2021 | ||||
| Convertible Debentures & Warrants, including interest payable to the Convertible Debenture Holders | $ | |||
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)
In conjunction with the Convertible Debentures,
the Company entered into a Warrant Purchase Agreement (the “Agreement”) providing investors the right to purchase common stock
of Sysorex.
The Company recorded the debt net of the
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.
F-27
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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
The Company has not made a formal determination of an event of default.
However, as a result of the Default Notice, the Company has recorded a loss of approximately $
The Company recognized approximately $
Non-Recourse Factoring and Security Agreement
Effective as June 19, 2020, prior to the merger, the Company and SouthStar Financial, LLC (“SouthStar”) entered into a Non-Recourse Factoring and Security Agreement (the “Agreement”) pursuant to which SouthStar may purchase receivables from the Company (the “Purchased Receivables”) for a price not to exceed 85% of the face value of the Purchased Receivables or a lesser percentage agreed upon between the Company and SouthStar. In consideration of SouthStar’s purchase of the Purchased Receivables, the Company will pay to SouthStar an amount equal to 0.8% of the face amount of the Purchased Receivables for the first 10-day period after payment for the Purchased Receivables is transmitted to SouthStar plus 0.9% for each additional 10-day period or part thereof, calculated from the date of purchase until payments received by SouthStar in collected funds on the Purchased Receivables equals the purchase price of the Purchased Receivables plus all charges due SouthStar from the Company at the time. An additional 1.0% per 10-day period will be charged for invoices exceeding 60 days from invoice date.
As of December 31, 2021, the Company did not have any of its receivables financed.
F-28
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 13 — Fair Value Measurements
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 December 31, 2021 and 2020:
| Fair value measurement at reporting date using | ||||||||||||||||
| Balance | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | |||||||||||||
As of December 31, 2021: (in thousands) | ||||||||||||||||
| Recurring fair value measurements | ||||||||||||||||
| Derivative liabilities: | ||||||||||||||||
| Conversion feature derivative liability | $ | $ | $ | $ | ||||||||||||
| Total derivative liabilities | ||||||||||||||||
| Total recurring fair value measurements | $ | $ | $ | $ | ||||||||||||
| As of December 31, 2020: (in thousands) | ||||||||||||||||
| Recurring fair value measurements | ||||||||||||||||
| Derivative liabilities: | ||||||||||||||||
| Conversion feature 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 year ended December 31, 2021, the Company
recorded a loss of $
Note 14 — Income taxes
The income tax provision (benefit) for the years ended December 31, 2021, consists of the following (in thousands of dollars):
Net loss before income tax is as follows (in thousands):
| Year ended December 31, 2021 (As Restated) | ||||
| Net loss before income tax | $ | ( | ) | |
Income tax expense (benefit) consists of the following:
| Year ended December 31, 2021 (As Restated) | ||||
| U.S. Federal | ||||
| Current | $ | |||
| Deferred | ( | ) | ||
| State and Local | ||||
| Current | ||||
| Deferred | ( | ) | ||
| ( | ) | |||
| Change in Valuation Allowance | ||||
| Total income tax provision (benefit) | $ | |||
F-29
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The reconciliation between the U.S. statutory federal income tax rate and the Company’s effective rate for the years ended December 31, 2021, is as follows:
| Year ended December 31, 2021 (As Restated) | ||||
| Pretax Income | % | |||
| State taxes, net of federal benefit | % | |||
| Merger charges | - | % | ||
| Other permanent items | - | % | ||
| Derivative valuation | - | % | ||
| Change in valuation allowance | - | % | ||
| Effective income tax rate | % | |||
As of December 31, 2021, the Company’s deferred tax assets consisted of the effects of temporary differences attributable to the following (in thousands of dollars):
| Year ended December 31, 2021 (As Restated) | Year ended December 31, 2020 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carry forwards | $ | $ | ||||||
| Fixed assets | ||||||||
| Accrued compensation | ||||||||
| Reserves | ||||||||
| Intangible assets | ||||||||
| Business interest limitation | ||||||||
| Lease Liabilities | ||||||||
| Tax Credits | ||||||||
| Derivative adjustment | ||||||||
| Other | ||||||||
| Total deferred tax assets before valuation allowance | ||||||||
| Valuation allowance | ( | ) | ||||||
| Total deferred tax assets after valuation allowance | ||||||||
| Deferred tax liabilities: | ||||||||
| Operating lease right of use assets | ( | ) | ||||||
| Total deferred tax liabilities | ( | ) | ||||||
| Net deferred tax assets and liabilities | $ | $ | ||||||
Prior to the merger (as discussed in Note 1), the Company was a Partnership for US Income Tax purposes and therefore had no provision for income tax as of December 31, 2020. Subsequent to the merger the entity became a taxable entity.
As of December 31, 2021, the Company had approximately $
The future utilization of federal net operating
loss carryforwards generated after 2017 is limited to
F-30
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing the realization of deferred tax assets, management considers, whether it is “more likely than not”, that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible.
ASC 740, “Income Taxes” requires that a valuation allowance
be established when it is “more likely than not” that all, or a portion of, deferred tax assets will not be realized. A review
of all available positive and negative evidence needs to be considered, including the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies. After consideration of all the information available, management believes
that uncertainty exists with respect to future realization of its deferred tax assets and has, therefore, established a full valuation
allowance as of December 31, 2021. As of December 31, 2021, the net change in valuation allowance was $
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company is required to file federal and state income tax returns. Based on the Company’s evaluation, it has been concluded that there are no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements for the year ended December 31, 2021.
The Company’s policy for recording interest and penalties associated with unrecognized tax benefits is to record such interest and penalties as interest expense and as a component of general and administrative expense, respectively. There were no amounts accrued for interest or penalties for the year ended December 31, 2021. Management does not expect any material changes in its unrecognized tax benefits in the next year.
The Company operates in multiple tax jurisdictions, and, in the normal course of business, its tax returns are subject to examination by various taxing authorities. Such examinations may result in future assessments by these taxing authorities. The Company is subject to examination by U.S. tax authorities beginning with the year ended December 31, 2018. Currently, the Company is not subject to any examinations.
Note 15 — Digital Assets
The following table presents the roll forward of digital asset activity from continuing and discontinued operations during the periods ended:
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Opening Balance | $ | $ | ||||||
| Revenue from mining | * | * | ||||||
| Received for membership interest | ||||||||
| Payment of Mining equipment under lease to buy arrangement | ( | ) | ||||||
| Mining pool operating fees | ( | ) | ( | ) | ||||
| Management fees | ( | ) | ( | ) | ||||
| Transaction fees | ( | ) | ||||||
| Owners’ distributions | ( | ) | ( | ) | ||||
| Digital asset impairment | ( | ) | ||||||
| Proceeds from sale of digital assets | ( | ) | ( | ) | ||||
| Realized gain on sale of digital assets | ||||||||
| Ending Balance | $ | $ | ||||||
| * |
F-31
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 16 — 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
As of December 31, 2020, the Company
had
During the quarter ended March 31, 2021, the Company
issued to Moon Manager LLC,
Effective on April 1, 2021, TTM Digital
entered into an Asset Contribution and Exchange Agreement (Mining Equipment) to acquire approximately
On April 14, 2021, the reverse merger
of Sysorex and TTM Digital closed.
During the year ended December 31, 2021, the Company
issued an aggregate of 1,529,820 shares for corporate advisory expertise and consulting services for a total value of approximately $
On November 2, 2021, the Company entered into a Membership Interest
Purchase Agreement with BWP Holdings LLC to purchase the remaining
F-32
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Equity Incentive Plan
On July 30, 2018, the board of directors of the
Company’s 2018 Equity Incentive Plan (the “2018 Plan”), which enables the Company to grant stock options, share appreciation
rights, restricted stock, restricted stock units, share awards, performance unit awards, and cash awards to associates, directors, consultants,
and advisors of the Company and its affiliates, and to improve the ability of the Company to attract, retain, and motivate individuals
upon whom the Company’s sustained growth and financial success depend, by providing such persons with an opportunity to acquire
or increase their proprietary interest in the Company. The 2018 Plan is to be administered by the Board, which shall have discretion over
the awards and grants there under.
Stock options granted under the 2018 Plan may be non-qualified stock
options or incentive stock options, within the meaning of Section 422(b) of the Internal Revenue Code of 1986. Each option, or portion
thereof, that is not an incentive stock option, shall be considered a non-qualified option.
On July 20, 2021, the Board of Directors of the
Company approved an amendment (the “Plan Amendment”) of the Company’s 2018 Equity Incentive Plan (as so amended, the
“Plan”) to increase the number of shares of the Company’s common stock reserved for issuance thereunder by
As of December 31, 2021, the awards outstanding under the plan consisted
of the employee stock options granted on July 20, 2021, to purchase up to
Stock Options
A summary of stock option activity for the year-end period ended December 31, 2021, is as follows:
| Number of | Weighted Average | |||||||
| Options (in Shares) | Exercise Price | |||||||
| Outstanding, January 1, 2021 | ||||||||
| Granted | $ | |||||||
| Exercised | ||||||||
| Forfeited or cancelled | ||||||||
| Outstanding, December 31, 2021 | $ | |||||||
| Exercisable, December 31, 2021 | $ | |||||||
The Company’s valued the stock options based
on the Monte Carlo valuation methodology on July 20, 2021, the stock options grant date. The stock options were immediately vested and
have a life of
F-33
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Warrants
The following table represents the activity related to the Company’s convertible debentures and warrants, see Note 12, issued during the year ended December 31, 2021:
| Number of Warrants (in Shares) |
Weighted Average Exercise Price |
|||||||
| Outstanding, January 1, 2021 | ||||||||
| Granted | $ | * | ||||||
| Exercised | ||||||||
| Outstanding, December 31, 2021 | $ | |||||||
The weighted average contractual term at December 31, 2021 is
| * | The exercise price will be determined by a 5-day VWAP price calculation on the exercise date. |
Restricted Stock Units
The following table represents the activity related to the Company’s restricted stock awards granted to employees and directors during the year ended December 31, 2021:
| Number of Restricted Stock Shares | Weighted Average Exercise Price | |||||||
| Outstanding, January 1, 2021 | ||||||||
| Granted | $ | |||||||
| Vested | ||||||||
| Unvested, December 31, 2021 | $ | |||||||
The unrecognized stock compensation at December 31,2021 is $
F-34
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 17 — 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 thereafter up to and including the filing of this Annual Report on Form 10-K and therefore has
accounted for an accrued liability in the amount of $
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, 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 $
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. We lease these premises, which consist of approximately 5,800 square feet, pursuant to a lease that expires on May 31, 2025. The total amount of rent expense under the leases is recognized on a straight-line basis over the term of the leases. The Company has no other operating or financing leases with terms greater than 12 months.
The following is a summary of the activity in the Company’s current and long-term operating lease liabilities for the years ended December 31, 2021, and 2020:
| Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | $ | $ | ||||||
| Leased assets obtained in exchange for new and modified operating lease liabilities | $ | ( | ) | $ | ||||
| Leased assets surrendered in exchange for termination of operating lease liabilities | $ | $ | ||||||
F-35
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2021, 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: | % |
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. See Contractual Commitments above, for disclosure of the settlement agreement. There are no pending legal proceedings to which the Company is a party to.
F-36
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 18 — Related Party Transactions
Effective April 1, 2021, the Company entered a variety of contracts with CoreWeave, Inc. (“CoreWeave”).
Asset Contribution and Exchange Agreement
On April 1, 2021, CoreWeave contributed
3,130 GPU of data mining equipment with 150 gigahash of computing power to the Company in exchange for an equity interest representing
Lease to Buy Purchase Order
The Company acquired 1,344 GPU data mining equipment
with 125 gigahash of computing power in a lease to buy arrangement. The Company agreed to total payments of $
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
Master Services Agreement
On April 29, 2021, the Company entered into a Master
Services Agreement with CoreWeave to provide support to management relating to cryptocurrency expertise, marketing, and other operational
matters for a three-month term. The compensation for these services is a fixed fee of $
First Choice International Company, Inc (“First Choice”)
On July 9, 2021, the Company executed
an agreement whereby First Choice will provide consulting services to the Company. The Company paid First Choice a fully earned flat
fee of $
F-37
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Bespoke Growth Partners, Inc. (“Bespoke”)
Effective July 13, 2020, the Company entered into
a consulting agreement with Bespoke. Subsequently, on January 13, 2021, the Company and Bespoke agreed to enter into an Expansion Agreement.
Effective April 1, 2021, the Company entered into
a consulting agreement with Bespoke. In connection with the consulting agreement, the Company agreed to issue
Effective as of April 15, 2021, the Company entered into a consulting
agreement with Bespoke.
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 $975,000. On March 23, 2022, the Company paid off the balance owed for this service.
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.
Style Hunter, Inc.
On September 26, 2021,
F-38
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 19 — Subsequent Events
Proposed TTM 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 Heads of Terms, the Company and Ostendo agreed to certain terms related to the Company’s
sale of approximately
The Purchase Price shall be comprised of the issuance
to the Company of
Additionally,
pursuant to the Heads of Terms, the Company paid on March 23, 2022, a non-refundable deposit of $
The Closing of the Asset sale transaction (the “Closing”) shall occur, subject to the satisfaction or waiver of the Closing conditions set forth in Definitive Documentation no later than May 24, 2022, unless mutually extended in writing by the parties, subject to the parties’ meeting certain Closing conditions to be agreed upon in the Definitive Documentation. Notwithstanding the foregoing, the Definitive Documentation shall also include an outside date that is not more than three (3) months after the date of the execution thereof unless mutually extended in writing by the parties to allow the parties to obtain regulatory approvals, required consents, and shareholders approvals.
The Definitive Documentation will include certain other terms and conditions which are customary in asset sale and real property sale agreements.
Convertible Debenture Conversion (Unaudited)
For the three months ended March 31, 2022, the
convertible debenture holders converted approximately $
Subsequent to March 31,
2022, convertible debenture holders have converted approximately $
Note 20 — Restatement of Previously Issued Quarterly Financial Statements (Unaudited)
The Company is presenting herein restated unaudited condensed consolidated financial information as of September 30, 2021, and for the quarterly and year-to-date periods then ended. See Note 1A “Restatement of Previously Issued Consolidated Financial Statements, for additional information.”
F-39
Sysorex, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands of dollars, except number of shares and par value data)
(Unaudited)
| September 30, 2021 | ||||||||||||
| As Previously Reported | Adjustments | As Restated | ||||||||||
| ASSETS | ||||||||||||
| Current Assets | ||||||||||||
| Cash and cash equivalents | $ | $ | $ | |||||||||
| Digital assets | ||||||||||||
| Accounts receivable, net | ||||||||||||
| Prepaid expenses and other current assets | ||||||||||||
| Total Current Assets | ||||||||||||
| Mining equipment, net | ||||||||||||
| Intangible assets, net | ||||||||||||
| Goodwill | ||||||||||||
| Investment in Style Hunter | ||||||||||||
| Investment in Up North Hosting, LLC | ||||||||||||
| Other assets | ||||||||||||
| Total Assets | $ | $ | $ | |||||||||
| - | - | |||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
| Current Liabilities | - | - | ||||||||||
| Accounts payable | $ | $ | $ | |||||||||
| Accrued liabilities | ||||||||||||
| Convertible Debt, net | ( |
) | ||||||||||
| Conversion Feature on convertible debt | ||||||||||||
| Deferred revenue | ||||||||||||
| Total Current Liabilities | ||||||||||||
| - | - | |||||||||||
| Commitments and Contingencies – Note 13 | ||||||||||||
| - | - | |||||||||||
| Stockholders’ Equity | - | - | ||||||||||
| Common stock, par value $ |
||||||||||||
| Treasury stock, at cost, |
||||||||||||
| Subscription receivable | ||||||||||||
| Additional paid-in-capital | ||||||||||||
| Accumulated Deficit | ( |
) | ( |
) | ( |
) | ||||||
| Total Stockholders’ Equity | ( |
) | ||||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | $ | |||||||||
F-40
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 September 30, 2021 |
For the Nine Months Ended September 30, 2021 |
|||||||||||||||||||||||
| As Previously Reported |
Adjustments | As Restated | As Previously Reported |
Adjustments | As Restated | |||||||||||||||||||
| Revenues | ||||||||||||||||||||||||
| Mining income | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Product revenue | ||||||||||||||||||||||||
| Services revenue | ||||||||||||||||||||||||
| Total Revenues | ||||||||||||||||||||||||
| Operating costs and expenses | ||||||||||||||||||||||||
| Mining cost | ||||||||||||||||||||||||
| Product cost | ||||||||||||||||||||||||
| Services cost | ||||||||||||||||||||||||
| Sales and marketing | ||||||||||||||||||||||||
| General and administrative | ||||||||||||||||||||||||
| Management Fees | ||||||||||||||||||||||||
| Impairment of digital assets | ||||||||||||||||||||||||
| Depreciation | ||||||||||||||||||||||||
| Amortization of intangibles | ||||||||||||||||||||||||
| Total Operating Costs and Expenses | ||||||||||||||||||||||||
| Gain (Loss) from Operations | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| Other Income (Expenses) | ||||||||||||||||||||||||
| Merger charges | ( |
) | ( |
) | ||||||||||||||||||||
| Debt Restructuring fee | ( |
) | ( |
) | ||||||||||||||||||||
| Change in fair value of debt conversion feature | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| Interest expense | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
| Realized gain (loss) on sale of digital assets | ||||||||||||||||||||||||
| Gain/(loss) on disposal of assets | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| Other expense, net | ||||||||||||||||||||||||
| Total Other Income (Expense) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
| - | - | |||||||||||||||||||||||
| Income (Loss) before Income taxes and loss in equity method investee | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
| - | - | - | - | |||||||||||||||||||||
| Income tax benefit | ||||||||||||||||||||||||
| Income (Loss) before Income in equity method investee | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
| - | - | - | - | |||||||||||||||||||||
| Share of net loss of equity method investee | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| - | - | - | - | |||||||||||||||||||||
| Net Income (Loss) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||
| Net Income (Loss) per share - basic and diluted | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||
| Weighted Average Shares Outstanding - basic and diluted | ||||||||||||||||||||||||
F-41
Sysorex, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the Nine Months Ended September 30, 2021, and September 30, 2020
(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, 2019 | $ | |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||
| Distributions to shareholders | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Net Loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance – March 31, 2020 | ( |
) | ( |
) | ||||||||||||||||||||||||||||
| Distributions to shareholders | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Net Loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance – June 30, 2020 | ( |
) | ( |
) | ||||||||||||||||||||||||||||
| Shares issued | - | |||||||||||||||||||||||||||||||
| Distributions to shareholders | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Net Income | - | - | ||||||||||||||||||||||||||||||
| Balance - September 30, 2020 | ( |
) | ( |
) | ||||||||||||||||||||||||||||
| Balance - December 30, 2020 | ( |
) | ( |
) | ||||||||||||||||||||||||||||
| Payment of subscription receivable | - | - | ||||||||||||||||||||||||||||||
| Distributions to shareholders | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Exercise of Moon warrants | ||||||||||||||||||||||||||||||||
| Net Income | - | - | ||||||||||||||||||||||||||||||
| Balance – March 31, 2021 | ||||||||||||||||||||||||||||||||
| Shares issued: | ||||||||||||||||||||||||||||||||
| Mining equipment | ||||||||||||||||||||||||||||||||
| Sysorex Recapitalization | ||||||||||||||||||||||||||||||||
| TTM digital/Sysorex merger | ||||||||||||||||||||||||||||||||
| Professional services | ||||||||||||||||||||||||||||||||
| Net Loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance – June 30, 2021 | ( |
) | ||||||||||||||||||||||||||||||
| Convertible debt warrants | - | - | ||||||||||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||
| Shares issued for services | ||||||||||||||||||||||||||||||||
| Net Loss (as restated) | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance - September 30, 2021 (as restated) | $ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||
F-42
Sysorex, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands of dollars)
(Unaudited)
| For the Nine Months Ended September 30, 2021 |
||||||||||||
| As Previously Reported | Adjustments | As Restated | ||||||||||
| Cash Flows from Operating Activities | ||||||||||||
| Net loss | $ | ( |
) | ( |
) | ( |
) | |||||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Stock compensation | ||||||||||||
| Amortization of debt discount and debt issuance costs | ||||||||||||
| (Gain) Loss on the sale/disposal of mining equipment | ||||||||||||
| Realized (gain) loss on sale of digital assets | ( |
) | ( |
) | ||||||||
| Gain on settlement of vendor liabilities | ( |
) | ( |
) | ||||||||
| Impairment of digital assets | ||||||||||||
| Change in fair value of debt conversion feature | ||||||||||||
| Equity in earnings of equity method investments | ||||||||||||
| Change in fair value of accrued issuable equity | ( |
) | ( |
) | ||||||||
| Issuance of shares in exchange for services | ||||||||||||
| Merger charges | ||||||||||||
| Debt restructuring fee | ||||||||||||
| Changes in assets and liabilities: | ||||||||||||
| Digital assets - mining net of pool fees and mgmt fees | ( |
) | ( |
) | ||||||||
| Related party receivable | ||||||||||||
| Prepaid assets and other current assets | ( |
) | ( |
) | ||||||||
| Accounts receivable and other receivables | ||||||||||||
| Accounts payable | ( |
) | ( |
) | ||||||||
| Accrued liabilities and other current liabilities | ||||||||||||
| Net cash used in operating activities | ( |
) | ( |
) | ||||||||
| - | - | |||||||||||
| Cash Flows from Investing Activities | ||||||||||||
| Proceeds from sale of digital assets | ||||||||||||
| Reverse acquisition of Sysorex business | ||||||||||||
| Purchase of mining equipment | ( |
) | ( |
) | ||||||||
| Proceeds from sale of mining equipment | ||||||||||||
| Investments in Up North & Style Hunter | ( |
) | ( |
) | ||||||||
| Net cash provided by (used in) investing activities | ||||||||||||
| - | - | |||||||||||
| Cash Flows from Financing Activities | ||||||||||||
| Repayment of loans | ( |
) | ( |
) | ||||||||
| Issuance of members’ interests | ||||||||||||
| Proceeds received for convertible debt | ||||||||||||
| Cash paid for convertible debt transaction costs | ( |
) | ( |
) | ||||||||
| Net cash provided by financing activities | ||||||||||||
| Net increase 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: | ||||||||||||
| Sysorex recapitalization | $ | $ | $ | |||||||||
| Payments of short-term borrowing with digital assets | ||||||||||||
| Debt discount attributed to the fair value of the warrants | ||||||||||||
| Conversion feature derivative on convertible debt | ||||||||||||
| Distribution of digital assets to members | ||||||||||||
| Equipment exchanged for equity | ||||||||||||
| Equipment acquired through lease purchase arrangement | ||||||||||||
| Settlement of loan with mining equipment | ||||||||||||
F-43
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
15(a)(1) Financial Statements
The financial statements filed as part of this report are listed and indexed in the table of contents. Financial statement schedules have been omitted because they are not applicable, or the required information has been included elsewhere in this report.
15(a)(2) Financial Statement Schedules
Not applicable as a smaller reporting company.
15(a)(3) Exhibits
The exhibits filed as part of this Annual Report on Form 10-K are listed in the Exhibit Index immediately preceding the exhibits. The Company has identified in the Exhibit Index each management contract and compensation plan filed as an exhibit to this Annual Report on Form 10-K in response to Item 15(a)(3) of Form 10-K.
EXHIBIT INDEX
1
2
| † | 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. |
3
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: June 1, 2022 | SYSOREX, INC. | |
| By: | /s/ Vincent Loiacono | |
| Vincent Loiacono | ||
| Chief Financial Officer | ||
4