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Credit Risk and Concentrations

9 Months Ended

Sep. 30, 2021

Note 9 — Credit Risk and Concentrations

Financial instruments that subject the Company to credit risk consist principally of trade accounts receivable and cash. The Company performs certain credit evaluation procedures and does not require collateral for financial instruments subject to credit risk. The Company believes that credit risk is limited because the Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk of its customers, establishes an allowance for uncollectible accounts and, consequently, believes that its accounts receivable credit risk exposure beyond such allowances is limited.

The Company maintains cash deposits with financial institutions, which, from time to time, may exceed federally insured limits. The Company has not experienced any losses and believes it is not exposed to any significant credit risk from cash.

The following table sets forth the percentages of sales derived by SGS from those customers that accounted for at least 10% of sales during the period April 15, 2021, through September 30, 2021 (in thousands of dollars):

	For the Three Months Ended September 30, 2021					For the Period April 15, 2021, through September 30, 2021
	$		%			$		%
Customer A		1,245		63	%		2,499		55	%
Customer B		--		-			607		13	%
Customer C		278		14	%		--		-

As of September 30, 2021, Customers A and C represented approximately 39% and 40% of total accounts receivable.

For the period April 15, 2021, through September 30, 2021, four vendors represented approximately 83%, 55%, 17% and 10% of total purchases. Purchases from these vendors during the nine months ended September 30, 2020, were $2.6 million, $1.7 million, $0.5 million and, $0.3 million respectively. For the three months ended September 30, 2021, two vendors represented approximately 57% and 10% of total purchases. Purchases from these vendors during the three months ended September 30, 20214 were $0.9 million, $0.1 million respectively.

Mining equipment purchased from one TTM Digital vendor during the nine months ended September 30, 2021, was $14.2 million. Of the $14.2 million, in consideration exchanged $12 million was paid in Common Stock of the Company and the balance of $2.2 million was settled through payment in digital assets.

Geographic and Technology Concentration

The Company had geographic concentration risk with mining operations being exclusively carried out within New York in the first Quarter of 2021 and throughout 2020, while the Company has added geographic diversity during April 2021 using a colocation datacenter in North Carolina. Any legislation that restricts or bans the mining of proof-of-work related digital asset mining in New York State would have a negative impact on the Company’s ability to operate and generate revenues.

Further, the Company had concentrated exposure to the Ethereum blockchain infrastructure through its mining operations during the periods presented. There is a possibility of digital asset mining algorithms transitioning to proof-of-stake validation and other mining related risks, which could make us less competitive and ultimately adversely affect our business and our ability to generate revenues. When and if Ethereum switches to proof-of stake the Company’s GPUs will no longer be able to mine Ethereum. Additionally, on August 5, 2021, the London Hard Fork protocol went into effect which includes changes in Ethereum’s handling of transaction fees. These changes could have an impact on the Company’s future potential Ethereum revenue stream due to less Ethereum being distributed per mined block, if not offset by an increase in the value of ETH and/or additional transaction tipping, the process by which a user can pay an additional amount to ensure a transaction is processed very quickly. The Company did not see any financial impact during the quarter ended September 30, 2021.