SYSOREX, INC. The following discussion and analysis of our financial condition and results of
operations should be read in conjunction the unaudited financial statements and
related notes included elsewhere in this Quarterly Report on Form 10-Q, and with
the Company's audited consolidated financial statements and notes for the years
ended
Overview of the Company's Subsidiaries
Sysorex Government Services
SGS is a provider of information technology solutions from multiple vendors,
including hardware products, software, services, including warranty and
maintenance support, offered through our dedicated sales force, ecommerce
channels, existing federal contracts and service team. Since our founding, we
have served our customers by offering products and services from key industry
vendors such as
The unaudited condensed consolidated financial statements present the combined
results of operations, financial condition, and cash flows of
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.
As discussed in the Heads of Terms agreement below, the Company is in discussion with a third party to sell TTM Digital's assets.
The Company made the decision to divest its mining equipment and the data center
of the TTM Digital and commenced discussions with a third party to execute an
asset sale. On
The parties have extended the closing of the transaction to
Known Trends or Uncertainties
SGS experiences variability in our net sales and operating results on a
quarterly basis as a result of many factors. SGS experiences some seasonal
trends in our sales of technology solutions to government and educational
institutions. For example, the fiscal year-ends of
26
TTM Digital, as noted above and disclosed in Note 1 - Nature and description of the Business, Heads of Terms agreement, has made the decision to divest its mining equipment and the data center of the TTM Digital reporting unit and commenced discussions with a third party to execute an asset sale. However, shall a sale not be consummated, to successfully continue in the industry, our business model may need to evolve to reflect the trends of the industry. Over time, we may be required to modify aspects of our business model relating to our strategy. We cannot offer any assurance that we will be successful or that the future industry or business operation changes will not result in harm to our business. We may not be able to manage growth effectively, which could damage our reputation, limit our growth and negatively affect our operating results. Management cannot provide any assurances that we will identify all emerging trends and growth opportunities in this business sector, and we may lose out on those opportunities to current or future competitors. As anticipated, any such circumstances could have a material adverse effect on our business, prospects, or operations
Three Months Ended
Summary of TTM Mining Result
The following table present the roll forward of digital asset activity from continuing and discontinued operations during the respective periods:
Three months ended
June 30,
2022 2021
Opening Balance $ 1,237 $ 14
Revenue from mining 1,286 4,234
Purchases of Mining equipment with digital assets - (1,019 )
Mining pool operating fees (13 ) (45 )
Impairment of digital assets (1,187 ) -
Transaction fees (23 ) -
Proceeds from sale of digital assets (1,246 ) (3,080 )
Realized gain on sale of digital assets 164 1
Ending Balance $ 218 $ 105 Discussion of Results of Operations of TTM Digital for the Three Months Ended
The activities for TTM revenues and costs for the three months ended
Revenues from mining are impacted significantly by volatility in cryptocurrency
prices and network difficulty. The average price of Ethereum mined during the
three months ended
The estimated transition to proof of stake ("POS") is currently
Discussion of Results of Operations of SGS for the Three Months Ended
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
27
SGS revenues for the three months ended
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,
SGS also reported for the three months ended
Six Months Ended
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:
Six months ended
June 30,
2022 2021
Opening Balance $ 5,202 $ 24
Revenue from mining 3,268 6,252Purchase of mining equipment with digital assets - (1,019 ) Mining pool operating fees
(33 ) (66 )
Impairment of digital assets (2,423 )
Management fees - (322 )
Owners' distributions - (1,521 )
Transaction fees (112 ) -
Proceeds from sale of digital assets (6,955 ) (3,331 )
Realized gain on sale of digital assets 1,271 88
Ending Balance $ 218 $ 105 Discussion of Results of Operations of TTM Digital for the Six Months Ended
The activities for TTM revenues and costs for the six months ended
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 six months ended
28
The estimated transition to proof of stake ("POS") is currently
Discussion of Results of Operations of SGS for the Six Months Ended
SGS revenues for the six months ended
Product, and service costs for the six months ended
Selling, general, and administrative expenses ("SG&A") for the six months ended
Other income and expense for the six months ended
Liquidity and Capital Resources as of
Going Concern
As of
The Company does not believe that its capital resources as of
If the Company is unable to raise additional capital on terms acceptable to the
Company and on a timely basis, or is unable to attain new vendors, the Company
will be required to downsize or wind down its operations through liquidation,
bankruptcy, or sale of its assets. In addition, until the sale of the TTM Assets
is consummated, the Company will be subject to changes in the Ethereum Network.
The Ethereum network is in the process of implementing software upgrades and
other changes to its protocol, which are intended to be a new iteration of the
Ethereum network that changes its consensus mechanism from "proof of work" to
"proof of stake", which may decrease the reliance on computing power as an
advantage to validating blocks. The move to a proof of stake mechanism will
shift the network from mining utilizing computing power to staking, in which
Ethereum holders can deposit their Ethereum in exchange for rewards. The switch
to a proof of stake model would adversely affect the Company's operations and
ability to sustain operations. In addition, as of
Our capital resources and operating results as of and through
1) An overall working capital deficit of
2) Cash and cash equivalents of
3) Net cash used in operating activities of
4) Net cash provided by investing activities of
29
Liquidity and Capital Resources as of
The Company's net cash flow used in operating, investing and financing
activities for the six months ended
For the Six Months Ended
June 30,
(Thousands, except per share data) 2022 2021
Net cash used in operating activities
3,256
Net cash used in financing activities - (2,095 )
Net (decrease) increase in cash $ (287 ) $ 32
June 30, December 31,
2022 2021
Cash $ 372 $ 659
Working capital (deficit)
Operating Activities:
Net cash used in operating activities during the six months ended
Net loss$ (10,092 ) Non-cash income and expenses 4,529
Net change in operating assets and liabilities (79 ) Net cash used in operating activities
$ (5,642 )
The non-cash income and expenses of
$ 288 Depreciation and amortization 83 Amortization of right of use asset 1,444 Loss on extinguishment of debt (1,533 ) Gain on settlement of vendor liabilities (1,271 ) Realized gain on sale of digital assets 2,423 Impairment of digital assets 2,706 Change in fair value of debt conversion feature 38 Change in fair value of share derivative liability 111 Stock-based compensation 240 Issuance of shares in exchange for services$ 4,529 Total non-cash income and expenses
The net proceeds of cash due to changes in operating assets and liabilities
totaled (
$ 818 Decrease in accounts receivable and other receivables 546 Prepaid assets and other current assets (1,094 ) Decrease in accounts payable 834 Increase in accrued liabilities and other payables 8 Operating lease liability (1,191 ) Operating cash flows - discontinued operations$ (79 ) Net use of cash in the changes in operating assets and liabilities Investing Activities:
Net cash provided by investing activities during the six months ended
30
Financing Activities:
The company did not incur financing activities for the six months ended
Critical Accounting Policies and Estimates
We consider certain accounting policies related to Digital Assets, Impairment of Long-Lived Assets, Revenue Recognition, Derivative Liabilities, and Convertible debt to be critical accounting policies that require the use of significant judgements and estimates relating to matters that are inherently uncertain and may result in materially different results under different assumptions and conditions.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.
Recently Issued Accounting Standards
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.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.
Recently Issued Accounting Standards
None
© Edgar Online, source
