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
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TTM Digital
TTM Digital is a digital asset technology and mining company that owns and
operates specialized cryptocurrency mining processors and was previously focused
on the Ethereum blockchain ecosystem. As of
Since Proof of Stake, Ethereum mining companies have begun the process of changing their business model to continue utilization of their mining assets, as the GPUs can be repurposed for a number of other profitable business models. The TTM assets can be used for cloud computing, datacenter hosting, simulation & modeling, virtual reality, artificial intelligence, and gaming.
TTM is exploring the possibility of hosting client computing and evaluating all of its options, including the sale of its assets to maximize revenue streams utilizing its current assets.
Known Trends or Uncertainties
SGS experiences variability in our net sales and operating results on a
quarterly basis as a result of many factors. SGS experiences some seasonal
trends in our sales of technology solutions to government and educational
institutions. For example, the fiscal year-ends of
TTM Digital, as noted above, our business model may need to evolve to reflect the trends of the industry. Over time, we may be required to modify aspects of our business model relating to our strategy. We cannot offer any assurance that we will be successful or that the future industry or business operation changes will not result in harm to our business. We may not be able to manage growth effectively, which could damage our reputation, limit our growth and negatively affect our operating results. Management cannot provide any assurances that we will identify all emerging trends and growth opportunities in this business sector, and we may lose out on those opportunities to current or future competitors. As anticipated, any such circumstances could have a material adverse effect on our business, prospects, or operations
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Three Months Ended
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
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
Other income and expense, including interest expense for the 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
September 30,
2022 2021
Opening Balance $ 218 $ 105
Revenue from mining 809 2,993
Payment of mining equipment under lease to buy arrangement - (72 )
Mining pool operating fees (8 ) (31 )
Impairment of digital assets (71 ) (325 )
Transaction fees (20 ) -
Proceeds from sale of digital assets (1,068 ) (339 )
Realized gain on sale of digital assets 227 3
Ending Balance $ 87 $ 2,334 Discussion of Results of Operations of TTM Digital for the Three Months Ended
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
Ethereum's transition to proof of stake ("POS") took place on
For the three months ended
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Nine Months Ended
Discussion of Results of Operations of SGS for the Nine Months Ended
SGS revenues for the nine months ended
Product, and service costs for the nine months ended
Selling, general, and administrative expenses ("SG&A") for the nine months ended
Other income and expense, including interest expense for the nine 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:
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
The activities for TTM revenues and costs for the nine 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 nine months ended
Ethereum's transition to proof of stake ("POS") occurred on
For the nine months ended
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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, 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
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Liquidity and Capital Resources as of
The Company's net cash flow used in operating, investing and financing
activities for the nine months ended
For the Nine Months Ended
September 30,
(Thousands, except per share data) 2022 2021
Net cash used in operating activities
6,423 3,095
Net cash provided by financing activities - 6,905
Net (decrease) increase in cash $ (518 ) $ 4,201
September 30, December 31,
2022 2021
Cash $ 141 $ 659
Working capital (deficit) $ (21,609 ) $ (17,413 )
Operating Activities:
Net cash used in operating activities during the nine months ended
Net loss$ (10,034 ) Non-cash income and expenses 2,667
Net change in operating assets and liabilities 426 Net cash used in operating activities
$ (6,941 )
The non-cash income and expenses of
$ 430 Depreciation and amortization 119 Amortization of right of use asset 1,008 Loss on extinguishment of debt (1,533 ) Gain on settlement of vendor liabilities (1,498 ) Realized gain on sale of digital assets 2,494 Impairment of digital assets 1,559 Change in fair value of debt conversion feature (263 ) Change in fair value of share derivative liability 111 Stock-based compensation 240 Issuance of shares in exchange for services$ 2,667 Total non-cash income and expenses 28
The net proceeds of cash due to changes in operating assets and liabilities
totaled
$ 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
Financing Activities:
The company did not incur financing activities for the nine 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.
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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
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