UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2021~~2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 000-55924

SYSOREX, INC.

(Exact name of registrant as specified in its charter)

Nevada		68-0319458
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

13880 Dulles Corner Lane Suite ~~175~~120 Herndon, Virginia		20171
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 800-929-3871

Securities registered pursuant to Section 12(b) of the Act: None.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November ~~10, 2021,~~14, 2022, there were ~~145,538,212~~2,484,426,501 shares of the Registrant’s Common Stock, $0.00001 par value per share ~~issued and~~ outstanding.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, ~~2021~~2022

TABLE OF CONTENTS

		Page

Special Note Regarding Forward-Looking Statements and Other Information Contained in this Report		ii

PART I - FINANCIAL INFORMATION		1

Item 1.	Financial Statements (Unaudited)	1

	Condensed Consolidated Balance Sheets as of September 30, ~~2021,~~2022, and December 31, ~~2020~~2021	2

	Condensed Consolidated Statements of Operations for the ~~three~~Three and ~~nine months~~Nine Months ended September 30, ~~2021,~~2022, and ~~2020~~2021	3

	Condensed Consolidated Statement of Changes in Stockholders’ ~~Equity~~Deficit for the ~~three and nine months~~Nine Months ended September 30, ~~2021,~~2022, and ~~2020~~2021	4

	Condensed Consolidated Statements of Cash Flows for the ~~nine months~~Nine Months ended September 30, ~~2021,~~2022, and ~~2020~~2021	5

	Notes to Unaudited Condensed Consolidated Financial Statements	76

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2523

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3630

Item 4.	Controls and Procedures	3630

PART II - OTHER INFORMATION		3731

Item 1.	Legal Proceedings	3731

Item 1A.	Risk Factors	3731

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4632

Item 3.	Defaults Upon Senior Securities	4632

Item 4.	Mine Safety Disclosure	4632

Item 5.	Other Information	4632

Item 6.	Exhibits	4632

Signatures		4733

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

AND OTHER INFORMATION CONTAINED IN THIS REPORT

This ~~Quarterly Report on Form 10-Q (this “Form 10-Q”)~~report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).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 ~~Form 10-Q.~~report. In particular, these include statements relating to future actions; prospective products, applications, customers and technologies; future performance or results of anticipated products; ~~anticipated expenses;~~ and projected expenses and financial results. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

●

our ability to successfully integrate acquired businesses or new products, or to realize anticipated synergies in connection with mergers and acquisitions;

●

the effect of COVID-19, closure of offices and site location(s); on our ability to service our customers resulting in less revenues;

●

our cash position and our history of losses;

●

our ability to achieve profitability;

●

customer demand for the products and services we offer;

●

the impact of competitive or alternative services, products, technologies, and pricing;

●

increased delays in delivery of product due to worldwide strain on supply chain primarily due to labor, raw material, and chip shortages;

●

general economic conditions and events and the impact they may have on us, on our customers, and on our potential customers;

●

a security breach, through cyber-attack, cyber intrusion, insider threats or otherwise, or other significant disruption of our IT networks and related systems;

●

decrease in value of digital assets;

●

general cryptocurrency risks;

●

technological changes and developments in the blockchain and cryptocurrencies;

��

●

risks related to changes of rules and regulations in connection with cryptocurrencies in general and Ethereum in particular;

●

risks related to ~~Ethereum’s transition from “proof-of-work” to “proof-of-stake” model that may render~~the loss of assets of our cryptocurrency mining ~~activities within Ethereum blockchain obsolete;~~facility held with a third party;

●

~~risks related to the geographical locations of our cryptocurrency mining facilities;~~

●

competition for blockchain platforms and ~~technologies, including but not limited to Non-Fungible tokens (“NFTs”);~~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 ~~risks and uncertainties set forth~~factors discussed in this ~~Quarterly Report on Form 10-Q or the Company’s periodic filings in the section entitled “Risk Factors,” which is incorporated herein by reference.~~report.

~~We may not actually achieve the plans, intentions, or expectations disclosed in our~~The forward-looking statements are based upon management’s beliefs and ~~you~~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 ~~our~~these forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Form 10-Q, particularly in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make or collaborations or strategic partnerships we may enter into.

You should read this Form 10-Q and the documents that we have filed as exhibits to this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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~~

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, ~~2021,~~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 ~~8-K/A~~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 ~~24, 2021.~~1, 2022.

Sysorex, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands of dollars, except number of shares and par value data)

~~(Unaudited)~~

	September 30, 2022			December 31, 2021
Assets
Current Assets
Cash and cash equivalents	$	141		$	659
Digital assets, net		87			5,202
Accounts receivable, net		924			3,023
Prepaid expenses and other current assets		627			1,402
Assets held for sale		7,006			10,182
Total Current Assets		8,785			20,468

Intangible assets, net		2,123			2,553
Goodwill		1,634			1,634
Pre-funded right- in Ostendo		1,600			-
Operating lease right-of-use asset, net		439			558
Other assets		39			69
Total Assets	$	14,620		$	25,282

Liabilities and Stockholders’ Deficit
Current Liabilities
Accounts payable		3,806			6,724
Accrued liabilities		1,897			2,382
Short-term debt		15,985			19,439
Conversion feature derivative liability		7,531			8,355
Operating lease obligation, current		212			49
Common stock derivative liability		45			-
Deferred revenue		918			932
Total Current Liabilities		30,394			37,881

Operating lease obligation - noncurrent		311			509

Total Liabilities		30,705			38,390

Commitments and Contingencies

Stockholders’ Deficit
Common stock, par value $0.00001 per share, 3,000,000,000 shares authorized; 736,609,855 shares issued as of September 30, 2022, and 145,713,591 shares issued as of December 31, 2021, 736,534,476 shares outstanding as of September 30, 2022, and 145,638,212 shares outstanding as of December 31, 2021		6			1
Treasury stock, at cost, 75,379 shares as of September 30, 2022, and as of December 31, 2021		-			-
Additional paid-in-capital		44,275			36,156
Accumulated Deficit		(60,366	)		(49,265	)
Total Stockholders’ Deficit		(16,085	)		(13,108	)
Total Liabilities and Stockholders’ Deficit	$	14,620		$	25,282

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

September 30, December 31,
2021 2020
ASSETS
Current Assets
Cash and cash equivalents $ 4,268 $ 67
Digital assets 2,334 24
Accounts receivable, net 663 -
Related party receivables - 17
Prepaid expenses and other current assets 1,334 -
Total Current Assets 8,599 108

Mining equipment, net 12,368 1,272
Intangible assets, net 2,696 -
Goodwill 1,634 -
Investment in Style Hunter 500 -
Investment in Up North Hosting, LLC 664 644
Other assets 36 -
Total Assets $ 26,497 $ 2,024

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable $ 5,979 $ 7
Accrued liabilities 1,313 117
Related Party loan - 75
Convertible Debt, net 11,208 -
Deferred revenue 691 -
Total Current Liabilities 19,191 199

Commitments and Contingencies – Note 13

Stockholders’ Equity
Common stock, par value $0.00001 per share, 500,000,000 shares authorized; 144,613,591 shares issued as of September 30, 2021, and 66,431,920 shares issued as of December 31, 2020, 144,538,212 shares outstanding as of September 30, 2021, and 66,431,920 shares outstanding as of December 31, 2020, respectively 1 -
Treasury stock, at cost, 75,379 shares as of September 30, 2021, and 0 shares as of December 31, 2020, respectively - -
Subscription receivable - (100 )
Additional paid-in-capital 35,435 2,060
Accumulated Deficit (28,130 ) (135 )
Total Stockholders’ Equity 7,306 1,825
Total Liabilities and Stockholders’ Equity $ 26,497 $ 2,024

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	$	2,559		$	1,232		$	9,977		$	2,831
Services revenue		900			634			2,055			1,047
Total Revenues		3,459			1,866			12,032			3,878

Operating costs and expenses
Product cost		2,302			1,141			7,006			2,532
Services cost		655			364			1,408			606
Sales and marketing		267			320			928			619
General and administrative		1,373			3,347			6,559			7,711
Impairment of digital assets		71			325			2,494			325
Management fees		-			-			-			322
Depreciation		-			-			-			3
Amortization of intangibles		144			143			430			264
Total Operating Costs and Expenses		4,812			5,640			18,825			12,382

Loss from Operations		(1,353	)		(3,774	)		(6,793	)		(8,504	)

Other Income (Expenses)
Merger charges		-			--						(22,004	)
Debt Restructuring fee		-			--						(2,000	)
Interest expense		(717	)		(1,297	)		(2,455	)		(1,280	)
Realized gain on sale of digital assets		227			3			1,498			91
Revaluation of conversion feature derivative liability		1,147			(814	)		(1,559	)		(814	)
Gain (loss) on extinguishment of debt		436			-			(1,008	)		-
Change in fair value of shares issued		301			-			263			-
Other income, net		17			39			20			11

Total Other (Expense) Income		1,411			(2,069	)		(3,241	)		(25,996	)

Income (loss) from continuing operations before income taxes		58			(5,843	)		(10,034	)		(34,500	)

Income tax benefit		-			-			-			-

Income (loss) from continuing operations		58			(5,843	)		(10,034	)		(34,500	)

Income (loss) from discontinued operations		(1,129	)		1,143			(1,067	)		5,268
Net Loss	$	(1,071	)	$	(4,700	)	$	(11,101	)	$	(29,232	)
Net income (loss) per share - basic and diluted – continuing operations	$	0.0001		$	(0.037	)	$	(0.031	)	$	(0.262	)
Net income per share – basic and diluted – discontinued operations	$	(0.002	)	$	0.007		$	(0.003	)	$	0.040
Weighted Average Shares Outstanding - basic and diluted		500,173,946			159,448,204			318,558,213			131,863,780

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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		66,431,920	$	-		-	$	-	$	2,060		$	(100	)	$	(135	)	$	1,825

Distributions to shareholders		-		-		-		-		(1,521	)		-			-			(1,521	)

Payments of subscription receivables		-		-		-		-		-			100			-			100

Exercise of Moon warrants		14,607,980		-		-		-		-			-			-			-

Net Income		-		-		-		-		-			-			1,210			1,210
Balance – March 31, 2021		81,039,900		-		-		-		539			-			1,075			1,614

Shares issued for:
Mining equipment		35,588,548		-		-		-		12,000						-			12,000
Sysorex recapitalization		25,985,633		-		-		-		19,401			-			-			19,401
TTM digital/Sysorex merger		494,311		1		75,379		-		280			-			-			281
Professional services		404,820		-		-		-		1,883			-			-			1,883
Net Loss		-		-		-		-		-			-			(25,743	)		(25,743	)
Balance – June 30, 2021		143,513,212	$	1		75,379	$	-	$	34,103			-		$	(24,668	)	$	9,436
Shares issued for:
Convertible debt warrants		-		-		-		-		810			-			-			810
Stock based compensation		-		-		-		-		28			-			-			28
Shares issued for services		1,025,000		-		-		-		494			-			-			494
Net Loss		-		-		-		-		-			-			(4,700	)		(4,700	)
Balance – September 30, 2021		144,538,212	$	1		75,379	$	-	$	35,435			-		$	(29,368	)	$	6,068

Balance – December 31, 2021		145,638,212	$	1		75,379	$	-	$	36,156			-		$	(49,265	)	$	(13,108	)
Convertible debt conversions		72,717,883		-		-		-		2,909			-			-			2,909
Reclassification of equity contracts to liabilities		-		-		-		-		(314	)		-			-			(314	)
Professional services		6,000,000		-		-		-		240			-			-			240
Exercise of Pre-funded warrants		12,361,622		-		-		-		-			-			-			-
Cashless exercise of warrants		220,754		-		-		-		-			-			-			-
Stock-based compensation		-		-		-		-		111			-			-			111
Vesting of restricted stock		500,000		-		-		-		-			-			-			-
Net Loss		-		-		-		-		-			-			(3,033	)		(3,033	)
Balance – March 31, 2022		237,438,471		1		75,379		-		39,102			-			(52,298	)		(13,195	)
Convertible debt conversions		257,005,140		3		-		-		4,130			-			-			4,133
Issuance of restricted stock		100,000		-		-		-		5			-			-			5
Net Loss		-		-		-		-		-			-			(6,997	)		(6,997	)
Balance – June 30, 2022		494,543,611	$	4		75,379	$	-	$	43,237			-		$	(59,295	)	$	(16,054	)
Convertible debt conversions		241,990,865		2		-		-		1,038			-			-			1,040
Net Loss		-		-		-		-		-			-			(1,071	)		(1,071	)
Balance – September 30, 2022		736,534,476	$	6		75,379	$	-	$	44,275			-		$	(60,366	)	$	(16,085	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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	$	(10,034	)	$	(34,500	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		430			264
Stock-based compensation expense		111			28
Amortization of right of use asset		119			-
Amortization of debt discount and debt issuance costs		-			1,055
Realized gain on sale of digital assets		(1,498	)		(91	)
Loss on extinguishment of debt		1,008			-
Change in fair value of debt conversion feature		1,559			814
Gain on settlement of vendor liabilities		(1,533	)		(38	)
Impairment of digital assets		2,494			325
Issuance of shares in exchange for services		240			2,377
Merger charges		-			22,004
Debt restructuring expense		-			2,000
Change in fair value of share derivative liability		(263	)		(9	)
Changes in assets and liabilities:
Prepaid assets and other current assets		805			(72	)
Accounts receivable and other receivables		2,099			4,010
Accounts payable		(1,385	)		(3,908	)
Accrued liabilities and other current liabilities		737			442
Operating lease liability		(35	)		-
Net cash used in operating activities – continuing operations		(5,146	)		(5,299	)
Net cash used in provided by operating activities – discontinued operations		(1,795	)		(500	)
Net cash used in operating activities	$	(6,941	)	$	(5,799	)
Cash Flows from Investing Activities
Proceeds from sale of digital assets	$	8,023		$	3,670
Reverse acquisition of Sysorex business		-			28
Pre-funded right in Ostendo		(1,600	)		-
Net cash provided by investing activities -continuing operations		6,423			3,698
Net cash used in investing activities – discontinued operations		-			(603	)
Net cash provided by investing activities	$	6,423		$	3,095
Cash Flows from Financing Activities
Repayment of loans	$	-		$	(3,346	)
Proceeds received for convertible debt		-			12,415
Issuance of members’ interests		-			100
Cash paid for convertible debt transaction costs		-			(1,261	)
Net cash provided by financing activities- continuing operations	$	-		$	7,908
Net cash used in financing activities – discontinued operations		-			(1,003	)
Net cash provided by financing activities	$	-		$	6,905
Net (decrease) in cash and cash equivalents		(518	)		4,201
Cash and cash equivalents at beginning of period		659			67
Cash and cash equivalents at end of period	$	141		$	4,268
Supplemental disclosure of cash flow information:
Cash paid for:
Interest	$	1,009		$	89
Income taxes		-			-
Supplemental disclosure of noncash investing and financing activities:
Conversion of debt to equity	$	8,082		$	-
Equipment exchanged for equity		-			7,620
Equipment acquired through lease purchase agreement		-			2,130
Debt discount attributed to the fair value of warrants		-			810
Debt discount attributed to the fair value of the conversion option		-			2,077
Settlement of loan with mining equipment		-			1,091
Sysorex recapitalization		-			19,401
Distributions of digital assets to members		-			1,521
Reclassification of equity contracts to liabilities		314			-
Settlement of share derivative liability		5			-

~~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 For the Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Revenues
Mining income $ 2,992 $ 613 $ 9,244 $ 1,167
Product revenue 1,232 - 2,831 -
Services revenue 634 - 1,047 -
Total Revenues 4,858 613 13,122 1,167

Operating costs and expenses
Mining cost 377 105 852 320
Product cost 1,141 - 2,532 -
Services cost 364 - 606 -
Sales and marketing 319 - 619 -
General and administrative 3,363 12 7,727 23
Management Fees - 43 321 76
Impairment of digital assets 325 - 325 -
Depreciation 1,279 213 2,824 619
Amortization of intangibles 143 - 264 -
Total Operating Costs and Expenses 7,311 373 16,070 1,038

Gain (Loss) from Operations
(2,453 ) 240 (2,948 ) 129

Other Income (Expenses)
Merger charges - - (22,004 ) -
Debt Restructuring fee - - (2,000 ) -
Interest expense (897 ) - (926 ) -
Realized gain (loss) on sale of digital assets 3 (8 ) 91 6
Gain/(loss) on disposal of assets (131 ) 37 (138 ) 51
Other expense, net 39 - 11 1

Total Other Income (Expense) (986 ) 29 (24,966 ) 58

Income (Loss) before Income taxes and loss in equity method investee (3,439 ) 269 (27,914 ) 187

Income tax benefit - - - -

Income (Loss) before Income in equity method investee (3,439 ) 269 (27,914 ) 187

Share of net loss of equity method investee (23 ) (28 ) (80 ) (27 )

Net Income (Loss) $ (3,462 ) $ 241 $ (27,994 ) $ 160
Net Income (Loss) per share - basic and diluted $ (0.022 ) $ 0.003 $ (0.212 ) $ 0.002
Weighted Average Shares Outstanding - basic and diluted 159,448,204 79,679,553 131,863,780 73,040,051

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

~~Sysorex, Inc. and Subsidiaries~~

~~Condensed Consolidated Statements of Changes in Stockholders’ Equity~~

~~For the Nine Months Ended September 30, 2021, and September 30, 2020~~

~~(In thousands of dollars, except share data)~~

~~(Unaudited)~~

Common Stock Treasury Stock Additional
Paid-In Subscription Accumulated
Shares Amount Shares Amount Capital Receivables Deficit Total

Balance – December 31, 2019 55,776,240 $ 1 - $ - $ 2,671 $ (100 ) $ (587 ) $ 1,984
Distributions to shareholders - - - - (152 ) - - (152 )
Net Loss - - - - - - (45 ) (45 )
Balance – March 31, 2020 55,776,240 - - - 2,519 (100 ) (632 ) 1,787
Distributions to shareholders - - - - (149 ) - - (149 )
Net Loss - - - - - - (38 ) (38 )
Balance – June 30, 2020 55,776,240 - - - 2,370 (100 ) (670 ) 1,600
Shares issued 10,655,680
-
-
-
600
-

-
600
Distributions to shareholders - - - - (345 ) - - (345 )
Net Income - - - - - - 242 242
Balance - September 30, 2020 66,431,920 - - - 2,625 (100 ) (428 ) 2,097

Balance - December 30, 2020 66,431,920 - - - 2,060 (100 ) (135 ) 1,825
Payment of subscription receivable - - - - - 100 - 100
Distributions to shareholders - - - - (1,521 ) - - (1,521 )
Exercise of Moon warrants 14,607,980 - - - - - - -
Net Income - - - - - - 1,210 1,210
Balance – March 31, 2021 81,039,900 - - - 539 - 1,075 1,614
Shares issued:
Mining equipment 35,588,548 - - - 12,000 - - 12,000
Sysorex Recapitalization 25,985,633 - - - 19,401 - - 19,401
TTM digital/Sysorex merger 494,311 1 75,379 - 280 - - 281
Professional services 404,820 - - - 1,883 - - 1,883
Net Loss - - - - - - (25,743 ) (25,743 )
Balance – June 30, 2021 143,513,212 1 75,379 34,103 - (24,668 ) 9,436
Convertible debt warrants - - - - 810 - - 810
Stock based compensation - - - - 28 - - 28
Shares issued for services 1,025,000 - - - 494 - - 494
Net Loss - - - - - - (3,462 ) (3,462 )
Balance - September 30, 2021 144,538,212 $ 1 75,379 $ - $ 35,435 $ - $ (28,130 ) $ 7,306

~~The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.~~

~~Sysorex, Inc. and Subsidiaries~~

~~Condensed Consolidated Statements of Cash Flows~~

~~(In thousands of dollars)~~

~~(Unaudited)~~

For the Nine Months Ended
September 30,
2021 2020
Cash Flows from Operating Activities
Net loss $ (27,994 ) 160
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 3,088 619
Stock compensation 28 -
Amortization of debt discount and debt issuance costs 631 -
(Gain) Loss on the sale/disposal of mining equipment 138 (51 )
Realized (gain) loss on sale of digital assets (91 ) (6 )
Gain on settlement of vendor liabilities (38 ) -
Impairment of digital assets 325 -
Equity in earnings of equity method investments 79 27
Change in fair value of accrued issuable equity (9 ) -
Issuance of shares in exchange for services 2,377 -
Merger charges 22,004 -
Debt restructuring fee 2,000 -
Changes in assets and liabilities:
Digital assets - mining net of pool fees and mgmt fees (8,826 ) (1,087 )
Related party receivable 17 15
Prepaid assets and other current assets (72 ) (5 )
Accounts receivable and other receivables 4,010 2
Accounts payable (3,908 ) -
Accrued liabilities and other current liabilities 442 (107 )
Net cash used in operating activities (5,799 ) (433 )

Cash Flows from Investing Activities
Proceeds from sale of digital assets 3,670 410
Reverse acquisition of Sysorex business 28 -
Purchase of mining equipment (50 ) (727 )
Proceeds from sale of mining equipment 47 190
Investments in Up North & Style Hunter (600 ) 17
Net cash provided by (used in) investing activities 3,095 (110 )

Cash Flows from Financing Activities
Repayment of loans (4,349 ) (30 )
Issuance of members’ interests 100 600
Proceeds received for convertible debt 12,415 -
Cash paid for convertible debt transaction costs (1,261 ) -
Net cash provided by financing activities 6,905 570

Net increase in cash and cash equivalents 4,201 27
Cash and cash equivalents at beginning of period 67 34
Cash and cash equivalents at end of period $ 4,268 $ 61

~~Sysorex, Inc. and Subsidiaries~~

~~Condensed Consolidated Statements of Cash Flows~~

~~(In thousands of dollars)~~

~~(Unaudited)~~

For the Nine Months Ended
September 30,
2021 2020
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 89 $ -
Income taxes - -

Supplemental disclosure of noncash investing and financing activities:
Sysorex recapitalization $ 19,401 $ -
Payments of short-term borrowing with digital assets 1,091 -
Debt discount attributed to the fair value of the warrants 810 -
Distribution of digital assets to members 1,521 646
Equipment exchanged for equity 12,000 -
Equipment acquired through lease purchase arrangement 2,130 -
Settlement of loan with mining equipment 75 -

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Nature and ~~description~~Description of Business

Description of Business

Sysorex, Inc. ~~is a digital asset technology company primarily focused on Ethereum mining and the Ethereum blockchain. The Company has two~~, through its wholly owned ~~subsidiaries: TTM Digital Assets& Technologies, Inc. (“TTM Digital”) and~~subsidiary, Sysorex Government Services, Inc., (“SGS”)~~. Following~~, (unless otherwise stated or the ~~Company’s Merger with TTM Digital in April 2021,~~context otherwise requires, the ~~Company shifted its primary business focus~~terms “SGS” “we,” “us,” “our” and the “Company” refer collectively to ~~the mining of Ethereum~~Sysorex, Inc. and ~~opportunities related to the Ethereum blockchain. In addition to the mining of Ethereum, the Company continues to operate its wholly owned subsidiary, SGS, a business that~~SGS), provides information technology ~~products,~~ solutions primarily to the public sector. These solutions include cybersecurity, professional services, engineering support, IT consulting, enterprise level technology, networking, wireless, help desk, and ~~services to federal, state, and local government, including system integrators.~~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.

Note 2 — Going Concern

As of September 30, ~~2021,~~2022, the Company had an approximate cash balance of ~~$4.3~~$0.1 million, a working capital deficit of approximately ~~$10.6~~$21.6 million, and an accumulated deficit of approximately ~~$28.1~~$60.4 million. ~~The~~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 ~~(1)~~ year after the date the unaudited condensed consolidated financial statements are issued.

~~Funding~~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 ~~a go-forward basis~~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 ~~rely significantly on~~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 ~~to mine cryptocurrency and~~as a going concern within one year after the ~~spot or market price of~~date that the cryptocurrency mined. The Company expects to generate ongoing revenues from the mining of cryptocurrencies, primarily Ethereum currency rewards, in its mining facilities. The Company’s ability to liquidate Ethereum currency rewards if needed at future values will be evaluated from time to time to generate cash for operations. Generating Ethereum currency rewards which exceed our production and overhead costs will determine the Company’s ability to report profit margins related to such mining operations. financial statements are issued.

If the Company is unable to ~~generate sufficient revenue from Ethereum mining when needed~~raise additional capital on terms acceptable to the Company and on a timely basis, or ~~secure additional sources of funding, it may be necessary~~is unable to ~~significantly reduce the current rate of spending or explore other strategic alternatives. The Company’s priority is to build Ethereum (“ETH’) holdings, however,~~attain new vendors, the Company will ~~liquidate parts~~be required to downsize or wind down its operations through liquidation, bankruptcy, or sale of its ~~ETH holdings if other strategic alternatives are~~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 ~~achieved.~~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 ~~GAAP for interim financial information, which are the~~ accounting principles that are generally accepted in the United States of ~~America.~~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-month periods~~nine months ended September 30, ~~2021, is~~2022, are not necessarily indicative of the results to be expected for the year ending December 31, ~~2021.~~2022. These interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s ~~8-K/~~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 ~~24, 2021.~~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.

~~SYSOREX, INC. AND SUBSIDIARIES~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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 ~~ASC~~the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 805 Business Combinations (“ASC 805”). ~~In accordance with acquisition method guidance under ASC 805, the purchase consideration was $0.3 million.~~

Discontinued Operations

As discussed in Note 5 ~~Segment Reporting after the completion of the Merger~~– Discontinued Operation, the Company ~~reports two segments (“TTM Digital”~~made the decision to divest its mining equipment and ~~“Sysorex Government Services”) which are also defined as reporting units for impairment assessment purposes.~~

~~The Company is in~~ the process of finalizing the purchase allocation, thus the provisional measures of deferred income taxes, intangibles, and goodwill are subject to change. The Company expects the purchase price allocation to be finalized prior to the filing of its 2021 Annual Report on Form 10-K.

In the purchase price allocation of the fair value of assets acquired and liabilities assumed, the Company has recognized an excess of net liabilities assumed over the determined fair value of the Sysorex Government Services Reporting Unit. The excess of the purchase price over the net liabilities assumed was allocated to goodwill in the amount of $1.6 million based upon the underlying value of the Sysorex Government Services Reporting Unit with any additional excess determined to be a separate transaction from the business combination attributable to acquisition-related costs for the benefitdata center of the TTM Digital ~~shareholders in achieving liquidity for their shares as publicly traded instruments. These costs were determined to not have future economic benefits or synergies to the Combined Company operations~~reporting unit (“TTM Assets”) and ~~were expensed as of the Effective Time under the caption “Merger Charges” in the accompanying Condensed consolidated statement of operations.~~

~~Subsequent to the Merger Agreement the majority of the Sysorex debt, certain liabilities classified as current and a forward consulting contract~~commenced discussions with a ~~former member Sysorex board of director’s (the “Debt Items”) aggregating $19.4 million were converted~~third party to 34,097,255 Sysorex shares when fully issued (the “Sysorex Recapitalization”). 25,985,633 shares were immediately issued, a prefunded warrant was issued for 5,111,622 shares and the right to receive 3,000,000 shares of Sysorex stock at a future date at the option of the holder subject to certain events.execute an asset sale. As a result of the ~~Debt Items not having original contractual conversion features the holders~~decision to divest operating assets of the ~~Debt Items are not classified~~TTM Digital reporting unit, the Company has determined that the subject assets met the definition of assets held for sale as ~~owners~~defined by ASC 205-20 – Presentation of ~~Sysorex in~~Financial Statements – Discontinued Operations. As of December 31, 2021, the ~~Merger~~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 ~~Sysorex Recapitalization is accounted~~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 ~~as a separate transaction occurring immediately following~~sale and assets and liabilities – discontinued operations on the ~~Merger under~~Condensed Consolidated balance sheets and to gain from discontinued operations on the ~~guidance~~Condensed Consolidated statements of ~~ASC 805. Under~~operations for the ~~Exchange Agreement executed with each debt holder,~~periods presented.

On June 10, 2022, the ~~Debt Items were converted at a contractual conversion rate~~definition of ~~$0.569 per share (the “Conversion Price”)~~“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 ~~part~~result, all of TTM assets have been classified and reported as assets held for sale in the ~~Sysorex Recapitalization, the Company recognized $2.0 million in debt restructuring fees expense~~condensed consolidated balance sheets, and ~~consulting contract~~all associated revenues and costs ~~of $0.7 million~~are reported as discontinued operations in the condensed consolidated statement of ~~operations for~~operations. As of November 2022, the ~~period ended~~parties have not entered into definitive transaction agreements and accordingly, the transaction will not proceed. As of September 30, ~~2021, respectively.~~

~~SYSOREX, INC. AND SUBSIDIARIES~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The following table presents the fair value of the identified assets acquired and liabilities assumed at the Merger date, the effect of the Sysorex Recapitalization on the assets acquired and liabilities assumed, and the net assets acquired, and liabilities assumed for the aggregate of the reverse acquisition and Merger Charges and Sysorex Recapitalization separate transactions:

(In thousands of dollars) Reverse
Acquisition
Fair Value Sysorex
Recapitalization
Fair Value Aggregate Fair
Value

Cash $ 28 $ - $ 28
Accounts receivable 4,673 - 4,673
Prepaid assets and other current assets 2,551 (1,289 ) 1,262
Property and equipment 7 - 7
Goodwill 1,634 - 1,634
Customer Relationships Intangible 1,900 - 1,900
Tradename Intangible 1,060 - 1,060
Other assets 29 - 29
Accounts payable (10,437 ) 519 (9,918 )
Accrued liabilities (2,722 ) 1,589 (1,133 )
Deferred revenue (590 ) - (590 )
Short term debt (7,136 ) 3,871 (3,265 )
Long term debt (12,711 ) 12,711 -
Other liabilities (9 ) - (9 )

Fair value allocated to net assets / (liabilities) $ (21,723 ) $ 17,401 $ (4,322 )

Fair value of consideration and recapitalization equity $ 281 $ 19,401 $ 19,682
Merger charges (22,004 ) - (22,004 )
Debt restructuring fees - (2,000 ) (2,000 )

Net Sysorex equity and charges to income (loss) $ (21,723 ) $ 17,401 $ (4,322 )

~~For the nine months ended September 30, 2021,~~2022, the Company ~~incurred approximately $3.1 million~~has performed an assessment and determined that TTM Assets are held for sale and reported as discontinued operations. TTM is exploring future possibilities of ~~acquisition related costs that are included in general~~hosting client computing, and ~~administrative expenses in~~TTM continues to evaluate all of its options, including the ~~accompanying condensed consolidated statement~~sale of ~~operations. From the acquisition date~~its assets to September 30, 2021, revenues and operating loss for the accounting acquiree Sysorex were approximately $3.9 million and $2.4 million (excluding the acquisition related costs, merger charges and debt restructuring fees described above), respectively. See Note 5- Segment Reporting.

~~SYSOREX, INC. AND SUBSIDIARIES~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Pro Forma Financial Information~~

The following unaudited proforma results of operations are presented for information purposes only. The unaudited proforma results of operations are not intended to present actual results that would have been attained had the reverse merger and Sysorex Recapitalization been completed as of January 1, 2020, or to project potential operating results as of any future date or for any future periods. Themaximize revenue and net loss of the reverse merger accounting acquiree for the three and nine months ended September 30, 2021, included in the consolidated statement of operations amounted to approximately $1.9 million and $(1.6) million and $3.9 million and $(26.4) million, respectively:

Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020

Total Revenues $ 4,858 $ 2,051 $ 18,796 $ 7,201

Net Income (Loss) (3,462 ) 178 (2,928 ) (1,725 )

Net Income (Loss) per share - basic and diluted (0.022 ) 0.002 (0.022 ) (0.023 )

Weighted Average Shares Outstanding - basic and diluted 159,448,204 80,173,864 132,056,012 73,534,362

Supplemental Pro forma Information (a)

Merger charges - - 22,004 -
Restructuring fee - - 2,000 -
Transaction costs - Accounting acquirer and acquiree - - 3,093 -

Total Nonrecurring Pro forma Adjustments - - 27,097 -

~~(a)~~

~~Supplemental Pro forma Information consists of material, nonrecurring pro forma adjustments directly attributable to the reverse acquisition and Sysorex Recapitalization~~

~~SYSOREX, INC. AND SUBSIDIARIES~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~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 ~~material~~ inter-company balances and transactions have been eliminated in consolidation.

The Company’s wholly owned subsidiary, TTM Digital has a 50% interest in Up North Hosting, LLC (“UNH”), which is accounted for as an equity method investment and is not consolidated. See Note 1 and 7 for additional information around UNH.

~~On November 2, 2021, the Company acquired the other 50% interest in UNH making it a wholly owned subsidiary of the Company.~~

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~~

	●	~~Expected useful lives and valuation of~~ assets

	●	~~Business combinations and reverse merger accounting~~Fair value of the Company’s common stock

~~Cash and Cash Equivalents~~

~~The Company considers all highly liquid investments with an original maturity from the date of purchase of three months or less to be cash equivalents.~~

~~Concentrations of Credit Risk~~

Financial instruments that potentially subject the Company to credit risk consist primarily of cash. The Company’s cash is deposited with commercial banks in the United States but exceeds federally insured limits from time to time. The recorded carrying amount of cash and cash equivalents approximates their fair value. The Company uses an Exchange to store and trade its digital assets. If demand for crypto assets decline the Exchange could be negatively impacted.

~~Mining Equipment~~

Mining Equipment is stated at cost. Depreciation is computed using the straight-line method regardless of the category of asset. The Company has determined that the useful life of graphics processing units (“GPUs”) is 3-years and remaining mining equipment (primarily chassis, power supply units, computer memory, motherboards, risers, and fans) is depreciated over the estimated useful life of 5-years.

Expenditures for repairs and maintenance are charged to expense as incurred. Upon disposition, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected in the statement of operations.

~~The rate at which the Company generates digital assets and, therefore, consumes the economic benefits of its transaction verification servers are influenced by several factors including the following:~~

~~the complexity of the transaction verification process which is driven by the algorithms contained within the Ethereum open-source software;~~

-●

~~the general availability~~Expected useful lives and valuation of ~~appropriate computer processing capacity on a global basis (commonly referred to in the industry as hashing capacity which is measured in Terahash units); and~~long-lived assets

	-	~~technological obsolescence reflecting rapid development in the transaction verification server industry such that more recently developed hardware is more economically efficient to run in terms~~
	●	Fair value of digital assets generated as a function of operating costs, primarily power costs. i.e., the speed of hardware evolution in the industry is such that later hardware models generally have faster processing capacity combined with lower operating costs and a lower cost of purchase.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.

~~SYSOREX, INC. AND SUBSIDIARIES~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The Company operates in an emerging industry for which limited data is available to make estimates of the useful economic lives of specialized equipment. Management will review this estimate quarterly and will revise such estimates as and when data comes available.

To the extent that any of the assumptions underlying management’s estimate of useful life of its mining equipment are subject to revision in a future reporting period either because of changes in circumstances or through the availability of greater quantities of data then the estimated useful life could change and have a prospective impact on depreciation expense and the carrying amounts of these assets.

Impairment of Long-lived Assets

The Company reviews its long-lived assets, including mining equipment, for impairment whenever events or changes in circumstances indicate the carrying value of an asset or group of assets may not be recoverable. The carrying amount is considered not recoverable if the sum of the undiscounted cash flows to be generated from the use and eventual disposition of the asset group is less than the carrying amount of the asset group. If the carrying amount exceeds the undiscounted cash flows, then the carrying amount is compared to the fair value and an impairment loss is recorded for the difference between the fair value and the carrying amount. 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 ~~periods ended September 30, 2021, or September 30, 2020.~~

~~Revenue Recognition~~

The Company recognizes revenue in accordance with ASC 606, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. To achieve this core principle, five basic criteria must be met before revenue can be recognized:

●

~~Identification of the contract, or contracts, with a customer;~~

●

~~Identification of the performance obligations in the contract;~~

●

~~Determination of the transaction price;~~

●

~~Allocation of the transaction price to the performance obligations in the contract; and~~

●

~~Recognition of revenue when, or as, the Company satisfies a performance obligation.~~

~~Mining Revenue~~

TTM Digital has entered into mining pools with the operators to provide computing power to the mining pool. The Company is entitled to a fractional share of the fixed cryptocurrency award the mining pool operator receives (less transaction fees to the mining pool operator) for successfully adding a block to the blockchain. The Company’s fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm. Providing computing power in digital asset transaction verification services is an output of the Company’s ordinary activities. The provision of such computing power is the only performance obligation in the Company’s contracts with mining pool operators The transaction consideration the Company receives, if any, is non-cash consideration. The transaction price of the Company’s share of the cryptocurrency award is measured at fair value on the date received, which is not materially different than the fair value at the time the Company has earned the award from the mining pool. The consideration is all variable under the definition within ASC 606. Because it is not probable that a significant reversal of cumulative revenue will not occur, the consideration is constrained until the Company successfully places a blockthree and ~~the Company receives confirmation of the consideration it will receive, at which time revenue is recognized. There is no significant financing component in these transactions.~~

Fair value of the digital asset award received is determined using the quoted price of the related digital asset at the time of receipt. There is currently no specific definitive guidance under GAAP or alternative accounting framework for the accounting for digital assets recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could impact the Company’s consolidated financial position and results from operations.

~~Hardware and Software Revenue Recognition~~

~~SGS is a primary resale channel for a large group of vendors and suppliers, including original equipment manufacturers (“OEMs”), software publishers and wholesale distributors.~~

~~SYSOREX, INC. AND SUBSIDIARIES~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are established, the contract has commercial substance and collectability of consideration is probable. The Company evaluates the following indicators amongst others when determining whether it is acting as a principal in the transaction and recording revenue on a gross basis: (i) the Company is primarily responsible for fulfilling the promise to provide the specified product or service, (ii) the Company has inventory risk before the specified good or service has been transferred to a customer or after transfer of control to the customer and (iii) the Company has discretion in establishing the price for the specified good or service. If the terms of a transaction do not indicate the Company is acting as a principal in the transaction, then the Company is acting as an agent in the transaction and the associated revenues are recognized on a net basis.

The Company recognizes revenue once control has passed to the customer. The following indicators are evaluated in determining when control has passed to the customer: (i) the Company has a right to payment for the product or service, (ii) the customer has legal title to the product, (iii) the Company has transferred physical possession of the product to the customer, (iv) the customer has the significant risk and rewards of ownership of the product and (v) the customer has accepted the product. The Company’s products can be delivered to customers in a variety of ways, including (i) as physical product shipped from the Company’s warehouse, (ii) via drop-shipment by the vendor or supplier or (iii) via electronic delivery of keys for software licenses. The Company’s shipping terms typically specify F.O.B. destination.

The Company leverages drop-shipment arrangements with many of its vendors and suppliers to deliver products to its customers without having to physically hold the inventory at its warehouse. The Company is the principal in the transaction and recognizes revenue for drop-shipment arrangements on a gross basis.

The Company may provide integration of products from multiple vendors as a solution it sells to the customer. In this arrangement, the Company provides direct warranty to the customer with the Company’s own personnel as the customer requires warranty on the solution and not individual vendor products. This type of warranty is sold integral to the overall solution quoted to the customer. The Company considers these service-type warranties to be performance obligations of the principal from the underlying products that make up a solution and therefore is acting as a principal in the transaction and records revenue on a gross basis at the point of sale.

~~License and Maintenance Services Revenue Recognition~~

SGS provides a customized design and configuration solution for its customers and in this capacity resells hardware, software and other IT equipment license and maintenance services in exchange for fixed fees. The Company selects the vendors and sells the products and services, including maintenance services, that best fit the customer’s needs. For sales of maintenance services and warranties, the customer obtains control at the point in time that the services to be provided by a third-party vendor are purchased by the customer and therefore the Company’s performance obligation to provide the overall systems solution is satisfied at that time. The Company’s customers generally pay within 30 to 60 days from the receipt of a customer-approved invoice.

For resale of services, including maintenance services, warranties, and extended warranties, the Company is acting as an agent as the primary activity for those services are fulfilled by a third party. While the Company may facilitate and act as a first responder for these services, the third-party service providers perform the primary maintenance and warranty services for the customer. Therefore, the Company is not primarily responsible for performing these services and revenue is recorded on a net basis.

~~Professional Services Revenue Recognition~~

SGS’s professional services include fixed fee contracts. Fixed fees are paid monthly, in phases, or upon acceptance of deliverables. The Company has elected the practical expedient to recognize revenue for the right to invoice because the Company’s right to consideration corresponds directly with the value to the customer of the performance completed to date. For fixed fee contracts, the Company recognizes revenue evenly over the service period using a time-based measure because the Company is providing continuous service. Because the Company’s contracts have an expected duration of one year or less, the Company has elected the practical expedient in ASC 606-10-50-14(a) to not disclose information about its remaining performance obligations. Anticipated losses are recognized as soon as they become known. For the threenine months ended September 30, 2021, SGS did not incur any such losses. These amounts are based on known and estimated factors. Revenues from time and material or firm fixed price long-term and short-term contracts are derived principally with various United States government agencies.2021.

Goodwill

~~Contract Balances~~

~~The timing of revenue recognition may differ from~~Goodwill represents the timing of payment by customers. The Company records a receivable when revenue is recognized prior to payment and there is an unconditional right to payment. Alternatively, when payment precedes the provisionexcess of the ~~related services,~~purchase price over the ~~Company records deferred revenue until~~fair value of the ~~performance obligations are satisfied. The Company had deferred revenue of $0.7 million as of September 30, 2021.~~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.

~~SYSOREX, INC. AND SUBSIDIARIES~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Accounts Receivable, net~~

Account receivables are stated at the amount the Company expects to collect. The Company recognizes an allowance for doubtful accounts to ensure accounts receivables are not overstated due to un-collectability. Bad debt reserves are maintained for various customers based on a variety of factors, including the length of time the receivables are past due, significant one-time events and historical experience. An additional reserve for individual accounts is recorded when the Company becomes aware of a customer’s inability to meet its financial obligation, such as in the case of bankruptcy filings, or deterioration in the customer’s operating results or financial position. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted. The Company’s ~~allowance for doubtful accounts was $0.05 million as of September 30, 2021.~~

~~Equity Method Investments~~

Equity method investments are equity securities in entities the Company does not control but over which it can exercise significant influence. These investments are accounted for under the equity method of accounting in accordanceimpairment assessment begins with ~~ASC 323, Investments- Equity Method and Joint Ventures. Equity method investments are measured at cost minus impairment, if any, plus or minus the Company’s share of an investee’s income or loss.~~

~~Investments~~

The Company accounts for its investments that represent less than 20% ownership, and for which the Company does not have the ability to exercise significant influence, using ASU 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The Company measures investments in equity securities without a readily determinable fair value using a measurement alternative that measures these securities at the cost method minus impairment, if any, plus or minus changes resulting from observable price changes on a non-recurring basis. Gains and losses on these securities are recognized in other income and expenses.

~~Digital Assets~~

Digital assets (predominantly Ethereum) are included in current assets in the accompanying consolidated balance sheets. The classification of digital assets as a current asset has been made after the Company’s consideration of the consistent daily trading volume on cryptocurrency exchange markets, there are no limitations or restrictions on Company’s ability to sell Ethereum, and the pattern of actual sales of Ethereum by the Company. Digital assets purchased are recorded at cost and cryptocurrencies awarded to the Company through its mining activities are accounted for in connection with the Company’s revenue recognition policy disclosed above.

Digital assets held are accounted for as intangible assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the digital asset at the time its fair value is being measured. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that anthe 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 ~~exists.~~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~~“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 ~~an impairment exists,~~the fair value of a ~~quantitative impairment test is not necessary. If~~reporting unit exceeds the ~~Company concludes otherwise, it is required to perform~~carrying value involves significant judgment and estimates. Fair values may be determined using a ~~quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis~~combination of ~~the asset. Subsequent reversal of impairment losses is not permitted.~~ both income and market-based approaches.

The Company ~~recorded a $0.3 million~~did not record any impairment ~~charge during the three and nine months ended~~of goodwill as of September 30, 2022 and December 31, 2021. ~~No impairment was taken during the three and nine months ended~~As of September 30, ~~2020.~~2022 and December 31, 2021, the total goodwill of approximately $1.6 million relates to the Sysorex Reporting unit.

Derivative Liabilities

The Company ~~accounts~~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 ~~its gains or losses in accordance with the first in first out (FIFO) method of accounting.~~under ASC Topic 815, Derivatives and Hedging. The Company ~~recognized realized gains (losses) through~~evaluates whether the ~~sale~~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 ~~disbursement~~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 ~~digital assets during~~operations as other income (expense). Upon conversion or exercise of a derivative instrument, the ~~three~~instrument is marked to fair value at the conversion date and ~~nine months ended September 30, 2021,~~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 ~~$0.003 million and $0.09 million, respectively. For~~ the ~~three and nine months ended September 30, 2020,~~instrument on the ~~Company recognized realized (loss) gains of $(0.008) million and $0.006 million, respectively.~~reclassification date.

~~Fair Value~~Convertible Debt

The Company’s debt instruments contain a host liability, freestanding warrants, and an embedded conversion feature. The Company ~~accounts~~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 ~~digital assets~~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 ~~other operating assets under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 820, Fair Value Measurements. This statement defines~~(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, ~~establishes a framework for measuring~~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 ~~generally accepted accounting principles,~~paid-in-capital and ~~expands disclosures about~~are not remeasured at fair value ~~measurements. To increase consistency and comparability~~ in ~~fair value measurements, ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:~~future periods.

~~Level 1 — quoted prices (unadjusted)~~The host debt instrument is initially recorded at its relative fair value in ~~active markets~~long-term debt. The host debt instrument is accounted for ~~identical assets or liabilities.~~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.

~~Level 2 — observable inputs other than Level 1, quoted prices for similar assets or liabilities~~Issuance costs are allocated to each instrument in ~~active markets, quoted prices for identical or similar assets and liabilities in markets~~the same proportion as the proceeds that are ~~not active, and model-derived prices whose inputs~~allocated to each instrument. Issuance costs allocated to the debt hosted instrument are ~~observable or whose significant value drivers~~netted against the proceeds allocated to the debt host. Issuance costs allocated to freestanding warrants classified in equity are ~~observable; and~~

~~Level 3 — assets and liabilities whose significant value drivers are unobservable.~~recorded in paid-in-capital.

~~SYSOREX, INC. AND SUBSIDIARIES~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Observable inputs are based on market data obtained from independent sources, while unobservable inputs are based on the Company’s market assumptions. Unobservable inputs require significant management judgment or estimation. In some cases, the inputs used to measure an asset or liability may fall into different levels of the fair value hierarchy. In those instances, the fair value measurement is required to be classified using the lowest level of input that is significant to the fair value measurement. Such determination requires significant management judgment.

The carrying amounts of the Company’s financial assets and liabilities, such as cash and cash equivalents, and accounts payable, approximate fair value due to the short-term nature of these instruments. The Company determined the fair value of digital assets earned during the periods ended September 30, 2021, and 2020 by using quoted prices in active markets. The Company evaluates all accessible active markets and then selects the market which they determine to be the principal market. Fair value is determined by the USD spot at the time digital assets are earned. Digital assets mined by the Company are classified within Level II of the fair value hierarchy.

~~Income Taxes~~

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets (“DTAs”). Based on this evaluation as of September 30, 2021, a valuation allowance of $6.4 million has been recorded through acquisition accounting to recognize only the portion of the DTA that is more likely than not to be realized. Additionally, the Company has not booked an income tax benefit for the current period pretax loss of $27.9 million. This is the primary reason the effective income tax rate differs from the statutory rate of 21%. The amount of the DTA considered realizable, however, could be adjusted if estimates of future taxable income are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.

Utilization of the net operating loss and credit carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. The Company is currently in the process of evaluating the current net operating loss (“NOL”) as a result of the merger.

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, ~~preferred stock,~~ restricted stock, ~~units,~~ 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-~~three and ~~nine-month periods~~nine months ended September 30, ~~2021, and 2020, respectively,~~2022, and as a result, all potentially dilutive common shares are considered antidilutive for ~~these periods.~~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,
2021 2020 2021 2020

Weighted-average common shares outstanding 144,086,582 63,505,907 121,406,678 58,347,371

Weighted-average potential common shares considered outstanding 15,361,622 16,173,646 10,457,102 14,692,680

Weighted-average common shares outstanding - basic 159,448,204 79,679,553 131,863,780 73,040,051

Dilutive effect of options, warrants and restricted stock units - - - -

Weighted-average common shares outstanding - diluted 159,448,204 79,679,553 131,863,780 73,040,051

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 4,781,159 - 1,751,999 -

Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
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

~~SYSOREX, INC. AND SUBSIDIARIES~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~Recent Accounting Standards~~
~~In December 2019, the FASB issued ASU 2019-12,~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~ (“ASU 2019-12”), which simplifies income tax accounting in various areas including, but not limited to, the accounting for hybrid tax regimes, tax implications related to business combinations, and interim period accounting for enacted changes in tax law, along with some codification improvements. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. Certain changes in the standard require retrospective or modified retrospective adoption, while other changes must be adopted prospectively. The Company implemented ASU 2019-12 and it did not have a material impact on our consolidated financial statements.
~~In January 2020, the FASB issued ASU 2020-01,~~ ~~Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815).~~ The ASU amends and clarifies certain interactions between the guidance under Topic 321, Topic 323 and Topic 815, by reducing diversity in practice and increasing comparability of the accounting for these interactions. The amendments in the ASU should be applied on a prospective basis. The ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted, including early adoption in an interim period for which financial statements have not yet been issued. The new standard has not had a material impact on the consolidated financial statements or disclosures.
~~In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-06,~~ ~~Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity~~, as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Most significantly, the new guidance removes from GAAP separation models for convertible debt that require the convertible debt to be separated into a debt and equity component, unless the conversion feature is required to be bifurcated and accounted for as a derivative or the debt is issued at a substantial premium. As a result, after adopting the guidance, entities will no longer separately present such embedded conversion features in equity and will instead account for the convertible debt wholly as debt. The new guidance also requires use of the “if-converted” method when calculating the dilutive impact of convertible debt on earnings per share, which is consistent with the Company’s current accounting treatment under the current guidance. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, but only at the beginning of the fiscal year. The Company has early adopted the new guidance on January 1, 2021, with no impact to prior period financial statements given that the first applicable instrument, ‘2021 Convertible Debentures& Warrants’ was not executed until Q3 2021. See Note 10 for further disclosure on the instrument.
Any new accounting standards, not disclosed above, that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.
Emerging Growth Company

Sysorex is an “emerging growth company” as defined in the ~~JOBS Act.~~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.~~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.

Note 5 — ~~Segment Reporting~~Discontinued Operations
Operating segments are defined as components of an enterprise for which discrete financial information is available that is evaluated regularly by the chief operating decision maker (CODM) for purposes of allocating resources and evaluating financial performance. The Company’s CODM is the chief financial officer who reviews financial information presented at the subsidiary level for purposes of allocating resources and evaluating financial performance. As such, the Company’s operations constitute 2 (2) operating segments and 2 (2) reportable segments.

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):
September 30, December 31,
2022 2021
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
The following ~~tables reflect~~table presents the ~~results~~TTM Digital assets statement of ~~continuing~~ operations ofline items classified as discontinued operations included within gain (loss) from discontinued operations for the ~~company’s segments consistent with the management~~three and ~~measurement system utilized within the company. Performance measurement is primarily based on revenue~~nine months ended September 30, 2022, and gross profit. These results are used, in part, by the chief operating decision maker, both in evaluating the performance of, and in allocating resources to, each of the segments. The CODM does not evaluate performance or allocate resources based on segment asset data, and therefore such information is not included.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 $     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

~~SYSOREX, INC. AND SUBSIDIARIES~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
The following ~~tables provide a summary~~table summarizes the net cash flows from discontinued operations of ~~the revenue, cost of revenue for our subsidiary segments for the nine and three months ended September 30, 2021~~TTM Digital (in thousands):

For the three months ended September 30, 2021
Revenues TTM Digital Sysorex Government Services Consolidated
Products Revenue $ - $ 1,232 $ 1,232
Services Revenue - 634 634
Mining Income 2,992 - 2,992
Total Revenues $ 2,992 $ 1,866 $ 4,858

Product Cost $ - $ 1,141 $ 1,141
Services Cost - 364 364
Mining Cost 377 - 377
Other Operating Expenses $ 3,484 $ 1,945 $ 5,429

Operating Loss $ (869 ) $ (1,584 ) $ (2,453 )
For the Nine Months
Ended September 30,
2022 2021
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 )

For the nine months ended September 30, 2021
TTM Digital Sysorex Government Services Consolidated
Revenues
Products Revenue $ - $ 2,831 $ 2,831
Services Revenue - 1,047 1,047
Mining Income 9,244 - 9,244
Total Revenues $ 9,244 $ 3,878 $ 13,122

Product Cost $ - $ 2,532 $ 2,532
Services Cost - 606 606
Mining Cost 852 - 852
Other Operating expenses $ 8,899 $ 3,181 $ 12,080

Operating Loss $ (507 ) $ (2,441 ) $ (2,948 )

Total Segment Assets $ 20,780 $ 5,717 $ 26,497
~~Note 6 — Mining Equipment, net~~
~~Mining equipment, net, was comprised of the following (in thousands of dollars):~~
Balance as of
September 30, December 31,
2021 2020
Gross Mining Equipment:
Mining Equipment (non-GPUs) $ 1,158 $ 554
GPUs 15,386 2,167
Accumulated Depreciation
Mining Equipment (non-GPUs) (365 ) (242 )
GPUs (3,811 ) (1,207 )
Mining Equipment, net $ 12,368 $ 1,272

~~SYSOREX, INC. AND SUBSIDIARIES~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
An Ethereum mining server consists of multiple commodity Graphics Processing Units (GPUs) and ancillary components such as chassis, CPU, motherboard, and power supply. The GPUs are solely responsible for the compute power to generate the cryptographic hashes for mining, while the other components act to support the system. Depreciation expense was approximately $2.8 million during the nine months ended September 30, 2021, and $1.3 million for the three months ended September 30, 2021. Depreciation expense was approximately $0.6 million during the nine months ended September 30, 2020, and $0.2 million for the three months ended September 30, 2020.
The Company (TTM Digital) purchased approximately 4,500 GPUs with specialized Cryptocurrency Mining Processors through execution of an Asset Contribution and Exchange Agreement and a Purchase Order for a lease to buy financing arrangement which total $2.2 million over 180 days subject to acceleration based on the completion of certain corporate events. The Company issued 35,588,548 shares of common stock at the merger. The assets and equity were exchanged in April 2021 prior to the reverse merger with Sysorex, Inc.
Note ~~7 — Equity Method Investments~~
~~The Up North Hosting balance sheet was as follows as of September 30, 2021, and December 31, 2020 (in thousands of dollars):~~
September 30, December 31,
2021 2020

Current assets $ 263 $ 171
Non-current assets 1,190 1,247
Total assets $ 1,453 $ 1,418

Current liabilities 126 131
Total liabilities 126 131

Members’ equity 1,377 1,177
Retained Earnings (Deficit) (50 ) 110
Total Members’ Equity 1,327 1,287

Total Liabilities and Members’ Equity $ 1,453 $ 1,418
As of September 30, 2021, and December 31, 2020, Up North Hosting’s assets and liabilities were primarily comprised of fixed assets and short-term accrued liabilities as reflected on the consolidated balance sheet.
~~Fixed assets, net, which are owned by Up North Hosting, were comprised of the following (in thousands of dollars):~~
September 30, December 31,
2021 2020
Building $ 513 $ 513
Electrical Infrastructure Assets 525 525
Machinery & Equipment Assets 34 30
Mechanical (HVAC) Assets 271 271
Server and Network Assets 50 50
Gross value 1,393 1,389

Accumulated depreciation (237 ) (177 )
Property, plant, and equipment, net $ 1,156 $ 1,212

~~SYSOREX, INC. AND SUBSIDIARIES~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~The Up North Hosting statement of operations for the three and nine months ended September 30, 2021, and 2020 was as follows (in thousands of dollars):~~
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2021 2020 2021 2020

Revenues $ 326 $ 240 $ 818 $ 950
Cost of revenues, excluding depreciation 285 201 684 550
Selling, general, and administrative 100 105 330 485
Other (Income)/Expense (13 ) (11 ) (37 ) (31 )
Net Income (loss) (47 ) (55 ) (160 ) (54 )

Net Income (loss) attributable to TTM $ (24 ) $ (28 ) $ (79 ) $ (27 )
~~The Company’s main cost of revenues relates to the hosting and electricity expenses used to power the Datacenter and the hosted equipment.~~
~~Note 8~~6 — Intangible Assets

Intangible assets as of September 30, 2022, consist of the following:
Gross Net
Carrying Accumulated Carrying
Amount Amortization Amount
Trade name $ 1,060 $ (152 ) $ 908
Customer relationships 1,900 (685 ) 1,215
Total intangible assets $ 2,960 $ (837 ) $ 2,123
Intangible assets as of December 31, 2021, consist of the following:

Gross Net
Carrying Accumulated Carrying
Amount Amortization Amount
Trade Name $ 1,060 $ (48 ) $ 1,012
Customer Relationships 1,900 (216 ) 1,684
Total intangible assets $ 2,960 $ (264 ) $ 2,696
Gross Net
Carrying Accumulated Carrying
Amount Amortization Amount
Trade name $ 1,060 $ (74 ) $ 986
Customer relationships 1,900 (333 ) 1,567
Total intangible assets $ 2,960 $ (407 ) $ 2,553

Calendar Years ending December 31, Amount
Remaining 2021 144
2022 573
2023 573
2024 573
2025 266
Thereafter 567
Total $ 2,696
~~Note 9 — Credit Risk and Concentrations~~The estimated future amortization expense associated with intangible assets is as follows:

Calendar Years Ending December 31, Amount
2022 144
2023 573
2024 573
2025 266
Thereafter 567
Total $ 2,123
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.

~~SYSOREX, INC. AND SUBSIDIARIES~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
The following table sets forth the percentages of sales derived by ~~SGS~~the Company from those customers that accounted for at least 10% of sales during the ~~period April 15, 2021, through~~nine months ended September 30, 2022, and 2021 (in thousands of dollars):
For the Nine Months Ended
September 30, 2022 For the Period April 15, 2021, through
September 30, 2021
$ % $ %
Customer A 7,100       60 % 607 13 %
Customer B 2,834 24 % 2,499 55 %

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

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):
For the Three Months Ended
September 30, 2022 For the three months ended
September 30, 2021
$ % $ %
Customer A 1,335        38 %    -    -
Customer B 1,157 33 % 1,254 63 %
Customer C - - 278 14 %
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 AB and C represented approximately 39% and 40% of total accounts ~~receivable.~~receivable, respectively.
For the ~~period April 15, 2021, through~~nine months ended September 30, ~~2021, four~~2022, two vendors represented approximately ~~83%, 55%, 17% and 10%~~69% and18% of total purchases. Purchases from these vendors during the nine months ended September 30, ~~2020,~~2022, were ~~$2.6~~$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, ~~20214~~2021, were $0.9 million, $0.1 million respectively.
Mining equipment purchased from one TTM Digital vendor during the nine months ended September 30, 2021, was $14.2 million. Of the $14.2 million, in consideration exchanged $12 million was paid in Common Stock of the Company and the balance of $2.2 million was settled through payment in digital assets.
Geographic and Technology Concentration

The Company had geographic ~~concentration risk with mining operations being exclusively carried out within New York in the first Quarter of~~diversity between April 1, 2021, and ~~throughout 2020, while the Company has added geographic diversity during April 2021~~June 30, 2022, using a colocation datacenter in North Carolina. ~~Any legislation that restricts or bans~~Subsequent to June 30, 2022, the Company had consolidated its mining ~~of proof-of-work related digital asset mining~~operations exclusively in New ~~York State would have a negative impact on the Company’s ability to operate and generate revenues.~~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. ~~When and if~~As of September 15, 2022, Ethereum ~~switches~~switched from a proof-of-work model to a proof-of stake ~~the Company’s GPUs will~~model. The Company is no longer be able to mine Ethereum. Additionally, on August 5, 2021, the London Hard Fork protocol went into effect which includes changes in Ethereum’s handling of transaction fees. These changes could have an impact on the Company’s future potential Ethereum revenue stream due to less Ethereum being distributed per mined block, if not offset by an increase in the value of ETH and/or additional transaction tipping, the process by which a user can pay an additional amount to ensure a transaction is processed very quickly. The Company did not see any financial impact during the quarter ended September 30, 2021.

Note 108 — ~~Convertible Debentures & Warrants~~Short-term debt
~~Convertible~~Short-term debt as of September 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, consisted of the following (in thousands):
September 30, December 31,
2022 2021
Convertible Debentures, including interest payable to the Convertible Debenture Holders $ 15,985 $ 19,439
Total Short-Term Debt $ 15,985 $ 19,439

As of
September 30, As of
December 31,
2021 2020
Convertible Debentures & Warrants, net of debt discount and debt issuance costs of $1.9 million, and $1.06 million, respectively $ 11,208 $       -

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.~~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 ~~mature~~matured on July 7, ~~2022, subject~~2022. The Company intends to ~~a three-month extension upon mutual agreement~~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 ~~and~~will be able to satisfy its debt with the ~~holder.~~additional issued common stock.
On August 13, 2021, the ~~company~~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 ~~mature~~matured on August 13, ~~2022, subject~~2022. The Company intends to ~~a three-month extension upon mutual agreement~~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 ~~and~~will be able to satisfy its debt with the ~~holder.~~additional issued common stock.

~~SYSOREX, INC. AND SUBSIDIARIES~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
In conjunction with the Convertible Debentures, the Company entered into a Warrant Purchase Agreement (the “Agreement”) providing investors the right to purchase common stock of Sysorex. The exercise price will be either 1) the Qualified Offering Price, in the event of a Qualified Offering or 2) in the event of no Qualified Offering, the lower of a) $18.00 and b) an amount equal to 80% of the average of VWAP (as defined therein) for the common stock. The term of the warrant is five years. The warrants issued in connection with the debt were equity classified at issuance and were allocated a value of approximately $810,000 on a relative fair value basis.
The Company recorded the debt net of the 12.5% discount, of which totaled $1,100,000, the placement agent fees and expenses of $1,267,000 and the debt discount attributed to the fair value of the warrants of approximately $810,000. The Company accreted these values over the term of the loan, resulting in an expense of approximately $631,000 for the three and nine months ended September 30, 2021, which is included in interest expense in the condensed consolidated statement of operations.
The Convertible Note bears interest at the rate of 8% per year and is due and payable quarterly after the date of issuance. The Company recognized approximately $0.2 million of such interest expense for the quarter ended September 30, 2021. Included in short-term debt is $0.2 million of interest payable on October 1, 2021, to its’ convertible holders
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.

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 $ 7,531 $     - $    - $ 7,531
Common stock derivative liability $ 45 $ - $ - $ 45
Total derivative liabilities $ 7,576 $ - $ - $ 7,576
Total recurring fair value measurements $ 7,576 $ - $ - $ 7,576

As of December 31, 2021
Recurring fair value measurements
Derivative liability:
Conversion feature derivative liability $ 8,355 $        - $        - $ 8,355
Total recurring fair value measurements $ 8,355 $ - $ - $ 8,355
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:
Conversion
feature
derivative
liability Common
stock
derivative
liability Total
level 3
derivative
liability
Balance as of December 31, 2021 $ 8,355 $ - $ 8,355

Transferred to equity on debt conversion (2,383 ) (6 ) (2,389 )
Transferred from equity on recognition of derivative liability - 314 314
Increase (Decrease) in fair value included in earnings 1,559 (263 ) 1,296

Balance as of September 30, 2022 $ 7,531 $ 45 $ 7,576
Note 10 — Digital Assets

The following ~~table presents~~tables present the roll forward of digital asset activity from continuing and discontinued operations during the periods ended:

Nine months ended
September 30, Nine months ended
September 30,
2021 2020 2022 2021
Opening Balance $ 24 $ 25 $ 5,202 $ 24
Revenue from mining 9,244 1,167 4,077 9,244
Received for membership interest - 46
Payment of Mining equipment under lease to buy arrangement
(1,091 ) -
Payment of mining equipment under lease to buy arrangement - (1,091 )
Mining pool operating fees (96 ) (2 ) (41 ) (96 )
Impairment of digital assets (2,494 ) (325 )
Management fees (322 ) (121 ) - (322 )
Owners distributions (1,521 ) (646 )
Owners’ distributions - (1,521 )
Proceeds from sale of digital assets (3,670 ) (410 ) (8,023 ) (3,670 )
Impairment of digital assets (325 ) -
Transaction fees (132 ) -
Realized gain on sale of digital assets 91 6 1,498 91
Ending Balance $ 2,334 $ 65 $ 87 $ 2,334

Three months ended
September 30,
2021 2020
Opening Balance $ 105 $ 26
Revenue from mining 2,992 614
Received for membership interest - 46
Payment of Mining equipment under lease to buy arrangement (72 ) -
Mining pool operating fees (30 ) (1 )
Management fees - (87 )
Owners’ distributions - (345 )
Proceeds from sale of digital assets (339 ) (180 )
Impairment of digital assets (325 ) -
Realized gain on sale of digital assets 3 (8 )
Ending Balance $ 2,334 $ 65
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 )
Proceeds from sale of digital assets (1,068 ) (339 )
Transaction fees (20 ) -
Realized gain on sale of digital assets 227 3
Ending Balance $ 87 $ 2,334

~~SYSOREX, INC. AND SUBSIDIARIES~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
Note 1211 — Equity

As discussed in Note 23 Basis of Presentation the Company completed a reverse merger of Sysorex and TTM Digital with TTM Digital being the accounting acquirer and reporting entity. In a reverse merger, the capital accounts of the reporting entity (TTM Digital) are restated to reflect the legal capital structure of the legal acquirer (Sysorex). As a result, the share data of the reporting entity has been retroactively restated for all periods presented to the equivalent share values of Sysorex for the capital transaction activity of TTM Digital, as if the reverse merger occurred on January 1, 2020. The share data of the reporting entity has been retroactively stated for all periods presented to the equivalent share values of Sysorex. ~~The Company is~~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 ~~to issue 500,000,000~~ 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 ~~$0.00001 par value,~~ and 10,000,000 shares ofwill be designated as preferred stock, ~~$0.00001 par value. The holders of~~in accordance with the ~~Company’s common stock are entitled to one vote per share.~~voting results listed below. As of September 30, ~~2021, 500,000,000 common stock shares were authorized; 146,269,591~~2022, 736,609,855 shares were issued, and ~~146,194,212~~736,534,476 shares were outstanding. No preferred stock has been designated or issued.

As of December 31, 2019, the Company had 55,776,240 shares outstanding. During the quarter ended September 30, 2020, the Company issued 10,655,680 shares. As of December 31, 2020, the Company had 66,431,290 shares outstanding.
~~During the quarter ended March 31, 2021, the Company issued to Moon Manager LLC, 14,607,980 shares and issued the rights to an additional 2,000,000 shares.~~
Effective on April 1, 2021, TTM Digital entered into an Asset Contribution and Exchange Agreement (Mining Equipment) to acquire approximately 4,500 GPUs with CoreWeave. In connection with the Contribution and Exchange Agreement, TTM Digital issued equity representing 28.65% of the pre-merger equity outstanding for TTM Digital. In settlement of the Contribution and Exchange Agreement the Company issued 35,588,548 shares valued at $12 million.
On April 14, 2021, the reverse merger of Sysorex and TTM Digital closed. As a result of the reverse merger, the Company recognized the 494,311 shares outstanding of the existing Sysorex Shareholders and the 75,379 shares of Treasury stock of Sysorex that are part of the legal capital structure. The Company recorded $0.03 million as purchase consideration on the recognition of the existing Sysorex Shareholders share by the reporting entity.
As discussed in Note 2, the majority of the Sysorex debt, certain liabilities classified as current and a forward consulting contract with a former Sysorex Board Member (the “Debt Items”) aggregating $19.4 million were converted to 34,097,255 Sysorex shares when fully issued (the “Sysorex Recapitalization”). 25,985,633 shares were immediately issued, prefunded rights were exchanged from an investor’s issued shares for 5,111,622 shares and the right to receive 3,000,000 shares of Sysorex stock at a future date at the option of the holder subject to certain events.
During the three months ended June 30, 2021, the Company additionally issued an aggregate of 404,820 shares, comprised of 339,820 pre-merger shares for corporate advisory expertise and consulting services to be provided in relation to the Merger at a value of $1.9 million, and 65,000 shares in exchange for consulting and legal services at a value of $0.04 million.
During the three months ended September 30, 2021, the Company issued an aggregate of 1,025,000 shares for corporate advisory expertise and consulting services at a value of $0.5 million. The Company as noted in Note 10 – Debt, issued convertible debt and warrants. The Company used a ‘With and Without’ valuation method to obtain a fair value for the warrants as of the July grant date. This valuation method yielded a fair value of $0.18 warrant share. The warrants were valued at $0.8 million and recorded in equity. The Warrants are exercisable for five years from the original issue date.
Stock Options

A summary of stock option activity for the ~~nine-month period~~nine months ended September 30, ~~2021~~2022, is as follows:

Number of
Options
(in Shares) Weighted Average
Exercise Price Number of
Options
(in Shares) Weighted
Average
Exercise
Price
Outstanding, January 1, 2020 - -
Outstanding, January 1, 2022 1,656,000 $ 2.00
Granted 1,656,000 $ 2.00 - $ -
Exercised - - - -
Forfeited or cancelled - - - -
Outstanding, September 30, 2021 1,656,000 $ 2.00
Outstanding, September 30, 2022 1,656,000 $ 2.00

Exercisable, September 30, 2021 1,656,000 $ 2.00
Exercisable, September 30, 2022 1,656,000 $ 2.00

Warrants
The following table represents the activity related to the Company’s ~~valued~~warrants during the stock options based on the Monte Carlo valuation methodology on July 20, 2021, the stock options grant date. The stock options were immediately vested and have a life of ten years. The value of the awards was determined to be approximately $0.4 million over the derived service period. The fair value of the common stock as of the grant date was determined to be $0.24 per share. The Company recognized approximately $0.03 million of stock-based compensation for the quarternine months ended September 30, ~~2021. The unrecognized stock-based compensation of $0.3 million will be recorded over the derived service period ending in the second quarter 2024.~~2022:

Number of
Warrants
(in Shares) Weighted Average
Exercise
Price
Outstanding, January 1, 2022 5,926,763 $ *
Granted - -
Exercised (418,931 ) -
Outstanding, September 30, 2022 5,507,832 $              -
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.
* 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 1,000,000 $ 0.48
Granted - -
Vested 1,000,000 0.40
Unvested, September 30, 2022 - $ -

~~SYSOREX, INC. AND SUBSIDIARIES~~As of September 30,2022, there is no unrecognized stock compensation expense.
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~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 $        38
Stock options 6
RSUs vested but unissued 1
Total share derivative liability $ 45
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 736,609,855 736,610
9/30/2021 145,713,591 145,714
Shares Outstanding:
9/30/2022 736,534,476 736,534
9/30/2021 145,638,212 145,638

Treasury Stock: 75,379 75

Three months ended
September 30,

Nine months ended
September 30,

EPS 2022 2021 2022 2021
Weighted Average Shares
Outstanding - basic and diluted As stated 500,173,946 159,448,204 318,558,213 131,863,780
Proforma 573,174 159,448 318,558 131,864

Net income (loss) per share:
Continuing operations As stated 0.0001 (0.0370 ) (0.0310 ) (0.2620 )
Proforma 0.1000 (37.00 ) (31.00 ) (262.00 )

Discontinued Operations As stated (0.002 ) 0.0070 (0.0030 ) 0.0400
Proforma (2.00 ) 7.00 (3.00 ) 40.00
Note 1312 — Commitments and Contingencies

Contractual Commitments
~~The Company agreed~~On September 5, 2017, prior to ~~hosting arrangements whereby each month,~~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 ~~to pay approximately $0.045 million per month~~included as ~~per~~a component of accounts payable and accrued liabilities as of September 30, 2022, in the hosting facilities services order and the services agreement for the operation and management of the machines. In addition, the Company entered into a separate services arrangement whereby at a minimum, $0.035 million per month is charged for personnel per the Master Services Agreement. In excess of 525 hours from provider, there are hourly charges. It is not expected that the fee is greater than $35,000 per month. In total, the Company is contractually obligated to pay approximately $0.085 million per month.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, ~~(“Merger”)~~ to file an initial registration statement covering the Shares. The ninety (90) calendar day filing date was July 13, 2021 (“Filing Deadline”). The Company did not fulfil its obligation to file a registration statement covering the Shares by July 13, 2021, nor any date ~~thereafter up to and including the filing of this 10Q Filing~~ and therefore has accounted for an accrued liability in the amount of ~~$0.163~~$0.2 million recorded in the unaudited condensed consolidated balance sheets – accrued liabilities for the ~~nine months~~year ended September 30, ~~2021.~~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:
Calendar Years Ending December 31, Amount
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
Other assumptions and pertinent information related to the Company’s accounting for operating leases are:
Weighted average remaining lease term: 2.67 years
Weighted average discount rate used to determine present value of operating lease liability: 8 %

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. ~~There are no pending legal proceedings to which the Company is a party to.~~

Note 1413 — Related Party Transactions

Effective April 1, 2021, the Company entered a variety of contracts with CoreWeave, Inc. (“CoreWeave”).

~~Asset Contribution and Exchange Agreement~~
On April 1, 2021, CoreWeave contributed 3,130 GPU of data mining equipment with 150 gigahash of computing power to the Company in exchange for an equity interest representing 28.65% of the outstanding pre-merger equity of TTM Digital prior to the merger transaction with Sysorex for a total value of approximately $12 million. As a result of the merger, and in consideration for the 28.65% ownership of TTM Digital. CoreWeave was issued 35,588,548 shares of Sysorex common stock at the merger.
~~Lease to Buy Purchase Order~~
The Company acquired 1,344 GPU data mining equipment with 125 gigahash of computing power in a lease to buy arrangement. The Company agreed to total payments of $2.2 million over 180 days subject to acceleration based on the completion of certain corporate events. Revenue generated by operation of the equipment from April 1, 2021, shall be credited against the purchase price until payment of the balance of the purchase price. The Company has determined that the fair value of the installment payments is $2.1 million and will record $70,000 in financing interest costs for the aggregate $2.2 million in installment payments. The Company recognized approximately $70,000 and $200,000 of such interest expenses during the nine months and three months ended September 30, 2021, respectively
Hosting Facilities Services Order

The Hosting Facility Services Order (the “Hosting Contract”) provided for the provision of hosting facility space and services by CoreWeave. The services are paid for in advance of the service month and the initial term of the hosting services is through June 30, 2022, ~~and~~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). ~~The Company recorded $130,000~~For the three and ~~$60,000 in hosting costs for the~~ nine ~~and three~~ months ended September 30, ~~2021.~~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.

~~SYSOREX, INC. AND SUBSIDIARIES~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Services Agreement
The initial term of the Services Agreement runs from April 1, 2021, through ~~September 30,~~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%. ~~The Company recorded $140,000~~For the three and ~~$70,000 in mining costs for the~~ nine ~~and three~~ months ended September 30, ~~2021.~~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.
~~Master Services Agreement~~
On April 29, 2021, the Company entered into a Master Services Agreement with CoreWeave to provide support to management relating to cryptocurrency expertise, marketing, and other operational matters for a three-month term. The compensation for these services is a fixed fee of $35,000 per 30-day period, which includes 175 hours per period. The Company recorded $110,000 and $30,000 in service costs for the nine and three months ended September 30, 2021.
~~First Choice International Company, Inc (“First Choice”)~~
On July 9, 2021, the Company executed an agreement whereby First Choice will provide consulting services to the Company. The Company paid First Choice a fully earned flat fee of $175,000 for its services. The Agreement shall extend for an initial period of six (6) months. Unless immediate termination is otherwise specifically permitted herein, the Company may cancel the agreement by providing thirty (30) calendar days written notice. Notwithstanding, in the event of a Termination Notice, all of the compensation due during the Term or any extension thereof shall be deemed fully earned and/or immediately due and payable.
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 ~~may request Bespoke~~agreed to ~~expand its~~total compensation for services ~~to advise~~of $975,000 which of which $775,000 was paid during the ~~Company with respect to an up-listing to a national stock exchange.~~year ended December 31, 2021. The Company ~~has agreed pay~~made an additional payment in accordance with the ~~consultant a $500,000 success~~agreement of $200,000 in January 2022. The Company expensed this advisory fee ~~within 5 days of commencement of trading on a national exchange. As of~~during the ~~period~~nine months ended September 30, ~~2021,~~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 ~~has paid and/or prepaid compensation and expenses under~~entered into a consulting agreement with Bespoke. Under the terms of the consulting agreement, ~~totaling~~the Company is to pay Bespoke a gross advisory fee of $975,000 offor 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 ~~$575,000 was~~is recorded ~~to General~~as consultant fees in general and ~~Administrative expenses~~administrative in the ~~Condensed Consolidated Statements~~condensed consolidated statement of ~~Operations and the balance of $400,000 was recorded to Prepaid Expenses in the Condensed Consolidated Balance Sheet and will be expensed over the remaining consulting service period.~~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 ~~shall pay~~paid and recorded $25,000 ~~per month.~~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.

~~Style Hunter,~~One Percent Investments, Inc.
On September 26, 2021, the Company acquired a 5% minority interest in Style Hunter, Inc. (“Hunt”). The Hunt issued 613,723 shares of its common stock: par value $0.0001 per share for $0.81470 per share for a total price of $500,000. The Company shall have a one-time option to purchase an additional $500,000 of the Common Stock (“Option”) on or before the 360-day anniversary of Closing Date as follows: (i) if the Buyer exercises its Option prior to the 90-day anniversary of Closing Date the per-share purchase price of the additional shares of Common Stock (the “Option Price”) shall be $0.81470 (a $10,000,000 Company valuation), (ii) if the Buyer exercises its Option after the 90-day anniversary of Closing Date, but prior to the 180-day anniversary of Closing Date, the Option Price will be $1.22200 (a $15,000,000 Company valuation), or (iii) if the Buyer exercises its option
~~after the 180-day anniversary of Closing the Option Price will be $2.03670 (a $25,000,000 Company valuation).~~
~~Note 15 — Subsequent Event~~
On ~~November 2, 2021,~~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 ~~a Membership Interest Purchase~~Amendment No. 2 (“Amendment No. 2”) to Employment Agreement, ~~with BWP Holdings LLC to purchase the remaining 50% interest in Up North Hosting LLC. The aggregate purchase price for the membership interest is $1.0 million in cash~~by and ~~1 million shares of restricted common stock, $0.00001 par value of the Company. The restricted common stock was issued to an executive of BWP Holdings LLC who was hired by~~between the Company ~~on October 1, 2021, as~~and Vincent Loiacono, the Company’s Chief ~~Technology~~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 ~~(“CTO”).~~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 ~~Company issued the CTO~~Second Amendment provides a ~~one-time sign-on~~minimum bonus of ~~One Hundred Thousand (100,000) shares of restricted common stock~~$100,000 for achievement of the ~~Company.~~bonus milestone. The ~~CTO will be entitled to additional shares of restricted common stock on two subsequent anniversary dates.~~bonus milestone is based upon the following:
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 five million dollars in financing by or before December 31, 2022, in one transaction or a series of related transactions.

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 $ 22 $ 565
Rent 18 17
Vendor Payments 39 -
Insurance 1 162
License and Maintenance Contracts 545 658
Other 2 -
$ 627 $ 1,402
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:
(i) A number of additional shares of common stock equal to 10% of the Purchased Shares acquired by such Investor on the closing date, with such number of Purchased Shares being adjusted for any forward or reverse splits of the common stock between the closing date and the date of such issuance (the “Additional Shares”); and
(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 $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.

~~Item 2.~~ ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~You should read the~~The following discussion and analysis of our financial condition and results of operations should be read in conjunction ~~with~~ the ~~combined~~unaudited financial statements and ~~the~~ 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, ~~2020,~~2021 and ~~2019 and~~2021 included in Amendment No. 1 to the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020, filed with SEC on March 31,~~ 2021 ~~and in conjunction with the Company’s 8-K/A~~ filed with the SEC on May 23, 2022 (the “10-K Amendment”), and Amendment No. 2 on Form 10-K filed on June ~~24, 2021.~~
1, 2022. In addition to ~~our~~ historical ~~condensed consolidated financial~~ information, the ~~following~~ discussion and analysis here and throughout this Form 10-Q contains forward-looking statements that ~~reflect our plans, estimates,~~involve risks, uncertainties and ~~beliefs.~~assumptions. Our actual results ~~could~~may differ materially from those ~~discussed~~anticipated in these forward-looking statements due to a number of factors, including but not limited to, risks described in the ~~forward-looking statements. Factors that could cause or contribute~~section entitled “Risk Factors” in the 10-K Amendment, as the same may be updated from time to ~~these differences include those discussed below and elsewhere in this Form 10-Q, particularly in Part II, Item 1A, “Risk Factors.”~~time.

The historical financial statements we have included in this Form 10-Q may not reflect what our business, financial position or results of operations would have been had we been a publicly traded company during the periods presented or what our results of operations, financial position and cash flows will be in the future when we were a stand-alone company.
Overview of the Company’s Subsidiaries
~~TTM Digital~~
TTM Digital is a digital asset technology and mining company that owns and operates a large number of specialized cryptocurrency mining processors and is currently focused on the Ethereum blockchain ecosystem. Following the Merger, the business of TTM Digital has become a primary business segment of the Company.
TTM Digital was originally formed as a Delaware limited liability company on June 28, 2017, under the name of TTM Ventures LLC. Thereafter, on March 30, 2021, it filed a certificate of conversion to a non-Delaware entity with the Secretary of State of the State of Delaware together with Articles of Conversion and Articles of Incorporation with the Secretary of State of the State of Nevada filed on the same date. As a result, of such conversion, TTM Digital has become a Nevada corporation under the name of “TTM Digital Assets & Technologies, Inc.”

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.

~~Basis of Presentation~~TTM Digital
~~The accompanying unaudited condensed consolidated financial statements~~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 ~~Company have been prepared in accordance with GAAP for interim financial information, which are~~process of changing their business model to continue utilization of their mining assets, as the accounting principles that are generally accepted in the United States of America. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessaryGPUs can be repurposed for a ~~fair presentation have been included.~~number of other profitable business models. The ~~results~~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 ~~Company’s operations for the nine-month period ended September 30, 2021, are not necessarily indicative~~sale of ~~the results~~its assets to be expected for the year ending December 31, 2021. These interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s 8-K/A filed with the SEC on June 24, 2021.maximize revenue streams utilizing its current assets.

Known Trends or Uncertainties

TTM Digital has an evolving business model which is subject to various uncertainties. As digital assets and blockchain technology become more widely utilized on a mass scale, we anticipate that the services and products associated with the technologies will continue to evolve. To successfully continue in the industry, our business model may need to evolve to reflect the trends of the industry. Over time, we may 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. There is a possibility of digital asset mining algorithms transitioning to proof-of-stake validation and other mining-related risks, which could make us less competitive and ultimately adversely affect our business and our ability to generate revenues. When and if Ethereum switches to “proof-of-stake” our GPUs will no longer be able to mine Ethereum. TTM Digital will mine other coins with the GPUs. At that time, instead of mining with GPUs, the amount of Ethereum accumulated in our treasury will be used to staked to the network in the “proof-of-stake model” When you proof-of-stake, you earn rewards based on the amount of Ethereum you have. Further, TTM Digital is concentrated in operations to support the ‘Web 3.0’ movement of leveraging the decentralized blockchain protocol for processing financial transactions and ownership rights. Additionally, on August 5, 2021, the London Hard Fork protocol (EIP 1559) went into effect which includes changes in Ethereum’s handling of transaction fees. EIP 1559 improves the efficiency of commissions, mainly on the user side. At the block level, EIP 1559's scheme allows the base fee to vary by up to 12.5% from block to block, allowing users to predict and pay a relatively accurate fee based on the rules to improve the user experience. This comes at the expense of Ethereum miners by not providing the base fee as part of the block reward for mining a block. EIP 1559 is designed to make Ethereum less inflationary by taking or “burning” ETH out of circulation, which is the excess ETH leftover from the lower transaction fee. These changes could have an impact on the Company’s future potential Ethereum revenue stream due to less Ethereum being distributed per mined block, if not offset by an increase in the value of ETH and/or additional transaction tipping, the process by which a user can pay an additional amount to ensure a transaction is processed very quickly. The Company did not see any financial impact during the quarter ended September 30, 2021.
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 ~~September 30th,~~December 31st, respectively). SGS may ~~also~~ 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.
~~Material Changes~~
On April 8, 2021, the Company, TTM Digital, “MergerSub”, entered into 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. On 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 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. 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.
Effective on April 1, 2021, TTM Digital entered into an Asset Contribution and Exchange Agreement to acquire 3,130 GPUs, and thereafter a Purchase Order on April 1, 2021, for a lease-to-buy financing arrangement to acquire 1,344 GPUs with CoreWeave, with both CoreWeave agreements closing on or after April 1, 2021. In connection with the Contribution and Exchange Agreement, TTM Digital issued equity to the sellers representing 28.65% of the pre-merger equity outstanding for TTM Digital and agreed to installment payments of $2.2 million over 180 days subject to acceleration based on the completion of certain corporate events. Additionally, the parties entered a service agreement on the same date providing for installation and configuration, operation, and management of the mining systems of TTM Digital by CoreWeave. It includes the use of the management software to monitor, maintain, troubleshoot, and communicate with the hosting service providers as well as certain physical repairs. As part of the arrangement, the Company made an initial down payment of $100,000 which was applied to future invoices. The ongoing fee is determined based on the number of specific mining systems under the Service Agreement. Based on the number and type of units at the arrangement’s inception, monthly costs are expected to be $32,400. All third-party software costs associated with the Services and operation of the equipment will be passed through to the Company. The initial term of the agreement expires on June 30, 2022, and shall automatically renew thereafter for successive one (1)-year terms unless either party terminates within sixty (60) days of the then current term.

~~On July 7, 2021,~~TTM Digital, as noted above, our business model may need to evolve to reflect the Company consummated the initial closing of a private placement offering (the “Offering”) pursuant to the terms and conditions of a Securities Purchase Agreement. At the initial closing the Company sold the purchasers (i) 12.5% Original Issue Discount Convertible Debentures in an aggregate principal amount of $9,990,000 and (ii) warrants to purchase up to 3,534,751 shares of common stocktrends of the ~~Company. The Company received total gross proceeds~~industry. Over time, we may be required to modify aspects of ~~$8,880,000 taking into account~~our business model relating to our strategy. We cannot offer any assurance that we will be successful or that the ~~12.5% discount before deducting placement agent fees~~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 ~~expenses of approximately $913,000. The Debentures mature~~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 ~~July 7, 2022, subject~~those opportunities to current or future competitors. As anticipated, any such circumstances could have a ~~three-month extension upon mutual agreement of the Company and the holder.~~material adverse effect on our business, prospects, or operations

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 mature on August 13, 2022, subject to a three-month extension upon mutual agreement of the Company and the holder.

Three Months Ended September 30, ~~2021,~~2022, Compared to Three Months Ended September 30, ~~2020~~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 ~~presents~~present the roll forward of digital asset activity from continuing and discontinued operations during the respective periods:

Three months ended
September 30, Three months ended
September 30,
2021 2020 2022 2021
Opening Balance $ 105 $ 26 $ 218 $ 105
Revenue from mining 2,992 614 809 2,993
Received for membership interest - 46
Payment of Mining equipment under lease to buy arrangement
(72 ) -
Payment of mining equipment under lease to buy arrangement - (72 )
Mining pool operating fees (30 ) (1 ) (8 ) (31 )
Management fees - (87 )
Owners’ distributions - (345 )
Impairment of digital assets (325 ) - (71 ) (325 )
Transaction fees (20 ) -
Proceeds from sale of digital assets (339 ) (180 ) (1,068 ) (339 )
Realized gain on sale of digital assets 3 (8 ) 227 3
Ending Balance $ 2,334 $ 65 $ 87 $ 2,334
Discussion of Results of Operations of TTM Digital for the Three Months Ended September 30, 2022, and 2021

~~Revenues~~The activities for TTM revenues and costs for the three months ended September 30, 2022, represent discontinued operations.

Revenues ~~for~~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, ~~2021, and 2020 were $4.9 million and $0.6 million, respectively. TTM mining revenues for~~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.

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, ~~and 2020, were~~was approximately ~~$3.0~~$12.0 million and ~~$0.6~~$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 23 - Basis of Presentation, the acquisition/merger was effective April, ~~14,~~ 2021 which resulted in SGS’s reporting period of April 15, 2021 through September 30, 2021. SGS revenues for the three months ended September 30, 2021, was approximately $1.9 million. SGS revenues resulted from product sales to U.S. governmental agencies and local county governments. Revenues from mining are impacted significantly by volatility in cryptocurrency prices. For the three months ended September 30, 2021, and 2020, TTM mined 1,069 ETH and 1,739 ETH respectively, with approximately 9,000 GPUs and 5,000 GPU’s per respective period. In 2021, due to increased competition, it became four times harder to mine compared to2020, where there were fewer miners and the Company could generate more ETH with fewer GPU’s. The average price of Ethereum mined in Q3 2021 was approximately $2,771 compared to approximately $353 in Q3 2020.

~~Mining, Product, and Service Costs~~
Mining, product, and service costs for the three months ended September 30, 2021, of approximately $1.9 million consisted of TTM’s direct production costs of mining operations were approximately $0.4 million, including utilities and fees, but excluding depreciation, which are separately stated and SGS’s cost primarily of product sales of approximately $1.1 million. Mining costs for the three months ended September 30, 2020, was approximately $0.4 million. TTM’s direct cost did not increase inAs a ~~direct linear correlation with the increase in operational Gigahash capacity due to the increased efficiencies of the new and replacement equipment, in addition to the seasonality of power pricing.~~
~~Depreciation~~
Depreciation expense in the three months ended September 30, 2021, totaled approximately $1.3 million, compared to $0.2 million during the three months ended September 30, 2020. The increase in depreciation is primarily attributable to the CoreWeave assets acquired disclosed in the notes to the financial statements. The increased asset base of approximately $14.2 million resulted in increased depreciation year over year.
~~Selling, General, and Administrative Expenses~~
Selling, general, and administrative expenses (“SG&A”) for the three months ended September 30, 2021, was $3.7 million, which were associated with non-employee compensation costs, professional fees incurred related to the acquisition, and corporate transaction costs incurred. TTM Digital has minimal SG&A costs for the three months ended September 30, 2020, due to efforts to limit expenditures while expanding operational capacities.
~~Other Income and Expense~~
Other income and expense for the three months ended September 30, 2021, and 2020 were approximately $1.0 million, primarily related to interest expense and $0.03 million, primarily related to gain on disposal of assets, respectively
~~Nine Months Ended September 30, 2021, Compared to Nine Months Ended September 30, 2020~~
~~Summary of Mining Result~~
~~The following table presents the roll forward of digital asset activity during the respective periods:~~
Nine months ended
September 30,
2021 2020
Opening Balance $ 24 $ 26
Revenue from mining 9,244 614
Received for membership interest - 46
Payment of Mining equipment under lease to buy arrangement
(1,091 ) -
Mining pool operating fees (96 ) (1 )
Management fees (322 ) (87 )
Owners’ distributions (1,521 ) (345 )
Impairment of digital assets (325 ) -
Proceeds from sale of digital assets (3,670 ) (180 )
Realized gain on sale of digital assets 91 (8 )
Ending Balance $ 2,334 $ 65
~~Revenues~~
~~Revenues for~~result, the nine months ended September 30, 2021, ~~and 2020 were $13.1 million and $1.2 million, respectively. TTM mining revenues for~~is not comparable in total months of operation to the nine months ended September 30, 2021, and 2020 were approximately $9.2 million and $1.2 million, respectively. As disclosed in the notes to the financial statements, Note 3 Basis of Presentation, the acquisition/merger was effective April 14, 2021 which resulted in SGS’s reporting period of April 15, 2021 through September 30, 2021. SGS revenues for the period April 15, 2021 through September 30, 2021, was approximately $3.9 million. SGS revenues resulted from product sales to U.S governmental agencies and local county governments. Revenues from mining are impacted significantly by volatility in cryptocurrency prices and as a result, revenues per Ethereum unit increased greatly year to year in addition to a 110% increase in Gigahash processing power in the quarter ended September 30, 2021. The average price of Ethereum mined in the first three quarters of 2021 was approximately $2,276 compared to approximately $256 in the first three quarters of 2020.2022.
~~Mining,~~ Product, ~~and Service Costs~~
~~Mining, product,~~ and service costs for the nine months ended September 30, ~~2021,~~2022, of approximately ~~$4.0~~$8.4 million ~~consisted~~included a gain on a vendor liability settlement of ~~TTM’s direct production~~$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 ~~mining operations of~~$1.5 million, the margin is approximately $0.9 million, including utilities and fees, but excluding depreciation, which are separately stated and SGS’s cost primarily of product sales of approximately $3.1 million. TTM’s direct cost did not increase in a direct linear correlation with the increase in operational Gigahash capacity due to the increased efficiencies of the new and replacement equipment, in addition to the seasonality of power pricing.17%.

~~Depreciation~~
Depreciation expense in the nine months ended September 30, 2021, totaled approximately $2.8 million, compared to $0.6 million during the nine months ended September 30, 2020. The increase in depreciation is primarily attributable to the CoreWeave assets acquired disclosed in the notes to the financial statements. The increased asset base of approximately $14.2 million resulted in increased depreciation year over year.
~~Selling, General, and Administrative Expenses~~
Selling, general, and administrative expenses (“SG&A”) for the nine months ended September 30, ~~2021,~~2022, was ~~$8.4~~$4.4 million, which were associated with ~~non-employee~~ compensation and payroll tax costs, and professional fees ~~incurred~~ related to the ~~acquisition~~Heads of Terms investment and ~~corporate transaction costs incurred.~~sale of TTM ~~Digital has minimal SG&A costs for the nine months ended September 30, 2020, due to efforts to limit expenditures while expanding~~assets and ongoing operational ~~capacities.~~advisory and accounting services.
~~Other Income and Expense~~
Other income and expense, including interest expense for the nine months ended September 30, ~~2021, and 2020 were~~2022, was approximately ~~$25~~$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 ~~$0.4 million primarily related to~~ a ~~gain on disposal~~conversion feature derivative liability valuation of ~~assets, respectively. For~~$1.6 million. Other income and expenses for the nine months ended September ~~30, 2021,~~30,2021 was approximately $25.0 million. SGS recorded approximately $22.0 million in merger charges, $2.0 million in debt restructuring fees and ~~$1.0~~$0.9 million in interest ~~costs,~~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.

Liquidity and Capital Resources as of September 30, ~~2021~~2022

Going Concern

As of September 30, ~~2021,~~2022, the Company had an approximate cash balance of ~~$4.3~~$0.1 million, working capital deficit of approximately ~~$10.6~~$21.6 million, and an accumulated deficit of approximately ~~$28.1~~$60.4 million. The aforementioned factors raise substantial doubt about the Company’s ability to continue as a going ~~concern for the next twelve months following the issuance of these financial statements.~~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.

Funding our operations on a go-forward basis will rely significantly on the Company’s ability to continue to mine cryptocurrency and the spot or market price of the cryptocurrency mined. The Company expects to generate ongoing revenues from the mining of cryptocurrencies, primarily Ethereum currency rewards, in its mining facilities. The Company’s ability to liquidate Ethereum currency rewards at future values will be evaluated from time to time to generate cash for operations. Generating Ethereum currency rewards which exceed our production and overhead costs will determine the Company’s ability to report profit margins related to such mining operations. If the Company is unable to ~~generate sufficient revenue from~~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 ~~mining~~to continue to fund operations when needed, ~~or secure additional sources of funding, it may be necessary~~and as such, the Company does not currently have enough Ethereum on hand to ~~significantly reduce~~fund operations through the ~~current rate of spending or explore other strategic alternatives.~~next twelve months.

Our capital resources and operating results as of and through September 30, ~~2021,~~2022, consist of the:

1) An overall working capital deficit of ~~$10.6~~$21.6 million,
2) Cash and cash equivalents of ~~$4.3~~$0.1 million,
3) Net cash used in operating activities of ~~$5.8~~$6.9 million,
4) Net cash provided by investing activities of ~~$3.1 million, and~~
~~5) Net cash provided in financing activities of $6.9~~$6.4 million.
~~Operating Activities~~
Net cash used in operating activities was $5.8 million during the nine months ended September 30, 2021. Cash was consumed from continuing operations by the net loss of $28.0 million, plus non-cash and one-time items of $30.5 million, consisting primarily of merger charges of $22.0 million, non-employee compensation costs of $2.4 million, shares issued in exchange for services, restructuring fees of $2.0 million, and depreciation and amortization of $3.0 million offset by, changes in assets and liabilities of $8.0 million.
Net cash used in operating activities was $0.4 million during the nine months ended September 30, 2020. Cash was consumed from the net loss of less than $0.2 million, plus non-cash items of $1.2 million, consisting of depreciation of $0.6 million, offset primarily by decreases in digital assets of $1.1 million.

~~Investing Activities:~~
Net cash provided by investing activities during the nine months ended September 30, 2021, was approximately $3.1 million, primarily driven from proceeds from the sale of digital assets and offset in its’ investments Up North and Style Hunter. Net cash provided by investing activities for the nine months ended September 30, 2020, was approximately $0.1 million, driven primarily from the proceeds from the sale of digital assets.
~~Financing Activities:~~
Net cash provided by financing activities during the nine months ended September 30, 2021, was approximately $6.9 million. Net cash provided by financing activities for the nine months ended September 30, 2020, was less than $0.6 million. The net cash provided by financing activities during the nine months ended September 30, 2021, was from the repayment of loans of $4.3 million and offset by net proceeds received for short term debt of $11.2 million.
Liquidity and Capital Resources as of September 30, ~~2021,~~2022, Compared to September 30, ~~2020~~2021

The Company’s net cash flow used in operating, investing and financing activities for the nine months ended September 30, ~~2021,~~2022, and ~~2020~~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) 2021 2020
Net cash used in operating activities $ (5,799 ) $ (433 )
Net cash provided by (used in) investing activities 3,095 (110 )
Net cash provided by financing activities 6,905 570

Net increase in cash $ 4,201 $ 27

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 )
September 30,
2021 December 31,
2020

Cash $ 4,268 $ 67
Working capital (deficit) $
(10,592
) $ (91 )

Operating Activities:

Net cash used in operating activities during the nine months ended September 30, 2022, and 2021, ~~and 2020,~~ was ~~$6.9~~$(6.9) million and ~~$0.4~~$(5.8) million, respectively. Net cash used in operating activities during the nine months ended September 30, ~~2021,~~2022, consisted of the following (in thousands):

Net loss $ (27,994 ) $ (10,034 )
Non-cash income and expenses 30,532 2,667
Net change in operating assets and liabilities (8,337 ) 426
Net cash used in operating activities $ (5,799 ) $ (6,941 )

The non-cash income and expenses of ~~$30,532~~$2,667, consisted of (in thousands):
$ 2,824 Depreciation expense
28 Stock compensation
631 Amortization of debt discount
264 Amortization of intangibles
2,000 Debt extinguishment fee
22,004 Merger charges
(38 ) Gain on settlement of vendor liabilities
325 Impairment of digital assets
(91 ) Realized gain on sale of digital assets
79 Equity in earnings of equity method investment
(9 ) Change in fair value of accrued issuable equity
138 Loss on sale of mining equipment
2,377 Issuance of shares in exchange for services
$ 30,532 Total non-cash income and expenses
$ 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

The net proceeds of cash due to changes in operating assets and liabilities totaled ~~$(8,337)~~$426 and consisted of the following (in thousands):
$ 4,010 Increase in accounts receivable and other receivables
(72 ) Prepaid assets and other current assets
(3,908 ) Decrease in accounts payable
442 Decrease in accrued liabilities and other payables
(8,826 ) Decrease in digital assets
17 Related party receivable
$ (8,337 ) Net use of cash in the changes in operating assets and liabilities

$ 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, ~~2021,~~2022, was approximately ~~$3.1~~$6.4 million, primarily driven from proceeds from the sale of digital assets of ~~$3.7~~$8 million, offset by ~~investments~~Pre–funded right in ~~Style Hunter and Up North~~Ostendo of ~~$0.6 million. Net cash used in financing activities for the nine months ended September 30, 2020, was approximately $0.1 million, driven by the purchase of mining equipment.~~
~~Financing Activities:~~
~~Net cash provided by financing activities during the nine months ended September 30, 2021, was approximately $6.9~~$1.6 million. Net cash provided by financing activities for the nine months ended September 30, ~~2020,~~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 ~~net~~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 ~~$4.3~~approximately $3.3 million and ~~offset by net proceeds received from short term debt.~~convertible debt transaction fees paid of approximately $1.2 million.

Critical Accounting Policies and Estimates
~~In connection with~~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 ~~preparation~~use of ~~our condensed consolidated financial statements, we are required to make assumptions~~significant judgements and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believesrelating to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
Our significant accounting policies are discussed in Note 4 of the condensed consolidated financial statements. We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently ~~uncertain.~~

~~Equity Method Investments~~
~~Equity method investments are equity securities~~uncertain and may result in ~~entities the Company does not control but over which it can exercise significant influence. These investments are accounted for under the equity method of accounting in accordance with ASC 323,~~ ~~Investments- Equity Method and Joint Ventures~~~~. Equity method investments are measured at cost minus impairment, if any, plus or minus the Company’s share of an investee’s income or loss.~~
~~Digital Assets~~
Digital assets, (predominantly Ethereum) are included in current assets in the accompanying consolidated balance sheets. The classification of digital assets as a current asset has been made after the Company’s consideration of the consistent daily trading volume on cryptocurrency exchange markets, there are no limitations or restrictions on Company’s ability to sell Ethereum, and the pattern of actual sales of Ethereum by the Company. Cryptocurrencies purchased are recorded at cost and cryptocurrencies awarded to the Company through its mining activities are accounted for in connection with the Company’s revenue recognition policy disclosed above.
Digital assets held are accounted for as intangible assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the digital asset at the time its fair value is being measured. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted. No impairment was determined to have existed at the quarter-end periods reported herein.
The Company accounts for its gains or losses in accordance with the first in first out (FIFO) method of accounting. The Company recognized realized gains through the sale and disbursement of digital assets during the three and nine months ended September 30, 2021, of $0.004 million and $0.09 million, respectively. For the three and nine months ended September 30, 2020, the Company recognized realized gains of $(0.008) million and $0.06 million, respectively.
~~Impairment of Long-lived Assets~~
Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future cash flows expected to be generated by the asset. If such assets are impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
~~Revenue Recognition~~
The Company recognizes revenue in accordance with ASC 606, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. To achieve this core principle, five basic criteria must be met before revenue can be recognized:
● ~~Identification of the contract, or contracts, with a customer;~~
● ~~Identification of the performance obligations in the contract;~~
● ~~Determination of the transaction price;~~
● ~~Allocation of the transaction price to the performance obligations in the contract; and~~
● ~~Recognition of revenue when, or as, the Company satisfies a performance obligation.~~

TTM Digital has entered into mining pools with the operators to provide computing power to the mining pool. The Company is entitled to a fractional share of the fixed cryptocurrency award the mining pool operator receives (less transaction fees to the mining pool operator) for successfully adding a block to the blockchain. The Company’s fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm. Providing computing power in digital asset transaction verification services is an output of the Company’s ordinary activities. The provision of providing such computing power is the only performance obligation in the Company’s contracts with mining pool operators The transaction consideration the Company receives, if any, is non-cash consideration. The transaction price of the Company’s share of the cryptocurrency award is measured at fair value on the date received, which is not materially different ~~than the fair value at the time the Company has earned the award from the mining pool. The consideration is all variable~~results under the definition within ASC 606. Because it is not probable that a significant reversal of cumulative revenue will not occur, the consideration is constrained until the Company successfully places a blockdifferent assumptions and ~~the Company receives confirmation of the consideration it will receive, at which time revenue is recognized. There is no significant financing component in these transactions.~~
Fair value of the digital asset award received is determined using the quoted price of the related digital asset at the time of receipt. There is currently no specific definitive guidance under GAAP or alternative accounting framework for the accounting for digital assets recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could impact the Company’s consolidated financial position and results from operations.
~~Hardware and Software Revenue Recognition~~
~~SGS is a primary resale channel for a large group of vendors and suppliers, including original equipment manufacturers (“OEMs”), software publishers and wholesale distributors.~~
The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are established, the contract has commercial substance and collectability of consideration is probable. The Company evaluates the following indicators amongst others when determining whether it is acting as a principal in the transaction and recording revenue on a gross basis: (i) the Company is primarily responsible for fulfilling the promise to provide the specified product or service, (ii) the Company has inventory risk before the specified good or service has been transferred to a customer or after transfer of control to the customer and (iii) the Company has discretion in establishing the price for the specified good or service. If the terms of a transaction do not indicate the Company is acting as a principal in the transaction, then the Company is acting as an agent in the transaction and the associated revenues are recognized on a net basis.
The Company recognizes revenue once control has passed to the customer. The following indicators are evaluated in determining when control has passed to the customer: (i) the Company has a right to payment for the product or service, (ii) the customer has legal title to the product, (iii) the Company has transferred physical possession of the product to the customer, (iv) the customer has the significant risk and rewards of ownership of the product and (v) the customer has accepted the product. The Company’s products can be delivered to customers in a variety of ways, including (i) as physical product shipped from the Company’s warehouse, (ii) via drop-shipment by the vendor or supplier or (iii) via electronic delivery of keys for software licenses. The Company’s shipping terms typically specify F.O.B. destination.
The Company leverages drop-shipment arrangements with many of its vendors and suppliers to deliver products to its customers without having to physically hold the inventory at its warehouse. The Company is the principal in the transaction and recognizes revenue for drop-shipment arrangements on a gross basis.
The Company may provide integration of products from multiple vendors as a solution it sells to the customer. In this arrangement, the Company provides direct warranty to the customer with the Company’s own personnel as the customer requires warranty on the solution and not individual vendor products. This type of warranty is sold integral to the overall solution quoted to the customer. The Company considers these service-type warranties to be performance obligations of the principal from the underlying products that make up a solution and therefore is acting as a principal in the transaction and records revenue on a gross basis at the point of sale.
~~License and Maintenance Services Revenue Recognition~~
SGS provides a customized design and configuration solution for its customers and in this capacity resells hardware, software and other IT equipment license and maintenance services in exchange for fixed fees. The Company selects the vendors and sells the products and services, including maintenance services, that best fit the customer’s needs. For sales of maintenance services and warranties, the customer obtains control at the point in time that the services to be provided by a third-party vendor are purchased by the customer and therefore the Company’s performance obligation to provide the overall systems solution is satisfied at that time. The Company’s customers generally pay within 30 to 60 days from the receipt of a customer-approved invoice.conditions.

For resale of services, including maintenance services, warranties, and extended warranties, the Company is acting as an agent as the primary activity for those services are fulfilled by a third party. While the Company may facilitate and act as a first responder for these services, the third-party service providers perform the primary maintenance and warranty services for the customer. Therefore, the Company is not primarily responsible for performing these services and revenue is recorded on a net basis.
~~Professional Services Revenue Recognition~~
SGS’s professional services include fixed fee contracts. Fixed fees are paid monthly, in phases, or upon acceptance of deliverables. The Company has elected the practical expedient to recognize revenue for the right to invoice because the Company’s right to consideration corresponds directly with the value to the customer of the performance completed to date. For fixed fee contracts, the Company recognizes revenue evenly over the service period using a time-based measure because the Company is providing continuous service. Because the Company’s contracts have an expected duration of one year or less, the Company has elected the practical expedient in ASC 606-10-50-14(a) to not disclose information about its remaining performance obligations. Anticipated losses are recognized as soon as they become known. For the nine months ended September 30, 2021, SGS did not incur any such losses. These amounts are based on known and estimated factors. Revenues from time and material or firm fixed price long-term and short-term contracts are derived principally with various United States government agencies.
~~Non-GAAP Financial information~~
~~EBITDA~~
EBITDA is defined as net income (loss) before interest, provision for (benefit from) income taxes, and depreciation and amortization. Adjusted EBITDA is used by our management as the matrix in which it manages the business. It is defined as EBITDA plus adjustments for other income or expense items, non-recurring items and non-cash stock-based compensation.
Adjusted EBITDA for the three months ended September 30, 2021, was a loss of $1.1 million compared to a gain of $0.4 million for the prior year period. Adjusted EBITDA for the nine months ended September 30, 2021, was a gain of $3.1 million compared to a gain of $0.8 million for the prior year period.
The following table presents a reconciliation of net income/loss attributable to stockholders of Sysorex, which is our GAAP operating performance measure, to Adjusted EBITDA for the three and nine months ended September 30, 2021, and 2020 (in thousands):
Three Months Ended
September 30, Nine Months Ended
September 30,
2021 2020 2021 2020
Net gain (loss) $ (3,462 ) $ 241 $ (27,994 ) $ 160
Interest expense 897 - 926 -
Income taxes - - - -
Depreciation and amortization 1,422 213 3,088 619
EBITDA (1,143 ) 454 (23,980 ) 779
Adjustments:
Non-recurring one-time charges:
Merger charges - - 22,004 -
Debt Restructuring fee - - 2,000 -
Acquisition related costs – Accounting acquirer - - 2,884 -
Acquisition related costs – Accounting acquiree - - 209 -
Adjusted EBITDA $ (1,143 ) $ 454 $ 3,117 $ 779
We have presented Adjusted EBITDA above because we believe it conveys useful information to investors regarding our operating results. We believe it provides an additional way for investors to view our operations, when considered with both our GAAP results and the reconciliation to net income (loss). By including this information, we can provide investors with a more complete understanding of our business. Specifically, we present Adjusted EBITDA as supplemental disclosure because of the following:
● we believe Adjusted EBITDA is a useful tool for investors to assess the operating performance of our business without the effect of interest, income taxes, depreciation and amortization and other non-cash items including stock based compensation, amortization of intangibles, change in the fair value of shares to be issued, impairment of goodwill and one time charges including gain/loss on the settlement of obligations, severance costs, provision for doubtful accounts, acquisition costs and the costs associated with public offerings; and

● ~~we believe that it is useful to provide to investors a standard operating metric used by management to evaluate our operating performance.~~

Even though we believe Adjusted EBITDA is useful for investors, it does have limitations as an analytical tool. Thus, we strongly urge investors not to consider this metric in isolation or as a substitute for net income (loss) and the other combined carve-out statement of operations data prepared in accordance with GAAP.

Adjusted EBITDA should not be considered a measure of discretionary cash available to us to invest in the growth of our business or as a measure of performance in compliance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and providing Adjusted EBITDA only as supplemental information.

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.

For a discussion of recently issued accounting pronouncements, please see the Recent Accounting Standards section of Note 3 to our condensed consolidated financial statements, which is included in this Form 10-Q in Item 1.None

Our ~~principal executive officer and our principal financial officer evaluated the effectiveness of our~~ disclosure controls and procedures ~~as of September 30, 2021. The term “disclosure controls and procedures,” as~~(as defined in ~~Rules~~Rule 13a-15(e) ~~and~~or 15d-15(e) under the Securities Exchange Act ~~means controls and other procedures~~ of ~~a company that~~1934, as amended (the “Exchange Act”)) are designed to ensure that information required to be disclosed ~~by a company~~ in the reports that ~~it files~~we file or ~~submits~~submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the ~~SEC’s~~ rules and ~~forms. Disclosure controls~~forms of the Securities and ~~procedures include, without limitation, controls~~Exchange Commission (the “SEC”) and ~~procedures designed~~ to ensure that information required to be disclosed ~~by a company in the reports that it files or submits under the Exchange Act~~ is accumulated and communicated to ~~the company’s~~ management, including ~~its~~our principal executive officer and principal financial ~~officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls~~officer, with assistance from other members of management. Our management, with the participation of our principal executive officer and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

~~Based on the evaluation of~~principal financial officer, evaluated our disclosure controls and procedures as of September 30, ~~2021,~~2022, and based on this evaluation, our ~~Chief Executive Officer~~principal executive officer and ~~Chief Financial Officer~~principal financial officer concluded ~~that, as of such date, our~~the disclosure controls and procedures were ~~ineffective.~~ 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 ~~a result~~previously described in Part II, Item 9A of the ~~Merger transaction,~~Original 10-K and of the ~~Company is in~~Amendment, we began implementing a remediation plan to address the ~~process~~material weaknesses. The material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of ~~assessing~~time and ~~improving its internal control processes and expanding its financial operations and reporting infrastructure.~~management has concluded, through testing, that these controls are operating effectively.

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 ~~completion~~closing of the Merger, our management is still in the process of evaluating any related changes to our internal control over financial reporting as a result of this integration. Except for any changes relating to this integration, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations of any control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.

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 ~~our legal proceedings during~~ the ~~quarterly period September 30, 2021,~~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 ~~since~~at any time before the ~~filing~~date of ~~our Quarterly Report on Form 10-Q~~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, ~~2021, (“Second Quarterly Report”). Information regarding our legal proceedings included in Part II, item 1~~2022. The notice of conversion to convert its convertible debt to shares of the ~~Second Quarterly Report is incorporated herein by reference.~~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.~~Company.

Certain factors may have a material adverse effect on our business, financial condition, and results of operations. You should consider carefully the risks and uncertainties described below, in addition to other information contained in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K and in conjunction with the Company’s 8-K/A filed with the SEC on June 24, 2021, including our condensed consolidated financial statements and related notes. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the following risks occur, our business, financial condition, results of operations, and future prospects could be materially and adversely affected. In that event, the trading price of our Common Stock could decline, and you could lose part or all your investment.

~~The ongoing coronavirus outbreak, and measures taken in response thereto, could continue~~As a smaller reporting company, the Company is not required to ~~have a~~disclose material ~~adverse effect on our business, results of operations, and financial condition.~~

~~Our business is highly susceptible to~~ changes ~~in economic conditions. Our products and services are directly tied~~ to the ~~production and sale~~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 ~~goods and, more generally,~~the filing date of this Quarterly Report on Form 10-Q, there have been no material changes to the ~~North American economy. The COVID-19 pandemic has adversely impacted economic activity and conditions worldwide and created significant volatility and disruption~~risk factors faced by the Company from those previously disclosed in the 2021 10-K, as updated from time to financial markets. Efforts to control the spread of COVID-19 have led governments and other authorities to impose restrictions which have resulted in business closures and disrupted supply chains worldwide. As a result, transportation and supply chain companies such as ours have experienced slowdowns and reduced demand and could continue to further negatively impact our business.

Furthermore, quarantines, shelter in place orders, labor shortages due to illness and otherwise, business and facility closures or other disruptions to our operations, or our customers’ operations, have also adversely impacted demand for our services and our ability to provide services to our customers.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 ~~a holding company whose subsidiaries are given a certain degree~~subject to the notices of ~~independence and~~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 ~~failure~~Articles of Incorporation, as amended, to ~~integrate~~increase the authorized shares of our ~~subsidiaries may~~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.~~

We have given our subsidiary companies and their executives a certain degree of independence in decision-making. On the one hand, this independence may increase the sense of ownership at all levels, on the other hand, it has also increased the difficulty of the integration of operation and management, which has resulted in increased difficulty of management integration. In the event we are not able to successfully manage our subsidiaries this will result in operating difficulties and have a negative impact on our business.

We are a relatively small company with limited staff and without an accounting department. Our limited staff and resources may affect our internal controls over financial reporting. Our failure to implement measures that will ensure adequate controls over our financial and other reporting processes could cause us to fail to meet our financial and other reporting obligations.

While we continue to evaluate and improve our internal controls following the Merger, we are a relatively small company with limited staff, particularly without an accounting department. The Company currently relies on the part-time services of third-party consultants to help us with our financial accounting, our reporting obligations, and our controls over financial processes and reporting.

Our limited accounting staff may not allow for effective internal controls over financial reporting due to the lack of adequate segregation of duties and insufficient secondary review of GAAP. Due to our current staffing limitations, we cannot be certain that the measures we implement in the future will ensure that we design, undertake, and maintain adequate controls over our financial processes and reporting. Any failure by us to hire and retain experienced accounting and financial reporting personnel, implement required new or improved controls, or any difficulties we encounter in their implementation, could cause us to fail to meet our reporting obligations.

~~Adverse judgments or settlements in legal proceedings could materially harm our business, financial~~ condition ~~operating results and cash flows.~~

We are subject to pending claims for non-payment by certain vendors in an aggregate amount of approximately $5.1 million as of September 30, 2021, which is approximately 19% of our total assets. We may also be a party to other claims that arise from time to time in the ordinary course of our business, which may include those related to, for example, contracts, sub-contracts, protection of confidential information or trade secrets, adversary proceedings arising from customer bankruptcies, employment of our workforce and immigration requirements or compliance with any of a wide array of state and federal statutes, rules and regulations that pertain to different aspects of our business. We may also be required to initiate expensive litigation or other proceedings to protect our business interests. There is a risk that we will not be successful or otherwise be able to satisfactorily resolve any pending or future litigation. In addition, litigation and other legal claims are subject to inherent uncertainties and management’s view of currently pending legal matters may change in the future. Those uncertainties include, but are not limited to, litigation costs and attorneys’ fees, unpredictable judicial or jury decisions and the differing laws and judicial proclivities regarding damage awards among the states in which we operate. Unexpected outcomes in such legal proceedings, or changes in management’s evaluation or predictions of the likely outcomes of such proceedings (possibly resulting in changes in established reserves), could have a material adverse effect onmarket for our business, financial condition, results of operations and cash flows. Due to recurring losses and net capital deficiency, our current financial status may increase our default and litigation risks and may make us more financially vulnerable in the face of pending or threatened litigation.

Future issuances of our common stock pursuant to various existing instruments including the right to shares letter agreements and pre-funded warrants could result in additional significant dilution of the percentage ownership of our shareholders and could cause the price of our common stock to decline.

In the future, the Company will have an obligation to issue its common stock pursuant to various securities instruments entitling their holders to receive shares of the Company’s common stock, including but not limited to rights to shares letter agreements and pre-funded warrants. Although such instruments typically provide for the limitation of the percentage of the common stock of the respective beneficial owners, the holders of such instruments are expected to obtain shares of common stock from time-to-time or, in some instances, to direct the Company to issue the shares of common stock to designated third parties. As a result, our shareholders may be materially diluted, and the price of our common stock may decline.

~~All our assets are encumbered to secure the payment of secured convertible debentures that will require payments if not previously converted to Common Stock.~~

We encumbered all our assets to secure the payment of indebtedness and accrued interest due on secured convertible debentures required to be repaid by approximately July of 2022, subject to certain extensions, if not previously converted. In the event of default in repayment, our secured creditor could exercise its remedies, including the execution on all our assets, which would result in the termination of our activities. Unless we generate enough cash, we may not have sufficient funds to pay our debentures and other indebtedness when due. In such event, we might be required to sell our assets and properties to meet our obligations, or to seek an extension to our debentures, or alternative debt or equity financing. If full repayment, conversion, sale, extension, or refinancing is not obtained or consummated, we could default in our obligations.

Even if we are not in default of the debentures, the existence of these secured obligations and the terms of securities purchase agreement may impair our ability to obtain capital from external sources in certain manner.

~~Our inability to successfully integrate new acquisitions could adversely affect our combined business; our operations are widely disbursed.~~

Our growth strategy through acquisitions is fraught with risk. On April 14, 2021, we acquired the entirety of outstanding shares of TTM Digital, a U.S.-based business engaged in the mining of the cryptocurrency Ethereum with capabilities to mine other digital assets. This line of business is new to the Company. Our strategy and business plan are dependent on our ability to successfully integrate TTM Digital and our other acquisition’s operations, particularly those that pertain to computational capabilities and mining of digital assets. Said integration and achievement of the synergy will stretch our resources and management time to transform the Company’s business. Further, failure to quickly and adequately integrate all of these operations and personnel could adversely affect our combined business and our ability to achieve our objectives and strategy. No assurance can be given that we will realize synergies in the areas we currently operate.

We are not engaged in the business of investing, reinvesting, or trading in securities, and we do not hold ourselves out as being engaged in those activities. Under the Investment Company Act of 1940, as amended (the “Investment Company Act”), however, a company may be deemed an investment company under section 3(a)(1)(C) of the Investment Company Act if the value of its investment securities is more than 40% of its total assets (exclusive of government securities and cash items) on a consolidated basis.

We are commencing operations of digital asset mining, the output of which is cryptocurrencies. We cannot guarantee that such cryptocurrencies or digital assets we will mine are deemed as commodities and not as securities. In the event that the digital assets held by us exceed 40% of our total assets, exclusive of cash, we inadvertently become an investment company. An inadvertent investment company can avoid being classified as an investment company if it can rely on one of the exclusions under the Investment Company Act. One such exclusion, Rule 3a-2 under the Investment Company Act, allows an inadvertent investment company a grace period of one year from the earlier of: (a) the date on which an issuer owns securities and/or cash having a value exceeding 50% of the issuer’s total assets on either a consolidated or unconsolidated basis, and (b) the date on which an issuer owns or proposes to acquire investment securities having a value exceeding 40% of the value of such issuer’s total assets (exclusive of government securities and cash items) on an unconsolidated basis. We expect to establish policies that we would work to keep the investment securities held by us at less than 40% of our total assets, which may include acquiring assets with our cash, liquidating our investment securities, or seeking a no-action letter from the Commission if we are unable to acquire sufficient assets or liquidate sufficient investment securities in a timely manner.

As Rule 3a-2 is available to a company no more than once every three years, and assuming no other exclusion were available to us, we would have to keep within the 40% limit for at least three years after we cease being an inadvertent investment company. This may limit our ability to make certain investments or enter into joint ventures that could otherwise have a positive impact on our earnings. In any event, we do not intend to become an investment company engaged in the business of investing and trading securities.

Classification as an investment company under the Investment Company Act requires registration with the Commission. If an investment company fails to register, it would have to stop doing almost all business, and its contracts would become voidable. Registration is time-consuming and restrictive and would require a restructuring of our operations, and we would be very constrained in the kind of business we could do as a registered investment company. Further, we would become subject to substantial regulation concerning management, operations, transactions with affiliated persons, and portfolio composition, and would need to file reports under the Investment Company Act regime. The cost of such compliance would result in our incurring substantial additional expenses, and the failure to register if required would have a materially adverse impact on our operations.

Changes in laws, regulations, or requirements applicable to our software and services could impose increased costs on us, delay or prevent our introduction of new products and services or impair the function or value of our existing products and services.

Our digital assets mining operations may become subject to increasing regulatory requirements, and as these requirements proliferate, we may be required to change or adapt our operations to comply with them.

For example, the adoption of new money transmitter (“MT”) or money services business (“MSB”) statutes in jurisdictions or changes in regulators’ interpretation of existing state and federal money transmitter or money services business statutes or regulations, could subject us to registration or licensing, or limit business activities, cause us to enter into relationships with one or more third parties for payment services until we are appropriately licensed. The activities of TTM Digital may cause it to be deemed a MSB under the regulations promulgated by FinCEN under the authority of the U.S. Bank Secrecy Act, TTM Digital may be required to comply with FinCEN regulations, including those that would mandate TTM Digital to implement anti-money laundering programs, make certain reports to FinCEN and maintain certain records.shares.

Compliance and classifications are dependent on federal and state regulatory actions and our business activities. We do not believe that we are a money transmitter, because our activities do not cause us to hold, possess or control payment funds on behalf of a consumer or merchant. If we were deemed to be a money transmitter, we would be subject to significant additional regulation. This could increase our costs in operating our business. In addition, a regulator could take action against us if it views our payment solution platform as a violation of existing law. Any of these outcomes would negatively affect the market price for our shares and could cause us to cease operations in the certain U.S. States.

Additionally, we are not licensed to conduct a virtual currency business in New York and do not intend to become licensed in any other state that may require licensing in the future. We have taken the position that the New York State Department of Financial Services (“NYSDFS”) BitLicense Regulatory Framework (23 NYCRR 200.2(q)) does not apply to our business. It is possible, however, that the NYSDFS could disagree with our position. If we were deemed to be conducting an unlicensed virtual currency business in New York, we could be subject to significant additional regulation and/or regulatory consequences. There are a number of states that review the adaptation that the Conference of State Bank Supervisors has proposed a model form of state-level “virtual currency” regulation. There are at least thirty-one states that have pending legislation in the 2021 legislative session regarding blockchain and cryptocurrency.

The recent New York Senate Bill 6486A sought to halt all crypto mining for three years in order to conduct environmental impact reviews on mining operations in the tri-state area. The amended version of the bill is now focused on preventing mining operations powered by non-renewable energy sources. Depending on the development of the situation, our New York mining operations that are powered by renewable energy may or may not be affected by the legislative initiative.

It may be illegal now, or in the future, to acquire, own, hold, sell or use digital assets in one or more countries, and ownership of, holding, or trading in our securities may also be considered illegal and subject to sanction.

Although currently digital assets are not regulated or are lightly regulated in most countries, including the United States, one or more countries such as China, India, and Russia may take regulatory actions in the future that severely restricts the right to acquire, own, hold, sell, or use digital assets or to exchange digital assets for fiat currency. Such an action may also result in the restriction of ownership, holding, or trading in our securities. Such restrictions may adversely affect an investment in us. For example, the Bank of England issued a paper for comments in which it explains that stablecoins should have the same regulations as fiat currencies.

The cost of obtaining new and replacement miners and parts has historically been capital intensive and is likely to continue to be very capital intensive, which may have a material and adverse effect on our business and results of operations.

Our mining operations can only be successful and ultimately profitable if the costs, including hardware and electricity costs, associated with mining cryptocurrencies are lower than the price of the cryptocurrencies we mine when we sell them. Our miners experience ordinary wear and tear from the operation and may also face more significant malfunctions caused by factors that may be beyond our control. Additionally, as the technology evolves, we may acquire newer models of miners to remain competitive in the market. Over time, we replace those miners that are no longer functional with new miners.

Once this happens, these new miners will need to be repaired or replaced along with other equipment from time-to-time for us to stay competitive. This upgrading process requires substantial capital investment, and we may face challenges in doing so on a timely and cost-effective basis based on the availability of new miners and our access to adequate capital resources. If we are unable to obtain adequate numbers of new and replacement miners at scale, we may be unable to remain competitive in our highly competitive and evolving industry. If this happens, we may not be able to mine cryptocurrency as efficiently or in similar amounts as our competition and, as a result, our business and financial results could suffer. Alternatively, the return of investment of mining equipment may take significantly longer. This could, in turn, materially and adversely affect the trading price of our securities, and our investors could lose part or all of their investment.

The price of new miners may be linked to the market price of Ethereum and other cryptocurrencies, and, if the current relatively high market price of Ethereum persists, our costs of obtaining new and replacement miners may increase, which may have a material and adverse effect on our financial condition and results of operations.

Reports have been released that the prices of new miners are adjusted according to the price of the cryptocurrency they mine. As a result, the cost of new machines can be unpredictable, and could also be significantly higher than our historical cost for new miners. Similarly, as Ethereum prices have risen, we have observed a significant increase in the demand for miners. As a result, at times, we may obtain Ethereum miners and other hardware at exuberant prices, to the extent they are available.

On the other hand, we incur significant up-front capital costs each time we acquire new miners, and, if future prices of Ethereum are not sufficiently high, we may not realize the benefit of these capital expenditures. If this occurs, our business, results of operations, and financial condition could be materially and adversely affected, which may have a negative impact on the trading price of our securities, which may have a materially adverse impact on investors’ investment in our Company.

There are numerous new and existing competitors in our industry that are purchasing mining equipment at scale, which may cause delays or difficulty in us obtaining new miners, which could materially and adversely affect our business and the results of operations.

Many of the competitors in our industry have also been purchasing mining equipment at scale, which has caused a worldwide shortage of mining equipment and extended the corresponding delivery schedules for new miner purchases. It is uncertain how manufacturers will respond to this increased global demand and whether they can deliver on the schedules promised to all of their customers.

The COVID-19 pandemic has disrupted and may continue to disrupt international shipping and we may not be able to obtain new miners or replacement parts for our existing miner fleet in a timely or cost-effective manner, which could materially and adversely affect our business and results of operations.

The novel strain of the coronavirus (“COVID-19”) has spread as a global pandemic throughout the world and has resulted in authorities imposing, and businesses and individuals implementing, numerous unprecedented measures to try to contain the virus. Although the United States and countries around the world have been releasing a vaccine, there are no assurances that the vaccine will be effective, and what impact it will have on reducing the spread or containment of COVID-19. In addition to vaccinations, these efforts include travel bans and restrictions, quarantines, shelter-in-place/stay-at-home and social distancing orders, and shutdowns. These measures have impacted and may further impact our workforce and operations, the operations of our customers, and those of our vendors, suppliers, and manufacturing partners. The extent to which the COVID-19 pandemic will continue to affect our business, results of operations and financial condition is difficult to predict and depends on numerous evolving factors, including: the duration and scope of the pandemic and its impact on overall global uncertainty; government, social, business and other actions that have been and will be taken in response to the pandemic; and the effect of the pandemic on short- and long-term general economic conditions.

Current and future restrictions or disruptions of transportation, such as reduced availability of air and ground transport, port closures or congestion, and increased border controls or closures, can also impact our ability to meet demand and could materially adversely affect us. These increased costs could have a material adverse effect on our financial condition and results of operations, particularly if the effects of COVID-19 are prolonged.

The COVID-19 global pandemic has disrupted and may continue to disrupt the manufacture and availability of new miners, which could materially and adversely affect our business and the results of operations.

Various COVID-19-related restrictions on travel, work, and movement of goods and supplies, as well as the cumulative impact of the mounting number of lost working days as a result of COVID-19, has already put a strain on our manufacturing partners, suppliers, and logistics partners to produce and deliver a sufficient number of products needed to meet the global demand for miners. This has had a particularly strong impact on the global supply chain and availability of semiconductors, which are used in the manufacture of the ASIC chips used in the miners we operate. The strain on the global supply of semiconductors, largely stemming from manufacturing interruptions due to COVID-19-related disruptions, has resulted in decreased production across many industrial sectors.

While our manufacturing partners and component suppliers mostly have been able to continue to operate to date in compliance with applicable regulations and current limitations, future restrictions on their operations could impact their ability to meet global demand for new miners. Concurrently, along with an increased trading price of Ethereum and other cryptocurrencies in the fourth quarter of 2020 and continuing into the first quarter of 2021, we have observed an increased demand for GPU-based rigs during this period. During the second half of 2020 we have already experienced increased per-unit costs for new GPUs, and, if the scarcity of GPUs continues, this trend may continue. If we are unable to acquire new GPUs for our rigs, or if our cost for new GPUs is excessively high, we may not be able to keep up with our competitors, which may materially and adversely affect our business and results of operations. Some manufacturers, such as NVIDIA are splitting their processors into two categories, one for gamers (GPUs) and another for miners now being marketed as Cryptocurrency Mining Processor (CMP) for miners. Manufacturers are attempting to slow down the processing speed of GPUs so that it deters miners from acquiring GPUs and moves them to purchase CMPs for mining purposes. However, miners have developed ways to tweak GPUs to operate as fast as CMPs and this continues to create supply-chain issues for mining processors.

~~Our mining operating costs could outpace our mining revenues, which could seriously harm our business or increase our losses.~~

Our mining operations are costly, and our expenses may increase in the future. Future increase in expenses may not be offset by a corresponding increase in revenue. If our expenses are greater than we anticipate, and our business investments are not successful, our expenses may outpace monetization efforts. Increases in our costs without a corresponding increase in our revenue would increase our losses and could seriously harm our business and financial performance.

To the extent that the profit margins of Ethereum mining operations are not high, operators of Ethereum mining operations are more likely to immediately sell Ethereum rewards earned by mining in the market, thereby constraining the growth of the price of Ethereum that could adversely impact us, and similar actions could affect other cryptocurrencies.

Over the past two years, Ethereum mining operations have evolved. Currently, new processing power is predominantly added by incorporated and unincorporated “professional” mining operations utilizing GPUs.

Professional mining operations may use proprietary hardware or specialized machines. Acquiring specialized hardware at scale requires the investment of significant up-front capital, and miners incur significant expenses related to the operation of this hardware at scale, such as the leasing of operating space (often in data centers or warehousing facilities), incurring of electricity costs to run the miners and the employment of technicians to operate the mining farms. As a result, professional mining operations are of a greater scale and have more defined and regular expenses and liabilities. These regular expenses and liabilities require professional mining operations to maintain profit margins on the sale of Ethereum. To the extent the price of Ethereum declines and such profit margin is constrained, professional miners are incentivized to more immediately sell Ethereum earned from mining operations, whereas it is believed that individual miners in past years were more likely to hold newly mined Ethereum for more extended periods. The immediate selling of newly mined Ethereum greatly increases the trading volume of Ethereum, creating downward pressure on the market price of Ethereum rewards.

The extent to which the value of Ethereum mined by a professional mining operation exceeds the allocable capital and operating costs determines the profit margin of such operation. A professional mining operation may be more likely to sell a higher percentage of its newly mined Ethereum rapidly if it is operating at a low-profit margin and it may partially or completely cease operations if its profit margin is negative. In a low-profit margin environment, a higher percentage could be sold more rapidly, thereby potentially depressing Ethereum prices. Lower Ethereum prices could result in further tightening of profit margins for professional mining operations creating a network effect that may further reduce the price of Ethereum until mining operations with higher operating costs become unprofitable forcing them to reduce mining power or cease mining operations temporarily.

The foregoing risks associated with Ethereum could be equally applicable to other cryptocurrencies, whether existing now or introduced in the future. Such circumstances could have a material adverse effect on our ability to continue as a going concern or to pursue our new strategy at all, which could have a material adverse effect on our business, prospects, or operations and potentially the value of Ethereum and any other cryptocurrencies we mine or otherwise acquire or hold for our own account, and thus harm investors.

To the extent that a significant majority of users and miners on a cryptocurrency network install software that changes the cryptocurrency network or properties of a cryptocurrency, including the irreversibility of transactions and limitations on the mining of new cryptocurrency, the cryptocurrency network would be subject to new protocols and software. However, if less than a significant majority of users and miners on the cryptocurrency network consent to the proposed modification, and the modification is not compatible with the software prior to its modification, the consequence would be what is known as a “fork” of the network, with one prong running the pre-modified software and the other running the modified software. The effect of such a fork would be the existence of two versions of the cryptocurrency running in parallel yet lacking interchangeability and necessitating exchange-type transactions to convert currencies between the two forks. Additionally, it may be unclear following a fork which fork represents the original asset and which is the new asset. Different metrics adopted by industry participants to determine which is the original asset include: referring to the wishes of the core developers of a cryptocurrency, blockchains with the greatest amount of hashing power contributed by miners or validators; or blockchains with the longest chain. A fork in the network of a particular cryptocurrency could adversely affect an investment in our securities or our ability to operate.

We may not be able to realize the economic benefit of a fork, either immediately or ever, which could adversely affect an investment in our securities. If we hold a cryptocurrency at the time of a hard fork into two cryptocurrencies, industry standards would dictate that we would be expected to hold an equivalent amount of the old and new assets following the fork. However, we may not be able, or it may not be practical, to secure or realize the economic benefit of the new asset for various reasons. For instance, we may determine that there is no safe or practical way to custody the new asset, that trying to do so may pose an unacceptable risk to our holdings in the old asset, or that the costs of taking possession and/or maintaining ownership of the new cryptocurrency exceed the benefits of owning the new cryptocurrency. Additionally, laws, regulations, or other factors may prevent us from benefitting from the new asset even if there is a safe and practical way to custody and secure the new asset.

There is a possibility of cryptocurrency 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 the value of our stock.

Proof-of-stake is an alternative method in validating cryptocurrency transactions. Should the algorithm shift from a proof-of-work validation method to a proof-of-stake method, mining would likely require less energy, which may render any company that maintains advantages in the current climate (for example, from lower-priced electricity, processing, real estate, or hosting) less competitive. We, as a result of our efforts to optimize and improve the efficiency of our cryptocurrency mining operations, may be exposed to the risk in the future of losing the benefit of our capital investments and the competitive advantage we hope to gain from this as a result, and may be negatively impacted if a switch to proof-of-stake validation were to occur. Such events could have a material adverse effect on our ability to continue as a going concern or to pursue our new strategy at all, which could have a material adverse effect on our business, prospects, or operations and potentially the value of any Ethereum or other cryptocurrencies we mine or otherwise acquire or hold for our own account.

~~Our future success will depend in large part upon the value of Ethereum, and any sustained decline in its value could adversely affect our business and the results of operations~~.

Our operating results will depend in large part upon the value of Ethereum because it is the cryptocurrency we currently mine. Specifically, our revenues from our Ethereum mining operations are based upon two factors: (1) the number of Ethereum rewards we successfully mine, and (2) the value of Ethereum. In addition, our operating results are directly impacted by changes in the value of Ethereum, because under the value measurement model, both realized and unrealized changes will be reflected in our statement of operations (i.e., we will be marking Ethereum to fair value each quarter).

~~Our mining operations, including the facilities in which our miners are operated, may experience damages, including damages that are not covered by insurance.~~

~~Our current mining operation is, and any future mines we establish will be, subject to a variety of risks relating to physical condition and operation, including, but not limited to:~~

For example, our mine could be rendered inoperable, temporarily or permanently, as a result of a fire or other natural disaster or by a terrorist or other attack on the mine. The security and other measures we take to protect against these risks may not be sufficient. Additionally, our mine could be materially adversely affected by a power outage or loss of access to the electrical grid or loss by the grid of cost-effective sources of electrical power generating capacity. Given the power requirement, it would not be feasible to run miners on backup power generators in the event of a power outage. Our insurance covers the replacement cost of any lost or damaged miners, but does not cover any interruption of our mining activities; therefore, our insurance, therefore, may not be adequate to cover the losses we suffer as a result of any of these events. In the event of an uninsured loss, including a loss in excess of insured limits, at any of the mines in our network, such mines may not be adequately repaired in a timely manner or at all and we may lose some or all of the future revenues anticipated to be derived from such mines. The potential impact on our business is currently magnified because we are only operating a single mine.

~~We are subject to risks associated with our need for significant electrical power.~~

Our Ethereum mining operations have required significant amounts of electrical power, and, as we continue to expand our mining fleet, we anticipate our demand for electrical power will continue to grow. If we are unable to continue to obtain sufficient electrical power to operate our miners on a cost-effective basis, we may not realize the anticipated benefits of our significant capital investments in new miners.

Additionally, our mining operations could be materially adversely affected by prolonged power outages. Although our miners may be powered by backup generators on a temporary basis, it would not be feasible or cost-effective to run miners on backup power generators for extended periods of time. Therefore, we may have to reduce or cease our operations in the event of an extended power outage, or as a result of the unavailability or increased cost of electrical power. If this were to occur, our business and results of operations could be materially and adversely affected, and investors in our securities could be harmed.

~~Interruptions to our power supply and Internet access could disrupt our operations, which could adversely affect our business and the results of operations.~~

Our cryptocurrency mining operations require a significant amount of electrical power and access to high-speed internet to be successful. If we are unable to secure sufficient electrical power, or if we lose internet access for a prolonged period, we may be required to reduce our operations or cease them altogether. If this occurs, our business and results of operations may suffer, and our investors may be materially and adversely affected.

~~Ethereum mining is subject to cyber-security risks, which could adversely affect an investment in the Company or the ability of the Company to operate.~~

Digital asset networks, including the Ethereum network, may be subject to control by entities that capture a significant amount of the network’s processing power or a significant number of developers important for the operation and maintenance of such digital asset network.

If a majority of the processing power dedicated to mining or staking on the network is controlled by a bad actor (often referred to as a “51% attack”), it may be able to alter the Ethereum blockchain on which the transactions rely. This could occur if the bad actor were to construct fraudulent blocks or prevent certain transactions from completing in a timely manner, or at all. It could be possible for the malicious actor to control, exclude or modify the ordering of transactions, though it could not generate new Ether or transactions. Further, a bad actor could “double-spend” its own Ether (~~i.e.~~, spend the same tokens in more than one transaction) and prevent the confirmation of other users’ transactions for so long as it maintained control. To the extent that such malicious actor or botnet did not yield its control of the processing power on the Ethereum network or the network community did not reject the fraudulent blocks as malicious, reversing any changes made to the blockchain may not be possible. Further, a malicious actor or botnet could create a flood of transactions in order to slow down confirmations of transactions on the network. Other digital asset networks have been subject to malicious activity achieved through control of over 50% of the processing power on the network. For example, on May 24, 2018, it was reported that attackers compromised the Bitcoin Gold network in this manner and were successfully able to double-spend units of bitcoin gold in a series of transactions over the course of at least one week and in a total amount of at least $18 million.

Moreover, certain hardware providers may create hardware that collectively has majority power and the manufacturer could potentially exert control itself. For example, it was discovered that the mining machines produced by Bitmain contained backdoor code that would allow Bitmain to remotely shut down the mining machines. This vulnerability is colloquially referred to as the “Antbleed backdoor.” At worst, the Antbleed backdoor could have allowed Bitmain to shut off up to an estimated 70% of the global hash rate. Bitmain released an official response to the controversy claiming that the Antbleed backdoor had no malicious intent, and on April 28, 2017, the day following the discovery of the Antbleed backdoor, Bitmain released a new source code and firmware upgrades for its mining hardware to remove the backdoor.

If the feasibility of a bad actor gaining control of the processing power on the Ethereum network increases, there may be a negative effect on an investment in the Company. To the extent that the Ethereum ecosystem, including the core developers and the administrators of mining pools, does not act to ensure greater decentralization of mining processing power, the feasibility of a malicious actor obtaining control of the processing power on the Ethereum network will increase, which may adversely affect the value of our common stock.

~~The Company’s reliance on third-party mining pool service providers may have a negative impact on the Company’s operations.~~

We use third-party mining pools to receive our mining rewards from the network. Ethereum mining pools allow miners to combine their computing power, increasing their chances of solving a block and getting paid by the network. The rewards are distributed by the pool operator, proportionally to our contribution to the pool’s overall mining power used to generate each block. Should the pool operator’s system suffer downtime due to a cyber-attack, software malfunction, or other similar issues, it will negatively impact our ability to mine and receive revenue.

The open-source structure of the Ethereum network protocol means that the core developers and other contributors are generally not directly compensated for their contributions in maintaining and developing the Ethereum network protocol. A failure to properly monitor and upgrade the Ethereum network protocol could damage the Ethereum network and the Company’s business.

The Ethereum network operates based on an open-source protocol maintained by the core developers and other contributors. As the Ethereum network protocol is not sold or made available subject to licensing or subscription fees and its use does not generate revenues for its development team, the core developers are generally not compensated for maintaining and updating the Ethereum network protocol. Consequently, there is a lack of financial incentive for developers to maintain or develop the Ethereum network and the core developers may lack the resources to adequately address emerging issues with the Ethereum network protocol. Although the Ethereum network is currently supported by the core developers, there can be no guarantee that such support will continue or be sufficient in the future. Alternatively, some developers may be funded by entities whose interests are at odds with other participants in the Ethereum network. To the extent that material issues arise with the Ethereum network protocol and the core developers and open-source contributors are unable to address the issues adequately or in a timely manner, the Ethereum network and the business of the Company may be adversely affected.

~~Flaws in the source code of Ethereum may be unknown to us and may negatively affect the Company’s business in multiple ways.~~

In the past, flaws in the source code for digital asset networks have been exposed and exploited, including flaws that disabled some functionality for users, exposed users’ personal information, and/or resulted in the theft of users’ digital assets. Several errors and defects have been publicly found and corrected, including those that disabled some functionality for users and exposed users’ personal information. Discoveries of flaws in or exploitations of the source code that allow malicious actors to take or create money in contravention of known network rules have occurred. The cryptography underlying Ethereum could prove to be flawed or ineffective, or developments in mathematics and/or technology, such as advances in digital computing, algebraic geometry, and quantum computing. In any of these circumstances, a malicious actor may be able to steal Ether held by others, which could adversely affect the demand for Ether and therefore adversely impact the price of Ether and the results of our operations. Even if another digital asset other than Ethereum were affected by similar circumstances, any reduction in confidence in the robustness of the source code or cryptography underlying digital assets generally could negatively affect the demand for all digital assets, including Ethereum-based, and therefore adversely affect our business and operations.

Our tokens and other cryptocurrencies that we hold may be subject to loss, theft, or restriction on access. Ether transactions are irrevocable and stolen or incorrectly transferred ether may be irretrievable. As a result, any incorrectly executed ether transactions could adversely affect an investment in the Company.

There is an inherent risk that some or all of our cryptocurrencies could be lost or stolen. Access to our coins could also be restricted by cybercrime. We hold some of our cryptocurrencies in internet-based programmatic wallets, which may be more vulnerable to cybercrime. Additionally, Ether transactions are not reversible. Once a transaction has been verified and recorded in a block that is added to the Ethereum blockchain, an incorrect transfer of cryptocurrency, such as Ether, or theft of Ether generally will not be reversible, and the Company may not be capable of seeking compensation for any such transfer or theft. To the extent that the Company is unable to successfully seek redress for such error or theft, such loss could adversely affect an investment in the Company.

A large number of shares of Common Stock has recently become eligible for public sale or may be subject to rights requiring us to register them for public sale which could depress the market price of our Common Stock, even if our business is doing well. A substantial number of shares of our Common Stock may be sold in the near future.

The market price of our Common Stock could decline as a result of sales of a large number of shares of our Common Stock in the market. The perception that these sales could occur may also depress the market price of our Common Stock. Stockholders owning an aggregate of up to 25,824,848 shares of our Common Stock in connection with the Merger have recently become entitled, under agreements providing for registration rights or pursuant to Rule 144 promulgated under the Securities Act (and subject to limitations of Rule 144 and applicable securities laws), to sell or to require us to register shares owned by them for public sale in the United States.

Exempted sales of our shares of Common Stock or sales pursuant to registration rights may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. These sales also could cause the trading price of our Common Stock to fall and make it more difficult for investors to sell shares

~~On July 20, 2021, the Company issued 75,000 shares of Common Stock to a law firm in consideration of legal services provided.~~

~~On August 5, 2021, the Company issued 50,000 shares of Common Stock to an attorney in consideration of legal services provided.~~

~~On September 2, 2021, the Company issued the aggregate of 150,000 shares of Common Stock to an individual in consideration of corporate advisory services pursuant to an advisory agreement.~~

~~On September 7, 2021, the Company issued the aggregate of 200,000 shares of Common Stock to an individual in consideration of corporate advisory services pursuant to an advisory agreement.~~

The issuance of the shares in the aforementioned issuances was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933 and/or Rule 506 of Regulation D promulgated thereunder, since, among other things, the transactions did not involve a public offering.None.

~~Not applicable.~~See Note 8, Short-term debt — 2021 Convertible Debentures & Warrants—Debenture Default, which information is incorporated herein by reference.

~~See the Exhibit Index following the signature page to this Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.~~

	September 30,			December 31,
	2021			2020
ASSETS
Current Assets
Cash and cash equivalents	$	4,268		$	67
Digital assets		2,334			24
Accounts receivable, net		663			-
Related party receivables		-			17
Prepaid expenses and other current assets		1,334			-
Total Current Assets		8,599			108

Mining equipment, net		12,368			1,272
Intangible assets, net		2,696			-
Goodwill		1,634			-
Investment in Style Hunter		500			-
Investment in Up North Hosting, LLC		664			644
Other assets		36			-
Total Assets	$	26,497		$	2,024

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	5,979		$	7
Accrued liabilities		1,313			117
Related Party loan		-			75
Convertible Debt, net		11,208			-
Deferred revenue		691			-
Total Current Liabilities		19,191			199

Commitments and Contingencies – Note 13

Stockholders’ Equity
Common stock, par value $0.00001 per share, 500,000,000 shares authorized; 144,613,591 shares issued as of September 30, 2021, and 66,431,920 shares issued as of December 31, 2020, 144,538,212 shares outstanding as of September 30, 2021, and 66,431,920 shares outstanding as of December 31, 2020, respectively		1			-
Treasury stock, at cost, 75,379 shares as of September 30, 2021, and 0 shares as of December 31, 2020, respectively		-			-
Subscription receivable		-			(100	)
Additional paid-in-capital		35,435			2,060
Accumulated Deficit		(28,130	)		(135	)
Total Stockholders’ Equity		7,306			1,825
Total Liabilities and Stockholders’ Equity	$	26,497		$	2,024

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2021			2020			2021			2020
Revenues
Mining income	$	2,992		$	613		$	9,244		$	1,167
Product revenue		1,232			-			2,831			-
Services revenue		634			-			1,047			-
Total Revenues		4,858			613			13,122			1,167

Operating costs and expenses
Mining cost		377			105			852			320
Product cost		1,141			-			2,532			-
Services cost		364			-			606			-
Sales and marketing		319			-			619			-
General and administrative		3,363			12			7,727			23
Management Fees		-			43			321			76
Impairment of digital assets		325			-			325			-
Depreciation		1,279			213			2,824			619
Amortization of intangibles		143			-			264			-
Total Operating Costs and Expenses		7,311			373			16,070			1,038

Gain (Loss) from Operations		(2,453	)		240			(2,948	)		129

Other Income (Expenses)
Merger charges		-			-			(22,004	)		-
Debt Restructuring fee		-			-			(2,000	)		-
Interest expense		(897	)		-			(926	)		-
Realized gain (loss) on sale of digital assets		3			(8	)		91			6
Gain/(loss) on disposal of assets		(131	)		37			(138	)		51
Other expense, net		39			-			11			1

Total Other Income (Expense)		(986	)		29			(24,966	)		58

Income (Loss) before Income taxes and loss in equity method investee		(3,439	)		269			(27,914	)		187

Income tax benefit		-			-			-			-

Income (Loss) before Income in equity method investee		(3,439	)		269			(27,914	)		187

Share of net loss of equity method investee		(23	)		(28	)		(80	)		(27	)

Net Income (Loss)	$	(3,462	)	$	241		$	(27,994	)	$	160
Net Income (Loss) per share - basic and diluted	$	(0.022	)	$	0.003		$	(0.212	)	$	0.002
Weighted Average Shares Outstanding - basic and diluted		159,448,204			79,679,553			131,863,780			73,040,051

	Common Stock				Treasury Stock				Additional Paid-In			Subscription			Accumulated
	Shares		Amount		Shares		Amount		Capital			Receivables			Deficit			Total

Balance – December 31, 2019		55,776,240	$	1		-	$	-	$	2,671		$	(100	)	$	(587	)	$	1,984
Distributions to shareholders		-		-		-		-		(152	)		-			-			(152	)
Net Loss		-		-		-		-		-			-			(45	)		(45	)
Balance – March 31, 2020		55,776,240		-		-		-		2,519			(100	)		(632	)		1,787
Distributions to shareholders		-		-		-		-		(149	)		-			-			(149	)
Net Loss		-		-		-		-		-			-			(38	)		(38	)
Balance – June 30, 2020		55,776,240		-		-		-		2,370			(100	)		(670	)		1,600
Shares issued		10,655,680		-		-		-		600			-			-			600
Distributions to shareholders		-		-		-		-		(345	)		-			-			(345	)
Net Income		-		-		-		-		-			-			242			242
Balance - September 30, 2020		66,431,920		-		-		-		2,625			(100	)		(428	)		2,097

Balance - December 30, 2020		66,431,920		-		-		-		2,060			(100	)		(135	)		1,825
Payment of subscription receivable		-		-		-		-		-			100			-			100
Distributions to shareholders		-		-		-		-		(1,521	)		-			-			(1,521	)
Exercise of Moon warrants		14,607,980		-		-		-		-			-			-			-
Net Income		-		-		-		-		-			-			1,210			1,210
Balance – March 31, 2021		81,039,900		-		-		-		539			-			1,075			1,614
Shares issued:
Mining equipment		35,588,548		-		-		-		12,000			-			-			12,000
Sysorex Recapitalization		25,985,633		-		-		-		19,401			-			-			19,401
TTM digital/Sysorex merger		494,311		1		75,379		-		280			-			-			281
Professional services		404,820		-		-		-		1,883			-			-			1,883
Net Loss		-		-		-		-		-			-			(25,743	)		(25,743	)
Balance – June 30, 2021		143,513,212		1		75,379				34,103			-			(24,668	)		9,436
Convertible debt warrants		-		-		-		-		810			-			-			810
Stock based compensation		-		-		-		-		28			-			-			28
Shares issued for services		1,025,000		-		-		-		494			-			-			494
Net Loss		-		-		-		-		-			-			(3,462	)		(3,462	)
Balance - September 30, 2021		144,538,212	$	1		75,379	$	-	$	35,435		$	-		$	(28,130	)	$	7,306

	For the Nine Months Ended September 30,
	2021			2020
Cash Flows from Operating Activities
Net loss	$	(27,994	)		160
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		3,088			619
Stock compensation		28			-
Amortization of debt discount and debt issuance costs		631			-
(Gain) Loss on the sale/disposal of mining equipment		138			(51	)
Realized (gain) loss on sale of digital assets		(91	)		(6	)
Gain on settlement of vendor liabilities		(38	)		-
Impairment of digital assets		325			-
Equity in earnings of equity method investments		79			27
Change in fair value of accrued issuable equity		(9	)		-
Issuance of shares in exchange for services		2,377			-
Merger charges		22,004			-
Debt restructuring fee		2,000			-
Changes in assets and liabilities:
Digital assets - mining net of pool fees and mgmt fees		(8,826	)		(1,087	)
Related party receivable		17			15
Prepaid assets and other current assets		(72	)		(5	)
Accounts receivable and other receivables		4,010			2
Accounts payable		(3,908	)		-
Accrued liabilities and other current liabilities		442			(107	)
Net cash used in operating activities		(5,799	)		(433	)

Cash Flows from Investing Activities
Proceeds from sale of digital assets		3,670			410
Reverse acquisition of Sysorex business		28			-
Purchase of mining equipment		(50	)		(727	)
Proceeds from sale of mining equipment		47			190
Investments in Up North & Style Hunter		(600	)		17
Net cash provided by (used in) investing activities		3,095			(110	)

Cash Flows from Financing Activities
Repayment of loans		(4,349	)		(30	)
Issuance of members’ interests		100			600
Proceeds received for convertible debt		12,415			-
Cash paid for convertible debt transaction costs		(1,261	)		-
Net cash provided by financing activities		6,905			570

Net increase in cash and cash equivalents		4,201			27
Cash and cash equivalents at beginning of period		67			34
Cash and cash equivalents at end of period	$	4,268		$	61

(In thousands of dollars)	Reverse Acquisition Fair Value			Sysorex Recapitalization Fair Value			Aggregate Fair Value

Cash	$	28		$	-		$	28
Accounts receivable		4,673			-			4,673
Prepaid assets and other current assets		2,551			(1,289	)		1,262
Property and equipment		7			-			7
Goodwill		1,634			-			1,634
Customer Relationships Intangible		1,900			-			1,900
Tradename Intangible		1,060			-			1,060
Other assets		29			-			29
Accounts payable		(10,437	)		519			(9,918	)
Accrued liabilities		(2,722	)		1,589			(1,133	)
Deferred revenue		(590	)		-			(590	)
Short term debt		(7,136	)		3,871			(3,265	)
Long term debt		(12,711	)		12,711			-
Other liabilities		(9	)		-			(9	)

Fair value allocated to net assets / (liabilities)	$	(21,723	)	$	17,401		$	(4,322	)

Fair value of consideration and recapitalization equity	$	281		$	19,401		$	19,682
Merger charges		(22,004	)		-			(22,004	)
Debt restructuring fees		-			(2,000	)		(2,000	)

Net Sysorex equity and charges to income (loss)	$	(21,723	)	$	17,401		$	(4,322	)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2021			2020		2021			2020

Total Revenues	$	4,858		$	2,051	$	18,796		$	7,201

Net Income (Loss)		(3,462	)		178		(2,928	)		(1,725	)

Net Income (Loss) per share - basic and diluted		(0.022	)		0.002		(0.022	)		(0.023	)

Weighted Average Shares Outstanding - basic and diluted		159,448,204			80,173,864		132,056,012			73,534,362

Supplemental Pro forma Information (a)

Merger charges		-			-		22,004			-
Restructuring fee		-			-		2,000			-
Transaction costs - Accounting acquirer and acquiree		-			-		3,093			-

Total Nonrecurring Pro forma Adjustments		-			-		27,097			-

	September 30,		December 31,
	2022		2021
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

	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	$	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

For the three months ended September 30, 2021
Revenues	TTM Digital			Sysorex Government Services			Consolidated
Products Revenue	$	-		$	1,232		$	1,232
Services Revenue		-			634			634
Mining Income		2,992			-			2,992
Total Revenues	$	2,992		$	1,866		$	4,858

Product Cost	$	-		$	1,141		$	1,141
Services Cost		-			364			364
Mining Cost		377			-			377
Other Operating Expenses	$	3,484		$	1,945		$	5,429

Operating Loss	$	(869	)	$	(1,584	)	$	(2,453	)

	For the Nine Months Ended September 30,
	2022			2021
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	)

For the nine months ended September 30, 2021
	TTM Digital			Sysorex Government Services			Consolidated
Revenues
Products Revenue	$	-		$	2,831		$	2,831
Services Revenue		-			1,047			1,047
Mining Income		9,244			-			9,244
Total Revenues	$	9,244		$	3,878		$	13,122

Product Cost	$	-		$	2,532		$	2,532
Services Cost		-			606			606
Mining Cost		852			-			852
Other Operating expenses	$	8,899		$	3,181		$	12,080

Operating Loss	$	(507	)	$	(2,441	)	$	(2,948	)

Total Segment Assets	$	20,780		$	5,717		$	26,497

	Balance as of
	September 30,			December 31,
	2021			2020
Gross Mining Equipment:
Mining Equipment (non-GPUs)	$	1,158		$	554
GPUs		15,386			2,167
Accumulated Depreciation
Mining Equipment (non-GPUs)		(365	)		(242	)
GPUs		(3,811	)		(1,207	)
Mining Equipment, net	$	12,368		$	1,272

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2021			2020			2021			2020

Revenues	$	326		$	240		$	818		$	950
Cost of revenues, excluding depreciation		285			201			684			550
Selling, general, and administrative		100			105			330			485
Other (Income)/Expense		(13	)		(11	)		(37	)		(31	)
Net Income (loss)		(47	)		(55	)		(160	)		(54	)

Net Income (loss) attributable to TTM	$	(24	)	$	(28	)	$	(79	)	$	(27	)

	Gross					Net
	Carrying		Accumulated			Carrying
	Amount		Amortization			Amount
Trade name	$	1,060	$	(152	)	$	908
Customer relationships		1,900		(685	)		1,215
Total intangible assets	$	2,960	$	(837	)	$	2,123

Calendar Years ending December 31,	Amount
Remaining 2021		144
2022		573
2023		573
2024		573
2025		266
Thereafter		567
Total	$	2,696

	For the Nine Months Ended September 30, 2022					For the Period April 15, 2021, through September 30, 2021
	$		%			$		%
Customer A		7,100		60	%		607		13	%
Customer B		2,834		24	%		2,499		55	%

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

	As of September 30,		As of December 31,
	2021		2020
Convertible Debentures & Warrants, net of debt discount and debt issuance costs of $1.9 million, and $1.06 million, respectively	$	11,208	$	-

			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	$	7,531	$	-	$	-	$	7,531
Common stock derivative liability	$	45	$	-	$	-	$	45
Total derivative liabilities	$	7,576	$	-	$	-	$	7,576
Total recurring fair value measurements	$	7,576	$	-	$	-	$	7,576

As of December 31, 2021
Recurring fair value measurements
Derivative liability:
Conversion feature derivative liability	$	8,355	$	-	$	-	$	8,355
Total recurring fair value measurements	$	8,355	$	-	$	-	$	8,355

	Conversion feature derivative liability			Common stock derivative liability			Total level 3 derivative liability
Balance as of December 31, 2021	$	8,355		$	-		$	8,355

Transferred to equity on debt conversion		(2,383	)		(6	)		(2,389	)
Transferred from equity on recognition of derivative liability		-			314			314
Increase (Decrease) in fair value included in earnings		1,559			(263	)		1,296

Balance as of September 30, 2022	$	7,531		$	45		$	7,576

	Nine months ended September 30,						Nine months ended September 30,
	2021			2020			2022			2021
Opening Balance	$	24		$	25		$	5,202		$	24
Revenue from mining		9,244			1,167			4,077			9,244
Received for membership interest		-			46
Payment of Mining equipment under lease to buy arrangement		(1,091	)		-
Payment of mining equipment under lease to buy arrangement								-			(1,091	)
Mining pool operating fees		(96	)		(2	)		(41	)		(96	)
Impairment of digital assets								(2,494	)		(325	)
Management fees		(322	)		(121	)		-			(322	)
Owners distributions		(1,521	)		(646	)
Owners’ distributions								-			(1,521	)
Proceeds from sale of digital assets		(3,670	)		(410	)		(8,023	)		(3,670	)
Impairment of digital assets		(325	)		-
Transaction fees								(132	)		-
Realized gain on sale of digital assets		91			6			1,498			91
Ending Balance	$	2,334		$	65		$	87		$	2,334

	Three months ended September 30,
	2021			2020
Opening Balance	$	105		$	26
Revenue from mining		2,992			614
Received for membership interest		-			46
Payment of Mining equipment under lease to buy arrangement		(72	)		-
Mining pool operating fees		(30	)		(1	)
Management fees		-			(87	)
Owners’ distributions		-			(345	)
Proceeds from sale of digital assets		(339	)		(180	)
Impairment of digital assets		(325	)		-
Realized gain on sale of digital assets		3			(8	)
Ending Balance	$	2,334		$	65

	Number of Options (in Shares)		Weighted Average Exercise Price		Number of Options (in Shares)		Weighted Average Exercise Price
Outstanding, January 1, 2020		-		-
Outstanding, January 1, 2022						1,656,000	$	2.00
Granted		1,656,000	$	2.00		-	$	-
Exercised		-		-		-		-
Forfeited or cancelled		-		-		-		-
Outstanding, September 30, 2021		1,656,000	$	2.00
Outstanding, September 30, 2022						1,656,000	$	2.00

Exercisable, September 30, 2021		1,656,000	$	2.00
Exercisable, September 30, 2022						1,656,000	$	2.00

	Number of Warrants (in Shares)			Weighted Average Exercise Price
Outstanding, January 1, 2022		5,926,763		$	*
Granted		-			-
Exercised		(418,931	)		-
Outstanding, September 30, 2022		5,507,832		$	-

	Number of Restricted Stock Shares		Weighted Average Grant Date Fair Value
Outstanding, January 1, 2022		1,000,000	$	0.48
Granted		-		-
Vested		1,000,000		0.40
Unvested, September 30, 2022		-	$	-

	September 30, 2022
Warrants	$	38
Stock options		6
RSUs vested but unissued		1
Total share derivative liability	$	45

			Proforma
	As stated		Effect
Balance Sheet

Common stock:
Shares Issued:
9/30/2022		736,609,855		736,610
9/30/2021		145,713,591		145,714
Shares Outstanding:
9/30/2022		736,534,476		736,534
9/30/2021		145,638,212		145,638

Treasury Stock:		75,379		75

Weighted average remaining lease term:			2.67 years
Weighted average discount rate used to determine present value of operating lease liability:			8	%

	September 30, 2022		December 31, 2021
Consultants	$	22	$	565
Rent		18		17
Vendor Payments		39		-
Insurance		1		162
License and Maintenance Contracts		545		658
Other		2		-
	$	627	$	1,402

	For the Nine Months Ended September 30,
(Thousands, except per share data)	2021			2020
Net cash used in operating activities	$	(5,799	)	$	(433	)
Net cash provided by (used in) investing activities		3,095			(110	)
Net cash provided by financing activities		6,905			570

Net increase in cash	$	4,201		$	27