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<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Note 2 — Basis of Presentation</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The accompanying unaudited condensed consolidated
financial statements of the Company have been prepared in accordance with GAAP for interim financial information, which are the
accounting principles that are generally accepted in the United States of America. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have been included. The results of the Company's
operations for the three-month period ended March 31, 2020 is not necessarily indicative of the results to be expected for the
year ending December 31, 2020. These interim unaudited condensed consolidated financial statements should be read in conjunction
with the Company's audited consolidated financial statements and notes for the years ended December 31, 2019 and 2018 included
in the Annual Report on Form 10-K filed with SEC on March 31, 2020.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Note 6 — Related Party Transactions</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">On December 31, 2018, the Company entered
into a note purchase agreement with Inpixon (the "Note Purchase Agreement") pursuant to which Inpixon, the Company's
former parent, agreed to purchase from the Company at a purchase price equal to the Loan Amount (as defined below), a secured
promissory note (the "Related Party Note") for up to an aggregate principal amount of 3,000,000 (the "Principal
Amount"), including any amounts advanced through the date of the Related Party Note (the "Prior Advances"),
to be borrowed and disbursed in increments (such borrowed amount, together with the Prior Advances, collectively referred to as
the "Loan Amount"), with interest to accrue at a rate of ten percent (10%) per annum on all such Loan Amounts, beginning
as of the date of disbursement with respect to any portion of such Loan Amount. In addition, the Company agreed to pay $20,000
to Inpixon to cover Inpixon' legal fees, accounting costs, due diligence, monitoring and other transaction costs incurred
in connection with the purchase and sale of the Related Party Note (the "Transaction Expense Amount"), all of which
amount is included in the Principal Amount. The initial Loan Amount, therefore, includes any amounts disbursed to the Company
and the Transaction Expense Amount.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The Company may borrow under the Related
Party Note, as needed, for a total outstanding balance, exclusive of any unpaid accrued interest, not to exceed the Principal
Amount at any one time.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">All sums advanced by Inpixon to the maturity
date pursuant to the terms of the Note Purchase Agreement will become part of the aggregate Loan Amount underlying the Related
Party Note. All outstanding principal amounts and accrued unpaid interest owing under the Related Party Note shall become immediately
due and payable on the earlier to occur of (i) December 31, 2020 (the "Maturity Date"), (ii) at such date when declared
due and payable by Inpixon upon the occurrence of an Event of Default (as defined in the Related Party Note), or (iii) at any
such earlier date as set forth in the Related Party Note. All accrued unpaid interest shall be payable in cash.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Pursuant to the terms of the Related Party
Note, the Company granted Inpixon, subject to any and all Payplant Liens (as defined in the Related Party Note) and Permitted
Liens (as defined in the Related Party Note), a continuing first priority security interest in all assets of the Company whether
owned as of the date of the Related Party Note or subsequently acquired, including all proceeds therefrom (collectively, the "Collateral")
to secure the payment of the Related Party Note and all other loans and advances (including all renewals, modifications and extensions
thereof) and all obligations of any and every kind and nature of the Company to Inpixon, whether arising prior to, under or after
the Related Party Note, however incurred or evidenced, plus all interest, reasonable costs, reasonable expenses and reasonable
attorneys' fees, which may be made or incurred by Inpixon in the disbursement, administration, and collection of such amounts,
and in the protection, maintenance, and liquidation of the Collateral.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">On February 4, 2019, the Related Party
Note was amended to increase the maximum principal amount that may be outstanding at any time under the Related Party Note from
$3,000,000 to $5,000,000. On April 15, 2019, the Related Party Note was amended to increase the maximum principal amount that
may be outstanding at any time under the Related Party Note from $5,000,000 to $8,000,000.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">On May 22, 2019, the Related Party Note
was amended to increase the maximum principal amount that may be outstanding at any time under the Related Party Note from $8,000,000
to $10,000,000.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">On March 1, 2020, the Related Party Note
was amended to extend the maturity date from December 31, 2020 to December 31, 2022, to increase the default interest rate from
18% to 21% or the maximum rate allowable by law and to require a cash payment by the Company to Inpixon against the loan amount
in an amount equal to no less than 6% of the aggregate gross proceeds raised following the completion of any financing, or series
of related financings, in which the Company raises aggregate gross proceeds of at least $5 million.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The proceeds received, interest and legal
costs accrued in accordance with the Related Party Note as of March 31, 2020 is $11,110,438.</p>
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<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Use of Estimates</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during each of the reporting periods. Actual results could differ from those estimates. The Company's significant
estimates consist of:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"> </p>
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<td style="width: 0.5in"> </td>
<td style="width: 0.25in"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">the allowance for
doubtful accounts; and</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 0.5in"> </td>
<td style="width: 0.25in"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">the impairment of
long-lived assets.</font></td></tr></table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Revenue Recognition</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i> </i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The Company reports revenues under ASC
606, “Revenue from Contracts with Customers” and all the related amendments (Topic 606)</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The Company recognizes revenue after applying
the following five steps:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 24px; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">1)</font></td>
<td style="text-align: justify; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">identification of the contract, or contracts, with a customer;</font></td></tr>
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<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 24px; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">2)</font></td>
<td style="font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">identification of the performance obligations in the contract, including whether they are distinct within the context of the contract;</font></td></tr>
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<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 24px; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">3)</font></td>
<td style="text-align: justify; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">determination of the transaction price, including the constraint on variable consideration;</font></td></tr>
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<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="white-space: nowrap; width: 24px; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">4)</font></td>
<td style="font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">allocation of the transaction price to the performance obligations in the contract; and</font></td></tr>
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<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="white-space: nowrap; width: 24px; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">5)</font></td>
<td style="font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">recognition of revenue when, or as, performance obligations are satisfied.</font></td></tr>
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<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">  </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><i><u>Hardware and Software Revenue Recognition</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The Company is a primary resale channel
for a large group of vendors and suppliers, including original equipment manufacturers (“OEMs”), software publishers
and wholesale distributors.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">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 at the point of sale.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><i> </i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><i><u>License and Maintenance Services Revenue Recognition</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The Company 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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><i><u>Professional Services Revenue Recognition</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The Company’s professional services
include fixed fee and time and materials contracts. Fixed fees are paid monthly, in phases, or upon acceptance of deliverables.
The Company’s time and materials contracts are paid weekly or monthly based on hours worked. Revenue on time and material
contracts is recognized based on a fixed hourly rate as direct labor hours are expended. Materials, or other specified direct
costs, are reimbursed as actual costs and may include markup. The Company has elected the practical expedient to recognize revenue
for the right to invoice because the Company’s right to consideration corresponds directly with the value to the customer
of the performance completed to date. 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. Because the Company’s contracts have an expected
duration of one year or less, the Company has elected the practical expedient in ASC 606-10-50-14(a) to not disclose information
about its remaining performance obligations. Anticipated losses are recognized as soon as they become known. For the three months
ended March 31, 2020 and 2019, the Company 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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Subsequent Events</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The Company evaluates events and/or transactions
occurring after the balance sheet date and before the issue date of the condensed consolidated financial statements to determine
if any of those events and/or transactions requires adjustment to or disclosure in the condensed consolidated financial statements.</p>
307000
625000
349693000
The term of any loan made to the Borrowers may not exceed 360 days. The principal amount of any loan will accrue interest at a 30-day rate of 2%, calculated per day. Upon the occurrence and during the continuance of an Event of Default, as defined in the Loan Agreement, interest will accrue at a rate equal to the interest rate plus 0.42% per 30 days.
A Future Receivables Agreement pursuant to which GCF agreed to purchase receivables from SGS with a value of $497,000 for the sum of $350,000. The terms of the agreement call for weekly instalments of $20,710, until paid in full. The balance as of March 31, 2020 is $216,000.
416482
81250
485423
75379
416482
75379
482923
75379
3000
4000
78000
751000
74000
-1426000
-152000
-1166000
-3622000
8000
-12000
-8000
-43000
136000
585000
-2774000
-576000
-4658000
298000
4822000
138000
-96000
319000
207000
548000
4726000
-28000
68000
5000
187000
10300000
0.80
31000
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Note 7 — Commitments and Contingencies</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i> </i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Litigation</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">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. There are no pending legal proceedings to which the Company is a party to.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Emerging Growth Company </i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Sysorex is an “emerging growth company”
as defined in the JOBS Act. As such, Sysorex will be 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.</p>
-1161000
-1884000
-1161000
-1161000
-1884000
-1884000
-3000
-5000
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Note 3 — Summary of Significant Accounting Policies</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The condensed consolidated financial statements
have been prepared using the accounting records of Sysorex and SGS. All material inter-company balances and transactions have
been eliminated.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><b><i> </i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Use of Estimates</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during each of the reporting periods. Actual results could differ from those estimates. The Company’s significant
estimates consist of:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 0.5in"> </td>
<td style="width: 0.25in"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">the allowance for
doubtful accounts; and</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 0.5in"> </td>
<td style="width: 0.25in"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">the impairment of
long-lived assets.</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i> </i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Revenue Recognition</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i> </i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The Company reports revenues under ASC
606, “Revenue from Contracts with Customers” and all the related amendments (Topic 606)</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The Company recognizes revenue after applying
the following five steps:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 24px; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">1)</font></td>
<td style="text-align: justify; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">identification of the contract, or contracts, with a customer;</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 24px; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">2)</font></td>
<td style="font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">identification of the performance obligations in the contract, including whether they are distinct within the context of the contract;</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 24px; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">3)</font></td>
<td style="text-align: justify; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">determination of the transaction price, including the constraint on variable consideration;</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="white-space: nowrap; width: 24px; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">4)</font></td>
<td style="font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">allocation of the transaction price to the performance obligations in the contract; and</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="white-space: nowrap; width: 24px; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">5)</font></td>
<td style="font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">recognition of revenue when, or as, performance obligations are satisfied.</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">  </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><i><u>Hardware and Software Revenue Recognition</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The Company is a primary resale channel
for a large group of vendors and suppliers, including original equipment manufacturers (“OEMs”), software publishers
and wholesale distributors.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">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 at the point of sale.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><i> </i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><i><u>License and Maintenance Services Revenue Recognition</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The Company 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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><i><u>Professional Services Revenue Recognition</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The Company’s professional services
include fixed fee and time and materials contracts. Fixed fees are paid monthly, in phases, or upon acceptance of deliverables.
The Company’s time and materials contracts are paid weekly or monthly based on hours worked. Revenue on time and material
contracts is recognized based on a fixed hourly rate as direct labor hours are expended. Materials, or other specified direct
costs, are reimbursed as actual costs and may include markup. The Company has elected the practical expedient to recognize revenue
for the right to invoice because the Company’s right to consideration corresponds directly with the value to the customer
of the performance completed to date. 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. Because the Company’s contracts have an expected
duration of one year or less, the Company has elected the practical expedient in ASC 606-10-50-14(a) to not disclose information
about its remaining performance obligations. Anticipated losses are recognized as soon as they become known. For the three months
ended March 31, 2020 and 2019, the Company 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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Recent Accounting Standards</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 24pt; text-indent: -24pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">In December 2019, the FASB issued ASU 2019-12, <i>Income
Taxes (Topic 740): Simplifying the Accounting for Income Taxes</i> (“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 is currently evaluating ASU 2019-12 and its impact on our consolidated financial statements.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><br />
In February 2016, the Financial Accounting Standards Board issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU
2016-02”). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and
operating leases. ASU 2016-02 will also require new qualitative and quantitative disclosures to help investors and other financial
statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective
for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company adopted ASU 2016-02 effective January
1, 2020. ASU 2016-02 did not have a material impact on the financial statements or disclosures.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 24pt; text-indent: -24pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Emerging Growth Company </i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Sysorex is an “emerging growth company”
as defined in the JOBS Act. As such, Sysorex will be 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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Subsequent Events</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The Company evaluates events and/or transactions
occurring after the balance sheet date and before the issue date of the condensed consolidated financial statements to determine
if any of those events and/or transactions requires adjustment to or disclosure in the condensed consolidated financial statements.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Recent Accounting Standards</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 24pt; text-indent: -24pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">In December 2019, the FASB issued ASU 2019-12, <i>Income
Taxes (Topic 740): Simplifying the Accounting for Income Taxes</i> ("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 is currently evaluating ASU 2019-12 and its impact on our consolidated financial statements.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><br />
In February 2016, the Financial Accounting Standards Board issued ASU No. 2016-02, "Leases (Topic 842)" ("ASU
2016-02"). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and
operating leases. ASU 2016-02 will also require new qualitative and quantitative disclosures to help investors and other financial
statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective
for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company adopted ASU 2016-02 effective January
1, 2020. ASU 2016-02 did not have a material impact on the financial statements or disclosures.</p>
<table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-indent: 0"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; padding: 0; text-align: center; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif"><b>For the Three Months Ended<br />
March 31, 2020</b></font></td>
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-indent: 0"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; padding: 0; text-align: center; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif"><b>For the Three Months Ended<br />
March 31, 2019</b></font></td>
<td style="padding: 0; text-indent: 0"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-indent: 0"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; padding: 0; text-align: center; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif"><b>$</b></font></td>
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-indent: 0"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; padding: 0; text-align: center; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif"><b>%</b></font></td>
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-indent: 0"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; padding: 0; text-align: center; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif"><b>$</b></font></td>
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-indent: 0"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; padding: 0; text-align: center; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif"><b>%</b></font></td>
<td style="padding: 0; text-indent: 0"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding: 0; width: 52%; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif">Customer A</font></td>
<td style="padding: 0; width: 1%; text-indent: 0"> </td>
<td style="padding: 0; width: 1%; text-indent: 0"> </td>
<td style="padding: 0; width: 9%; text-align: right; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif">1,121</font></td>
<td style="padding: 0; width: 1%; text-indent: 0"> </td>
<td style="padding: 0; width: 1%; text-indent: 0"> </td>
<td style="padding: 0; width: 1%; text-indent: 0"> </td>
<td style="padding: 0; width: 9%; text-align: right; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif">49</font></td>
<td style="padding: 0; width: 1%; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif">%</font></td>
<td style="padding: 0; width: 1%; text-indent: 0"> </td>
<td style="padding: 0; width: 1%; text-indent: 0"> </td>
<td style="padding: 0; width: 9%; text-align: right; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif">322</font></td>
<td style="padding: 0; width: 1%; text-indent: 0"> </td>
<td style="padding: 0; width: 1%; text-indent: 0"> </td>
<td style="padding: 0; width: 1%; text-indent: 0"> </td>
<td style="padding: 0; width: 9%; text-align: right; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif">90</font></td>
<td style="padding: 0; width: 1%; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding: 0; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif">Customer B</font></td>
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-align: right; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif">576</font></td>
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-align: right; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif">25</font></td>
<td style="padding: 0; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif">%</font></td>
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-align: right; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-align: right; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="padding: 0; text-indent: 0"> </td></tr>
</table>
-5871
2500
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Note 1 — Description of Business, the Spin-Off and
Going Concern and Management’s Plans </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Description of Business</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Sysorex, Inc., through its wholly-owned
subsidiary, Sysorex Government Services, Inc., formerly known as (f/k/a) Inpixon Federal, Inc. (“SGS”), (unless otherwise
stated or the context otherwise requires, the terms “SGS” “we,” “us,” “our” and
the “Company” refer collectively to Sysorex, Inc. and SGS), provides information technology solutions primarily to
the public sector. These solutions include cybersecurity, professional services, engineering support, IT consulting, enterprise
level technology, networking, wireless, help desk, and custom IT solutions. The Company is headquartered in Virginia.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Going Concern and Management’s Plans</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">As of March 31, 2020, the Company had a
working capital deficit of approximately $10.3 million. In addition, the Company has a stockholders’ deficit of approximately
$21.2 million. For the three months ended March 31, 2020 and 2019, the Company incurred net losses of approximately $1.2 million
and $1.9 million, respectively. The aforementioned factors raise substantial doubt about the Company’s ability to continue
as a going concern. The accompanying condensed consolidated financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The condensed
consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset amounts
or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern within
one year after the date the condensed consolidated financial statements are issued.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The Company does not believe that its capital
resources as of March 31, 2020, availability on the Payplant facility to finance purchase orders and invoices in an amount equal
to 80% of the face value of purchase orders received, funds from financing from our related party note and other short-term borrowings
(as defined in Notes 5 and 6 below), higher margin public sector contracts capture, reauthorization of key vendors and credit limitation
improvements will be sufficient to fund planned operations during the year ending December 31, 2020. As a result, substantial doubt
exists the Company will be able to support its obligations for the next twelve months from the issuance date of the financial statements.
The Company may raise additional capital as needed, through the issuance of equity, equity-linked or debt securities. The Company’s
condensed consolidated financial statements as of March 31, 2020 have been prepared under the assumption that we will continue
as a going concern for the next twelve months from the date the financial statements are issued. Management’s plans and assessment
of the probability that such plans will mitigate and alleviate any substantial doubt about the Company’s ability to continue
as a going concern, is dependent upon the ability to attain funding to secure additional resources to generate sufficient revenues
and increased margin. The Company’s condensed consolidated financial statements as of March 31, 2020 do not include any adjustments
that might result from the outcome of this uncertainty.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Impact of COVID 19</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The outbreak of the novel coronavirus, SARS-CoV-2,
which causes coronavirus disease 2019 (COVID-19), has evolved into a global pandemic. COVID -19 has spread to many regions of the
world, including the United States. In response to the pandemic, the Company has implemented a work from home policy, with all
employees continuing their work outside of the Company’s office. The Company’s sales and services activities to our
customers, predominately the Federal and Local Government, are causing disruption and curtailment of our product offering and services
as many of the offices and field locations are now closed.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The Company is maintaining its overall headcount
but continues to identify potential reductions in cash flows for operating expenses and other purchases to the extent possible.
On May 3, 2020, the Company received a loan of approximately $349,700 under the Payroll Protection Program as part of the Coronavirus
Aid, Relief and Economic Security Act (see Note 9 – Subsequent Events). While the company expects some degree of an adverse
impact on revenues in the second quarter of 2020 and possibly the third quarter of 2020, the Company will need to implement its
plan as discussed above in Going Concern and Management’s Plans.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Note 4 — Credit Risk and Concentrations</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The following table sets forth the percentages
of revenue derived by the Company from those customers that accounted for at least 10% of revenues during the three months ended
March 31, 2020 and 2019 (in thousands of dollars):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"> </p>
<table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-indent: 0"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; padding: 0; text-align: center; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif"><b>For the Three Months Ended<br />
March 31, 2020</b></font></td>
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-indent: 0"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; padding: 0; text-align: center; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif"><b>For the Three Months Ended<br />
March 31, 2019</b></font></td>
<td style="padding: 0; text-indent: 0"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-indent: 0"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; padding: 0; text-align: center; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif"><b>$</b></font></td>
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-indent: 0"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; padding: 0; text-align: center; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif"><b>%</b></font></td>
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-indent: 0"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; padding: 0; text-align: center; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif"><b>$</b></font></td>
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-indent: 0"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; padding: 0; text-align: center; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif"><b>%</b></font></td>
<td style="padding: 0; text-indent: 0"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding: 0; width: 52%; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif">Customer A</font></td>
<td style="padding: 0; width: 1%; text-indent: 0"> </td>
<td style="padding: 0; width: 1%; text-indent: 0"> </td>
<td style="padding: 0; width: 9%; text-align: right; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif">1,121</font></td>
<td style="padding: 0; width: 1%; text-indent: 0"> </td>
<td style="padding: 0; width: 1%; text-indent: 0"> </td>
<td style="padding: 0; width: 1%; text-indent: 0"> </td>
<td style="padding: 0; width: 9%; text-align: right; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif">49</font></td>
<td style="padding: 0; width: 1%; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif">%</font></td>
<td style="padding: 0; width: 1%; text-indent: 0"> </td>
<td style="padding: 0; width: 1%; text-indent: 0"> </td>
<td style="padding: 0; width: 9%; text-align: right; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif">322</font></td>
<td style="padding: 0; width: 1%; text-indent: 0"> </td>
<td style="padding: 0; width: 1%; text-indent: 0"> </td>
<td style="padding: 0; width: 1%; text-indent: 0"> </td>
<td style="padding: 0; width: 9%; text-align: right; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif">90</font></td>
<td style="padding: 0; width: 1%; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding: 0; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif">Customer B</font></td>
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-align: right; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif">576</font></td>
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-align: right; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif">25</font></td>
<td style="padding: 0; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif">%</font></td>
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-align: right; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-indent: 0"> </td>
<td style="padding: 0; text-align: right; text-indent: 0"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="padding: 0; text-indent: 0"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">As of March 31, 2020, Customer A represented
approximately 67% of total accounts receivable and Customer B represented 0% of total accounts receivable.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">For the three months ended March 31, 2020,
purchases from two vendors represented approximately 43% and 36% of total purchases. Purchases from these vendors during the three
months ended March 31, 2020 were $859 thousand and $724 thousand. For the three months ended March 31, 2019, purchases from three
vendors represented approximately 84%, 68%, and 25% of total purchases. Purchases from these vendors during the three months ended
March 31, 2019 were $143 thousand, $115 thousand, and $43 thousand. </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">As of March 31, 2020, two vendors represented approximately
32% and 15% of total gross accounts payable.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Note 8 — Stockholders’ Deficiency</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><u>Treasury stock</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">As part of the Spin-off (as defined below),
and in connection with the initial distribution of its common stock, the Company has 117,917 shares of common stock reserved for
issuance in treasury (a) for the holders of certain Parent warrants who will be entitled to receive shares of the Company’s
common stock if the warrants are exercised, and (b) for the holders of Parent securities that were subject to beneficial ownership
limitations in connection with the distribution and for future issuances.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Under the terms of a Trademark License
Agreement, the Company issued 2,500 shares of common stock. The fair value of the shares on the date of issuance was $300.</p>
2500
410044
349700000
The Loan, which was in the form of a Note dated May 3, 2020 issued by the Company (the “Note”), matures on May 3, 2022 and bears interest at a rate of 1.0% per annum, payable monthly commencing on November 1, 2020.
0.05
500000
0.10
105000
20000
0.05
0.0229
0.01
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Note 5 — Short-Term Debt</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><font style="font: 7pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Short Term Debt as of March 31, 2020 and
December 31, 2019 consisted of the following (in thousands): </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font: 7pt Times New Roman, Times, Serif"> </font></p>
<table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%">
<tr style="vertical-align: bottom">
<td style="text-align: center"> </td><td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">As of <br /> March 31,</td><td style="font-weight: bold"> </td><td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">As of December 31,</td><td style="font-weight: bold"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center"> </td><td style="font-weight: bold; padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: center">2020</td><td style="padding-bottom: 1.5pt; font-weight: bold"> </td><td style="font-weight: bold; padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: center">2019</td><td style="padding-bottom: 1.5pt; font-weight: bold"> </td></tr>
<tr style="vertical-align: bottom">
<td style="font-weight: bold">Short-Term Debt</td><td> </td>
<td colspan="2" style="text-align: right"> </td><td> </td><td> </td>
<td colspan="2" style="text-align: right"> </td><td> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
<td style="width: 76%; text-align: left">Chicago Venture Convertible Note payable (A)</td><td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">658</td><td style="width: 1%; text-align: left"> </td><td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">658</td><td style="width: 1%; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Future Receivables Agreement (B)</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">216</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">-</td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
<td style="text-align: left; padding-bottom: 1.5pt">Revolving Credit Facility (C)</td><td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: Black 1.5pt solid; text-align: left"> </td><td style="border-bottom: Black 1.5pt solid; text-align: right">307</td><td style="padding-bottom: 1.5pt; text-align: left"> </td><td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: Black 1.5pt solid; text-align: left"> </td><td style="border-bottom: Black 1.5pt solid; text-align: right">168</td><td style="padding-bottom: 1.5pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-weight: bold; text-align: left; padding-bottom: 4pt">Total Short-Term Debt</td><td style="font-weight: bold; padding-bottom: 4pt"> </td>
<td style="border-bottom: Black 4pt double; font-weight: bold; text-align: left">$</td><td style="border-bottom: Black 4pt double; font-weight: bold; text-align: right">1,181</td><td style="padding-bottom: 4pt; font-weight: bold; text-align: left"> </td><td style="font-weight: bold; padding-bottom: 4pt"> </td>
<td style="border-bottom: Black 4pt double; font-weight: bold; text-align: left">$</td><td style="border-bottom: Black 4pt double; font-weight: bold; text-align: right">826</td><td style="padding-bottom: 4pt; font-weight: bold; text-align: left"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font: 7pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 20pt"><b><i>(A) Chicago Venture Convertible Note Payable</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><font style="font: 7pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">On December 31, 2018, the Company issued
a $625,000 principal face amount convertible promissory note (the "Convertible Note") to an investor, which yielded
net proceeds of $500,000 to the Company pursuant to a Securities Purchase Agreement, dated as of December 31, 2018, by and between
the Company and the investor. The Convertible Note bears interest at the rate of 10% per year and is due and payable 10 months
after the date of issuance. The Convertible Note carries an original issue discount of $105,000 and the Company agreed to pay
$20,000 to the Lender to cover its transaction costs incurred with the purchase and sale of the Convertible Note.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><font style="font: 7pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The agreement states that the Lender has
the right to convert all or part of the outstanding balance into fully paid and non-assessable shares of common stock. The conversion
formula is as follows: The number of shares will equal the amount of the outstanding note balance being converted divided by $0.05
per share. Since the value of the underlying equity on the commitment date was $0.0229 per share, which was less than the lender
conversion price $0.05, the Company determined there was no beneficial conversion feature.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><font style="font: 7pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The lender conversion price is subject
to certain adjustment such as down-round features whereby the agreement notes that if the Company were to sell, issue or grant
any common stock, option to purchase common stock, right to reprice, preferred shares convertible into common stock, or debt,
warrants, options or other securities which are convertible, exercisable, or exchangeable for shares of common stock at a price
per share less than the lender conversion price, then the lender conversion price shall be reduced to equal the new lower price,
subject to a floor of $0.01 per share. When and if there is an adjustment under the down-round provision, the Company will analyze
the accounting treatment of the adjustment.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><font style="font: 7pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Redemptions may occur at any time after
the 6-month anniversary of the date of issuance of the Convertible Note with a minimum redemption price equal to the Conversion
Price. If the conversion rate is less than the market price, then the redemptions must be made in cash.</p>
<p style="font: 7pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Please see Note-9 Subsequent Events, regarding extension of
the promissory note maturity date to June 30, 2020.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><font style="font: 7pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 20pt"><b><i>(B</i>) <i>Future Receivables Agreement</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><font style="font: 7pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">On January 21, 2020, SGS and GCF Resources
LLC ("GCF") entered into a Future Receivables Agreement pursuant to which GCF agreed to purchase receivables from
SGS with a value of $497,000 for the sum of $350,000. The terms of the agreement call for weekly instalments of $20,710,
until paid in full. The balance as of March 31, 2020 is $216,000. See Note 9 – Subsequent events regarding payoff of GCF loan.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font: 7pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 20pt"><b><i>(C) Revolving Credit Facility</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><font style="font: 7pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">On August 31, 2018, the Company entered
in an agreement with Payplant Alternatives Funds LLC ("Payplant"), pursuant to which Payplant may purchase from the
Company, in Payplant's sole and absolute discretion, Eligible Receivables, as that term is defined in the agreement, in
exchange for cash advances, subject to the terms and conditions in the agreement.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><font style="font: 7pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">On September 21, 2018, the Company entered
into the Payplant Loan and Security Agreement (the "Loan Agreement") with Payplant LLC as agent for Payplant. Pursuant
to the Loan Agreement and the terms set forth in the form of promissory note attached as Exhibit A to the Loan Agreement, (the
"Note"), Payplant, in its sole and absolute discretion, may loan money to the Borrowers on the basis of purchase orders
or invoices issued by the Borrowers to customers for goods and services provided. The term of any loan made to the Borrowers may
not exceed 360 days. The principal amount of any loan will accrue interest at a 30-day rate of 2%, calculated per day. Upon the
occurrence and during the continuance of an Event of Default, as defined in the Loan Agreement, interest will accrue at a rate
equal to the interest rate plus 0.42% per 30 days. In no event will interest, when combined with all fees that may be characterized
as interest, exceed the Maximum Rate, as defined in the Loan Agreement. All computations of interest will be made on the basis
of a 360-day year. The Borrowers will have the right to prepay any loan upon the payment of a premium of at least 30 days of interest.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><font style="font: 7pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">As security for the repayment of any loans
and the performance of the Borrowers' Obligations, as defined in the Loan Agreement, the Borrowers granted to Payplant a
security interest in the Collateral, as defined in the Loan Agreement.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><font style="font: 7pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">As of March 31, 2020 and December 31, 2019,
the principal amount outstanding under the Loan Agreement was $307,000 and $168,000, respectively, and is included in Short Term
Debt in the condensed consolidated financial statements.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font: 7pt Times New Roman, Times, Serif"></font></p>
<table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%">
<tr style="vertical-align: bottom">
<td style="text-align: center"> </td><td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">As of <br /> March 31,</td><td style="font-weight: bold"> </td><td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">As of December 31,</td><td style="font-weight: bold"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center"> </td><td style="font-weight: bold; padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: center">2020</td><td style="padding-bottom: 1.5pt; font-weight: bold"> </td><td style="font-weight: bold; padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: center">2019</td><td style="padding-bottom: 1.5pt; font-weight: bold"> </td></tr>
<tr style="vertical-align: bottom">
<td style="font-weight: bold">Short-Term Debt</td><td> </td>
<td colspan="2" style="text-align: right"> </td><td> </td><td> </td>
<td colspan="2" style="text-align: right"> </td><td> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
<td style="width: 76%; text-align: left">Chicago Venture Convertible Note payable (A)</td><td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">658</td><td style="width: 1%; text-align: left"> </td><td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">658</td><td style="width: 1%; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Future Receivables Agreement (B)</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">216</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">-</td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
<td style="text-align: left; padding-bottom: 1.5pt">Revolving Credit Facility (C)</td><td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: Black 1.5pt solid; text-align: left"> </td><td style="border-bottom: Black 1.5pt solid; text-align: right">307</td><td style="padding-bottom: 1.5pt; text-align: left"> </td><td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: Black 1.5pt solid; text-align: left"> </td><td style="border-bottom: Black 1.5pt solid; text-align: right">168</td><td style="padding-bottom: 1.5pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-weight: bold; text-align: left; padding-bottom: 4pt">Total Short-Term Debt</td><td style="font-weight: bold; padding-bottom: 4pt"> </td>
<td style="border-bottom: Black 4pt double; font-weight: bold; text-align: left">$</td><td style="border-bottom: Black 4pt double; font-weight: bold; text-align: right">1,181</td><td style="padding-bottom: 4pt; font-weight: bold; text-align: left"> </td><td style="font-weight: bold; padding-bottom: 4pt"> </td>
<td style="border-bottom: Black 4pt double; font-weight: bold; text-align: left">$</td><td style="border-bottom: Black 4pt double; font-weight: bold; text-align: right">826</td><td style="padding-bottom: 4pt; font-weight: bold; text-align: left"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font: 7pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 20pt"><b><i>(A) Chicago Venture Convertible Note Payable</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><font style="font: 7pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">On December 31, 2018, the Company issued
a $625,000 principal face amount convertible promissory note (the "Convertible Note") to an investor, which yielded
net proceeds of $500,000 to the Company pursuant to a Securities Purchase Agreement, dated as of December 31, 2018, by and between
the Company and the investor. The Convertible Note bears interest at the rate of 10% per year and is due and payable 10 months
after the date of issuance. The Convertible Note carries an original issue discount of $105,000 and the Company agreed to pay
$20,000 to the Lender to cover its transaction costs incurred with the purchase and sale of the Convertible Note.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><font style="font: 7pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The agreement states that the Lender has
the right to convert all or part of the outstanding balance into fully paid and non-assessable shares of common stock. The conversion
formula is as follows: The number of shares will equal the amount of the outstanding note balance being converted divided by $0.05
per share. Since the value of the underlying equity on the commitment date was $0.0229 per share, which was less than the lender
conversion price $0.05, the Company determined there was no beneficial conversion feature.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><font style="font: 7pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The lender conversion price is subject
to certain adjustment such as down-round features whereby the agreement notes that if the Company were to sell, issue or grant
any common stock, option to purchase common stock, right to reprice, preferred shares convertible into common stock, or debt,
warrants, options or other securities which are convertible, exercisable, or exchangeable for shares of common stock at a price
per share less than the lender conversion price, then the lender conversion price shall be reduced to equal the new lower price,
subject to a floor of $0.01 per share. When and if there is an adjustment under the down-round provision, the Company will analyze
the accounting treatment of the adjustment.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><font style="font: 7pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Redemptions may occur at any time after
the 6-month anniversary of the date of issuance of the Convertible Note with a minimum redemption price equal to the Conversion
Price. If the conversion rate is less than the market price, then the redemptions must be made in cash.</p>
<p style="font: 7pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Please see Note-9 Subsequent Events, regarding extension of
the promissory note maturity date to June 30, 2020.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><font style="font: 7pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 20pt"><b><i>(B</i>) <i>Future Receivables Agreement</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><font style="font: 7pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">On January 21, 2020, SGS and GCF Resources
LLC ("GCF") entered into a Future Receivables Agreement pursuant to which GCF agreed to purchase receivables from
SGS with a value of $497,000 for the sum of $350,000. The terms of the agreement call for weekly instalments of $20,710,
until paid in full. The balance as of March 31, 2020 is $216,000. See Note 9 – Subsequent events regarding payoff of GCF loan.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font: 7pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 20pt"><b><i>(C) Revolving Credit Facility</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><font style="font: 7pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">On August 31, 2018, the Company entered
in an agreement with Payplant Alternatives Funds LLC ("Payplant"), pursuant to which Payplant may purchase from the
Company, in Payplant's sole and absolute discretion, Eligible Receivables, as that term is defined in the agreement, in
exchange for cash advances, subject to the terms and conditions in the agreement.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><font style="font: 7pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">On September 21, 2018, the Company entered
into the Payplant Loan and Security Agreement (the "Loan Agreement") with Payplant LLC as agent for Payplant. Pursuant
to the Loan Agreement and the terms set forth in the form of promissory note attached as Exhibit A to the Loan Agreement, (the
"Note"), Payplant, in its sole and absolute discretion, may loan money to the Borrowers on the basis of purchase orders
or invoices issued by the Borrowers to customers for goods and services provided. The term of any loan made to the Borrowers may
not exceed 360 days. The principal amount of any loan will accrue interest at a 30-day rate of 2%, calculated per day. Upon the
occurrence and during the continuance of an Event of Default, as defined in the Loan Agreement, interest will accrue at a rate
equal to the interest rate plus 0.42% per 30 days. In no event will interest, when combined with all fees that may be characterized
as interest, exceed the Maximum Rate, as defined in the Loan Agreement. All computations of interest will be made on the basis
of a 360-day year. The Borrowers will have the right to prepay any loan upon the payment of a premium of at least 30 days of interest.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><font style="font: 7pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">As security for the repayment of any loans
and the performance of the Borrowers' Obligations, as defined in the Loan Agreement, the Borrowers granted to Payplant a
security interest in the Collateral, as defined in the Loan Agreement.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><font style="font: 7pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">As of March 31, 2020 and December 31, 2019,
the principal amount outstanding under the Loan Agreement was $307,000 and $168,000, respectively, and is included in Short Term
Debt in the condensed consolidated financial statements.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Note 9 — Subsequent Events</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">On April 23, 2020, the Company entered into
a note extension (the "Extension") with Chicago Venture Partners, L.P. ("CVP"), pursuant to which the maturity
date of that certain Convertible Promissory Note, issued by the Company to CVP on December 31, 2018 (the "Note"), was
extended to June 30, 2020.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">On April 27, 2020, the Company paid off
its GCF loan balance. See Note 6 <i>(B</i>) <i>Future Receivables Agreement.</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><i> </i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">On May 7, 2020, Sysorex, Inc. (the "Company
and its wholly owned subsidiary, Sysorex Government Services, Inc. formerly known as Inpixon Federal" ) was granted a loan
(the "Loan") from Wells Fargo, N.A. in the principal amount of $349,693, pursuant to the Paycheck Protection Program
(the "PPP") under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"),
which was enacted on March 27, 2020.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The Loan, which was in the form of a Note
dated May 3, 2020 issued by the Company (the "Note"), matures on May 3, 2022 and bears interest at a rate of 1.0% per annum, payable
monthly commencing on November 1, 2020. The Note may be prepaid by the Company at any time prior to maturity without payment of
any premium. Funds from the Loan may only be used to retain workers and maintain payroll or make mortgage payments, lease payments
and utility payments. The Company intends to use the entire Loan amount for qualifying expenses. Under the terms of the PPP, certain
amounts of the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.</p>
9000
300000
Chicago Venture Convertible Note Payable On December 31, 2018, the Company issued a $625,000 principal face amount convertible promissory note (the "Convertible Note") to an investor, which yielded net proceeds of $500,000 to the Company pursuant to a Securities Purchase Agreement, dated as of December 31, 2018, by and between the Company and the investor. The Convertible Note bears interest at the rate of 10% per year and is due and payable 10 months after the date of issuance. The Convertible Note carries an original issue discount of $105,000 and the Company agrees to pay $20,000 to the Lender to cover its transaction costs incurred with the purchase and sale of the Convertible Note. The agreement states that the Lender has the right to convert all or part of the outstanding balance into fully paid and non-assessable common stock. The conversion formula is as follows: The number of shares will equal the amount of the outstanding note balance being converted divided by $0.05 per share. The Company determined since the value of the underlying equity on the commitment date was $0.0229 per share, was less than the Lender Conversion Price $0.05, the Company determined there was no beneficial conversion feature. The Lender Conversion Price is subject to certain adjustment such as down-round features whereby the agreement notes that if the Company were to sell, issue or grant any common stock, option to purchase common stock, right to reprice, preferred shares convertible into common stock, or debt, warrants, options or other securities which are convertible, exercisable, or exchangeable for shares of common stock at a price per share less than the Lender Conversion Price, then the Lender Conversion Price shall be reduced to equal the new lower price, subject to a floor of $0.01 per share. When and if there is an adjustment under the down-round provision, the Company will analyze the accounting treatment of the adjustment. Redemption Redemptions may occur at any time after the 6-month anniversary of the date of issuance of the Convertible Note with a minimum redemption price equal to the Conversion Price. If the conversion rate is less than the market price, then the redemptions must be made in cash. On July 5, 2019, the Company issued 22,857 shares of common stock for the settlement of approximately $20,000 of short-term debt. On October 15, 2019, the Company and an accredited investor (the "Lender") entered into a waiver agreement (the "Waiver Agreement") in connection with the Lender's delivery of a redemption notice for $7,600 (the "Redemption Amount") in accordance with that certain Securities Purchase Agreement, dated as of December 31, 2018, and that certain Convertible Promissory Note issued to the Lender by the Company on December 31, 2018 (the "Note"). Pursuant to the Waiver Agreement, the Lender agreed to waive certain Equity Conditions Failures (as defined in the Note) in order to receive shares of common stock of the Company instead of cash to satisfy the Redemption Amount. In addition, the Company and the Lender agreed to issue such shares below the minimum redemption conversion price of $1.00 at a modified redemption conversion price equal to $0.210140, which is equal to 70% multiplied by the lowest closing bid price during the twenty (20) trading days immediately preceding this redemption. Accordingly, the Company issued the Lender 36,166 shares of common stock to satisfy the Redemption Amount. Short-Term Note Extension On December 31, 2019, Chicago Venture Partners, LP agreed to extend the previously agreed to pursuant to the terms of the Convertible Promissory Note dated as of December 31, 2018 whereby Chicago Venture Partners, LP will not be entitled to redeem all or any portion of the principal amount of the original December 31, 2018 Note until March 31, 2020, and the maturity date of the Original Note was extended to March 31, 2020.
Revolving Credit Facility On August 31, 2018, the Company entered in an agreement with Payplant Alternatives Funds LLC ("Payplant"), pursuant to which Payplant may purchase from the Company, in Payplant's sole and absolute discretion, Eligible Receivables, as that term is defined in the agreement, in exchange for cash advances, subject to the terms and conditions in the agreement.On September 21, 2018, the Company entered into the Payplant Loan and Security Agreement (the "Loan Agreement") with Payplant LLC as agent for Payplant. Pursuant to the Loan Agreement and the terms set forth in the form of promissory note attached as Exhibit A to the Loan Agreement, (the "Note"), Payplant, in its sole and absolute discretion, may loan money to the Borrowers on the basis of purchase orders or invoices issued by the Borrowers to customers for goods and services provided. The term of any loan made to the Borrowers may not exceed 360 days. The principal amount of any loan will accrue interest at a 30-day rate of 2%, calculated per day. Upon the occurrence and during the continuance of an Event of Default, as defined in the Loan Agreement, interest will accrue at a rate equal to the interest rate plus 0.42% per 30 days. In no event will interest, when combined with all fees that may be characterized as interest, exceed the Maximum Rate, as defined in the Loan Agreement. All computations of interest will be made on the basis of a 360-day year. The Borrowers will have the right to prepay any loan upon the payment of a premium of at least 30 days of interest. As security for the repayment of any loans and the performance of the Borrowers' Obligations, as defined in the Loan Agreement, the Borrowers granted to Payplant a security interest in the Collateral, as defined in the Loan Agreement. As of March 31, 2020 and December 31, 2019, the principal amount outstanding under the Loan Agreement was $307,000 and $168,000, respectively, and is included in Short Term Debt in the condensed consolidated financial statements.
Future Receivables Agreement On January 21, 2020, SGS and GCF Resources LLC ("GCF") entered into a Future Receivables Agreement pursuant to which GCF agreed to purchase receivables from SGS with a value of $497,000 for the sum of $350,000. The terms of the agreement call for weekly instalments of $20, 710, until paid in full. The balance as of March 31, 2020 is $216,000.