UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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2022, there were
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022
TABLE OF CONTENTS
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
AND OTHER INFORMATION CONTAINED IN THIS REPORT
This report contains forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “may” or other similar expressions in this report. In particular, these include statements relating to future actions; prospective products, applications, customers and technologies; future performance or results of anticipated products; and projected expenses and financial results. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:
| ● | our ability to successfully integrate acquired businesses or new products, or to realize anticipated synergies in connection with mergers and acquisitions; |
| ● | the effect of COVID-19, closure of offices and site location(s); on our ability to service our customers resulting in less revenues; |
| ● | our cash position and our history of losses; |
| ● | our ability to achieve profitability; |
| ● | customer demand for the products and services we offer; |
| ● | the impact of competitive or alternative services, products, technologies, and pricing; |
| ● | increased delays in delivery of product due to worldwide strain on supply chain primarily due to labor, raw material, and chip shortages; |
| ● | general economic conditions and events and the impact they may have on us, on our customers, and on our potential customers; |
| ● | a security breach, through cyber-attack, cyber intrusion, insider threats or otherwise, or other significant disruption of our IT networks and related systems; |
| ● | decrease in value of digital assets; |
| ● | general cryptocurrency risks; |
| ● | technological changes and developments in the blockchain and cryptocurrencies; |
| ● | risks related to changes of rules and regulations in connection with cryptocurrencies in general and Ethereum in particular; |
| ● | risks related to the loss of assets of our cryptocurrency mining facility held with a third party; |
ii
| ● | competition for blockchain platforms and technologies; |
| ● | our ability to obtain adequate financing in the future; |
| ● | our ability to continue as a going concern; |
| ● | our ability to complete strategic transactions, which may include acquisitions, mergers, dispositions, joint ventures, or investments; |
| ● | lawsuits and other claims by third parties; |
| ● | the restatement of our financial statements in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2021, and the impact of such restatement on our future financial statements and other financial measures; and the material weaknesses we identified in our internal control over financial reporting, our efforts to remediate such material weaknesses and the timing of remediation; |
| ● | our success at managing the risks involved in the foregoing items; |
| ● | authorized shares will be insufficient to convert debenture holders; and |
| ● | other factors discussed in this report. |
The forward-looking statements are based upon management’s beliefs and assumptions and are made as of the date of this report. We undertake no obligation to publicly update or revise any forward-looking statements included in this report. You should not place undue reliance on these forward-looking statements.
Unless otherwise stated or the context otherwise requires, the terms “Sysorex,” “we,” “us,” “our,” and the “Company” refer collectively to Sysorex, Inc. and its subsidiaries, TTM Digital Assets & Technologies, Inc. (“TTM Digital”) and Sysorex Government Services, Inc. (“SGS”).
iii
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information which are the accounting principles that are generally accepted in the United States of America and in accordance with the instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, the unaudited condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, results of operations, and cash flows of the Company for the interim periods presented.
The results for the period ended September 30, 2022, are not necessarily indicative of the results of operations for the full year. These interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes for the years ended December 31, 2021, and 2020 included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 14, 2022, as amended by Amendment No. 1 on Form 10-K filed on May 23, 2022, to restate the Company’s previously issued consolidated financial statements and financial information as of and for the fiscal year ended December 31, 2021, as well as to provide restated interim financial information as of September 30, 2021 and for the three and nine months then ended, and Amendment No. 2 on Form 10-K filed on June 1, 2022.
1
Sysorex, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands of dollars, except number of shares and par value data)
| September 30, 2022 |
December 31, 2021 |
|||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Digital assets, net | ||||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Assets held for sale | ||||||||
| Total Current Assets | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Pre-funded right- in Ostendo | ||||||||
| Operating lease right-of-use asset, net | ||||||||
| Other assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | ||||||||
| Accrued liabilities | ||||||||
| Short-term debt | ||||||||
| Conversion feature derivative liability | ||||||||
| Operating lease obligation, current | ||||||||
| Common stock derivative liability | ||||||||
| Deferred revenue | ||||||||
| Total Current Liabilities | ||||||||
| Operating lease obligation - noncurrent | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Deficit | ||||||||
| Common stock, par value $ |
||||||||
| Treasury stock, at cost, |
||||||||
| Additional paid-in-capital | ||||||||
| Accumulated Deficit | ( |
) | ( |
) | ||||
| Total Stockholders’ Deficit | ( |
) | ( |
) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
2
Sysorex, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands of dollars, except number of shares and per share data)
(Unaudited)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | ||||||||||||||||
| Product revenue | $ | $ | $ | $ | ||||||||||||
| Services revenue | ||||||||||||||||
| Total Revenues | ||||||||||||||||
| Operating costs and expenses | ||||||||||||||||
| Product cost | ||||||||||||||||
| Services cost | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Impairment of digital assets | ||||||||||||||||
| Management fees | ||||||||||||||||
| Depreciation | ||||||||||||||||
| Amortization of intangibles | ||||||||||||||||
| Total Operating Costs and Expenses | ||||||||||||||||
| Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expenses) | ||||||||||||||||
| Merger charges | ( | ) | ||||||||||||||
| Debt Restructuring fee | ( | ) | ||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Realized gain on sale of digital assets | ||||||||||||||||
| Revaluation of conversion feature derivative liability | ( | ) | ( | ) | ( | ) | ||||||||||
| Gain (loss) on extinguishment of debt | ( | ) | ||||||||||||||
| Change in fair value of shares issued | ||||||||||||||||
| Other income, net | ||||||||||||||||
| Total Other (Expense) Income | ( | ) | ( | ) | ( | ) | ||||||||||
| Income (loss) from continuing operations before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax benefit | ||||||||||||||||
| Income (loss) from continuing operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Income (loss) from discontinued operations | ( | ) | ( | ) | ||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
| $ | ( | ) | $ | $ | ( | ) | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
3
Sysorex, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Deficit
For the Nine Months Ended September 30, 2022, and 2021
(In thousands of dollars, except share data)
(Unaudited)
| Additional | ||||||||||||||||||||||||||||||||
| Common Stock | Treasury Stock | Paid-In | Subscription | Accumulated | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Receivables | Deficit | Total | |||||||||||||||||||||||||
| Balance – December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Distributions to shareholders | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Payments of subscription receivables | - | - | ||||||||||||||||||||||||||||||
| Exercise of Moon warrants | - | |||||||||||||||||||||||||||||||
| Net Income | - | - | ||||||||||||||||||||||||||||||
| Balance – March 31, 2021 | ||||||||||||||||||||||||||||||||
| Shares issued for: | ||||||||||||||||||||||||||||||||
| Mining equipment | - | |||||||||||||||||||||||||||||||
| Sysorex recapitalization | - | |||||||||||||||||||||||||||||||
| TTM digital/Sysorex merger | ||||||||||||||||||||||||||||||||
| Professional services | - | |||||||||||||||||||||||||||||||
| Net Loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance – June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Shares issued for: | ||||||||||||||||||||||||||||||||
| Convertible debt warrants | - | - | ||||||||||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||
| Shares issued for services | ||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance – September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Balance – December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
| Convertible debt conversions | - | |||||||||||||||||||||||||||||||
| Reclassification of equity contracts to liabilities | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Professional services | - | |||||||||||||||||||||||||||||||
| Exercise of Pre-funded warrants | - | |||||||||||||||||||||||||||||||
| Cashless exercise of warrants | - | |||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Vesting of restricted stock | - | |||||||||||||||||||||||||||||||
| Net Loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance – March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Convertible debt conversions | - | |||||||||||||||||||||||||||||||
| Issuance of restricted stock | - | |||||||||||||||||||||||||||||||
| Net Loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance – June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
| Convertible debt conversions | - | |||||||||||||||||||||||||||||||
| Net Loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance – September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
4
Sysorex, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands of dollars)
(Unaudited)
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation expense | ||||||||
| Amortization of right of use asset | ||||||||
| Amortization of debt discount and debt issuance costs | ||||||||
| Realized gain on sale of digital assets | ( | ) | ( | ) | ||||
| Loss on extinguishment of debt | ||||||||
| Change in fair value of debt conversion feature | ||||||||
| Gain on settlement of vendor liabilities | ( | ) | ( | ) | ||||
| Impairment of digital assets | ||||||||
| Issuance of shares in exchange for services | ||||||||
| Merger charges | ||||||||
| Debt restructuring expense | ||||||||
| Change in fair value of share derivative liability | ( | ) | ( | ) | ||||
| Changes in assets and liabilities: | ||||||||
| Prepaid assets and other current assets | ( | ) | ||||||
| Accounts receivable and other receivables | ||||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued liabilities and other current liabilities | ||||||||
| Operating lease liability | ( | ) | ||||||
| Net cash used in operating activities – continuing operations | ( | ) | ( | ) | ||||
| Net cash used in provided by operating activities – discontinued operations | ( | ) | ( | ) | ||||
| Net cash used in operating activities | $ | ( | ) | $ | ( | ) | ||
| Cash Flows from Investing Activities | ||||||||
| Proceeds from sale of digital assets | $ | $ | ||||||
| Reverse acquisition of Sysorex business | ||||||||
| Pre-funded right in Ostendo | ( | ) | ||||||
| Net cash provided by investing activities -continuing operations | ||||||||
| Net cash used in investing activities – discontinued operations | ( | ) | ||||||
| Net cash provided by investing activities | $ | $ | ||||||
| Cash Flows from Financing Activities | ||||||||
| Repayment of loans | $ | $ | ( | ) | ||||
| Proceeds received for convertible debt | ||||||||
| Issuance of members’ interests | ||||||||
| Cash paid for convertible debt transaction costs | ( | ) | ||||||
| Net cash provided by financing activities- continuing operations | $ | $ | ||||||
| Net cash used in financing activities – discontinued operations | ( | ) | ||||||
| Net cash provided by financing activities | $ | $ | ||||||
| Net (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | ||||||||
| Supplemental disclosure of noncash investing and financing activities: | ||||||||
| Conversion of debt to equity | $ | $ | ||||||
| Equipment exchanged for equity | - | |||||||
| Equipment acquired through lease purchase agreement | - | |||||||
| Debt discount attributed to the fair value of warrants | - | |||||||
| Debt discount attributed to the fair value of the conversion option | - | |||||||
| Settlement of loan with mining equipment | ||||||||
| Sysorex recapitalization | ||||||||
| Distributions of digital assets to members | ||||||||
| Reclassification of equity contracts to liabilities | ||||||||
| Settlement of share derivative liability | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
5
SYSOREX, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Nature and Description of Business
Description of Business
Sysorex, Inc., through its wholly owned subsidiary, Sysorex Government Services, Inc., (“SGS”), (unless otherwise stated or the context otherwise requires, the terms “SGS” “we,” “us,” “our” and the “Company” refer collectively to Sysorex, Inc. and SGS), provides information technology solutions primarily to the public sector. These solutions include cybersecurity, professional services, engineering support, IT consulting, enterprise level technology, networking, wireless, help desk, and custom IT solutions. The Company is headquartered in Virginia.
In addition to SGS, the Company has another wholly owned subsidiary, TTM Digital Assets & Technologies, Inc. (“TTM Digital”). TTM Digital is a digital asset technology and mining company that owns and operates specialized cryptocurrency mining processors and was previously focused on the Ethereum blockchain ecosystem. As of September 15, 2022, Ethereum switched from a Proof of Work model to Proof of Stake model. TTM Digital is currently exploring alternative uses and sales opportunities for its Graphics Processing Unit (GPU) assets and datacenter located in Lockport, NY. As discussed in the Heads of Terms agreement below, the Company had been in discussion with a third party to sell its mining assets and certain associated real property (“Assets”).
Increase in Authorized Shares
On September 22, 2022, the Company’s stockholders
voted to approve an amendment to the Articles of Incorporation to increase the total number of authorized shares of the Company’s
capital stock from
In addition, the Company’s stockholders also
voted to approve an amendment to the Articles of Incorporation to effect a reverse stock split of the Company’s outstanding shares
of common stock, par value $
Heads of Terms Agreement
On March 24, 2022, the Company executed
Heads of Terms (“Heads of Terms”) with Ostendo Technologies, Inc. (“Ostendo”) which included certain
binding and non-binding provisions.
Subsequent to September 30, 2022, the Company has in good faith worked with Ostendo to ensure all closing terms and closing conditions were mutually agreed upon, however, the parties have not entered into definitive transaction agreements and accordingly, it was determined in November of 2022 that the transaction will not proceed. In November 2022, the Company requested that Ostendo issue, pursuant to the Heads of Terms, shares equal to the initial deposit made by the Company of $1,600,000.
6
Note 2 — Going Concern
As of September 30, 2022, the Company had an approximate cash balance
of $
The Company does not believe that its capital resources
as of September 30, 2022, its ability to settle convertible debt obligations through issuance of the Company’s shares, availability
on the SouthStar facility to finance purchase orders and invoices, reauthorization of key vendors and credit limitation improvements will
be sufficient to fund planned operations during the next twelve months. As a result, the Company will need additional funds to support
its obligations. On September 22, 2022, the shareholders of the Company approved the authorization of
The Company continues to explore a number of other possible solutions to its financing needs, including efforts to raise additional capital as needed, through the issuance of equity, equity-linked or debt securities, as well as possible transactions with other companies, strategic partnerships, and other mechanisms for addressing our financial condition. The Company will utilize its current contracts that are not limited to a single branch of government or a specific agency. These contracts can provide the Company an opportunity to attain new solutions and service type orders. The Company will also utilize SGS’s small business status to partner with prime contractors on larger orders. The Company currently has utilized SouthStar to finance purchase orders and it also has the ability to factor its receivables if needed to fund operations. In addition, as disclosed in Note 1 – Increase in Authorized shares, the Company will need to further increase its available shares of common stock to settle convertible debt conversions. After considering the plans to alleviate substantial doubt, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.
If the Company is unable to raise additional capital on terms acceptable to the Company and on a timely basis, or is unable to attain new vendors, the Company will be required to downsize or wind down its operations through liquidation, bankruptcy, or sale of its assets. In addition, as of September 30, 2022, the Company has been reliant on its ability to liquidate Ethereum to continue to fund operations when needed, and as such, the Company does not currently have enough Ethereum on hand to fund operations through the next twelve months. Further, as of September 15, 2022, Ethereum switched from a Proof of Work model to Proof of Stake model and as a result, the Company is no longer mining Ethereum.
Note 3 — Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles that are generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of the Company’s operations for the three and nine months ended September 30, 2022, are not necessarily indicative of the results to be expected for the year ending December 31, 2022. These interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes for the years ended December 31, 2021, and 2020 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 14, 2022, as amended by Amendment No. 1 to the Company’s Annual Report on Form 10-K/A filed with the Securities and Exchange Commission (the “SEC”) on May 23, 2022, and Amendment No. 2 on Form 10-K filed with the SEC on June 1, 2022.
TTM Digital Reverse Merger and Sysorex Recapitalization
On April 8, 2021, the Company, TTM Digital, and TTM Acquisition Corp., a Nevada corporation, and a wholly owned subsidiary of Sysorex (“MergerSub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). Under the terms of the Merger Agreement, the parties agreed that Sysorex would acquire TTM Digital by way of a reverse triangular merger, subject to certain closing conditions (the “Merger”). On April 14, 2021 (the “Effective Time”), the closing conditions delineated in the Merger Agreement were satisfied and the Merger closed. At the Effective Time, the MergerSub was merged with and into TTM Digital with TTM Digital surviving the Merger.
7
Under
the terms of the Merger Agreement, the shareholders of TTM Digital received a right to receive an aggregate of
Discontinued Operations
As discussed in Note 5 – Discontinued Operation, the Company made the decision to divest its mining equipment and the data center of the TTM Digital reporting unit (“TTM Assets”) and commenced discussions with a third party to execute an asset sale. As a result of the decision to divest operating assets of the TTM Digital reporting unit, the Company has determined that the subject assets met the definition of assets held for sale as defined by ASC 205-20 – Presentation of Financial Statements – Discontinued Operations. As of December 31, 2021, the Company determined the TTM Assets represented discontinued operations as it constituted a disposal of a significant component and a strategic shift that will have a material effect on the Company’s operations and financial results. As a result, the Company reclassified the balances and activities of the TTM Assets from their historical presentation to assets held for sale and assets and liabilities – discontinued operations on the Condensed Consolidated balance sheets and to gain from discontinued operations on the Condensed Consolidated statements of operations for the periods presented.
On June 10, 2022, the definition of “TTM Assets” was amended and restated to read “(i) all of the Seller Parties’ GPUs and related assets, supporting equipment and software (including software licenses, if any). As a result, all of TTM assets have been classified and reported as assets held for sale in the condensed consolidated balance sheets, and all associated revenues and costs are reported as discontinued operations in the condensed consolidated statement of operations. As of November 2022, the parties have not entered into definitive transaction agreements and accordingly, the transaction will not proceed. As of September 30, 2022, the Company has performed an assessment and determined that TTM Assets are held for sale and reported as discontinued operations. TTM is exploring future possibilities of hosting client computing, and TTM continues to evaluate all of its options, including the sale of its assets to maximize revenue streams utilizing its current assets.
Note 4 — Summary of Significant Accounting Policies
Principles of Consolidation
The unaudited condensed consolidated financial statements have been prepared using the accounting records of Sysorex, TTM Digital and SGS. All inter-company balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during each of the reporting periods. Actual results could differ from those estimates. The Company’s significant estimates consist of:
| ● | Revenue recognition | |
| ● | Fair value of digital assets | |
| ● | Fair value of the Company’s common stock | |
| ● | Expected useful lives and valuation of long-lived assets | |
| ● | Fair value of derivative liabilities |
Significant Accounting Policies
For a detailed discussion about the Company’s significant accounting policies, see the Company’s December 31, 2021, consolidated financial statements included in its 2021 Annual Report.
8
Impairment of Long-lived Assets
The
Company reviews its long-lived assets, including mining equipment, for impairment whenever events or changes in circumstances indicate
the carrying value of an asset or group of assets may not be recoverable. The carrying amount is considered not recoverable if the sum
of the undiscounted cash flows to be generated from the use and eventual disposition of the asset group is less than the carrying amount
of the asset group. If the carrying amount exceeds the undiscounted cash flows, then the carrying amount is compared to the fair value
and an impairment loss is recorded for the difference between the fair value and the carrying amount. For the three and nine months ended
September 30, 2022, the Company incurred $
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination. Goodwill is reviewed for impairment at least annually, in December, or more frequently if a triggering event occurs between impairment testing dates.
The Company’s impairment assessment begins with a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. Qualitative factors may include, macroeconomic conditions, industry and market considerations, cost factors, and other relevant entity and Company specific events. If, based on the qualitative test, the Company determines that it is “more likely than not” that the fair value of a reporting unit is less than its carrying value, then the Company evaluates goodwill for impairment by reviewing the fair value of the reporting unit versus its respective carrying value, including its goodwill. If it is determined that it is “not likely” that the fair value of the reporting unit is less than its carrying value, then no further testing is required.
The selection and assessment of qualitative factors used to determine whether it is more likely than not that the fair value of a reporting unit exceeds the carrying value involves significant judgment and estimates. Fair values may be determined using a combination of both income and market-based approaches.
The Company did not record any impairment of goodwill as of September 30,
2022 and December 31, 2021. As of September 30, 2022 and December 31, 2021, the total goodwill of approximately $
Derivative Liabilities
The Company evaluates its convertible instruments, options, warrants, or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, Derivatives and Hedging. The Company evaluates whether the amount of common stock on a as converted basis is in excess of its authorized share total which, if in excess, would result in derivative accounting treatment. The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to a liability at the fair value of the instrument on the reclassification date.
Convertible Debt
The Company’s debt instruments contain a host liability, freestanding warrants, and an embedded conversion feature. The Company uses the guidance under FASB ASC Topic 815 Derivatives and Hedging (“ASC 815”) to determine if the embedded conversion feature must be bifurcated and separately accounted for as a derivative under ASC 815. It also determines whether any embedded conversion features requiring bifurcation and/or freestanding warrants qualify for any scope exceptions contained within ASC 815. Generally, contracts issued or held by a reporting entity that are both (i) indexed to its own stock, and (ii) classified in shareholders equity, would not be considered a derivative for the purposes of applying ASC 815. Any embedded conversion features and/or freestanding warrants that do not meet the scope exception noted above are classified as derivative liabilities, initially measured at fair value, and remeasured at fair value each reporting period with change in fair value recognized in the Condensed Consolidated statements of operations. Any embedded conversion features and/or freestanding warrants that meet the scope exception under ASC 815 are initially recorded at their relative fair value in paid-in-capital and are not remeasured at fair value in future periods.
The host debt instrument is initially recorded at its relative fair value in long-term debt. The host debt instrument is accounted for in accordance with guidance applicable to non-convertible debt under FASB ASC Topic 470 Debt (“ASC 470”) and is accreted to its face value over the term of the debt with accretion expense and periodic interest expense recorded in the unaudited condensed consolidated statements of operations.
Issuance costs are allocated to each instrument in the same proportion as the proceeds that are allocated to each instrument. Issuance costs allocated to the debt hosted instrument are netted against the proceeds allocated to the debt host. Issuance costs allocated to freestanding warrants classified in equity are recorded in paid-in-capital.
9
Net Loss per Share
Basic loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding, plus potentially dilutive common shares. Convertible debt, restricted stock, stock options and warrants are excluded from the diluted net loss per share calculation when their impact is antidilutive. The Company reported a net loss for the three and nine months ended September 30, 2022, and as a result, all potentially dilutive common shares are considered antidilutive for this period.
The Company includes potentially issuable shares in the Weighted-average common shares – basic that include warrants and other agreements that are exercisable for little or no consideration without substantive contingencies and others once any contingencies relative to the issuance of the shares is resolved.
Computations of basic and diluted weighted average common shares outstanding were as follows for the periods reported:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Weighted-average common shares outstanding | ||||||||||||||||
| Weighted-average potential common shares considered outstanding | ||||||||||||||||
| Weighted-average common shares outstanding - basic | ||||||||||||||||
| Dilutive effect of options, warrants and restricted stock units | ||||||||||||||||
| Weighted-average common shares outstanding - diluted | ||||||||||||||||
| Options, restricted stock units, and warrants and convertible debt excluded from the computation of diluted loss per share because the effect of inclusion would be anti-dilutive | ||||||||||||||||
Emerging Growth Company
Sysorex is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”). As such, Sysorex is eligible to take advantage of certain exemptions from various reporting requirements that apply to other public companies that are not emerging growth companies, including compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended. In addition, Section 107 of the JOBS Act provides that an emerging growth company may take advantage of the extended transition period provided in Section 13(a) of the Securities Exchange Act of 1934, as amended, for complying with new or revised accounting standards, meaning that Sysorex, as an emerging growth company, can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Sysorex has elected to take advantage of this extended transition period, and therefore our financial statements may not be comparable to those of companies that comply with such new or revised accounting standards.
10
Note 5 — Discontinued Operations
The carrying value of the TTM Digital asset disposal
group was $
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Mining equipment and facilities, net | $ | $ | ||||||
| Investment in Style Hunter | ||||||||
| Total Current Assets | $ | $ | ||||||
| Total Assets associated with discontinued operations | $ | $ | ||||||
The following table presents the TTM Digital assets statement of operations line items classified as discontinued operations included within gain (loss) from discontinued operations for the three and nine months ended September 30, 2022, and 2021 (in thousands):
| For the Three Months |
For the Three Months |
For the Nine Months |
For the Nine Months | |||||||||||||
| Ended September 30, |
Ended September 30, |
Ended September 30, |
Ended September 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | ||||||||||||||||
| Mining income | $ | |
$ | $ | $ | |||||||||||
| Hosting income | ||||||||||||||||
| Total revenues | ||||||||||||||||
| Operating costs and expenses | ||||||||||||||||
| Mining cost | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Impairment of fixed assets | ||||||||||||||||
| Depreciation | - | |||||||||||||||
| Total operating costs and expenses | ||||||||||||||||
| Gain (loss) from Operations | ( |
) | ( |
) | ||||||||||||
| Other Income (Expenses) | ||||||||||||||||
| Interest expense | ( |
) | ( |
) | ||||||||||||
| Loss on disposal of fixed assets | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Income (loss) before taxes and equity method investee | ( |
) | ( |
|||||||||||||
| Provision for income taxes | ||||||||||||||||
| Income (loss) before equity method investee | ( |
) | ( |
) | ||||||||||||
| Share of net loss of equity method investee | ||||||||||||||||
| Net income (loss) from discontinued operations | $ | ( |
$ | $ | ( |
) | $ | |||||||||
The following table summarizes the net cash flows from discontinued operations of TTM Digital (in thousands):
| For the Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Net cash used in operating activities – discontinued operations | $ | ( | ) | $ | ( | ) | ||
| Net cash used in investing activities – discontinued operations | ( | ) | ||||||
| Net cash used in financing activities – discontinued operations | ( | ) | ||||||
11
Note 6 — Intangible Assets
Intangible assets as of September 30, 2022, consist of the following:
| Gross | Net | |||||||||||
| Carrying | Accumulated | Carrying | ||||||||||
| Amount | Amortization | Amount | ||||||||||
| Trade name | $ | $ | ( | ) | $ | |||||||
| Customer relationships | ( | ) | ||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | |||||||
Intangible assets as of December 31, 2021, consist of the following:
| Gross | Net | |||||||||||
| Carrying | Accumulated | Carrying | ||||||||||
| Amount | Amortization | Amount | ||||||||||
| Trade name | $ | $ | ( | ) | $ | |||||||
| Customer relationships | ( | ) | ||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | |||||||
The estimated future amortization expense associated with intangible assets is as follows:
| Calendar Years Ending December 31, | Amount | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total | $ | |||
Note 7 — Credit Risk and Concentrations
Financial instruments that subject the Company to credit risk consist principally of trade accounts receivable and cash. The Company performs certain credit evaluation procedures and does not require collateral for financial instruments subject to credit risk. The Company believes that credit risk is limited because the Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk of its customers, establishes an allowance for uncollectible accounts and, consequently, believes that its accounts receivable credit risk exposure beyond such allowances is limited.
The Company maintains cash deposits with financial institutions, which, from time to time, may exceed federally insured limits. The Company has not experienced any losses and believes it is not exposed to any significant credit risk from cash.
The following table sets forth the percentages
of sales derived by the Company from those customers that accounted for at least
| For the Nine Months Ended September 30, 2022 | For the Period April
15, 2021, through September 30, 2021 | |||||||||||||||
| $ | % | $ | % | |||||||||||||
| Customer A | | % | % | |||||||||||||
| Customer B | % | % | ||||||||||||||
12
The following table sets forth the percentages
of sales derived by the Company from those customers that accounted for at least
| For the Three Months Ended September 30, 2022 | For the three months ended September 30, 2021 | |||||||||||||||
| $ | % | $ | % | |||||||||||||
| Customer A | | % | ||||||||||||||
| Customer B | % | % | ||||||||||||||
| Customer C | % | |||||||||||||||
As of September 30, 2022, Customer B represented approximately
For the nine months ended September 30, 2022, two
vendors represented approximately
For the three months ended September 30, 2022,
four vendors represented approximately
For the period April 15, 2021, through September
30, 2021, three vendors represented approximately 55%,
Geographic and Technology Concentration
The Company had geographic diversity between April 1, 2021, and June 30, 2022, using a colocation datacenter in North Carolina. Subsequent to June 30, 2022, the Company had consolidated its mining operations exclusively in New York.
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. As of September 15, 2022, Ethereum switched from a proof-of-work model to a proof-of stake model. The Company is no longer be able to mine Ethereum.
Note 8 — Short-term debt
Short-term debt as of September 30, 2022, and December 31, 2021, consisted of the following (in thousands):
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Convertible Debentures, including interest payable to the Convertible Debenture Holders | $ | $ | ||||||
| Total Short-Term Debt | $ | $ | ||||||
13
2021 Convertible Debentures & Warrants
On July 7, 2021, the Company consummated the initial
closing of a private placement offering (the “Offering”) pursuant to the terms and conditions of a Securities Purchase Agreement
for up to $
On August 13, 2021, the Company
consummated the second closing of the offering pursuant to the same terms and conditions of the Securities Purchase Agreement dated July
7, 2021. At the second closing, the Company sold the purchasers (i)
Under the conversion terms of the Debentures,
the Debenture is convertible, in whole or in part, into shares of Common Stock at the option of the Holder at any time until the Debenture
is no longer outstanding. The Holder executes a conversion by delivering to the Company a Notice of Conversion specifying the principal
amount to be converted and the date on which the conversion is to be executed.
The Company recorded interest expense of approximately
$
Debenture Default
The
Debentures provide that any monetary judgment filed against the Company for more than $
On
January 7, 2022, the Company received a notice of default (the “Default Notice”) from the Placement Agent stating that the
Company defaulted under the Purchase Agreement as a result of: (i) the Company failing to disclose certain material indebtedness of the
Company outstanding as of the date of the Purchase Agreement; and (ii) the filing of a judgment relating to such material indebtedness.
Due to such events of default, (i) the Debentures are now deemed to have begun bearing interest at the default interest rate of
14
Note 9 — Fair Value Measurement
Fair value measurements are determined based on assumptions that a market participant would use in pricing an asset or a liability. A three-tiered hierarchy distinguishes between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3). The following table presents the placement in the fair value hierarchy measured at fair value on a recurring basis as of September 30, 2022, and December 31, 2021 (in thousands):
| Fair value measurement at reporting date using | ||||||||||||||||
| Quoted prices in | Significant | |||||||||||||||
| active markets | other | Significant | ||||||||||||||
| for identical | observable | unobservable | ||||||||||||||
| Balance | assets (Level 1) | inputs (Level 2) | inputs (Level 3) | |||||||||||||
| As of September 30, 2022: | ||||||||||||||||
| Recurring fair value measurements: | ||||||||||||||||
| Derivative Liabilities: | ||||||||||||||||
| Conversion feature derivative liability | $ | $ | $ | $ | ||||||||||||
| Common stock derivative liability | $ | $ | $ | $ | ||||||||||||
| Total derivative liabilities | $ | $ | $ | $ | ||||||||||||
| Total recurring fair value measurements | $ | $ | $ | $ | ||||||||||||
| As of December 31, 2021 | ||||||||||||||||
| Recurring fair value measurements | ||||||||||||||||
| Derivative liability: | ||||||||||||||||
| Conversion feature derivative liability | $ | $ | $ | $ | ||||||||||||
| Total recurring fair value measurements | $ | $ | $ | $ | ||||||||||||
The conversion feature of the convertible Debentures
was separately accounted for at fair value as a derivative liability under guidance in ASC 815 that is remeasured at fair value on a recurring
basis using Level 3 inputs. The Company uses a probability weighted expected return model (“PWERM”) valuation technique to
measure the fair value of the conversion feature with any changes in the fair value of the conversion feature liability recorded in earnings.
Significant inputs to the model include estimated time to conversion events, estimated interest converted at the event, the implied yield,
the discount rate for the conversion, and the probability of the conversion events. For the three and nine months ended September 30,
2022, the Company recorded a gain of approximately $
As discussed in Note 11 – Equity below, the Company exceeded its authorized share limit with respect to potentially issuable shares under the equity contracts described with the Share Derivative Liabilities section. The Company estimates the fair value of the Common stock derivative liability based on the fair value of the potentially issuable shares for the warrants, stock options and RSUs vested but unissued. This liability excludes the fair value of the potentially convertible shares for the convertible Debentures which are accounted for through the carrying value of the debt and the separate conversion feature derivative liability.
15
The Company recorded the common stock derivative liability at fair value as of September 30, 2022, through a transfer from equity to the common stock derivative liability. Changes in the fair value of the liability in future periods will be included in other income (expense) in the consolidated statements of operations.
The change in Level 3 fair value of the Company’s derivative liabilities is as follows:
| Conversion feature derivative liability | Common stock derivative liability | Total level 3 derivative liability | ||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | |||||||||
| Transferred to equity on debt conversion | ( | ) | ( | ) | ( | ) | ||||||
| Transferred from equity on recognition of derivative liability | ||||||||||||
| Increase (Decrease) in fair value included in earnings | ( | ) | ||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | |||||||||
Note 10 — Digital Assets
The following tables present the roll forward of digital asset activity from continuing and discontinued operations during the periods ended:
| Nine months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Opening Balance | $ | $ | ||||||
| Revenue from mining | ||||||||
| Payment of mining equipment under lease to buy arrangement | - | ( | ) | |||||
| Mining pool operating fees | ( | ) | ( | ) | ||||
| Impairment of digital assets | ( | ) | ( | ) | ||||
| Management fees | ( | ) | ||||||
| Owners’ distributions | ( | ) | ||||||
| Proceeds from sale of digital assets | ( | ) | ( | ) | ||||
| Transaction fees | ( | ) | - | |||||
| Realized gain on sale of digital assets | ||||||||
| Ending Balance | $ | $ | ||||||
| Three months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Opening Balance | $ | $ | ||||||
| Revenue from mining | ||||||||
| Payment of mining equipment under lease to buy arrangement | - | ( | ) | |||||
| Mining pool operating fees | ( | ) | ( | ) | ||||
| Impairment of digital assets | ( | ) | ( | ) | ||||
| Proceeds from sale of digital assets | ( | ) | ( | ) | ||||
| Transaction fees | ( | ) | - | |||||
| Realized gain on sale of digital assets | ||||||||
| Ending Balance | $ | $ | ||||||
16
Note 11 — Equity
As
discussed in Note 3 Basis of Presentation the Company completed a reverse merger of Sysorex and TTM Digital with TTM Digital being the
accounting acquirer and reporting entity. In a reverse merger, the capital accounts of the reporting entity (TTM Digital) are restated
to reflect the legal capital structure of the legal acquirer (Sysorex). As a result, the share data of the reporting entity has been retroactively
restated for all periods presented to the equivalent share values of Sysorex for the capital transaction activity of TTM Digital, as if
the reverse merger occurred on January 1, 2020. The share data of the reporting entity has been retroactively stated for all periods presented
to the equivalent share values of Sysorex.
Stock Options
A summary of stock option activity for the nine months ended September 30, 2022, is as follows:
| Number of Options (in Shares) | Weighted Average Exercise Price | |||||||
| Outstanding, January 1, 2022 | $ | |||||||
| Granted | $ | |||||||
| Exercised | ||||||||
| Forfeited or cancelled | ||||||||
| Outstanding, September 30, 2022 | $ | |||||||
| Exercisable, September 30, 2022 | $ | |||||||
Warrants
The following table represents the activity related to the Company’s warrants during the nine months ended September 30, 2022:
| Number of Warrants (in Shares) | Weighted Average Exercise Price | |||||||
| Outstanding, January 1, 2022 | $ | |||||||
| Granted | ||||||||
| Exercised | ( | ) | ||||||
| Outstanding, September 30, 2022 | $ | |||||||
The
weighted average contractual term as of September 30, 2022, is
If at any time after the six
month anniversary of the closing date as disclosed in Note 8 Short-term debt, 2021 convertible debenture and warrants, there is no effective
registration statement registering the warrant shares granted to the convertible debenture holders and placement agent, then, for each
thirty days following the six month anniversary of the their respective closing date or portion of any thirty day period thereafter in
which no effective registration statement is available, the amount of warrant shares shall be automatically increased by five percent
over the warrant shares available on such dates. As such, the Company is obligated to grant
| * | The exercise price will be determined by a 5-day VWAP price calculation on the exercise date. |
Restricted Stock Units
The following table represents the activity related to the Company’s restricted stock awards granted to employees and directors during the nine months ended September 30, 2022:
| Number of Restricted Stock Shares | Weighted Average Grant Date Fair Value | |||||||
| Outstanding, January 1, 2022 | $ | |||||||
| Granted | ||||||||
| Vested | ||||||||
| Unvested, September 30, 2022 | $ | |||||||
17
As of September 30,2022, there is no unrecognized stock compensation expense.
Share Derivative Liabilities
As the amount of common stock on an as converted basis as of September 30, 2022, exceeded our authorized share amount, the Company’s outstanding warrants, stock options and vested but unissued restricted stock shares (“RSUs”) were reclassified to derivative liabilities in the consolidated financial statements. This results in non-cash gains or losses each period during the term of the warrants, stock options, RSU vesting period and convertible debt. The table below summarizes the reclassified share derivative liabilities as of September 30, 2022 (dollars in thousands):
| September 30, 2022 | ||||
| Warrants | $ | | ||
| Stock options | ||||
| RSUs vested but unissued | ||||
| Total share derivative liability | $ | |||
Reverse Stock split
As discussed in Note 15 Subsequent events – reverse stock split, the Company has included below certain data points that are reported in the financial statements (“as stated”) and have been disclosed herein as if the effect of the reverse stock split (1000 for 1) has been implemented (“proforma effect”).
| Proforma | ||||||||
| As stated | Effect | |||||||
| Balance Sheet | ||||||||
| Common stock: | ||||||||
| Shares Issued: | ||||||||
| 9/30/2022 | ||||||||
| 9/30/2021 | ||||||||
| Shares Outstanding: | ||||||||
| 9/30/2022 | ||||||||
| 9/30/2021 | ||||||||
| Treasury Stock: | ||||||||
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||
| EPS | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||
| Weighted Average Shares | ||||||||||||||||||||
| As stated | ||||||||||||||||||||
| Proforma | 573,174 | 159,448 | 318,558 | 131,864 | ||||||||||||||||
| Net income (loss) per share: | ||||||||||||||||||||
| Continuing operations | As stated | ( | ) | ( | ) | ( | ) | |||||||||||||
| Proforma | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Discontinued Operations | As stated | ( | ) | ( | ) | |||||||||||||||
| Proforma | ( | ) | ( | ) | ||||||||||||||||
Note 12 — Commitments and Contingencies
Contractual Commitments
On
September 5, 2017, prior to the merger and as a result of a spinoff from Sysorex’s previous parent, a computer hardware supplier
threatened legal action against the Company and demanded approximately $
18
On
January 22, 2018, a software vendor filed a motion for entry of default judgment (the “Motion”) against SGS in the Circuit
Court of Fairfax County, Virginia. The Motion alleges that SGS failed to respond to a complaint served on November 22, 2017. The Motion
requests a default judgment in the amount of $
The
Company entered into a Registration Rights Agreement (the “RRA”) dated April 13, 2021. The Company had ninety (90) calendar
days following the closing date of its Merger with TTM Digital Assets & Technologies, Inc. on April 14, 2021, to file an initial
registration statement covering the Shares. The ninety (90) calendar day filing date was July 13, 2021 (“Filing Deadline”).
The Company did not fulfil its obligation to file a registration statement covering the Shares by July 13, 2021, nor any date and therefore
has accounted for an accrued liability in the amount of $
The
Company entered into a Promissory Judgment Note dated as of August 15, 2018 (the “Note”), with Tech Data Corporation (“Tech
Data”), pursuant to which the Company promised to pay the principal sum of $
Following
a negotiation with Tech Data, the Company was able to reduce the Award by in excess of $
On
June 3, 2022, the Company became aware that a Complaint had been entered against the Company in the United States District Court Southern
District of New York by ProActive Capital Partners, L.P, a convertible debenture holder. The Complaint is entered for injunctive relief
to honor is stock conversion, recover damages, and receive payments due under the Debenture agreement. The convertible debenture principal
and interest of $
Operating Leases/Right-of-Use Assets and Lease Liability
On
December 8, 2021, the Company’s principal executive offices moved to 13880 Dulles Corner Lane, Suite 120, Herndon, Virginia 20171.
We lease these premises, which consist of approximately
As of September 30, 2022, future minimum operating leases commitments are as follows:
| Calendar Years Ending December 31, | Amount | |||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Total future lease payments | ||||
| Less: interest expense at incremental borrowing rate | ( | ) | ||
| Net present value of lease liabilities | $ | |||
Other assumptions and pertinent information related to the Company’s accounting for operating leases are:
| Weighted average remaining lease term: | ||||
| Weighted average discount rate used to determine present value of operating lease liability: | % |
19
Litigation
Certain conditions may exist as of the date the financial statements are issued which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company, or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements.
If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed, unless they involve guarantees, in which case the guarantees would be disclosed. There can be no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
Note 13 — Related Party Transactions
Effective April 1, 2021, the Company entered a variety of contracts with CoreWeave, Inc. (“CoreWeave”).
Hosting Facilities Services Order
The Hosting Facility Services Order (the “Hosting
Contract”) provided for the provision of hosting facility space and services by CoreWeave. The services are paid for in advance
of the service month and the initial term of the hosting services is through June 30, 2022, which renews automatically for successive
one year renewal terms unless either party terminates within sixty (60) days of the expiration of the then current term.
Services Agreement
The initial term of the Services Agreement runs
from April 1, 2021, through December 31, 2022, and automatically renews thereafter for successive one (1)-year terms unless either party
provides written notice to the other of nonrenewal within sixty (60) days of the expiration of the then current Term.
Bespoke Growth Partners, Inc. (“Bespoke”)
Effective as of April 15, 2021, the Company entered
into a consulting agreement with Bespoke.
20
Effective as of January 13, 2022, the Company
entered into a consulting agreement with Bespoke. Under the terms of the consulting agreement, the Company is to pay Bespoke a gross
advisory fee of $
Ressense LLC
On
August 4, 2021, the Company executed a six (6) month business advisory services agreement with Ressense LLC. The services to be provided
include potential business activities including acquisition, merger and reverse merger opportunities. As compensation for the performance
of services, the Company paid and recorded $
One Percent Investments, Inc.
On June 21, 2022, the Company executed a four (4)
month business advisory services agreement with One Percent Investments, Inc. The services to be provided include potential future merger
and/or acquisition activities, strategic alliances, joint ventures, and advisory services in connection with the Company’s desire
to up-list to a national stock exchange. As a compensation for the performance of services, the Company paid $
Employment Agreements
On August 10, 2022, the Company entered into Amendment
No. 2 (“Amendment No. 2”) to Employment Agreement, by and between the Company and Vincent Loiacono, the Company’s Chief
Financial Officer. Pursuant to the terms of Amendment No. 2, the parties amended the termination provisions of the original employment
agreement, as amended. Amendment No. 2 provides that the Company, in its sole discretion, may terminate Mr. Loiacono’s employment
for any reason without Just Cause (as defined in the employment agreement, as amended) at any time. If (a) the Company terminates Mr.Loiacono’s
employment without Just Cause, or (b) within 24 months following a change of control, Mr. Loiacono resigns as a result of and upon a material
diminution of his duties, responsibilities, authority, and position, or a material reduction of his compensation and benefits, or if he
ceases to hold the position of Chief Financial Officer after a change of control, the Company will, among other things: (l) continue to
pay Mr. Loiacono’s base salary for one month for every two months of employment after the effective date up to a maximum of 12 months
(as opposed to six months under the original agreement, as amended); and(2) within 45 days of termination or resignation, pay to Mr. Loiacono
On September 9, 2022, the Company entered into Second
Amendment to the Employment Agreement for Wayne Wasserberg, the Company’s Chief Executive Officer. The Second Amendment provides
a minimum bonus of $
| 1. | The sale of all or substantially all of the stock or assets of: (i) TTM, or (ii) Sysorex Government Services. |
| 2. | The raising of |
21
Note 14 — Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following as of September 30, 2022, and December 31, 2021:
| September 30, 2022 | December 31, 2021 | |||||||
| Consultants | $ | $ | ||||||
| Rent | ||||||||
| Vendor Payments | ||||||||
| Insurance | ||||||||
| License and Maintenance Contracts | ||||||||
| Other | ||||||||
| $ | $ | |||||||
Note 15 — Subsequent Events
Private Placement Agreement
On October 18, 2022,
| (i) | A number of additional shares of common stock equal to |
| (ii) | A new warrant (each, a “Warrant 3”) equal to the number of Additional Shares in the applicable issuance. |
The Additional Shares and the Warrant 3 will, if applicable, be issuable to the Investors for each 30-day period, or portion thereof, that the registration statement registering the Registrable Securities has not become effective by the Registration Deadline. The Company’s obligation to issue the Additional Shares and the Warrant 3, if applicable, will not arise until the Company has amended its articles of incorporation, via a reverse split of the common stock, an increase of the number of authorized shares of common stock, or some combination thereof, such that the Company has a number of authorized but unissued shares of equal to (1) the number of Additional Shares that are otherwise to be issued plus (2) the number of shares of common stock that may be issuable pursuant to the Warrant 3.
Equity Transactions
Subsequent to September 30, 2022, the Company received
notices to convert from its debtholders to convert approximately $
Reverse Stock Split
On September 22, 2022, the shareholders of Sysorex, Inc. have approved the Reverse Split and have granted to the Board of Director’s the power to determine the final ratio for the Reverse Split. On November 1, 2022, the Board of Director’s determined the ratio for the Reverse Split is to be 1,000 for 1, with one share of Common Stock being issued for each 1,000 shares of Common Stock issued and outstanding, with any fractional shares of Common Stock resulting therefrom being rounded up to the nearest whole share of Common Stock. The company has submitted the reverse stock split plan for review to FINRA on November 4, 2022. The effective date of the reverse stock will be determined after FINRA’s review.
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction the unaudited financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, and with the Company’s audited consolidated financial statements and notes for the years ended December 31, 2021 and 2021 included in Amendment No. 1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on May 23, 2022 (the “10-K Amendment”), and Amendment No. 2 on Form 10-K filed on June 1, 2022. In addition to historical information, the discussion and analysis here and throughout this Form 10-Q contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements due to a number of factors, including but not limited to, risks described in the section entitled “Risk Factors” in the 10-K Amendment, as the same may be updated from time to time.
Overview of the Company’s Subsidiaries
Sysorex Government Services
SGS is a provider of information technology solutions from multiple vendors, including hardware products, software, services, including warranty and maintenance support, offered through our dedicated sales force, ecommerce channels, existing federal contracts and service team. Since our founding, we have served our customers by offering products and services from key industry vendors such as Aruba, Cisco, Dell, GETAC, Lenovo, Microsoft, Panasonic, Samsung, Symantec, VMware and others. We provide our customers with comprehensive solutions incorporating leading products and services across a variety of technology practices and platforms such as cyber, cloud, networking, security, and mobility. We utilize our professional services, consulting services and partners to develop and implement these solutions. Our sales and marketing efforts in collaboration with our vendor partners, allow us to reach multiple customer public sector segments including federal, state and local governments, as well as educational institutions.
The unaudited condensed consolidated financial statements present the combined results of operations, financial condition, and cash flows of Sysorex and its subsidiaries. These financial statements were prepared on a combined basis because the operations were under common control. All intercompany accounts and transactions have been eliminated between the combined entities.
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TTM Digital
TTM Digital is a digital asset technology and mining company that owns and operates specialized cryptocurrency mining processors and was previously focused on the Ethereum blockchain ecosystem. As of September 15, 2022, Ethereum switched from a Proof of Work model to Proof of Stake model. TTM Digital is currently exploring alternative uses and sales opportunities for its Graphics Processing Unit (GPU) assets and datacenter located in Lockport, NY.
Since Proof of Stake, Ethereum mining companies have begun the process of changing their business model to continue utilization of their mining assets, as the GPUs can be repurposed for a number of other profitable business models. The TTM assets can be used for cloud computing, datacenter hosting, simulation & modeling, virtual reality, artificial intelligence, and gaming.
TTM is exploring the possibility of hosting client computing and evaluating all of its options, including the sale of its assets to maximize revenue streams utilizing its current assets.
Known Trends or Uncertainties
SGS experiences variability in our net sales and operating results on a quarterly basis as a result of many factors. SGS experiences some seasonal trends in our sales of technology solutions to government and educational institutions. For example, the fiscal year-ends of U.S. Public Sector customers vary for those in the federal government space and those in the state and local government and educational institution (“SLED”) space. SGS generally sees an increase in our second quarter sales related to customers in the U.S. SLED sector and in our third quarter sales related to customers in the federal government space as these customers close out their budgets for their fiscal year (June 30th and December 31st, respectively). SGS may experience variability in our gross profit and gross profit margin as a result of changes in the various vendor programs we participate in and its effect on the amount of vendor consideration we receive from a particular vendor or their authorized distributor/wholesaler, may be impacted by a number of events outside of our control.
TTM Digital, as noted above, our business model may need to evolve to reflect the trends of the industry. Over time, we may be required to modify aspects of our business model relating to our strategy. We cannot offer any assurance that we will be successful or that the future industry or business operation changes will not result in harm to our business. We may not be able to manage growth effectively, which could damage our reputation, limit our growth and negatively affect our operating results. Management cannot provide any assurances that we will identify all emerging trends and growth opportunities in this business sector, and we may lose out on those opportunities to current or future competitors. As anticipated, any such circumstances could have a material adverse effect on our business, prospects, or operations
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Three Months Ended September 30, 2022, Compared to Three Months Ended September 30, 2021
Discussion of Results of Operations of SGS for the Three Months Ended September 30, 2022, and 2021
SGS operates on the resale of technology products and associated services related to those products. These products are resold through several contracts with the federal government in SGS’ portfolio of contracts. SGS suppliers include wholesale distributors of major technology products, small niche product suppliers, services from specialized partners, and services from SGS’ own resources.
The lifecycle of an order includes: solicitation of a requirement form the customer, quotation or proposal in response to the solicitation, evaluation of quote or proposal by the customer, awarding an order to SGS based on favorable evaluation, customer order is then entered in as a sales order, the SGS system then issues purchase orders to suppliers, suppliers delivers the goods to the customer and performs any services necessary to complete order obligations, customer provides acceptance, and SGS issues an invoice to the customer. Once a customer accepts the invoice the dollar amount is guaranteed and backed by the U.S. Treasury. Post invoice obligation may include warranty, maintenance, and telephonic support either directly by SGS or through the OEM directly. From acceptance until the period of performance is completed (warranty, maintenance, and/or telephonic support), SGS is responsible for the operability of the delivered goods. Once the period of performance is completed, the customer will contact SGS to complete a contract closeout.
SGS revenues for the three months ended September 30, 2022, and 2021, was approximately $3.5 million and $1.9 million, respectively. This revenue increase is representative of increased product sales to the federal agencies. This includes approximately 71% of sales coming from the Company’s top two customers. SGS product and service costs for the three months ended September 30, 2022, and 2021, was approximately $3.0 million and $1.5 million, respectively. This includes approximately 72% of product costs from the Company’s top two vendors.
SGS margins are affected by the diversity of our supplier. Supplier diversity allows companies such as SGS to seek better cost through competition of multiple suppliers of the same product. Currently, SGS does not have the supplier diversity that is required to increase margin. SGS is on a prepay basis with many suppliers and this requires SGS to finance cash advances to suppliers from our finance source, South Star Capital. Our financial source charges high fees and interest, which also affects our net margin.
SGS also reported for the three months ended September 30, 2022, and 2021, $0.2 million and in sales and marketing costs, $1.0 million in general and administrative costs, $0.1 million in amortization costs, resulting in a loss from operations of approximately $0.9 million. The Company continues to search for paths to drive costs down and increase its cash position. The overall decrease in general and administrative costs are directly related to a decrease in professional and consulting fees.
Other income and expense, including interest expense for the three months ended September 30, 2022, was approximately $1.4 million of which interest incurred on the Company’s convertible debt of approximately of $0.7 million, a gain on extinguishment of debt of $0.4 million, a realized gain on sale of digital assets of $0.2 million and a conversion feature derivative liability valuation of $1.1 million.
Summary of TTM Mining Result
The following table present the roll forward of digital asset activity from continuing and discontinued operations during the respective periods:
| Three months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Opening Balance | $ | 218 | $ | 105 | ||||
| Revenue from mining | 809 | 2,993 | ||||||
| Payment of mining equipment under lease to buy arrangement | - | (72 | ) | |||||
| Mining pool operating fees | (8 | ) | (31 | ) | ||||
| Impairment of digital assets | (71 | ) | (325 | ) | ||||
| Transaction fees | (20 | ) | - | |||||
| Proceeds from sale of digital assets | (1,068 | ) | (339 | ) | ||||
| Realized gain on sale of digital assets | 227 | 3 | ||||||
| Ending Balance | $ | 87 | $ | 2,334 | ||||
Discussion of Results of Operations of TTM Digital for the Three Months Ended September 30, 2022, and 2021
The activities for TTM revenues and costs for the three months ended September 30, 2022, represent discontinued operations.
Revenues from mining are impacted significantly by volatility in cryptocurrency prices and network difficulty. The average price of Ethereum mined during the three months ended September 30, 2022, was approximately $1,521 compared to approximately $2,771 during the three months ended September 30, 2021. Network difficulty was also significantly higher in 2022, resulting in lower total rewards from mining. Total Ethereum mined during the three months ended September 30, 2022, was approximately 512 ETH vs approximately 1,069 ETH during the three months ended September 30, 2021.
Ethereum’s transition to proof of stake (“POS”) took place on September 15, 2022, and has had a direct negative impact on the company’s ability to generate revenue.
For the three months ended September 30, 2022, the Company recorded approximately $1.3 million of impairment of fixed assets in its discontinued operations.
25
Nine Months Ended September 30, 2022, Compared to Nine Months Ended September 30, 2021
Discussion of Results of Operations of SGS for the Nine Months Ended September 30, 2022, and 2021
SGS revenues for the nine months ended September 30, 2022, and 2021, was approximately $12.0 million and $3.9 million respectively. This revenue increase is representative of increased product sales to the federal agencies, however, the periods for the nine months ended September 30, 2022, and September 30, 2021 are not comparable, as the prior year period includes a short period of April 15, 2021 through September 30, 2021. SGS revenues resulted from product sales to U.S. governmental agencies and local county governments. This includes approximately 83% of sales coming from the Company’s top two customers in 2022. As disclosed in the notes to the financial statements, Note 3 - Basis of Presentation, the acquisition/merger was effective April, 2021 which resulted in SGS’s reporting period of April 15, 2021 through September 30, 2021. As a result, the nine months ended September 30, 2021, is not comparable in total months of operation to the nine months ended September 30, 2022.
Product, and service costs for the nine months ended September 30, 2022, of approximately $8.4 million included a gain on a vendor liability settlement of $1.5 million. Without this gain, product and service costs would approximate $9.9 million. The margin effect on the revenue and costs as presented is approximately 30%, however without the one-time settlement gain of $1.5 million, the margin is approximately 17%.
Selling, general, and administrative expenses (“SG&A”) for the nine months ended September 30, 2022, was $4.4 million, which were associated with compensation and payroll tax costs, and professional fees related to the Heads of Terms investment and sale of TTM assets and ongoing operational advisory and accounting services.
Other income and expense, including interest expense for the nine months ended September 30, 2022, was approximately $3.2 million of which interest incurred on the Company’s convertible debt of approximately of $2.4 million, a loss on extinguishment of debt of $1.0 million, a realized gain on sale of digital assets of $1.5 million and a conversion feature derivative liability valuation of $1.6 million. Other income and expenses for the nine months ended September 30,2021 was approximately $25.0 million. SGS recorded approximately $22.0 million in merger charges, $2.0 million in debt restructuring fees and $0.9 million in interest expense for the period nine months ended September 30, 2021, related to the acquisition as disclosed in Note 2 Basis of Presentation to the financial statements.
Summary of TTM Mining Result
The following tables present the roll forward of digital asset activity from continuing and discontinuing operations during the periods ended:
| Nine months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Opening Balance | $ | 5,202 | $ | 24 | ||||
| Revenue from mining | 4,077 | 9,244 | ||||||
| Payment of mining equipment under lease to buy arrangement | - | (1,091 | ) | |||||
| Mining pool operating fees | (41 | ) | (96 | ) | ||||
| Impairment of digital assets | (2,494 | ) | (325 | ) | ||||
| Management fees | - | (322 | ) | |||||
| Owners’ distributions | - | (1,521 | ) | |||||
| Transaction fees | (132 | ) | - | |||||
| Proceeds from sale of digital assets | (8,023 | ) | (3,670 | ) | ||||
| Realized gain on sale of digital assets | 1,498 | 91 | ||||||
| Ending Balance | $ | 87 | $ | 2,334 | ||||
Discussion of Results of Operations of TTM Digital for the Nine Months Ended September 30, 2022, and 2021
The activities for TTM revenues and costs for the nine months ended September 30, 2022, represent discontinued operations.
As disclosed in the notes to the financial statements, revenues from mining are impacted significantly by volatility in cryptocurrency prices and network difficulty. The average price of Ethereum mined during the nine months ended September 30, 2022, was approximately $2,213 compared to approximately $2,276 during the nine months ended September 30, 2021. While the average price of Ethereum during the nine months ended September 30, 2022, was lower than the nine months ended September 30, 2021. Additionally, network difficulty was also significantly higher in 2022, resulting in lower total rewards from mining. Total Ethereum mined during the nine months ended September 30, 2022, was approximately 1,747 ETH compared to approximately 3,987 ETH during the nine months ended September 30, 2021.
Ethereum’s transition to proof of stake (“POS”) occurred on September 15, 2022, and has had a direct negative impact on the company’s ability to generate revenue.
For the nine months ended September 30, 2022, the Company recorded approximately $2.3 million of impairment of fixed assets in its discontinued operations.
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Liquidity and Capital Resources as of September 30, 2022
Going Concern
As of September 30, 2022, the Company had an approximate cash balance of $0.1 million, working capital deficit of approximately $21.6 million, and an accumulated deficit of approximately $60.4 million. The aforementioned factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern within one year after the date the condensed consolidated financial statements are issued.
The Company does not believe that its capital resources as of September 30, 2022, its ability to settle convertible debt obligations through issuance of the Company’s shares, availability on the SouthStar facility to finance purchase orders and invoices, reauthorization of key vendors and credit limitation improvements will be sufficient to fund planned operations during the next twelve months. As a result, the Company will need additional funds to support its obligations. The Company continues to explore a number of other possible solutions to its financing needs, including efforts to raise additional capital as needed, through the issuance of equity, equity-linked or debt securities, as well as possible transactions with other companies, strategic partnerships, and other mechanisms for addressing our financial condition. The Company will utilize its current contracts that are not limited to a single branch of government or a specific agency. These contracts can provide the Company an opportunity to attain new solutions and service type orders. The Company will also utilize SGS’s small business status to partner with prime contractors on larger orders. The Company currently has utilized SouthStar to finance purchase orders and it also has the ability to factor its receivables if needed to fund operations. In addition, the Company will need to increase its authorized common stock to settle convertible debt conversions.
If the Company is unable to raise additional capital on terms acceptable to the Company and on a timely basis, or is unable to attain new vendors, the Company will be required to downsize or wind down its operations through liquidation, bankruptcy, or sale of its assets. In addition, as of September 30, 2022, the Company has been reliant on its ability to liquidate Ethereum to continue to fund operations when needed, and as such, the Company does not currently have enough Ethereum on hand to fund operations through the next twelve months.
Our capital resources and operating results as of and through September 30, 2022, consist of the:
1) An overall working capital deficit of $21.6 million,
2) Cash and cash equivalents of $0.1 million,
3) Net cash used in operating activities of $6.9 million,
4) Net cash provided by investing activities of $6.4 million.
27
Liquidity and Capital Resources as of September 30, 2022, Compared to September 30, 2021
The Company’s net cash flow used in operating, investing and financing activities for the nine months ended September 30, 2022, and 2021 and certain balances as of the end of those periods are as follows (in thousands):
| For the Nine Months Ended September 30, | ||||||||
| (Thousands, except per share data) | 2022 | 2021 | ||||||
| Net cash used in operating activities | $ | (6,941 | ) | $ | (5,799 | ) | ||
| Net cash provided by investing activities | 6,423 | 3,095 | ||||||
| Net cash provided by financing activities | - | 6,905 | ||||||
| Net (decrease) increase in cash | $ | (518 | ) | $ | 4,201 | |||
| September 30, 2022 | December 31, 2021 | |||||||
| Cash | $ | 141 | $ | 659 | ||||
| Working capital (deficit) | $ | (21,609 | ) | $ | (17,413 | ) | ||
Operating Activities:
Net cash used in operating activities during the nine months ended September 30, 2022, and 2021, was $(6.9) million and $(5.8) million, respectively. Net cash used in operating activities during the nine months ended September 30, 2022, consisted of the following (in thousands):
| Net loss | $ | (10,034 | ) | |
| Non-cash income and expenses | 2,667 | |||
| Net change in operating assets and liabilities | 426 | |||
| Net cash used in operating activities | $ | (6,941 | ) |
The non-cash income and expenses of $2,667, consisted of (in thousands):
| $ | 430 | Depreciation and amortization | ||
| 119 | Amortization of right of use asset | |||
| 1,008 | Loss on extinguishment of debt | |||
| (1,533 | ) | Gain on settlement of vendor liabilities | ||
| (1,498 | ) | Realized gain on sale of digital assets | ||
| 2,494 | Impairment of digital assets | |||
| 1,559 | Change in fair value of debt conversion feature | |||
| (263 | ) | Change in fair value of share derivative liability | ||
| 111 | Stock-based compensation | |||
| 240 | Issuance of shares in exchange for services | |||
| $ | 2,667 | Total non-cash income and expenses |
28
The net proceeds of cash due to changes in operating assets and liabilities totaled $426 and consisted of the following (in thousands):
| $ | 2,099 | Decrease in accounts receivable and other receivables | ||
| 805 | Prepaid assets and other current assets | |||
| (1,385 | ) | Decrease in accounts payable | ||
| 737 | Increase in accrued liabilities and other payables | |||
| (35 | ) | Operating lease liability | ||
| (1,795 | ) | Operating cash flows – discontinued operations | ||
| $ | 426 | Net use of cash in the changes in operating assets and liabilities |
Investing Activities:
Net cash provided by investing activities during the nine months ended September 30, 2022, was approximately $6.4 million, primarily driven from proceeds from the sale of digital assets of $8 million, offset by Pre–funded right in Ostendo of $1.6 million. Net cash provided by financing activities for the nine months ended September 30, 2021, was approximately $3.1 million, also driven from the proceeds from the sale of digital assets of approximately $3.7 million, offset by investing activities for discontinued operations of approximately $0.6 million.
Financing Activities:
The company did not incur financing activities for the nine months ended September 30, 2022. Net cash used in financing activities during the nine months ended September 30, 2021, was approximately $7.9 million, primarily from the proceeds received for convertible debt of approximately $12.4 million, offset by the repayment of loans of approximately $3.3 million and convertible debt transaction fees paid of approximately $1.2 million.
Critical Accounting Policies and Estimates
We consider certain accounting policies related to Digital Assets, Impairment of Long-Lived Assets, Revenue Recognition, Derivative Liabilities, and Convertible debt to be critical accounting policies that require the use of significant judgements and estimates relating to matters that are inherently uncertain and may result in materially different results under different assumptions and conditions.
29
Off-Balance Sheet Arrangements
We do not have any off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.
Recently Issued Accounting Standards
None
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”) and to ensure that information required to be disclosed is accumulated and communicated to management, including our principal executive officer and principal financial officer, with assistance from other members of management. Our management, with the participation of our principal executive officer and principal financial officer, evaluated our disclosure controls and procedures as of September 30, 2022, and based on this evaluation, our principal executive officer and principal financial officer concluded the disclosure controls and procedures were not effective as of that date due to the same material weaknesses in internal control over financial reporting that were disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on April 14, 2022 (the “Original 10-K”), as amended by Amendment No. 1 to the Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on May 23, 2022 (the “Amendment”), and Amendment No. 2 on Form 10-K filed on June 1, 2022.
As previously described in Part II, Item 9A of the Original 10-K and of the Amendment, we began implementing a remediation plan to address the material weaknesses. The material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Changes in Internal Control over Financial Reporting
The Company’s restated its audited consolidated financial statements and notes for the years ended December 31, 2021, and 2020 included in Amendment No. 1 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on May 23, 2022. The restatement on our financial statements, and the material weaknesses identified in our internal control over financial reporting identify that our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during the nine months ended September 30, 2022, have not been effective. Following the closing of the Merger, our management is still in the process of evaluating any related changes to our internal control over financial reporting as a result of this integration.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings as defined by Item 103 of Regulation S-K, to which we are a party or of which any of our property is the subject, other than ordinary routine litigation incidental to the Company’s business.
Sysorex, Inc., a Nevada corporation (the “Company”), entered into a Promissory Judgment Note dated as of August 15, 2018 (the “Note”), with Tech Data Corporation (“Tech Data”), pursuant to which the Company promised to pay the principal sum of $6,849,423.42 to Tech Data. The Note provides that interest shall accrue on the balance of the Note at the rate of 18% per annum. Due to miscommunication with Tech Data, the Company inadvertently failed to pay, when due, some of the installment payments in the aggregate principal amount of $3,341,801.80, as set forth in the Note and has defaulted under the Note.
On December 14, 2021, the Company became aware that a Confession of Judgment (the “Confession of Judgment”) had been entered against the Company in the Superior Court of the State of California, County of Santa Clara by Tech Data on September 24, 2021. The Confession of Judgement is entered for a total sum of $5,942,559.05, which is comprised of the principal sum of $3,341,801.80 and prejudgment interest in the sum of $2,600,757.25.
Following a negotiation with Tech Data, the Company was able to reduce the Award by in excess of $4.2 million, and on January 13, 2022, the Company and Tech Data entered into a Settlement and Release Agreement (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the Company paid $1,375,000 on January 14, 2022. The Company recognized a gain on settlement of $1.5 million.
The Award was deemed satisfied in full. Among other things, Tech Data agreed to file an acknowledgment of full satisfaction of judgment attached as an exhibit to the Settlement Agreement, not take any further action against the Company in connection with or relating to the Judgment, and release the Company and its representatives from any and all claims, including the Judgment, which Tech Data may have against the Company based upon any transaction that occurred at any time before the date of the Settlement Agreement.
On June 3, 2022, the Company became aware that a Complaint had been entered against the Company in the United States District Court Southern District of New York by ProActive Capital Partners, L.P, a convertible debenture holder. The Complaint is entered for injunctive relief to honor is stock conversion, recover damages, and receive payments due under the Debenture agreement. The convertible debenture principal and interest of $0.2 million is recorded in the unaudited condensed consolidated balance sheets – accrued liabilities for the period ended June 30, 2022. The notice of conversion to convert its convertible debt to shares of the Company’s stock will be honored upon issuance of the Company’s increase in authorized shares.
There are no proceedings in which any of the directors, officers, or affiliates of the Company, or any registered or beneficial holder of more than 5% of the Company’s voting securities, is an adverse party or has a material interest adverse to that of the Company.
Item 1A. Risk Factors
As a smaller reporting company, the Company is not required to disclose material changes to the risk factors that were contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as amended (the “2021 10-K”), as updated from time to time. However, the Company is voluntarily providing the risk factor below. Other than as set forth below, as of the filing date of this Quarterly Report on Form 10-Q, there have been no material changes to the risk factors faced by the Company from those previously disclosed in the 2021 10-K, as updated from time to time.
We do not currently have enough authorized shares of common stock under our Articles of Incorporation, as amended, to meet all of our potential obligations to third parties.
Our Articles of Incorporation, as amended, provide for 3,000,000,000 authorized shares of our common stock. As of November 14, 2022, we have 2,484,426,501 shares of common stock issued and outstanding. As of November 11, 2022, holders of our convertible debentures have delivered notices of conversion covering an aggregate of 617,635,347 shares of common stock. If we issued the shares that are subject to the notices of conversion that have been delivered, it would result in us issuing more shares than what we have authorized. Accordingly, in order to meet all of such obligations, we will need to amend our Articles of Incorporation, as amended, to increase the authorized shares of our common stock. We can give no assurance that we will obtain the requisite affirmative vote of our shareholders to so amend our Articles of Incorporation, as amended, which could materially adversely affect our financial condition and the market for our shares.
31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
See Note 8, Short-term debt — 2021 Convertible Debentures & Warrants—Debenture Default, which information is incorporated herein by reference.
Item 4. Mine Safety Disclosure
Not applicable.
Item 5. Other Information
None
Item 6. Exhibits
EXHIBIT INDEX
| † | Management contract or compensatory plan or arrangement. |
| # | This exhibit is deemed not filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: November 14, 2022 | SYSOREX, INC. | |
| By: | /s/ Vincent Loiacono | |
| Vincent Loiacono | ||
| Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer) | ||
33
Exhibit 31.1
CERTIFICATION
I, Wayne Wasserberg, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Sysorex, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15-d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 14, 2022 | |
| /s/ Wayne Wasserberg | |
| Wayne Wasserberg | |
|
Chief Executive Officer (Principal Executive Officer) |
|
Exhibit 31.2
CERTIFICATION
I, Vincent Loiacono, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Sysorex, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15-d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 14, 2022 | |
| /s/ Vincent Loiacono | |
| Vincent Loiacono | |
|
Chief Financial Officer (Principal Financial and Accounting Officer) |
|
Exhibit 32.1
CERTIFICATION
In connection with the periodic report of Sysorex, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2022, as filed with the Securities and Exchange Commission (the “Report”), we, Wayne Wasserberg, Chief Executive Officer (Principal Executive Officer) of the Company, and Vincent Loiacono, Chief Financial Officer (Principal Financial and Accounting Officer) of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of our knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated. |
Date: November 14, 2022
| /s/ Wayne Wasserberg | |
| Wayne Wasserberg | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
| /s/ Vincent Loiacono | |
| Vincent Loiacono | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) - $ / shares |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Common stock, par value (in Dollars per share) | $ 0.00001 | $ 0.00001 |
| Common stock, shares authorized | 3,000,000,000 | 3,000,000,000 |
| Common stock, shares issued | 736,609,855 | 145,713,591 |
| Common stock, shares outstanding | 736,534,476 | 145,638,212 |
| Treasury stock, shares | 75,379 | 75,379 |
Condensed Consolidated Statements of Operations (Unaudited) (Parentheticals) - $ / shares |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Income Statement [Abstract] | ||||
| Net loss per share - basic and diluted – continuing operations | $ 0.0001 | $ (0.037) | $ (0.031) | $ (0.262) |
| Net (loss) income per share – basic and diluted – discontinued operations | $ (0.002) | $ 0.007 | $ (0.003) | $ 0.040 |
| Weighted Average Shares Outstanding - basic and diluted (in Shares) | 500,173,946 | 159,448,204 | 318,558,213 | 131,863,780 |
Nature and Description of Business |
9 Months Ended |
|---|---|
Sep. 30, 2022 | |
| Accounting Policies [Abstract] | |
| Nature and Description of Business | Note 1 — Nature and Description of Business
Description of Business
Sysorex, Inc., through its wholly owned subsidiary, Sysorex Government Services, Inc., (“SGS”), (unless otherwise stated or the context otherwise requires, the terms “SGS” “we,” “us,” “our” and the “Company” refer collectively to Sysorex, Inc. and SGS), provides information technology solutions primarily to the public sector. These solutions include cybersecurity, professional services, engineering support, IT consulting, enterprise level technology, networking, wireless, help desk, and custom IT solutions. The Company is headquartered in Virginia.
In addition to SGS, the Company has another wholly owned subsidiary, TTM Digital Assets & Technologies, Inc. (“TTM Digital”). TTM Digital is a digital asset technology and mining company that owns and operates specialized cryptocurrency mining processors and was previously focused on the Ethereum blockchain ecosystem. As of September 15, 2022, Ethereum switched from a Proof of Work model to Proof of Stake model. TTM Digital is currently exploring alternative uses and sales opportunities for its Graphics Processing Unit (GPU) assets and datacenter located in Lockport, NY. As discussed in the Heads of Terms agreement below, the Company had been in discussion with a third party to sell its mining assets and certain associated real property (“Assets”).
Increase in Authorized Shares
On September 22, 2022, the Company’s stockholders voted to approve an amendment to the Articles of Incorporation to increase the total number of authorized shares of the Company’s capital stock from 510,000,000 shares, par value $0.00001 per share, to 3,010,000,000 shares, of which 3,000,000,000 shares will be designated as common stock and 10,000,000 shares will be designated as preferred stock.
In addition, the Company’s stockholders also voted to approve an amendment to the Articles of Incorporation to effect a reverse stock split of the Company’s outstanding shares of common stock, par value $0.00001 per share, at a ratio of no less than 1-for-500 and no more than 1-for-1,000, with such ratio to be determined at the sole discretion of the Board of Directors, with any fractional shares being rounded up to the next higher whole share.
Heads of Terms Agreement
On March 24, 2022, the Company executed Heads of Terms (“Heads of Terms”) with Ostendo Technologies, Inc. (“Ostendo”) which included certain binding and non-binding provisions. Pursuant to the Heads of Terms, the Company and Ostendo agreed to certain terms related to the Company’s sale of its Ethereum mining assets and certain associated real property (“Assets”) to Ostendo for Ostendo preferred stock. The parties agreed that the Assets to be sold would not include the Company’s Ether funds generated prior to and held at Closing. The definitive terms of the sale of Assets were to be set forth in definitive transaction agreements to be executed by the parties. Additionally, pursuant to the Heads of Terms, the Company has agreed to make a non-refundable deposit of $1,600,000 (“Deposit”) to be credited toward the purchase of an additional 166,667 shares of Ostendo’s preferred stock.
Subsequent to September 30, 2022, the Company has in good faith worked with Ostendo to ensure all closing terms and closing conditions were mutually agreed upon, however, the parties have not entered into definitive transaction agreements and accordingly, it was determined in November of 2022 that the transaction will not proceed. In November 2022, the Company requested that Ostendo issue, pursuant to the Heads of Terms, shares equal to the initial deposit made by the Company of $1,600,000. |
Going Concern |
9 Months Ended |
|---|---|
Sep. 30, 2022 | |
| Going Concern Abstract | |
| Going Concern | Note 2 — Going Concern
As of September 30, 2022, the Company had an approximate cash balance of $0.1 million, a working capital deficit of approximately $21.6 million, and an accumulated deficit of approximately $60.4 million. On October 18, 2022, the Company completed a $500,000 private placement. However, in light of the Company’s private placement, the aforementioned factors continue to raise substantial doubt about the Company’s ability to continue as a going concern for the next twelve months from the date of issuance of these unaudited condensed consolidated financial statements. The accompanying unaudited 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 unaudited 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 unaudited condensed consolidated financial statements are issued.
The Company does not believe that its capital resources as of September 30, 2022, its ability to settle convertible debt obligations through issuance of the Company’s shares, availability on the SouthStar facility to finance purchase orders and invoices, reauthorization of key vendors and credit limitation improvements will be sufficient to fund planned operations during the next twelve months. As a result, the Company will need additional funds to support its obligations. On September 22, 2022, the shareholders of the Company approved the authorization of 3 billion shares of common stock. Subsequently, the Company’s outstanding shares have been issued and reserved. As disclosed in Note 15, subsequent events, reverse stock split, the Company’s intent is to issue additional shares in the near future.
The Company continues to explore a number of other possible solutions to its financing needs, including efforts to raise additional capital as needed, through the issuance of equity, equity-linked or debt securities, as well as possible transactions with other companies, strategic partnerships, and other mechanisms for addressing our financial condition. The Company will utilize its current contracts that are not limited to a single branch of government or a specific agency. These contracts can provide the Company an opportunity to attain new solutions and service type orders. The Company will also utilize SGS’s small business status to partner with prime contractors on larger orders. The Company currently has utilized SouthStar to finance purchase orders and it also has the ability to factor its receivables if needed to fund operations. In addition, as disclosed in Note 1 – Increase in Authorized shares, the Company will need to further increase its available shares of common stock to settle convertible debt conversions. After considering the plans to alleviate substantial doubt, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.
If the Company is unable to raise additional capital on terms acceptable to the Company and on a timely basis, or is unable to attain new vendors, the Company will be required to downsize or wind down its operations through liquidation, bankruptcy, or sale of its assets. In addition, as of September 30, 2022, the Company has been reliant on its ability to liquidate Ethereum to continue to fund operations when needed, and as such, the Company does not currently have enough Ethereum on hand to fund operations through the next twelve months. Further, as of September 15, 2022, Ethereum switched from a Proof of Work model to Proof of Stake model and as a result, the Company is no longer mining Ethereum. |
Basis of Presentation |
9 Months Ended |
|---|---|
Sep. 30, 2022 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Basis of Presentation | Note 3 — Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles that are generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of the Company’s operations for the three and nine months ended September 30, 2022, are not necessarily indicative of the results to be expected for the year ending December 31, 2022. These interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes for the years ended December 31, 2021, and 2020 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 14, 2022, as amended by Amendment No. 1 to the Company’s Annual Report on Form 10-K/A filed with the Securities and Exchange Commission (the “SEC”) on May 23, 2022, and Amendment No. 2 on Form 10-K filed with the SEC on June 1, 2022.
TTM Digital Reverse Merger and Sysorex Recapitalization
On April 8, 2021, the Company, TTM Digital, and TTM Acquisition Corp., a Nevada corporation, and a wholly owned subsidiary of Sysorex (“MergerSub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). Under the terms of the Merger Agreement, the parties agreed that Sysorex would acquire TTM Digital by way of a reverse triangular merger, subject to certain closing conditions (the “Merger”). On April 14, 2021 (the “Effective Time”), the closing conditions delineated in the Merger Agreement were satisfied and the Merger closed. At the Effective Time, the MergerSub was merged with and into TTM Digital with TTM Digital surviving the Merger.
Under the terms of the Merger Agreement, the shareholders of TTM Digital received a right to receive an aggregate of 124,218,268 shares of Sysorex common stock, $0.00001 par value per share (the “Merger Shares”) in exchange for their shares of TTM Digital. Simultaneously, upon the issuance of the Merger Shares to the TTM Digital shareholders, Sysorex was issued all of the authorized capital of TTM Digital and TTM Digital became a wholly owned subsidiary of Sysorex (together, the “Combined Company”). The Merger resulted in a change of control, with the shareholders of TTM Digital receiving that number of Merger Shares equal to approximately eighty percent (80%) of the outstanding shares of capital stock of Sysorex including the effect of the Sysorex Recapitalization as discussed in TTM Digital Reverse Merger and Sysorex Recapitalization. Due to the TTM Digital shareholders acquiring a controlling interest in Sysorex after the merger, the transaction was accounted for as a reverse acquisition for accounting purposes, with TTM Digital being the accounting acquirer and reporting entity. Therefore, the historical amounts presented prior to the Merger are those of TTM Digital. The Merger is accounted for under the acquisition method of accounting applied to Sysorex as the accounting acquiree under the guidance of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 805 Business Combinations (“ASC 805”).
Discontinued Operations
As discussed in Note 5 – Discontinued Operation, the Company made the decision to divest its mining equipment and the data center of the TTM Digital reporting unit (“TTM Assets”) and commenced discussions with a third party to execute an asset sale. As a result of the decision to divest operating assets of the TTM Digital reporting unit, the Company has determined that the subject assets met the definition of assets held for sale as defined by ASC 205-20 – Presentation of Financial Statements – Discontinued Operations. As of December 31, 2021, the Company determined the TTM Assets represented discontinued operations as it constituted a disposal of a significant component and a strategic shift that will have a material effect on the Company’s operations and financial results. As a result, the Company reclassified the balances and activities of the TTM Assets from their historical presentation to assets held for sale and assets and liabilities – discontinued operations on the Condensed Consolidated balance sheets and to gain from discontinued operations on the Condensed Consolidated statements of operations for the periods presented.
On June 10, 2022, the definition of “TTM Assets” was amended and restated to read “(i) all of the Seller Parties’ GPUs and related assets, supporting equipment and software (including software licenses, if any). As a result, all of TTM assets have been classified and reported as assets held for sale in the condensed consolidated balance sheets, and all associated revenues and costs are reported as discontinued operations in the condensed consolidated statement of operations. As of November 2022, the parties have not entered into definitive transaction agreements and accordingly, the transaction will not proceed. As of September 30, 2022, the Company has performed an assessment and determined that TTM Assets are held for sale and reported as discontinued operations. TTM is exploring future possibilities of hosting client computing, and TTM continues to evaluate all of its options, including the sale of its assets to maximize revenue streams utilizing its current assets. |
Summary of Significant Accounting Policies |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies | Note 4 — Summary of Significant Accounting Policies
Principles of Consolidation
The unaudited condensed consolidated financial statements have been prepared using the accounting records of Sysorex, TTM Digital and SGS. All inter-company balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during each of the reporting periods. Actual results could differ from those estimates. The Company’s significant estimates consist of:
Significant Accounting Policies
For a detailed discussion about the Company’s significant accounting policies, see the Company’s December 31, 2021, consolidated financial statements included in its 2021 Annual Report.
Impairment of Long-lived Assets
The Company reviews its long-lived assets, including mining equipment, for impairment whenever events or changes in circumstances indicate the carrying value of an asset or group of assets may not be recoverable. The carrying amount is considered not recoverable if the sum of the undiscounted cash flows to be generated from the use and eventual disposition of the asset group is less than the carrying amount of the asset group. If the carrying amount exceeds the undiscounted cash flows, then the carrying amount is compared to the fair value and an impairment loss is recorded for the difference between the fair value and the carrying amount. For the three and nine months ended September 30, 2022, the Company incurred $1.3 million and $2.3 million of impairment charges, respectively, which is included within loss from discontinued operations. No impairment charges were identified for long-lived assets during the three and nine months ended September 30, 2021.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination. Goodwill is reviewed for impairment at least annually, in December, or more frequently if a triggering event occurs between impairment testing dates.
The Company’s impairment assessment begins with a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. Qualitative factors may include, macroeconomic conditions, industry and market considerations, cost factors, and other relevant entity and Company specific events. If, based on the qualitative test, the Company determines that it is “more likely than not” that the fair value of a reporting unit is less than its carrying value, then the Company evaluates goodwill for impairment by reviewing the fair value of the reporting unit versus its respective carrying value, including its goodwill. If it is determined that it is “not likely” that the fair value of the reporting unit is less than its carrying value, then no further testing is required.
The selection and assessment of qualitative factors used to determine whether it is more likely than not that the fair value of a reporting unit exceeds the carrying value involves significant judgment and estimates. Fair values may be determined using a combination of both income and market-based approaches.
The Company did not record any impairment of goodwill as of September 30, 2022 and December 31, 2021. As of September 30, 2022 and December 31, 2021, the total goodwill of approximately $1.6 million relates to the Sysorex Reporting unit.
Derivative Liabilities
The Company evaluates its convertible instruments, options, warrants, or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, Derivatives and Hedging. The Company evaluates whether the amount of common stock on a as converted basis is in excess of its authorized share total which, if in excess, would result in derivative accounting treatment. The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to a liability at the fair value of the instrument on the reclassification date.
Convertible Debt
The Company’s debt instruments contain a host liability, freestanding warrants, and an embedded conversion feature. The Company uses the guidance under FASB ASC Topic 815 Derivatives and Hedging (“ASC 815”) to determine if the embedded conversion feature must be bifurcated and separately accounted for as a derivative under ASC 815. It also determines whether any embedded conversion features requiring bifurcation and/or freestanding warrants qualify for any scope exceptions contained within ASC 815. Generally, contracts issued or held by a reporting entity that are both (i) indexed to its own stock, and (ii) classified in shareholders equity, would not be considered a derivative for the purposes of applying ASC 815. Any embedded conversion features and/or freestanding warrants that do not meet the scope exception noted above are classified as derivative liabilities, initially measured at fair value, and remeasured at fair value each reporting period with change in fair value recognized in the Condensed Consolidated statements of operations. Any embedded conversion features and/or freestanding warrants that meet the scope exception under ASC 815 are initially recorded at their relative fair value in paid-in-capital and are not remeasured at fair value in future periods.
The host debt instrument is initially recorded at its relative fair value in long-term debt. The host debt instrument is accounted for in accordance with guidance applicable to non-convertible debt under FASB ASC Topic 470 Debt (“ASC 470”) and is accreted to its face value over the term of the debt with accretion expense and periodic interest expense recorded in the unaudited condensed consolidated statements of operations.
Issuance costs are allocated to each instrument in the same proportion as the proceeds that are allocated to each instrument. Issuance costs allocated to the debt hosted instrument are netted against the proceeds allocated to the debt host. Issuance costs allocated to freestanding warrants classified in equity are recorded in paid-in-capital.
Net Loss per Share
Basic loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding, plus potentially dilutive common shares. Convertible debt, restricted stock, stock options and warrants are excluded from the diluted net loss per share calculation when their impact is antidilutive. The Company reported a net loss for the three and nine months ended September 30, 2022, and as a result, all potentially dilutive common shares are considered antidilutive for this period.
The Company includes potentially issuable shares in the Weighted-average common shares – basic that include warrants and other agreements that are exercisable for little or no consideration without substantive contingencies and others once any contingencies relative to the issuance of the shares is resolved.
Computations of basic and diluted weighted average common shares outstanding were as follows for the periods reported:
Emerging Growth Company
Sysorex is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”). As such, Sysorex is eligible to take advantage of certain exemptions from various reporting requirements that apply to other public companies that are not emerging growth companies, including compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended. In addition, Section 107 of the JOBS Act provides that an emerging growth company may take advantage of the extended transition period provided in Section 13(a) of the Securities Exchange Act of 1934, as amended, for complying with new or revised accounting standards, meaning that Sysorex, as an emerging growth company, can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Sysorex has elected to take advantage of this extended transition period, and therefore our financial statements may not be comparable to those of companies that comply with such new or revised accounting standards. |
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Discontinued Operations |
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| Discontinued Operations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discontinued Operations | Note 5 — Discontinued Operations
The carrying value of the TTM Digital asset disposal group was $7.0 million as of September 30, 2022, and $10.2 million as of December 31, 2021. For the three and nine months ended September 30, 2022, the Company recorded $1.3 million and $2.3 million of impairment charges to the assets held for sale, as the carrying value of the assets were less than the estimated fair value less costs to sell. The following table details the assets and liabilities of the Company’s TTM Assets that were classified as assets held for sale and discontinued operations for the periods presented (in thousands):
The following table presents the TTM Digital assets statement of operations line items classified as discontinued operations included within gain (loss) from discontinued operations for the three and nine months ended September 30, 2022, and 2021 (in thousands):
The following table summarizes the net cash flows from discontinued operations of TTM Digital (in thousands):
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Intangible Assets |
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| Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Intangible Assets | Note 6 — Intangible Assets
Intangible assets as of September 30, 2022, consist of the following:
Intangible assets as of December 31, 2021, consist of the following:
The estimated future amortization expense associated with intangible assets is as follows:
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Credit Risk and Concentrations |
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| Risks and Uncertainties [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Credit Risk and Concentrations | Note 7 — Credit Risk and Concentrations
Financial instruments that subject the Company to credit risk consist principally of trade accounts receivable and cash. The Company performs certain credit evaluation procedures and does not require collateral for financial instruments subject to credit risk. The Company believes that credit risk is limited because the Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk of its customers, establishes an allowance for uncollectible accounts and, consequently, believes that its accounts receivable credit risk exposure beyond such allowances is limited.
The Company maintains cash deposits with financial institutions, which, from time to time, may exceed federally insured limits. The Company has not experienced any losses and believes it is not exposed to any significant credit risk from cash.
The following table sets forth the percentages of sales derived by the Company from those customers that accounted for at least 10% of sales during the nine months ended September 30, 2022, and 2021 (in thousands of dollars):
The following table sets forth the percentages of sales derived by the Company from those customers that accounted for at least 10% of sales during the three months ended September 30, 2022, and 2021 (in thousands of dollars):
As of September 30, 2022, Customer B represented approximately 60% of total accounts receivable. Two other customer represents approximately 36% of total accounts receivable. As of September 30, 2021, Customers B and C represented approximately 39% and 40% of total accounts receivable, respectively.
For the nine months ended September 30, 2022, two vendors represented approximately 69% and18% of total purchases. Purchases from these vendors during the nine months ended September 30, 2022, were $6.9 million and $1.8 million respectively. In addition, the Company recorded approximately $1.5 million of settlement gains during the nine months ended September 30, 2022. Please see Note 12 – Contractual Commitments for discussion on the settlement gain.
For the three months ended September 30, 2022, four vendors represented approximately 40%, 32%, 11% and 10% of total purchases. Purchases from these vendors during the three months ended September 30, 2022, were $1.2 million $0.9 million, $0.3 million, and $0.3 million respectively.
For the period April 15, 2021, through September 30, 2021, three vendors represented approximately 55%, 17% and 10% of total purchases. Purchases from these vendors during the period April 15, 2021, through September 30, 2021, were $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, 2021, were $0.9 million, $0.1 million respectively.
Geographic and Technology Concentration
The Company had geographic diversity between April 1, 2021, and June 30, 2022, using a colocation datacenter in North Carolina. Subsequent to June 30, 2022, the Company had consolidated its mining operations exclusively in New York.
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. As of September 15, 2022, Ethereum switched from a proof-of-work model to a proof-of stake model. The Company is no longer be able to mine Ethereum. |
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Short-term Debt |
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| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||
| Short-term debt | Note 8 — Short-term debt
Short-term debt as of September 30, 2022, and December 31, 2021, consisted of the following (in thousands):
2021 Convertible Debentures & Warrants
On July 7, 2021, the Company consummated the initial closing of a private placement offering (the “Offering”) pursuant to the terms and conditions of a Securities Purchase Agreement for up to $15,187,500 in principal amount (“Original Principal Value”) Convertible Debentures. To manage the administration of the Offering the Company entered into a placement agency agreement with Joseph Gunner & Co. LLC, a U.S. registered broker-dealer (“Placement Agent”). At the initial closing, the Company sold the purchasers (i) 12.5% Original Issue Discount Convertible Debentures (“Debentures”) in an aggregate principal amount of $9,990,000 and (ii) warrants to purchase up to 3,534,751 shares of common stock of the Company. The Company received total gross proceeds of $8,880,000 taking into account the 12.5% discount before deducting placement agent fees and expenses of approximately $913,000. The Debentures matured on July 7, 2022. The Company intends to satisfy the debt through conversions of the debt to equity, and is considering offering incentives to renegotiate the terms of the debentures and refinancing the debt. There is no guarantee that the Company will be able to satisfy its debt with the additional issued common stock.
On August 13, 2021, the Company consummated the second closing of the offering pursuant to the same terms and conditions of the Securities Purchase Agreement dated July 7, 2021. At the second closing, the Company sold the purchasers (i) 12.5% Original Issue Discount Senior Secured Convertible Debentures in an aggregate principal amount of $3,976,875 and (ii) warrants to purchase up to 1,862,279 shares of common stock of the Company. The Company received a total of $3,535,000 in gross proceeds following the second closing taking into account the 12 % discount before deducting placement agent fees and expenses of approximately $354,000. The Debentures matured on August 13, 2022. The Company intends to satisfy the debt through conversions of the debt to equity and is considering offering incentives to renegotiate the terms of the debentures and refinancing the debt. There is no guarantee that the Company will be able to satisfy its debt with the additional issued common stock.
Under the conversion terms of the Debentures, the Debenture is convertible, in whole or in part, into shares of Common Stock at the option of the Holder at any time until the Debenture is no longer outstanding. The Holder executes a conversion by delivering to the Company a Notice of Conversion specifying the principal amount to be converted and the date on which the conversion is to be executed. The Conversion Price is set at the lower of (i) $18.00 and (ii) 80% of the average of the VWAP during the 5 Trading Day period immediately prior to the applicable Conversion Date. The number of Conversion Shares to be issued is determined by dividing the outstanding principal amount of the debenture to be converted by the Conversion Price. The Debentures are subject to mandatory conversion (“Mandatory Conversion”) in the event the Company closes a registered public offering of its Common Stock and receives gross proceeds of not less than $40,000,000 and at the completion of which the Company’s securities are traded on a national exchange (“Qualified Offering”). The Company determined that the conversion feature associated with the convertible debentures should be bifurcated and treated as a separate derivative liability. The Company recorded a revaluation gain of approximately $1.1 million for the three months ended September 30, 2022, and a revaluation loss of approximately $1.6 million for the nine months ended September 30, 2022, for the change in the fair value of the conversion option. As of September 30, 2022, the derivative liability associated with the conversion option was $7.5 million. In addition, the Company recognized a debt extinguishment gain of approximately $0.4 million for the three months ended September 30, 2022, and a loss of approximately $1.0 million for the nine months ended September 30, 2022. as a result of the conversion of debt of $4.7 million during the period ended September 30, 2022.
The Company recorded interest expense of approximately $0.6 million and $2.1 million for the three months ended September 30, 2022. The Company recorded interest expense of approximately $0.2 million for the three and nine months ended September 30, 2021.
Debenture Default
The Debentures provide that any monetary judgment filed against the Company for more than $50,000, and if such judgment remains unvacated for a period of 45 calendar days shall constitute an event of default. On December 14, 2021, the Company became aware that a Confession of Judgment (the “Confession of Judgment”) had been entered against the Company in the Superior Court of the State of California, County of Santa Clara by Tech Data on September 24, 2021. The Confession of Judgement was entered for a total sum of $5,942,559.05, which is comprised of the principal sum of $3,341,801.80 and prejudgment interest in the sum of $2,600,757.25. As a result, the Confession of Judgment was deemed to be an event of default under the Debentures although the Company only became aware of the Confession of Judgment on December 14, 2021.
On January 7, 2022, the Company received a notice of default (the “Default Notice”) from the Placement Agent stating that the Company defaulted under the Purchase Agreement as a result of: (i) the Company failing to disclose certain material indebtedness of the Company outstanding as of the date of the Purchase Agreement; and (ii) the filing of a judgment relating to such material indebtedness. Due to such events of default, (i) the Debentures are now deemed to have begun bearing interest at the default interest rate of 18% per annum from the date of the issuance of the Debentures; and (ii) the holders of the Debentures are entitled to receive in satisfaction of the amounts owing under the Debentures an amount equal to 130% of the Original Principal Value of the Debentures (“Default Principal Increase”), in accordance with the terms of the Debentures. In addition, as a result of the events of default, the exercise price for the Warrant is the lower of: (A) $18.00 and (B) an amount equal to fifty percent (50%) of the average of volume-weighted average price for the common stock of the Company over the five (5) trading days preceding the date of the delivery of the applicable exercise notice or (C) the qualified offering price as defined in the Purchase Agreement. |
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Fair Value Measurement |
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| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Measurement | Note 9 — Fair Value Measurement
Fair value measurements are determined based on assumptions that a market participant would use in pricing an asset or a liability. A three-tiered hierarchy distinguishes between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3). The following table presents the placement in the fair value hierarchy measured at fair value on a recurring basis as of September 30, 2022, and December 31, 2021 (in thousands):
The conversion feature of the convertible Debentures was separately accounted for at fair value as a derivative liability under guidance in ASC 815 that is remeasured at fair value on a recurring basis using Level 3 inputs. The Company uses a probability weighted expected return model (“PWERM”) valuation technique to measure the fair value of the conversion feature with any changes in the fair value of the conversion feature liability recorded in earnings. Significant inputs to the model include estimated time to conversion events, estimated interest converted at the event, the implied yield, the discount rate for the conversion, and the probability of the conversion events. For the three and nine months ended September 30, 2022, the Company recorded a gain of approximately $1.1 million and a loss of $1.6 million for the change in fair value of debt conversion feature, respectively.
As discussed in Note 11 – Equity below, the Company exceeded its authorized share limit with respect to potentially issuable shares under the equity contracts described with the Share Derivative Liabilities section. The Company estimates the fair value of the Common stock derivative liability based on the fair value of the potentially issuable shares for the warrants, stock options and RSUs vested but unissued. This liability excludes the fair value of the potentially convertible shares for the convertible Debentures which are accounted for through the carrying value of the debt and the separate conversion feature derivative liability.
The Company recorded the common stock derivative liability at fair value as of September 30, 2022, through a transfer from equity to the common stock derivative liability. Changes in the fair value of the liability in future periods will be included in other income (expense) in the consolidated statements of operations.
The change in Level 3 fair value of the Company’s derivative liabilities is as follows:
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Digital Assets |
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| Digital Assets [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Digital Assets | Note 10 — Digital Assets
The following tables present the roll forward of digital asset activity from continuing and discontinued operations during the periods ended:
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Equity |
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| Stockholders' Equity Note [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity | Note 11 — Equity
As discussed in Note 3 Basis of Presentation the Company completed a reverse merger of Sysorex and TTM Digital with TTM Digital being the accounting acquirer and reporting entity. In a reverse merger, the capital accounts of the reporting entity (TTM Digital) are restated to reflect the legal capital structure of the legal acquirer (Sysorex). As a result, the share data of the reporting entity has been retroactively restated for all periods presented to the equivalent share values of Sysorex for the capital transaction activity of TTM Digital, as if the reverse merger occurred on January 1, 2020. The share data of the reporting entity has been retroactively stated for all periods presented to the equivalent share values of Sysorex. On September 22, 2022, the Company’s stockholders voted to approve an amendment to the Articles of Incorporation to increase the total number of authorized shares of the Company’s capital stock from 510,000,000 shares, par value $0.00001 per share, to 3,010,000,000 shares, of which 3,000,000,000 shares will be designated as common stock and 10,000,000 shares will be designated as preferred stock, in accordance with the voting results listed below. As of September 30, 2022, 736,609,855 shares were issued, and 736,534,476 shares were outstanding. No preferred stock has been designated or issued.
Stock Options
A summary of stock option activity for the nine months ended September 30, 2022, is as follows:
Warrants
The following table represents the activity related to the Company’s warrants during the nine months ended September 30, 2022:
The weighted average contractual term as of September 30, 2022, is 3.8 years.
If at any time after the six month anniversary of the closing date as disclosed in Note 8 Short-term debt, 2021 convertible debenture and warrants, there is no effective registration statement registering the warrant shares granted to the convertible debenture holders and placement agent, then, for each thirty days following the six month anniversary of the their respective closing date or portion of any thirty day period thereafter in which no effective registration statement is available, the amount of warrant shares shall be automatically increased by five percent over the warrant shares available on such dates. As such, the Company is obligated to grant 3,219,824 warrants through September 30, 2022. The Company has recorded on the condensed consolidated balance sheets, accrued liabilities, approximately $0.2 million of accrued registration rights penalties and interest.
Restricted Stock Units
The following table represents the activity related to the Company’s restricted stock awards granted to employees and directors during the nine months ended September 30, 2022:
As of September 30,2022, there is no unrecognized stock compensation expense.
Share Derivative Liabilities
As the amount of common stock on an as converted basis as of September 30, 2022, exceeded our authorized share amount, the Company’s outstanding warrants, stock options and vested but unissued restricted stock shares (“RSUs”) were reclassified to derivative liabilities in the consolidated financial statements. This results in non-cash gains or losses each period during the term of the warrants, stock options, RSU vesting period and convertible debt. The table below summarizes the reclassified share derivative liabilities as of September 30, 2022 (dollars in thousands):
Reverse Stock split
As discussed in Note 15 Subsequent events – reverse stock split, the Company has included below certain data points that are reported in the financial statements (“as stated”) and have been disclosed herein as if the effect of the reverse stock split (1000 for 1) has been implemented (“proforma effect”).
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Commitments and Contingencies |
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| Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies | Note 12 — Commitments and Contingencies
Contractual Commitments
On September 5, 2017, prior to the merger and as a result of a spinoff from Sysorex’s previous parent, a computer hardware supplier threatened legal action against the Company and demanded approximately $1.8 million for payment of unpaid invoices. On or about January 29, 2018, the parties executed a settlement agreement resolving the matter. No court action was filed. The liability of approximately $0.7 million has been accrued and includes interest $0.1 million calculated based on a default rate, which is included as a component of accounts payable and accrued liabilities as of September 30, 2022, in the unaudited condensed consolidated balance sheets.
On January 22, 2018, a software vendor filed a motion for entry of default judgment (the “Motion”) against SGS in the Circuit Court of Fairfax County, Virginia. The Motion alleges that SGS failed to respond to a complaint served on November 22, 2017. The Motion requests a default judgment in the amount of $336,000 plus $20,000 in legal fees. On August 10, 2018, the Company and vendor entered into a settlement agreement and the Company is repaying the debt in monthly installments. The liability of approximately $0.2 million has been accrued and includes interest $0.09 million calculated based on a default rate and is included as a component of accounts payable and accrued liabilities as of September 30, 2022, in the unaudited condensed consolidated balance sheets.
The Company entered into a Registration Rights Agreement (the “RRA”) dated April 13, 2021. The Company had ninety (90) calendar days following the closing date of its Merger with TTM Digital Assets & Technologies, Inc. on April 14, 2021, to file an initial registration statement covering the Shares. The ninety (90) calendar day filing date was July 13, 2021 (“Filing Deadline”). The Company did not fulfil its obligation to file a registration statement covering the Shares by July 13, 2021, nor any date and therefore has accounted for an accrued liability in the amount of $0.2 million recorded in the unaudited condensed consolidated balance sheets – accrued liabilities for the year ended September 30, 2022. The RRA terminated as of October 14, 2021, by its own terms.
The Company entered into a Promissory Judgment Note dated as of August 15, 2018 (the “Note”), with Tech Data Corporation (“Tech Data”), pursuant to which the Company promised to pay the principal sum of $6,849,423.42 to Tech Data. The Note provides that interest shall accrue on the balance of the Note at the rate of 18% per annum. Due to miscommunication with Tech Data, the Company inadvertently failed to pay, when due, some of the installment payments in the aggregate principal amount of $3,341,801.80, as set forth in the Note and has defaulted under the Note.
On December 14, 2021, the Company became aware that a Confession of Judgment (the “Confession of Judgment”) had been entered against the Company in the Superior Court of the State of California, County of Santa Clara by Tech Data on September 24, 2021. The Confession of Judgement is entered for a total sum of $5,942,559.05, which is comprised of the principal sum of $3,341,801.80 and prejudgment interest in the sum of $2,600,757.25.
Following a negotiation with Tech Data, the Company was able to reduce the Award by in excess of $4.2 million, and on January 13, 2022, the Company and Tech Data entered into a Settlement and Release Agreement (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the Company paid $1,375,000. (the “Settlement Amount”) on January 14, 2022. The Company recognized a gain on settlement of $1.5 million and has recorded in product costs in the condensed consolidated statement of operations. The Award was deemed satisfied in full. Among other things, Tech Data agreed to file an acknowledgment of full satisfaction of judgment attached as an exhibit to the Settlement Agreement, not take any further action against the Company in connection with or relating to the Judgment, and release the Company and its representatives from any and all claims, including the Judgment, which Tech Data may have against the Company based upon any transaction that occurred at any time before the date of the Settlement Agreement.
On June 3, 2022, the Company became aware that a Complaint had been entered against the Company in the United States District Court Southern District of New York by ProActive Capital Partners, L.P, a convertible debenture holder. The Complaint is entered for injunctive relief to honor is stock conversion, recover damages, and receive payments due under the Debenture agreement. The convertible debenture principal and interest of $0.2 million is recorded in the unaudited condensed consolidated balance sheets – accrued liabilities for the period ended September 30, 2022. The notice of conversion to convert its convertible debt to shares of the Company’s stock will be honored upon issuance of the Company’s increase in authorized shares.
Operating Leases/Right-of-Use Assets and Lease Liability
On December 8, 2021, the Company’s principal executive offices moved to 13880 Dulles Corner Lane, Suite 120, Herndon, Virginia 20171. We lease these premises, which consist of approximately 5,800 square feet, pursuant to a lease that expires on May 31, 2025. The total amount of rent expense under the leases is recognized on a straight-line basis over the term of the leases. The Company has no other operating or financing leases with terms greater than 12 months.
As of September 30, 2022, future minimum operating leases commitments are as follows:
Other assumptions and pertinent information related to the Company’s accounting for operating leases are:
Litigation
Certain conditions may exist as of the date the financial statements are issued which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company, or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements.
If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed, unless they involve guarantees, in which case the guarantees would be disclosed. There can be no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows. |
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Related Party Transactions |
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| Related Party Transactions [Abstract] | |||||||
| Related Party Transactions | Note 13 — Related Party Transactions
Effective April 1, 2021, the Company entered a variety of contracts with CoreWeave, Inc. (“CoreWeave”).
Hosting Facilities Services Order
The Hosting Facility Services Order (the “Hosting Contract”) provided for the provision of hosting facility space and services by CoreWeave. The services are paid for in advance of the service month and the initial term of the hosting services is through June 30, 2022, which renews automatically for successive one year renewal terms unless either party terminates within sixty (60) days of the expiration of the then current term. At the signing of the Hosting Contract an estimated 382 data mining rigs were covered at an estimated monthly cost of approximately $21,556 ($260,000 per year). For the three and nine months ended September 30, 2022, the Company recorded $0 and $129,334 in mining costs within discontinued operations on the statement of operations. The Company terminated the Hosting Facilities Services Order effective June 30,2022. Services Agreement
The initial term of the Services Agreement runs from April 1, 2021, through December 31, 2022, and automatically renews thereafter for successive one (1)-year terms unless either party provides written notice to the other of nonrenewal within sixty (60) days of the expiration of the then current Term. The initiation of the Services Agreement required a one-time payment of $100,000. The monthly base management fee was set to $20.00 per GPU-based Mining System (approximately $20,000 per month), and $6.50 per ASIC-based Mining System. Base management fees are paid in arrears and due within fifteen (15) days of invoice receipt. If, during any calendar month of the Term, CoreWeave operates on average, more than 1,500 Mining Systems on behalf of the Company, the Base Management Fee with respect to the excess Mining Systems above 1,500 is discounted by 40%. For the three and nine months ended September 30, 2022, the Company recorded $0 and $143,640 in mining costs within discontinued operations on the condensed statement of operations. The Company terminated the Service agreement effective June 30,2022. Bespoke Growth Partners, Inc. (“Bespoke”)
Effective as of April 15, 2021, the Company entered into a consulting agreement with Bespoke. Under the terms of the consulting agreement, the Company agreed to total compensation for services of $975,000 which of which $775,000 was paid during the year ended December 31, 2021. The Company made an additional payment in accordance with the agreement of $200,000 in January 2022. The Company expensed this advisory fee during the nine months ended September 30, 2022, which is recorded as consultant fees in general and administrative operating costs in the condensed consolidated statement of operations. As of June 30, 2022, the Bespoke consulting agreement has expired.
Effective as of January 13, 2022, the Company entered into a consulting agreement with Bespoke. Under the terms of the consulting agreement, the Company is to pay Bespoke a gross advisory fee of $975,000 for identifying the Ostendo acquisition and services related to the Company. On March 23, 2022, the Company paid off the balance owed for this service. The Company expensed the advisory fee during the nine months ended September 30, 2022, which is recorded as consultant fees in general and administrative in the condensed consolidated statement of operations.
Ressense LLC
On August 4, 2021, the Company executed a six (6) month business advisory services agreement with Ressense LLC. The services to be provided include potential business activities including acquisition, merger and reverse merger opportunities. As compensation for the performance of services, the Company paid and recorded $25,000 through January 31, 2022, as consultant fees in general and administrative in the condensed consolidated statement of operations. The business advisory services agreement expired January 31, 2022.
One Percent Investments, Inc.
On June 21, 2022, the Company executed a four (4) month business advisory services agreement with One Percent Investments, Inc. The services to be provided include potential future merger and/or acquisition activities, strategic alliances, joint ventures, and advisory services in connection with the Company’s desire to up-list to a national stock exchange. As a compensation for the performance of services, the Company paid $125,000 for the respective service period. Additional compensation in the amount of $500,000 will be rendered in connection with the up listing process The Company recognized $93,750 and $103,125 of expense during the three and nine months ended September 30, 2022, which is recorded as consultant fees in general and administrative operating costs in the condensed consolidated statement of operations, and $21,875 of prepaid expense in current assets in the condensed consolidated balance sheets.
Employment Agreements
On August 10, 2022, the Company entered into Amendment No. 2 (“Amendment No. 2”) to Employment Agreement, by and between the Company and Vincent Loiacono, the Company’s Chief Financial Officer. Pursuant to the terms of Amendment No. 2, the parties amended the termination provisions of the original employment agreement, as amended. Amendment No. 2 provides that the Company, in its sole discretion, may terminate Mr. Loiacono’s employment for any reason without Just Cause (as defined in the employment agreement, as amended) at any time. If (a) the Company terminates Mr.Loiacono’s employment without Just Cause, or (b) within 24 months following a change of control, Mr. Loiacono resigns as a result of and upon a material diminution of his duties, responsibilities, authority, and position, or a material reduction of his compensation and benefits, or if he ceases to hold the position of Chief Financial Officer after a change of control, the Company will, among other things: (l) continue to pay Mr. Loiacono’s base salary for one month for every two months of employment after the effective date up to a maximum of 12 months (as opposed to six months under the original agreement, as amended); and(2) within 45 days of termination or resignation, pay to Mr. Loiacono 100% of the value of any accrued but unpaid bonus. Except as set forth in Amendment No. 2, the original employment agreement, as amended, remains in full force and effect.
On September 9, 2022, the Company entered into Second Amendment to the Employment Agreement for Wayne Wasserberg, the Company’s Chief Executive Officer. The Second Amendment provides a minimum bonus of $100,000 for achievement of the bonus milestone. The bonus milestone is based upon the following:
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Prepaid Expenses and Other Current Assets |
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| Prepaid Expenses and Other Current Assets [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Prepaid Expenses and Other Current Assets | Note 14 — Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following as of September 30, 2022, and December 31, 2021:
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Subsequent Events |
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| Subsequent Events [Abstract] | |||||||
| Subsequent Events | Note 15 — Subsequent Events
Private Placement Agreement
On October 18, 2022, the Company sold to the Investors an aggregate of 500,000,000 Units, consisting of 500,000,000 shares of common stock, warrant 1s to acquire 500,000,000 shares of common stock, and warrant 2s to acquire 500,000,000 shares of common stock, for total consideration paid to the Company of $500,000. Pursuant to the terms of the SPA, the Company agreed to sell to each Investor a number of Units of securities of the Company (each, a “Unit”), at a purchase price of $0.001 per Unit, with each Unit being comprised of: (i) one share of common stock (each, a “Purchased Share” and collectively, the “Purchased Shares”); (ii) a warrant to acquire one share of common stock at an exercise price of $0.001 per share, which exercise price will not be subject to adjustment as a result of any forward or reverse split of the common stock (each, a “Warrant 1”); and (iii) a warrant to acquire one share of common stock at an exercise price of $0.001 per share, which exercise price will not be subject to adjustment as a result of any forward or reverse split of the common stock (each, a “Warrant 2”). Pursuant to the terms of the SPA, the Company agreed to use all commercially reasonable efforts to have the registration statement declared effective by the SEC within 90 days of October 18, 2022 (the “Registration Deadline”). If such registration statement has not become effective by the Registration Deadline, and provided that the Registrable Securities cannot otherwise be sold pursuant to Rule 144 pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the Registration Deadline, then, subject to the provisions of the SPA and the Initial Registration Rights Agreement, the Company agreed to issue to each Investor:
The Additional Shares and the Warrant 3 will, if applicable, be issuable to the Investors for each 30-day period, or portion thereof, that the registration statement registering the Registrable Securities has not become effective by the Registration Deadline. The Company’s obligation to issue the Additional Shares and the Warrant 3, if applicable, will not arise until the Company has amended its articles of incorporation, via a reverse split of the common stock, an increase of the number of authorized shares of common stock, or some combination thereof, such that the Company has a number of authorized but unissued shares of equal to (1) the number of Additional Shares that are otherwise to be issued plus (2) the number of shares of common stock that may be issuable pursuant to the Warrant 3.
Equity Transactions
Subsequent to September 30, 2022, the Company received notices to convert from its debtholders to convert approximately $1.6 million of debt into approximately 1.2 billion shares of stock. In addition, in accordance with an employment agreement, the Company issued 500,000 shares to an employee.
Reverse Stock Split
On September 22, 2022, the shareholders of Sysorex, Inc. have approved the Reverse Split and have granted to the Board of Director’s the power to determine the final ratio for the Reverse Split. On November 1, 2022, the Board of Director’s determined the ratio for the Reverse Split is to be 1,000 for 1, with one share of Common Stock being issued for each 1,000 shares of Common Stock issued and outstanding, with any fractional shares of Common Stock resulting therefrom being rounded up to the nearest whole share of Common Stock. The company has submitted the reverse stock split plan for review to FINRA on November 4, 2022. The effective date of the reverse stock will be determined after FINRA’s review. |
Accounting Policies, by Policy (Policies) |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Principles of Consolidation | Principles of Consolidation
The unaudited condensed consolidated financial statements have been prepared using the accounting records of Sysorex, TTM Digital and SGS. All inter-company balances and transactions have been eliminated in consolidation.
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| Use of Estimates | Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during each of the reporting periods. Actual results could differ from those estimates. The Company’s significant estimates consist of:
Significant Accounting Policies
For a detailed discussion about the Company’s significant accounting policies, see the Company’s December 31, 2021, consolidated financial statements included in its 2021 Annual Report.
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| Impairment of Long-lived Assets | Impairment of Long-lived Assets
The Company reviews its long-lived assets, including mining equipment, for impairment whenever events or changes in circumstances indicate the carrying value of an asset or group of assets may not be recoverable. The carrying amount is considered not recoverable if the sum of the undiscounted cash flows to be generated from the use and eventual disposition of the asset group is less than the carrying amount of the asset group. If the carrying amount exceeds the undiscounted cash flows, then the carrying amount is compared to the fair value and an impairment loss is recorded for the difference between the fair value and the carrying amount. For the three and nine months ended September 30, 2022, the Company incurred $1.3 million and $2.3 million of impairment charges, respectively, which is included within loss from discontinued operations. No impairment charges were identified for long-lived assets during the three and nine months ended September 30, 2021.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination. Goodwill is reviewed for impairment at least annually, in December, or more frequently if a triggering event occurs between impairment testing dates.
The Company’s impairment assessment begins with a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. Qualitative factors may include, macroeconomic conditions, industry and market considerations, cost factors, and other relevant entity and Company specific events. If, based on the qualitative test, the Company determines that it is “more likely than not” that the fair value of a reporting unit is less than its carrying value, then the Company evaluates goodwill for impairment by reviewing the fair value of the reporting unit versus its respective carrying value, including its goodwill. If it is determined that it is “not likely” that the fair value of the reporting unit is less than its carrying value, then no further testing is required.
The selection and assessment of qualitative factors used to determine whether it is more likely than not that the fair value of a reporting unit exceeds the carrying value involves significant judgment and estimates. Fair values may be determined using a combination of both income and market-based approaches.
The Company did not record any impairment of goodwill as of September 30, 2022 and December 31, 2021. As of September 30, 2022 and December 31, 2021, the total goodwill of approximately $1.6 million relates to the Sysorex Reporting unit.
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| Goodwill | Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination. Goodwill is reviewed for impairment at least annually, in December, or more frequently if a triggering event occurs between impairment testing dates.
The Company’s impairment assessment begins with a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. Qualitative factors may include, macroeconomic conditions, industry and market considerations, cost factors, and other relevant entity and Company specific events. If, based on the qualitative test, the Company determines that it is “more likely than not” that the fair value of a reporting unit is less than its carrying value, then the Company evaluates goodwill for impairment by reviewing the fair value of the reporting unit versus its respective carrying value, including its goodwill. If it is determined that it is “not likely” that the fair value of the reporting unit is less than its carrying value, then no further testing is required.
The selection and assessment of qualitative factors used to determine whether it is more likely than not that the fair value of a reporting unit exceeds the carrying value involves significant judgment and estimates. Fair values may be determined using a combination of both income and market-based approaches.
The Company did not record any impairment of goodwill as of September 30, 2022 and December 31, 2021. As of September 30, 2022 and December 31, 2021, the total goodwill of approximately $1.6 million relates to the Sysorex Reporting unit.
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| Derivative Liabilities | Derivative Liabilities
The Company evaluates its convertible instruments, options, warrants, or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, Derivatives and Hedging. The Company evaluates whether the amount of common stock on a as converted basis is in excess of its authorized share total which, if in excess, would result in derivative accounting treatment. The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to a liability at the fair value of the instrument on the reclassification date.
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| Convertible Debt | Convertible Debt
The Company’s debt instruments contain a host liability, freestanding warrants, and an embedded conversion feature. The Company uses the guidance under FASB ASC Topic 815 Derivatives and Hedging (“ASC 815”) to determine if the embedded conversion feature must be bifurcated and separately accounted for as a derivative under ASC 815. It also determines whether any embedded conversion features requiring bifurcation and/or freestanding warrants qualify for any scope exceptions contained within ASC 815. Generally, contracts issued or held by a reporting entity that are both (i) indexed to its own stock, and (ii) classified in shareholders equity, would not be considered a derivative for the purposes of applying ASC 815. Any embedded conversion features and/or freestanding warrants that do not meet the scope exception noted above are classified as derivative liabilities, initially measured at fair value, and remeasured at fair value each reporting period with change in fair value recognized in the Condensed Consolidated statements of operations. Any embedded conversion features and/or freestanding warrants that meet the scope exception under ASC 815 are initially recorded at their relative fair value in paid-in-capital and are not remeasured at fair value in future periods.
The host debt instrument is initially recorded at its relative fair value in long-term debt. The host debt instrument is accounted for in accordance with guidance applicable to non-convertible debt under FASB ASC Topic 470 Debt (“ASC 470”) and is accreted to its face value over the term of the debt with accretion expense and periodic interest expense recorded in the unaudited condensed consolidated statements of operations.
Issuance costs are allocated to each instrument in the same proportion as the proceeds that are allocated to each instrument. Issuance costs allocated to the debt hosted instrument are netted against the proceeds allocated to the debt host. Issuance costs allocated to freestanding warrants classified in equity are recorded in paid-in-capital.
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| Net Loss per Share | Net Loss per Share
Basic loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding, plus potentially dilutive common shares. Convertible debt, restricted stock, stock options and warrants are excluded from the diluted net loss per share calculation when their impact is antidilutive. The Company reported a net loss for the three and nine months ended September 30, 2022, and as a result, all potentially dilutive common shares are considered antidilutive for this period.
The Company includes potentially issuable shares in the Weighted-average common shares – basic that include warrants and other agreements that are exercisable for little or no consideration without substantive contingencies and others once any contingencies relative to the issuance of the shares is resolved.
Computations of basic and diluted weighted average common shares outstanding were as follows for the periods reported:
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| Emerging Growth Company | Emerging Growth Company
Sysorex is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”). As such, Sysorex is eligible to take advantage of certain exemptions from various reporting requirements that apply to other public companies that are not emerging growth companies, including compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended. In addition, Section 107 of the JOBS Act provides that an emerging growth company may take advantage of the extended transition period provided in Section 13(a) of the Securities Exchange Act of 1934, as amended, for complying with new or revised accounting standards, meaning that Sysorex, as an emerging growth company, can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Sysorex has elected to take advantage of this extended transition period, and therefore our financial statements may not be comparable to those of companies that comply with such new or revised accounting standards. |
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Summary of Significant Accounting Policies (Tables) |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of basic and diluted weighted average common shares outstanding |
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Discontinued Operations (Tables) |
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| Discontinued Operations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of balance sheet |
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| Schedule of statement of operations |
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| Schedule of net cash flows from discontinued operations |
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Intangible Assets (Tables) |
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Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of intangible assets |
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| Schedule of future amortization expense |
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Credit Risk and Concentrations (Tables) |
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| Risks and Uncertainties [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of risk percentage of revenue |
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Short-term Debt (Tables) |
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Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||
| Schedule of convertible debt |
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Fair Value Measurement (Tables) |
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| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of recurring fair value measurements |
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| Schedule of fair value of the Company's derivative liabilities |
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Digital Assets (Tables) |
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| Digital Assets [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of digital asset activity |
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Equity (Tables) |
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| Stockholders' Equity Note [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of stock option activity |
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| Schedule of warrants |
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| Schedule of share derivative liabilities |
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| Schedule of reverse stock split balance sheet |
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| Schedule of reverse stock split EPS |
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Commitments and Contingencies (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||
| Schedule of future minimum operating leases |
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| Schedule of operating leases |
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Prepaid Expenses and Other Current Assets (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Prepaid Expenses and Other Current Assets [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of prepaid expenses and other current assets |
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Nature and Description of Business (Details) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2022 |
Sep. 22, 2022 |
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| Accounting Policies [Abstract] | ||
| Capital stock shares | 1,200,000,000 | 510,000,000 |
| Price per share (in Dollars per share) | $ 0.00001 | $ 0.00001 |
| Convertible shares | 3,010,000,000 | |
| Common stock shares | 3,000,000,000 | |
| Preferred stock shares | 10,000,000 | |
| Business acquisition planned restructuring activities description | Pursuant to the Heads of Terms, the Company and Ostendo agreed to certain terms related to the Company’s sale of its Ethereum mining assets and certain associated real property (“Assets”) to Ostendo for Ostendo preferred stock. | |
| Deposits (in Dollars) | $ 1,600,000 | |
| Purchase of additional shares | 166,667 |
Going Concern (Details) - USD ($) shares in Billions |
1 Months Ended | 9 Months Ended | |
|---|---|---|---|
Sep. 22, 2022 |
Oct. 18, 2022 |
Sep. 30, 2022 |
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| Going Concern Abstract | |||
| Cash balance | $ 100,000 | ||
| Working capital | 21,600,000 | ||
| Accumulated deficit | $ 60,400,000 | ||
| Private placement | $ 500,000 | ||
| Shares of common stock (in Shares) | 3 |
Basis of Presentation (Details) - $ / shares |
9 Months Ended | |
|---|---|---|
Sep. 30, 2022 |
Dec. 31, 2021 |
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| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
| Number of common stock right to receive | 124,218,268 | |
| Common stock par value per share | $ 0.00001 | $ 0.00001 |
| Percentage of outstanding shares of capital stock | 80.00% |
Summary of Significant Accounting Policies (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | |
|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2022 |
Dec. 31, 2021 |
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| Accounting Policies [Abstract] | |||
| Impairment charges | $ 1.3 | $ 2.3 | |
| Goodwill | $ 1.6 | $ 1.6 | $ 1.6 |
Summary of Significant Accounting Policies (Details) - Schedule of basic and diluted weighted average common shares outstanding - shares |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
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| Schedule Of Basic And Diluted Weighted Average Common Shares Outstanding Abstract | ||||
| Weighted-average common shares outstanding | 497,173,946 | 144,086,582 | 315,558,213 | 121,310,970 |
| Weighted-average potential common shares considered outstanding | 3,000,000 | 15,361,622 | 3,000,000 | 10,552,810 |
| Weighted-average common shares outstanding - basic | 500,173,946 | 159,448,204 | 318,558,213 | 131,863,780 |
| Dilutive effect of options, warrants and restricted stock units | ||||
| Weighted-average common shares outstanding - diluted | 500,173,946 | 159,448,204 | 318,558,213 | 131,863,780 |
| Options, restricted stock units, and warrants and convertible debt excluded from the computation of diluted loss per share because the effect of inclusion would be anti-dilutive | 1,178,054,958 | 5,011,083 | 141,051,170 | 1,776,036 |
Discontinued Operations (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | |
|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2022 |
Dec. 31, 2021 |
|
| Discontinued Operations [Abstract] | |||
| Carrying value of digital assets | $ 7.0 | $ 7.0 | $ 10.2 |
| Impairment charges | $ 1.3 | $ 2.3 |
Discontinued Operations (Details) - Schedule of balance sheet - Discontinued Operations [Member] - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Condensed Balance Sheet Statements, Captions [Line Items] | ||
| Mining equipment and facilities, net | $ 6,506 | $ 9,682 |
| Investment in Style Hunter | 500 | 500 |
| Total Current Assets | 7,006 | 10,182 |
| Total Assets associated with discontinued operations | $ 7,006 | $ 10,182 |
Discontinued Operations (Details) - Schedule of statement of operations - Discontinued Operations [Member] - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Revenues | ||||
| Mining income | $ 809 | $ 2,993 | $ 4,077 | $ 9,244 |
| Hosting income | 24 | 96 | ||
| Total revenues | 833 | 2,993 | 4,173 | 9,244 |
| Operating costs and expenses | ||||
| Mining cost | 457 | 377 | 1,385 | 852 |
| General and administrative | 199 | 10 | 678 | 12 |
| Impairment of fixed assets | 1,300 | 2,261 | ||
| Depreciation | 1,283 | 910 | 2,824 | |
| Total operating costs and expenses | 1,956 | 1,670 | 5,234 | 3,688 |
| Gain (loss) from Operations | (1,123) | 1,323 | (1,061) | 5,556 |
| Other Income (Expenses) | ||||
| Interest expense | (25) | (70) | ||
| Loss on disposal of fixed assets | (6) | (131) | (6) | (138) |
| Income (loss) before taxes and equity method investee | (1,129) | 1,167 | (1,067) | 5,348 |
| Provision for income taxes | ||||
| Income (loss) before equity method investee | (1,129) | 1,167 | (1,067) | 5,348 |
| Share of net loss of equity method investee | 24 | 80 | ||
| Net income (loss) from discontinued operations | $ (1,129) | $ 1,143 | $ (1,067) | $ 5,268 |
Discontinued Operations (Details) - Schedule of net cash flows from discontinued operations - TTM Digital [Member] - USD ($) $ in Thousands |
9 Months Ended | |
|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
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| Condensed Cash Flow Statements, Captions [Line Items] | ||
| Net cash used in operating activities – discontinued operations | $ (1,795) | $ (500) |
| Net cash used in investing activities – discontinued operations | (603) | |
| Net cash used in financing activities – discontinued operations | $ (1,003) | |
Intangible Assets (Details) - Schedule of intangible assets - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Intangible Assets (Details) - Schedule of intangible assets [Line Items] | ||
| Gross Carrying Amount | $ 2,960 | $ 2,960 |
| Accumulated Amortization | (837) | (407) |
| Net Carrying Amount | 2,123 | 2,553 |
| Trade name [Member] | ||
| Intangible Assets (Details) - Schedule of intangible assets [Line Items] | ||
| Gross Carrying Amount | 1,060 | 1,060 |
| Accumulated Amortization | (152) | (74) |
| Net Carrying Amount | 908 | 986 |
| Customer relationships [Member] | ||
| Intangible Assets (Details) - Schedule of intangible assets [Line Items] | ||
| Gross Carrying Amount | 1,900 | 1,900 |
| Accumulated Amortization | (685) | (333) |
| Net Carrying Amount | $ 1,215 | $ 1,567 |
Intangible Assets (Details) - Schedule of future amortization expense $ in Thousands |
Sep. 30, 2022
USD ($)
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|---|---|
| Schedule Of Future Amortization Expense Abstract | |
| 2022 | $ 144 |
| 2023 | 573 |
| 2024 | 573 |
| 2025 | 266 |
| Thereafter | 567 |
| Total | $ 2,123 |
Credit Risk and Concentrations (Details) - Schedule of risk percentage of revenue - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | 9 Months Ended |
|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
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| Customer A [Member] | |||
| Revenue, Major Customer [Line Items] | |||
| Purchases from vendors | $ 607 | $ 7,100 | |
| Concentration risk percentage | 13.00% | 60.00% | |
| Customer A [Member] | Sales [Member] | |||
| Revenue, Major Customer [Line Items] | |||
| Purchases from vendors | $ 1,335 | ||
| Concentration risk percentage | 38.00% | ||
| Customer B [Member] | |||
| Revenue, Major Customer [Line Items] | |||
| Purchases from vendors | $ 2,499 | $ 2,834 | |
| Concentration risk percentage | 55.00% | 24.00% | |
| Customer B [Member] | Sales [Member] | |||
| Revenue, Major Customer [Line Items] | |||
| Purchases from vendors | $ 1,157 | $ 1,254 | |
| Concentration risk percentage | 33.00% | 63.00% | |
| Customer C [Member] | Sales [Member] | |||
| Revenue, Major Customer [Line Items] | |||
| Purchases from vendors | $ 278 | ||
| Concentration risk percentage | 14.00% |
Short-term Debt (Details) - USD ($) |
3 Months Ended | 9 Months Ended | |||||
|---|---|---|---|---|---|---|---|
Jan. 07, 2022 |
Aug. 13, 2021 |
Jul. 07, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
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| Short-term Debt (Details) [Line Items] | |||||||
| Principal amount | $ 15,187,500 | ||||||
| Bearing interest rate | 18.00% | ||||||
| Shares of common stock (in Shares) | 500,000 | 500,000 | |||||
| Total gross proceeds | $ 12,415,000 | ||||||
| Percentage of debentures | 130.00% | ||||||
| Conversion of price description | The Conversion Price is set at the lower of (i) $18.00 and (ii) 80% of the average of the VWAP during the 5 Trading Day period immediately prior to the applicable Conversion Date. The number of Conversion Shares to be issued is determined by dividing the outstanding principal amount of the debenture to be converted by the Conversion Price. The Debentures are subject to mandatory conversion (“Mandatory Conversion”) in the event the Company closes a registered public offering of its Common Stock and receives gross proceeds of not less than $40,000,000 and at the completion of which the Company’s securities are traded on a national exchange (“Qualified Offering”). | ||||||
| Revaluation loss | $ 1,100,000 | $ 1,600,000 | |||||
| Derivative liability | 7,500,000 | 7,500,000 | |||||
| Extinguishment loss | 400,000 | 1,000,000 | |||||
| Conversion of debt amount | 4,700,000 | ||||||
| Interest expense | 600,000 | $ 200,000 | 2,100,000 | ||||
| Debentures provide | $ 50,000 | 50,000 | |||||
| Judgement total sum | 5,942,559.05 | ||||||
| Principal sum | 3,341,801.8 | ||||||
| Prejudgment interest | $ 2,600,757.25 | ||||||
| Description of exercise price warrant | In addition, as a result of the events of default, the exercise price for the Warrant is the lower of: (A) $18.00 and (B) an amount equal to fifty percent (50%) of the average of volume-weighted average price for the common stock of the Company over the five (5) trading days preceding the date of the delivery of the applicable exercise notice or (C) the qualified offering price as defined in the Purchase Agreement. | ||||||
| 2021 Convertible Debentures & Warrants [Member] | |||||||
| Short-term Debt (Details) [Line Items] | |||||||
| Bearing interest rate | 12.50% | 12.50% | |||||
| Aggregate principal amount | $ 3,976,875 | $ 9,990,000 | |||||
| Shares of common stock (in Shares) | 1,862,279 | 3,534,751 | |||||
| Total gross proceeds | $ 3,535,000 | $ 8,880,000 | |||||
| Percentage of debentures | 12.00% | 12.50% | |||||
| Agent fees and expenses | $ 354,000 | $ 913,000 | |||||
Short-term Debt (Details) - Schedule of convertible debt - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Schedule Of Convertible Debt Abstract | ||
| Convertible Debentures, including interest payable to the Convertible Debenture Holders | $ 15,985 | $ 19,439 |
| Total Short-Term Debt | $ 15,985 | $ 19,439 |
Fair Value Measurement (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended |
|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2022 |
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| Fair Value Disclosures [Abstract] | ||
| Change in fair value of debt conversion feature loss | $ 1.1 | $ 1.6 |
Digital Assets (Details) - Schedule of digital asset activity - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
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| Schedule Of Digital Asset Activity Abstract | ||||
| Opening Balance | $ 218 | $ 105 | $ 5,202 | $ 24 |
| Revenue from mining | 809 | 2,993 | 4,077 | 9,244 |
| Payment of mining equipment under lease to buy arrangement | (72) | (1,091) | ||
| Mining pool operating fees | (8) | (31) | (41) | (96) |
| Impairment of digital assets | (71) | (325) | (2,494) | (325) |
| Management fees | (322) | |||
| Owners’ distributions | (1,521) | |||
| Proceeds from sale of digital assets | (1,068) | (339) | (8,023) | (3,670) |
| Transaction fees | (20) | (132) | ||
| Realized gain on sale of digital assets | 227 | 3 | 1,498 | 91 |
| Ending Balance | $ 87 | $ 2,334 | $ 87 | $ 2,334 |
Equity (Details) - USD ($) $ in Millions |
9 Months Ended | |
|---|---|---|
Sep. 30, 2022 |
Dec. 31, 2021 |
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| Stockholders' Equity Note [Abstract] | ||
| Capital stock conversion description | On September 22, 2022, the Company’s stockholders voted to approve an amendment to the Articles of Incorporation to increase the total number of authorized shares of the Company’s capital stock from 510,000,000 shares, par value $0.00001 per share, to 3,010,000,000 shares, of which 3,000,000,000 shares will be designated as common stock and 10,000,000 shares will be designated as preferred stock, in accordance with the voting results listed below. | |
| Common stock, shares issued | 736,609,855 | 145,713,591 |
| Common stock, shares outstanding | 736,534,476 | 145,638,212 |
| Weighted average contractual term | 3 years 9 months 18 days | |
| Warrants granted | 3,219,824 | |
| Accrued liabilities (in Dollars) | $ 0.2 |
Equity (Details) - Schedule of share derivative liabilities |
Sep. 30, 2022
shares
|
|---|---|
| Schedule Of Share Derivative Liabilities Abstract | |
| Warrants | 38 |
| Stock options | 6 |
| RSUs vested but unissued | 1 |
| Total share derivative liability | 45 |
Equity (Details) - Schedule of reverse stock split balance sheet - shares |
Sep. 30, 2022 |
Sep. 30, 2021 |
|---|---|---|
| As stated [Member] | ||
| Equity (Details) - Schedule of reverse stock split balance sheet [Line Items] | ||
| Common stock Shares Issued | 736,609,855 | 145,713,591 |
| Common stock Shares Outstanding | 736,534,476 | 145,638,212 |
| Treasury Stock | 75,379 | |
| Proforma Effect [Member] | ||
| Equity (Details) - Schedule of reverse stock split balance sheet [Line Items] | ||
| Common stock Shares Issued | 736,610 | 145,714 |
| Common stock Shares Outstanding | 736,534 | 145,638 |
| Treasury Stock | 75 |
Equity (Details) - Schedule of reverse stock split EPS - EPS [Member] - $ / shares |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
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| Equity (Details) - Schedule of reverse stock split EPS [Line Items] | ||||
| Outstanding - basic and diluted (in Shares) | 500,173,946 | 159,448,204 | 318,558,213 | 131,863,780 |
| Net income (loss) per share: | ||||
| Continuing operations | $ 0.0001 | $ (0.037) | $ (0.031) | $ (0.262) |
| Continuing operations Proforma | 0.1 | (37) | (31) | (262) |
| Discontinued Operations | (0.002) | 0.007 | (0.003) | 0.04 |
| Discontinued Operations Proforma | $ (2) | $ 7 | $ (3) | $ 40 |
Equity (Details) - Schedule of reverse stock split EPS (Parentheticals) - shares |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| EPS [Member] | ||||
| Equity (Details) - Schedule of reverse stock split EPS (Parentheticals) [Line Items] | ||||
| Weighted Average Shares Outstanding - diluted Proforma | 573,174 | 159,448 | 373,247 | 131,864 |
Commitments and Contingencies (Details) |
9 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
Dec. 14, 2021 |
Dec. 08, 2021
ft²
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Aug. 15, 2018
USD ($)
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Jan. 22, 2018
USD ($)
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Sep. 05, 2017
USD ($)
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Sep. 30, 2022
USD ($)
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Jan. 14, 2022
USD ($)
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Jan. 13, 2022
USD ($)
|
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| Commitments and Contingencies (Details) [Line Items] | ||||||||
| Payment of unpaid invoices | $ 1,800,000 | |||||||
| Accrued liability | $ 200,000 | |||||||
| Interest | 90,000.00 | |||||||
| Judgment amount | $ 336,000 | |||||||
| Legal fees | $ 20,000 | |||||||
| Accrued liability | 200,000 | |||||||
| Principal amount | $ 3,341,801.8 | |||||||
| Interest rate per annum | 18.00% | |||||||
| Confession of judgment description | On December 14, 2021, the Company became aware that a Confession of Judgment (the “Confession of Judgment”) had been entered against the Company in the Superior Court of the State of California, County of Santa Clara by Tech Data on September 24, 2021. The Confession of Judgement is entered for a total sum of $5,942,559.05, which is comprised of the principal sum of $3,341,801.80 and prejudgment interest in the sum of $2,600,757.25. | |||||||
| Award excess price | $ 4,200,000 | |||||||
| Settlement amount | $ 1,375,000 | |||||||
| Gain on settlement | 1,500,000 | |||||||
| Convertible debenture principal and interest | 200,000 | |||||||
| Square feet (in Square Feet) | ft² | 5,800 | |||||||
| Expire date | May 31, 2025 | |||||||
| Contractual Commitments [Member] | ||||||||
| Commitments and Contingencies (Details) [Line Items] | ||||||||
| Accrued liability | 700,000 | |||||||
| Interest | $ 100,000 | |||||||
| Tech Data [Member] | ||||||||
| Commitments and Contingencies (Details) [Line Items] | ||||||||
| Principal amount | $ 6,849,423.42 |
Commitments and Contingencies (Details) - Schedule of future minimum operating leases $ in Thousands |
Sep. 30, 2022
USD ($)
|
|---|---|
| Schedule Of Future Minimum Operating Leases Abstract | |
| 2022 | $ 52 |
| 2023 | 214 |
| 2024 | 219 |
| 2025 | 92 |
| Total future lease payments | 577 |
| Less: interest expense at incremental borrowing rate | (54) |
| Net present value of lease liabilities | $ 523 |
Commitments and Contingencies (Details) - Schedule of operating leases |
Sep. 30, 2022 |
|---|---|
| Schedule Of Operating Leases Abstract | |
| Weighted average remaining lease term: | 2 years 8 months 1 day |
| Weighted average discount rate used to determine present value of operating lease liability: | 8.00% |
Related Party Transactions (Details) - USD ($) |
1 Months Ended | 3 Months Ended | 6 Months Ended | 9 Months Ended | ||||
|---|---|---|---|---|---|---|---|---|
Jan. 13, 2022 |
Jun. 21, 2022 |
Jan. 31, 2022 |
Sep. 30, 2022 |
Jun. 30, 2022 |
Jun. 30, 2022 |
Sep. 30, 2022 |
Dec. 31, 2021 |
|
| Related Party Transactions [Abstract] | ||||||||
| Hosting contract description | At the signing of the Hosting Contract an estimated 382 data mining rigs were covered at an estimated monthly cost of approximately $21,556 ($260,000 per year). | |||||||
| Hosting costs | $ 0 | $ 129,334 | ||||||
| Services agreement description | The initiation of the Services Agreement required a one-time payment of $100,000. The monthly base management fee was set to $20.00 per GPU-based Mining System (approximately $20,000 per month), and $6.50 per ASIC-based Mining System. Base management fees are paid in arrears and due within fifteen (15) days of invoice receipt. If, during any calendar month of the Term, CoreWeave operates on average, more than 1,500 Mining Systems on behalf of the Company, the Base Management Fee with respect to the excess Mining Systems above 1,500 is discounted by 40%. For the three and nine months ended September 30, 2022, the Company recorded $0 and $143,640 in mining costs within discontinued operations on the condensed statement of operations. | |||||||
| Consulting agreement, description | Under the terms of the consulting agreement, the Company agreed to total compensation for services of $975,000 which of which $775,000 was paid during the year ended December 31, 2021. | |||||||
| Additional payment | $ 200,000 | |||||||
| Gross advisory fee | $ 975,000 | |||||||
| Fair value of installment payments | $ 25,000 | |||||||
| Respective service | $ 125,000 | |||||||
| Compensation amount | $ 500,000 | |||||||
| Expense | $ 93,750 | $ 103,125 | ||||||
| Prepaid expense | $ 21,875 | |||||||
| Accrued but unpaid bonus | 100.00% | |||||||
| Minimum achievement bonus | $ 100,000 | |||||||
| Financing amount | $ 5,000,000 | |||||||
Prepaid Expenses and Other Current Assets (Details) - Schedule of prepaid expenses and other current assets - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Prepaid Expenses and Other Current Assets (Details) - Schedule of prepaid expenses and other current assets [Line Items] | ||
| Total prepaid expenses and other current assets | $ 627 | $ 1,402 |
| Consultants [Member] | ||
| Prepaid Expenses and Other Current Assets (Details) - Schedule of prepaid expenses and other current assets [Line Items] | ||
| Total prepaid expenses and other current assets | 22 | 565 |
| Rent [Member] | ||
| Prepaid Expenses and Other Current Assets (Details) - Schedule of prepaid expenses and other current assets [Line Items] | ||
| Total prepaid expenses and other current assets | 18 | 17 |
| Vendor Payments [Member] | ||
| Prepaid Expenses and Other Current Assets (Details) - Schedule of prepaid expenses and other current assets [Line Items] | ||
| Total prepaid expenses and other current assets | 39 | |
| Insurance [Member] | ||
| Prepaid Expenses and Other Current Assets (Details) - Schedule of prepaid expenses and other current assets [Line Items] | ||
| Total prepaid expenses and other current assets | 1 | 162 |
| License and Maintenance Contracts [Member] | ||
| Prepaid Expenses and Other Current Assets (Details) - Schedule of prepaid expenses and other current assets [Line Items] | ||
| Total prepaid expenses and other current assets | 545 | 658 |
| Other [Member] | ||
| Prepaid Expenses and Other Current Assets (Details) - Schedule of prepaid expenses and other current assets [Line Items] | ||
| Total prepaid expenses and other current assets | $ 2 |
Subsequent Events (Details) - USD ($) $ in Millions |
1 Months Ended | ||
|---|---|---|---|
Sep. 22, 2022 |
Oct. 18, 2022 |
Sep. 30, 2022 |
|
| Subsequent Events (Details) [Line Items] | |||
| Percentage of purchased shares | 10.00% | ||
| Debt | $ 1.6 | ||
| Sale of stock | 510,000,000 | 1,200,000,000 | |
| Shares to an employee | 500,000 | ||
| Reverse stock split, description | On September 22, 2022, the shareholders of Sysorex, Inc. have approved the Reverse Split and have granted to the Board of Director’s the power to determine the final ratio for the Reverse Split. On November 1, 2022, the Board of Director’s determined the ratio for the Reverse Split is to be 1,000 for 1, with one share of Common Stock being issued for each 1,000 shares of Common Stock issued and outstanding, with any fractional shares of Common Stock resulting therefrom being rounded up to the nearest whole share of Common Stock. The company has submitted the reverse stock split plan for review to FINRA on November 4, 2022. The effective date of the reverse stock will be determined after FINRA’s review. | ||
| Subsequent Event [Member] | |||
| Subsequent Events (Details) [Line Items] | |||
| Private placement agreement description | the Company sold to the Investors an aggregate of 500,000,000 Units, consisting of 500,000,000 shares of common stock, warrant 1s to acquire 500,000,000 shares of common stock, and warrant 2s to acquire 500,000,000 shares of common stock, for total consideration paid to the Company of $500,000. Pursuant to the terms of the SPA, the Company agreed to sell to each Investor a number of Units of securities of the Company (each, a “Unit”), at a purchase price of $0.001 per Unit, with each Unit being comprised of: (i) one share of common stock (each, a “Purchased Share” and collectively, the “Purchased Shares”); (ii) a warrant to acquire one share of common stock at an exercise price of $0.001 per share, which exercise price will not be subject to adjustment as a result of any forward or reverse split of the common stock (each, a “Warrant 1”); and (iii) a warrant to acquire one share of common stock at an exercise price of $0.001 per share, which exercise price will not be subject to adjustment as a result of any forward or reverse split of the common stock (each, a “Warrant 2”). |