UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the Fiscal Year Ended December 31, ~~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 120, Herndon, VA		20171
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (800) 680-7412

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
N/A		N/A		N/A

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.00001 par value per share

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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, a smaller reporting company or 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, ~~2021~~2022, the last business day of the registrant’s most recently completed second fiscal quarter, was $~~567~~17,~~989~~309,~~027~~026 based on the closing price reported for such date on the OTCQB Marketplace.

As of ~~April~~June 12, ~~2022~~2023, the registrant had ~~290~~2,~~303~~484,~~439~~426,501 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

SYSOREX, INC.

TABLE OF CONTENTS

		PAGE
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION CONTAINED IN THIS REPORT		ii
PART I		1
ITEM 1:	BUSINESS	1
ITEM 1A:	RISK FACTORS	3
ITEM 1B:	UNRESOLVED STAFF COMMENTS	1219
ITEM 2:	PROPERTIES	1219
ITEM 3:	LEGAL PROCEEDINGS	1219
ITEM 4:	MINE SAFETY DISCLOSURES	1219
PART II		1320
ITEM 5:	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES	1320
ITEM 6:	[RESERVED]	1421
ITEM 7:	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	1421
ITEM 7A:	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	2231
ITEM 8:	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	F-1
ITEM 9:	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	2332
ITEM 9A:	CONTROLS AND PROCEDURES	2332
ITEM 9B:	OTHER INFORMATION	2434
ITEM 9C:	DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS	2434
PART III		2535
ITEM 10:	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	2535
ITEM 11:	EXECUTIVE COMPENSATION	2737
ITEM 12:	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	3244
ITEM 13:	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	3346
ITEM 14:	PRINCIPAL ~~ACCOUNTING~~ACCOUNTANT FEES AND SERVICES	3650
PART IV		50
ITEM 15:	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	3650
	SIGNATURES	40
ITEM 16:	FORM 10-K SUMMARY
	SIGNATURES	54

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

AND OTHER INFORMATION CONTAINED IN THIS REPORT

This report contains forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “may” or other similar expressions in this report. In particular, these include statements relating to future actions; prospective products, applications, customers and technologies; future performance or results of anticipated products; and projected expenses and financial results. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

● We are currently in default under our ~~ability~~convertible debentures. All our assets are encumbered to ~~successfully~~secure ~~integrate~~the ~~acquired~~payment ~~businesses~~of orsecured ~~new~~convertible ~~products,~~debentures orthat towill ~~realize~~require ~~anticipated~~payments ~~synergies~~if innot ~~connection~~previously ~~with~~converted ~~mergers~~to ~~and~~common ~~acquisitions.~~stock;

● ~~the~~Our ~~effect~~existing ofand ~~COVID-19,~~future ~~closure~~debt ofobligations ~~offices~~could impair our liquidity and ~~site~~financial ~~location(s);~~condition. onWe are currently in default under our ~~ability~~convertible debentures. If we are unable to ~~service~~meet our ~~customers~~debt ~~resulting~~obligations, inthe ~~less~~lenders ~~revenues~~could foreclose on our assets;

● ~~our~~We ~~cash~~do ~~position~~not ~~and~~currently have enough authorized shares of common stock under our ~~history~~Articles of ~~losses.~~Incorporation, as amended, to meet all of our potential obligations to third parties;

● ~~our~~Our ability to ~~achieve~~successfully ~~profitability.~~integrate acquired businesses or new products, or to realize anticipated synergies in connection with mergers and acquisitions;

● ~~customer~~Our ~~demand~~ability ~~for~~to address and respond to market conditions and risks in the ~~products~~digital asset industry and ~~services~~increased wescrutiny ~~offer.~~by regulators;

● ~~the~~General ~~impact~~economic ofconditions ~~competitive~~and orthe ~~alternative~~regulatory ~~services,~~environment ~~products,~~relating ~~technologies,~~to ~~and~~digital ~~pricing.~~assets;

● ~~increased~~A ~~delays~~decline in ~~delivery~~the ofpopularity ~~product~~or ~~due~~acceptance toof ~~worldwide strain on supply chain primarily due to labor, raw material, and chip shortages. ● general economic conditions and events and~~ the ~~impact~~digital ~~they~~asset ~~may have on us~~systems, oncould ~~our~~adversely ~~customers,~~affect ~~and~~an oninvestment ~~our~~in ~~potential customers.~~us;

● aOur ~~security~~cash ~~breach,~~position ~~through~~and ~~cyber-attack,~~our ~~cyber~~history ~~intrusion, insider threats or otherwise, or other significant disruption~~ of ~~our IT networks and related systems.~~losses;

● ~~decrease~~Our inability ~~value~~to ofachieve ~~digital assets~~profitability;

● ~~general~~Customer ~~cryptocurrency~~demand ~~risks.~~for the products and services we offer;

● ~~technological~~The ~~changes~~impact ~~and~~of ~~developments~~competitive inor ~~the~~alternative ~~blockchain~~services, products, technologies, and ~~cryptocurrencies.~~pricing;

● ~~risks~~Increased ~~related~~delays toin ~~changes~~delivery of ~~rules~~product ~~and~~due ~~regulations~~to inworldwide ~~connection~~strain ~~with~~on ~~cryptocurrencies~~supply inchain ~~general~~primarily ~~and~~due ~~Ethereum~~to inlabor, ~~particular.~~raw material, and chip shortages;

● ~~risks~~General ~~related~~economic toconditions ~~Ethereum’s~~and ~~transition~~events ~~from~~and ~~“proof-of-work”~~the toimpact ~~“proof-of-stake”~~they ~~model~~may ~~that~~have ~~may~~on ~~render~~us, ~~mining~~on ~~activities~~our ~~within~~customers, ~~Ethereum~~and ~~blockchain~~on ~~obsolete.~~our potential customers;

● ~~risks~~A ~~related~~security tobreach, ~~the~~through ~~loss~~cyber-attack, ofcyber ~~assets~~intrusion, ofinsider ~~our~~threats ~~cryptocurrency~~or ~~mining~~otherwise, ~~facility~~or ~~held~~other ~~with~~significant adisruption ~~third~~of ~~party.~~our IT networks and related systems;

● ~~competition~~Our ~~for~~ability ~~blockchain~~to ~~platforms~~obtain ~~and~~adequate ~~technologies,~~financing ~~including~~in ~~but~~the ~~not limited to non-fungible tokens (“NFTs”)~~future; and

● ~~our~~Our ability to ~~obtain~~continue ~~adequate~~as ~~financing~~a ingoing ~~the future~~concern.

~~● our ability to continue as a going concern.~~ii

●

our ability to complete strategic transactions, which may include acquisitions, mergers, dispositions, joint ventures, or investments.

●

lawsuits and other claims by third parties.

● our success at managing the risks involved in the foregoing items~~; and~~.

●

the Restatement of our financial statements for the Affected Periods and the impact of such Restatement on our future financial statements and other financial measures.

●

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 common stock is now quoted on OTC Market’s Pink Tier as a result of failing to satisfy the minimum bid price requirement for the OTCQB;

●

authorized shares will be insufficient to convert debenture holders; and

●

other factors discussed in this report.

The forward-looking statements are based upon management’s beliefs and assumptions and are made as of the date of this report. We undertake no obligation to publicly update or revise any forward-looking statements included in this report. You should not place undue reliance on these forward-looking statements.

Unless otherwise stated or the context otherwise requires, the terms “Sysorex,” “we,” “us,” “our,” and the “Company” refer collectively to Sysorex, Inc. and its subsidiaries, TTM Digital Assets & Technologies, Inc. (“TTM Digital”) and Sysorex Government Services, Inc. (“SGS”).

iiiii

PART I

ITEM 1: BUSINESS

Overview

Sysorex, Inc. isthrough aits ~~technology~~wholly ~~company~~owned ~~focused~~subsidiary, onSysorex ~~Ethereum~~Government Services, ~~mining~~Inc. ~~and~~(“SGS”), ~~the~~provides ~~Ethereum blockchain and~~ information technology solutions primarily into the public sector. ~~segments~~These ~~including~~solutions ~~federal~~include cybersecurity, ~~state~~professional services, engineering support, IT consulting, enterprise level technology, networking, wireless, help desk and ~~local~~custom ~~governments~~IT solutions. ~~The~~In addition to SGS, the Company has ~~two~~another wholly owned ~~subsidiaries:~~ subsidiary, TTM Digital Assets & Technologies, Inc. (“TTM Digital”). ~~and~~TTM ~~Sysorex~~Digital ~~Government~~is ~~Services,~~a ~~Inc.~~digital ~~(“SGS”).~~asset ~~Following~~technology company that previously operated specialized cryptocurrency mining processors and was previously focused on the ~~Company’s~~Ethereum ~~Merger~~blockchain ~~with~~ecosystem. ~~TTM~~As ~~Digital~~of inSeptember ~~April~~15, ~~2021~~2022, ~~the~~Ethereum ~~Company~~switched ~~shifted~~from ~~its~~a ~~primary~~Proof ~~business~~of Work ~~focus~~model to ~~the~~a ~~mining~~Proof of ~~Ethereum~~Stake model and ~~opportunities~~ ~~related~~as toa result, the Company is no longer mining Ethereum ~~blockchain~~or any other cryptocurrency. InTTM ~~addition~~Digital no tolonger ~~the~~holds any Ethereum or other crypto tokens or crypto assets at this time and does not conduct any mining ofactivities ~~Ethereum,~~and ~~the~~does not ~~Company~~have ~~continues~~any plans to ~~operate~~mine ~~its~~crypto ~~wholly~~tokens in the future. TTM Digital is currently exploring alternative uses and sales opportunities for ~~owned~~its ~~subsidiary,~~Graphics ~~SGS,~~Processing aUnits ~~business~~(“GPU”) ~~that~~assets ~~provides~~and ~~information~~datacenter ~~technology~~located ~~products,~~in ~~solutions~~Lockport, ~~and~~NY. ~~services~~The Company had previously been in discussions with a third party to ~~federal,~~sell ~~state,~~its mining assets and ~~local government,~~certain ~~including~~associated ~~system~~real ~~integrators~~property.

~~The Company made the decision~~Overview ~~to divest certain mining equipment and the data center~~ of the ~~TTM Digital reporting unit (“TTM Assets”) and commenced discussions with a third party to execute an asset sale in the spring of 2022. On March 24, 2022, the~~ Company executed with a third party an agreement which includes certain binding and non-binding provisions. Pursuant to the agreement, the Company and the third party agreed to certain terms related to the Company’s sale of approximately 75% of its Ethereum mining assets and certain associated real property. The TTM Assets to be sold will not include the Company’s Ether funds generated prior to and held at Closing (as hereinafter defined) and any graphics processing units or associated assets maintained and operated by the Company at a co-located facility in North Carolina. The definitive terms of the sale of Assets will be set forth in definitive transaction agreements (the “Definitive Documentation”) to be executed by the parties.Subsidiaries

The Closing of the TTM Asset sale transaction (the “Closing”) shall occur, subject to the satisfaction or waiver of the Closing conditions set forth in Definitive Documentation no later than May 24, 2022, unless mutually extended in writing by the parties, subject to the parties’ meeting certain Closing conditions to be agreed upon in the Definitive Documentation. Notwithstanding the foregoing, the Definitive Documentation shall also include an outside date that is not more than three (3) months after the date of the execution thereof unless mutually extended in writing by the parties to allow the parties to obtain regulatory approvals, required consents, and shareholders approvals.

The Definitive Documentation will include certain other terms and conditions which are customary in asset sale and real property sale agreements.

Even with the partial sale of TTM Assets, the Company intends to stay in the blockchain industry. The Company will continue to mine Ethereum and through the Ethereum blockchain expand into decentralized applications (dApps), targeting decentralized financing (DeFi), and Non-fungible tokens (NFTs). Through expansion within this space, Sysorex will develop intellectual property that becomes Company assets. Our plan is to target the largest potential customer, the U.S. Government, by developing decentralized solutions that reduces costs, increases security, and expands transparency using blockchain technology. On March 9, 2022, President Biden issued the “Executive Order on Ensuring Responsible Development of Digital Assets. This executive order provides the framework for U.S. Congress to establish laws and regulations around blockchain technology.

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 reverse merger on April 14, 2021, the business of TTM Digital has become a 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 Nevada Secretary of State 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.”

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. As a result, the Company has made the decision to divest certain mining equipment. The Company and a third party agreed to certain terms related to the Company’s sale of approximately 75% of its Ethereum mining assets. TTM Digital will continue to mine Ethereum until that point in time in which the network switches to “proof-of-stake”. At that time, instead of mining with GPUs, the amount of Ethereum accumulated in our treasury will be used to stake to the network in the “proof-of-stake model.” The proof-of-stake will earn the Company rewards based on the amount of Ethereum you have. The more ETH you have staked, the more chances you have algorithmically of being selected by the beacon chain as an attestor to earn rewards. 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.

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.

For the year ended December 31, ~~2021~~2022, our sales to federal, state and local governments accounted for approximately 100% of our SGS net sales. Our past customers have included, among others, federal and international government agencies and state and local governments. Although SGS has had many customers, two customers generated approximately 7187% of SGS’s gross revenue during the year ended December 31, ~~2021~~2022. One customer accounted for 4461% of SGS’s gross revenue in ~~2021~~2022; however, this customer may or may not continue to be a significant contributor to revenue in ~~2022~~2023. We plan to continue to focus our efforts on existing and potential government customers.

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 30^th and September 30^th, 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.

TTM Digital

TTM Digital is a digital asset technology company that previously operated specialized cryptocurrency mining processors and was previously focused on the Ethereum blockchain ecosystem. As noted in Overview, the Company is no longer mining Ethereum or any other cryptocurrency. TTM Digital no longer holds any Ethereum or other crypto tokens or crypto assets at this time, does not conduct any mining activities, and does not have any plans to mine crypto tokens in the future.

In the fall of 2021, the Company made the decision to divest certain mining equipment and the data center of the TTM Digital reporting unit and commenced discussions with a third party to execute an asset sale in the spring of 2022. 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 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. 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 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. In November 2022, the Company received a certificate, dated November 14, 2022, for the shares, and thereafter, the Company received confirmation that the Certificate of Designations for the preferred stock had been filed and accepted by the California Secretary of State on November 14, 2022.

TTM Digital is exploring the possibility of hosting client computing and evaluating all of its options, including the sale of its assets. TTM Digital is actively talking with potential third-party buyers privately, the assets have not been listed for sale in any formal capacity at this time. The TTM Digital assets are tied to its 2021 private placement offering (convertible debt) as collateral, therefore any transactions related to the sale of TTM Digital assets would require approval of 66.7% of the debenture holders to allow for any sale of assets. TTM Digital is not using any assets to mine any cryptocurrency at this time and has no plans to mine any crypto assets at this time or in the future. Most of the TTM Digital assets can be utilized for Artificial Intelligence, Machine Learning, or other non-mining uses that require significant GPU computer resources. At this time the Company is exploring those uses in detail.

Employees

As of ~~April~~June 12, ~~2022~~2023, we had 14 22 full-time employees. We believe our employee relations to be good.

Corporate Information

Our office is located at 13880 Dulles Corner Lane, STE 120, Herndon, Va. 20171 which is where our records are kept. Our website addresses are www.sysorexinc.com and www.ttmdigitalassets.com. Our telephone number is (703) 961-1125.

ITEM 1A: RISK FACTORS

Although smaller reporting companies like the Company are not required to respond to this item, we have elected to do so in the interest of full disclosure.

Certain factors may have a material adverse effect on our business, financial condition, and results of operations. You should carefully consider the risks and uncertainties described below, in addition to other information contained in this 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 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 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 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.

Risks Related to our Business

We ~~have~~are acurrently ~~history of~~in ~~operating~~default ~~losses~~under ~~and~~our convertible debentures. All our ~~auditors~~assets ~~have~~are ~~indicated~~encumbered ~~that~~to ~~there~~secure isthe apayment ~~substantial~~of ~~doubt~~secured ~~about~~convertible debentures that ~~our~~will ~~ability~~require topayments if ~~continue~~not aspreviously aconverted ~~going~~to ~~concern~~Common Stock.

AsWe ofencumbered ~~December~~all ~~31,~~our ~~2021, the Company had an approximate~~assets cash balance of $0.6 million, working capital deficit of approximately $13.2 million, and an accumulated deficit of approximately $40.9 million. The aforementioned factors raise substantial doubt about the Company’s ability to ~~continue~~secure ~~as a going concern for~~ the ~~next twelve~~payment ~~months following the issuance~~ of ~~our~~indebtedness ~~financial~~and ~~statements.~~accrued ~~The~~interest ~~accompanying~~due ~~consolidated financial statements have been prepared~~ on asecured ~~going~~convertible debentures ~~concern~~required ~~basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments relating~~ to ~~the~~be ~~recoverability~~repaid ~~and~~by ~~classification of asset amounts~~approximately orJuly ~~the~~2022, ~~classification~~subject ~~of liabilities that might be necessary should the Company be unable~~ to ~~continue~~certain asextensions, aif ~~going~~not ~~concern~~previously ~~within one year after the date the consolidated financial statements are issued~~converted.

The Company’s ~~does not believe that its capital~~outstanding ~~resources~~obligations as of December 31, 2021, its ability to mine cryptocurrency, availability on the SGS SouthStar credit facility to finance purchase orders and invoices, reauthorization of key vendors and credit limitation improvements will be sufficient to fund planned operations. On March 24, 2022, Company executed an agreement with a third party which ~~includes~~encumber ~~certain binding and non-binding provisions. The Company and~~ the ~~third party agreed to certain terms related to the~~ Company’s ~~sale of approximately 75% of its Ethereum mining~~ assets ~~and certain associated real property which is expected~~ to ~~close~~secure onpayment ~~May 24, 2022. The Company will still require additional funds to support its obligations for the next twelve months. The Company is exploring a number~~ of ~~possible~~certain ~~solutions~~secured toconvertible ~~its financing needs, including efforts to raise additional capital as needed, through the issuance of equity, equity-linked or~~ debt ~~securities,~~are as ~~well as possible transactions with other companies, strategic partnerships, and other mechanisms for addressing our financial condition.~~follows:

~~Our~~● ~~capital resources and operating results~~$15,272,017 asworth of ~~and~~ ~~through~~convertible debt on December 31, ~~2021~~2022, ~~consist~~which encumber all of the ~~(i)~~Company’s Anassets ~~overall~~to ~~working~~secure ~~capital~~payment, ~~deficit~~and ofwhich ~~$13.2~~are ~~million,~~convertible ~~(ii)~~into ~~Cash~~43,634,338,259 ~~and~~shares ~~cash equivalents~~ of ~~$0.6~~the ~~million,~~Company’s ofcommon ~~(iii)~~stock ~~Net~~based ~~cash~~on ~~used~~an inassumed ~~operating~~conversion ~~activities~~price of $(80.5)00035 ~~million,~~per ~~(iv)~~share ~~Net~~using ~~cash~~a ~~provided~~May by30, ~~investing activities of $2.2 million~~2023, ~~and~~5-day ~~(v)~~VWAP ~~Net~~with ~~cash~~a ~~provided~~50% ~~in financing activities of $6~~discount.~~9 million.~~

Because we are in 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 an 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. This would also cause our stock price to decline and could make an investment in us worthless and would have a material adverse effect on our investors and the Company.

Even if we are able to cure our default on the debentures, the existence of these secured obligations and the terms of the securities purchase agreement may impair our ability to obtain capital from external sources in certain manners.

Our existing and future debt obligations could impair our liquidity and financial condition. We are currently in default under our convertible debentures. If we are unable to meet our debt obligations, the lenders could foreclose on our assets.

All of our assets are encumbered to secure the payment of secured convertible debentures that will require payments if not previously converted to common stock. We are currently in default on these debt obligations. Our debt and financial obligations:

●

could impair our liquidity;

●

could make it more difficult for us to satisfy our other obligations;

●

require us to dedicate cash flow to payments on our debt and financial obligations, which would reduce the availability of our cash flow to fund working capital, capital expenditures and other corporate requirements;

●

impose restrictions on our ability to incur other indebtedness, grant liens on our assets, and could impede us from obtaining additional financing in the future for working capital, capital expenditures, acquisitions and general corporate purposes;

●

could adversely affect our ability to enter into strategic transactions, public or private equity offerings, and similar agreements, or require us to obtain the consent to enter into such transactions;

●

make us more vulnerable in the event of a downturn in our business prospects and could limit our flexibility to plan for, or react to, changes in our industry and markets; and

●

could place us at a competitive disadvantage when compared to our competitors.

We are in default under the secured convertible debentures. Since we have pledged substantially all of our assets to secure our obligations under the secured convertible debentures, the debt default could enable the lenders to foreclose on the assets securing such debt and could significantly diminish the market value and marketability of our common stock and could result in the acceleration of other payment obligations or default under other contracts.

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 June 12, 2023, we have 2,484,426,501 shares of common stock issued and outstanding. As of December 31, 2022, holders of our convertible debentures have delivered notices of conversion covering an aggregate of 1,159,494,989 shares of common stock. If we issued the shares that are subject to the notices of conversion that have been delivered, it would result in us issuing more shares than we have authorized. Accordingly, in order to meet all of these obligations, we will need to amend our Articles of Incorporation, as amended, to increase the authorized shares of our common stock. We can give no assurance that we will obtain the requisite affirmative vote of our shareholders to so amend our Articles of Incorporation, as amended, which could materially adversely affect our financial condition and the market for our shares.

We have a history of operating losses and our auditors have indicated that there is substantial doubt about our ability to continue as a going concern.

As of December 31, 2022, the Company had an approximate cash balance of $0.03 million, working capital deficit of approximately $18.1 million, and an accumulated deficit of approximately $61.4 million. In an effort to raise capital, on October 18, 2022, the Company completed a $.5 million private placement, and subsequent to December 31, 2022, the Company sold investments in certain preferred shares held for approximately $0.18 million to a related party. Despite these efforts to raise capital, 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 consolidated financial statements. The accompanying 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 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 consolidated financial statements are issued.

The Company does not believe that its capital resources as of December 31, 2022, its ability to settle a portion of existing convertible debt obligations through issuance of the Company’s shares, availability on the SouthStar facility to finance cash advances to suppliers, purchase orders and invoices, reauthorization of key vendors and credit limitation improvements will be sufficient to fund planned operations during the next twelve months. Additionally, the Company is in default on the aforementioned convertible debt, which was due to be repaid in July 2022, and is accruing related interest, late fees and other penalties. As a result of the above factors, the Company will need additional funds to fulfil its obligations. On September 22, 2022, the shareholders of the Company approved the authorization of 3 billion shares of common stock, however, all of the Company’s authorized shares have been issued or reserved since October 21, 2022, resulting in unfilled conversion notices and an inability to fill potential future conversion notices from convertible debt holders. In order for the Company to fulfil any further conversion obligations, the Company would need to receive approval from the Financial Industry Regulatory Authority (“FINRA”) for a reverse stock-split and obtain shareholder approval for an increase in authorized shares. Existing unfilled conversion notices received in excess of available and authorized shares as of June 12, 2023, total 1,159,494,989. In order to satisfy all possible conversion obligations from existing debtholders as of December 31, 2022, the Company estimates a share deficit of approximately 43.4 billion shares based on the 3 billion currently authorized. Given these circumstances, it is improbable that the Company will be able to satisfactorily fulfil such obligations, even if the above steps are successfully taken.

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 as these contracts can provide the Company with 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 utilizes SouthStar to finance purchase orders and it also can factor its receivables if needed to fund operations. After considering the plans to alleviate substantial doubt, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.

If the Company is unable to raise additional capital on terms acceptable to the Company and on a timely basis, or is unable to attain new vendors, the Company will be required to downsize or wind down its operations through liquidation, bankruptcy, or sale of its assets. In addition, up until September 15, 2022, the Company had been reliant on its ability to liquidate Ethereum to continue to fund operations when needed, however the Company is no longer mining Ethereum and as such, the Company will not be able to fund operations through the liquidation of Ethereum for the next twelve months.

Our capital resources and operating results, as of and through December 31, 2022, consist of the (i) an overall working capital deficit of $18.1 million, (ii) cash and cash equivalents of $0.03 million, of (iii) net cash used in operating activities of $7.5 million, (iv) net cash provided by investing activities of $6.5 million, and (v) net cash provided by financing activities of $0.4 million.

We have material weaknesses in our internal control over financial reporting.

Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting. Our management assessed the effectiveness of our disclosure controls and procedures as of December 31, ~~2021~~2022 and concluded that we had material weaknesses in our internal control over financial reporting and therefore, our disclosure controls and procedures may not be effective in providing material information required to be included in any future periodic SEC filings on a timely basis and to ensure that information required to be disclosed in any future periodic SEC filings is accumulated and communicated to our management to allow timely decisions regarding required disclosure about our internal control over financial reporting. See “Item 9A: Controls and Procedures.” More specifically, our internal control over financial reporting was not effective due to the following material weaknesses:

1. The Company does not have a formal top-down risk assessment process or cyber risk assessment to identify significant process areas, underlying key controls, nor does the Company have a monitoring process in place to monitor internal control over financial reporting.

2. The Company did not properly design or maintain effective entity level monitoring controls over the financial close and reporting process. The Company’s controls surrounding the review of financial statements, vendor agreements, ~~and~~ key reconciliations and accounting for complex transactions were not designed and did not operate at a level of precision that would prevent or detect a material misstatement.

The Company did not design and implement appropriate user access controls to ensure segregation of duties that would adequately restrict user access to financially significant information systems, and schedules, specifically surrounding mining revenue and mining equipment.

4. The Company ~~did~~has not ~~properly~~implemented ~~design~~formalized ~~or maintain effective controls over its service organizations~~ and ITdocumented ~~vendors.~~detective ~~More~~compensating ~~specifically, the Company did not properly design or implement~~ controls toover ~~ensure~~significant ~~that~~process ~~data~~areas ~~received~~integral ~~from third parties is complete and accurate or have controls in place~~ to ~~review~~financial ~~the~~reporting ~~applicable~~that ~~complementary~~mitigate ~~user~~insufficient ~~entity~~segregation ~~controls~~of ~~described in service organizations’ reports for their potential impact on the Company’s financial reporting~~duties.

35. The Company did not properly design or maintain effective controls over its service organizations and IT vendors. More specifically, the Company did not properly design or implement controls to ensure that data received from third parties is complete and accurate or have controls in place to review the applicable complementary user entity controls described in service organizations’ reports for their potential impact on the Company’s financial reporting.

Although management has implemented, and continues to implement, actions to remediate the underlying causes of the control deficiencies that gave rise the material weaknesses, we cannot provide any assurance that the remediation efforts will be successful or that our internal control over financial reporting will be effective as a result of these efforts.5

~~If we fail to comply with the rules under the~~Although ~~Sarbanes-Oxley~~management ~~Act~~has ~~related~~started to ~~disclosure~~implement, ~~controls~~ and ~~procedures~~will incontinue ~~the~~to ~~future~~implement, ~~or,~~actions ~~if we continue~~ to ~~have~~remediate ~~material~~the ~~weaknesses~~underlying orcauses ~~other deficiencies~~of inthe ~~our internal~~ control ~~and accounting procedures and disclosure controls and procedures, our stock price could decline significantly~~deficiencies ~~and~~that ~~raising~~gave ~~capital~~rise ~~could~~the ~~be more difficult. If additional~~ material weaknesses, orwe ~~significant~~cannot ~~deficiencies~~provide ~~are~~any ~~discovered~~assurance orthat ifthe weremediation ~~otherwise fail~~efforts towill ~~address~~be ~~the~~successful ~~adequacy~~or ofthat our internal control over financial reporting ~~and~~will ~~disclosure controls and procedures, our business may~~ be ~~harmed. Moreover,~~ effective ~~internal~~as ~~controls~~a ~~are~~result necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of ~~our~~these ~~securities could drop significantly~~efforts.

~~The~~On May 17, 2022, subsequent to the evaluation as of December 31, 2021, ~~ongoing~~management, ~~coronavirus~~in ~~outbreak~~agreement with the audit committee of the Company’s Board of Directors, determined that the previously issued financial statements for the Affected Periods (as hereinafter defined) should no longer be relied upon and ~~measures~~required ~~taken~~restatement. inAccordingly, ~~response~~the Company ~~thereto~~filed an amendment on Form 10-K (the “10-K Amendment”) to restate the Company’s previously issued consolidated financial statements and financial information as of and for the fiscal year ended December 31, ~~could~~2021, ~~continue~~as well as to ~~have~~provide arestated ~~material~~interim financial ~~adverse~~information ~~effect~~as of September 30, 2021 and for the three and nine months then ended (collectively, the “Affected Periods”), contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, with the Securities and Exchange Commission (the “SEC”) on April 14, 2022 (the “Original Form 10-K”) and in our ~~business~~Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021 (the “Form 10-Q”). As discussed in Note 1A, “Restatement of Consolidated Financial Statements,” ~~results~~of the notes to the accompanying consolidated financial statements as of ~~operations~~and for the year ended December 31, 2022 included from previously reported information for the year ended December 31, 2021, the correction of certain errors, as discussed in the 10-K Amendment, from previously reported information for the year ended December 31, 2021, has resulted in an increase in net loss of $8.4 million, primarily as a result of a $6.3 million in expense related to the revaluation on the derivative conversion liability, an increase in interest expense of $0.9 million, and ~~financial~~an ~~condition~~increase in the loss contingency on debt default of $1.2 million. See “Risk Factors—Risks Related to Restatement of Our Consolidated Financial Statements.”

~~Our business~~If iswe ~~highly~~fail ~~susceptible~~ to ~~changes~~comply inwith ~~economic~~the ~~conditions.~~rules ~~Our~~under ~~products~~the Sarbanes-Oxley Act related to disclosure controls and ~~services~~procedures ~~are~~in ~~directly~~the ~~tied~~future, or, if we continue to ~~the~~have ~~production~~material ~~and~~weaknesses ~~sale~~or other deficiencies in our internal ofcontrol ~~goods~~and accounting procedures and, ~~more~~disclosure ~~generally~~controls and procedures, toour ~~the~~stock ~~North~~price ~~American~~could ~~economy.~~decline ~~The~~significantly ~~COVID-19~~and ~~pandemic~~raising ~~has~~capital could ~~adversely~~be ~~impacted~~more ~~economic~~difficult. ~~activity~~If ~~and~~additional ~~conditions worldwide~~material ~~and~~weaknesses ~~created~~or significant ~~volatility~~deficiencies ~~and~~are ~~disruption~~discovered toor ~~financial~~if ~~markets.~~we ~~Efforts~~otherwise fail to ~~control~~ address the ~~spread~~adequacy of ~~COVID-19~~our ~~have~~internal ~~led governments~~control over financial reporting and ~~other~~disclosure ~~authorities~~controls toand ~~impose~~procedures, ~~restrictions~~our ~~which~~business ~~have~~may ~~resulted~~be inharmed. ~~business~~Moreover, effective ~~closures~~internal controls are necessary for us to produce reliable financial reports and ~~disrupted~~are ~~supply~~important ~~chains~~to ~~worldwide~~prevent financial fraud. If Aswe acannot ~~result,~~provide ~~transportation~~reliable financial reports or prevent fraud, our business and ~~supply~~operating ~~chain~~results ~~companies~~could ~~such~~be asharmed, ~~ours~~investors ~~have~~could ~~experienced~~lose confidence ~~slowdowns~~in ~~and~~our ~~reduced~~reported ~~demand~~financial information, and ~~could~~the ~~continue to~~trading ~~negatively~~price ~~impact~~of our ~~business~~securities could drop significantly.

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.

We are a holding company whose subsidiaries are given a certain degree of independence, and our failure to integrate our subsidiaries may 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 a limited 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 with a limited 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.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process.

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 $01.71 million including interest as of December 31, ~~2021~~2022, which is approximately ~~2.7~~8% 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 on 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. See “—Risks Related to our Business—We are currently in default under our convertible debentures. All our assets are encumbered to secure the payment of secured convertible debentures that will require payments if not previously converted to Common Stock.”

Future issuances of our common stock pursuant to various existing instruments including, but not limited to the existing convertible debentures and right to shares letter agreements 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 convertible debentures. 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 existing and future debt obligations could impair our liquidity and financial condition, and if we are unable to meet our debt obligations, the lenders could foreclose on our assets.

All of our assets are encumbered to secure the payment of secured convertible debentures that will require payments if not previously converted to common stock. Our debt and financial obligations:

● could impair our liquidity;

● could make it more difficult for us to satisfy our other obligations;

● require us to dedicate cash flow to payments on our debt and financial obligations, which would reduce the availability of our cash flow to fund working capital, capital expenditures and other corporate requirements;

● impose restrictions on our ability to incur other indebtedness, grant liens on our assets, and could impede us from obtaining additional financing in the future for working capital, capital expenditures, acquisitions and general corporate purposes;

● could adversely affect our ability to enter into strategic transactions, public or private equity offerings, and similar agreements, or require us to obtain the consent to enter into such transactions;

● make us more vulnerable in the event of a downturn in our business prospects and could limit our flexibility to plan for, or react to, changes in our industry and markets; and

● could place us at a competitive disadvantage when compared to our competitors.

Should we fail to make pay our obligations or fail to comply with any covenants contained in any related agreements, we could be in default regarding that indebtedness. Since we have pledged substantially all of our assets to secure our obligations under the secured convertible debentures, a debt default could enable the lenders to foreclose on the assets securing such debt and could significantly diminish the market value and marketability of our common stock and could result in the acceleration of other payment obligations or default under other contracts.

As further described in the financial statements at Item 8 herein, we believe we are currently in default under the terms of our secured convertible notes.

Risks Related to Acquired Cryptocurrency Mining Business

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 may be classified as an inadvertent investment company.

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. If 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 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.

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 act 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.

Subsequently, on March 9, 2022, the President of the United States issues an executive order outlining a government-wide approach to reviewing six key policy priorities. This includes: protecting US consumers, investors and businesses; protecting US and global financial stability and mitigating economywide financial risks; mitigating money laundering, other illicit finance activity and national security risks; reinforcing US leadership in the global financial system, and technological and economic competitiveness; promoting equitable access to safe and affordable financial services; and Supporting technological advances that promote responsible development and use of digital assets. Unlike China, which has banned all cryptocurrency activities that ultimately pushed more mining investments to the United States, eventual regulation of the cryptocurrency industry may potentially disrupt or temporarily stop mining activities until we conform with new regulatory requirements.

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 6486C seeks to establishes a moratorium on consolidated operations that use proof-of-work authentication methods to validate blockchain transactions; provides that such operations will be subject to a full generic environmental impact statement review. Although the majority of our mining activity is operating using hydroelectric power, New York Senate Bill 6486C may require TTM Digital to halt mining until an environmental impact assessment is completed.

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, in June of 2021, 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~~Risks ~~and~~Related 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~~Out ~~demand~~Former ~~and~~Cryptocurrency ~~could~~Mining ~~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.~~Business

The ~~COVID-19~~recent ~~global~~transition ~~pandemic~~of ~~has~~Ethereum ~~disrupted and may continue~~ to ~~disrupt the manufacture and availability~~ proof-of-stake ~~new~~validation ~~miners,~~caused ~~which~~us ~~could~~to ~~materially and~~cease ~~adversely~~mining ~~affect~~Ethereum ~~our business~~ and ~~the~~all ~~results~~other ofcrypto ~~operations~~currencies.

~~Various COVID~~Proof-19of-~~related~~stake ~~restrictions~~is onan ~~travel,~~alternative method ~~work,~~in ~~and~~validating ~~movement~~cryptocurrency oftransactions. ~~goods~~Now ~~and~~that ~~supplies,~~Ethereum ashas ~~well~~transitioned asto ~~the~~proof-of-stake, ~~cumulative~~our ~~impact~~data ofmining ~~the~~assets ~~mounting~~can ~~number~~no oflonger ~~lost~~mine ~~working~~Ethereum ~~days~~ as ~~a result~~ of ~~COVID-19,~~September ~~has already put a strain on our manufacturing partners~~15, ~~suppliers~~2022, and ~~logistics~~as ~~partners to~~such, ~~produce~~all ~~and~~revenues ~~deliver~~from amining ~~sufficient~~operations ~~number~~have ~~of products needed to meet the global demand for miners~~ceased. ~~This~~The ~~has~~Company ~~had~~is ano ~~particularly strong~~longer ~~impact~~mining onEthereum ~~the~~or ~~global~~any ~~supply~~other ~~chain~~cryptocurrency. ~~and~~TTM ~~availability~~Digital ofno ~~semiconductors,~~longer ~~which~~holds ~~are~~any ~~used~~Ethereum inor ~~the~~other ~~manufacture~~crypto oftokens ~~the~~or ~~ASIC~~crypto ~~chips~~assets ~~used in the~~currently ~~miners~~and wedoes ~~operate.~~not ~~The~~conduct ~~strain~~any onmining ~~the~~activities ~~global~~and ~~supply~~does ofnot ~~semiconductors,~~have ~~largely~~any ~~stemming~~plans ~~from manufacturing interruptions due~~ to ~~COVID-19-related disruptions,~~mine ~~has~~crypto ~~resulted~~tokens in ~~decreased~~the ~~production across many industrial sectors~~future.

~~While~~It ~~our~~may ~~manufacturing~~be ~~partners~~illegal ~~and component suppliers mostly have been able to continue to operate to date in compliance with applicable regulations and current limitations~~now, ~~future~~or ~~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 through 2021~~future, 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~~own, ~~we may not be able to keep up with our competitors~~hold, ~~which~~sell ~~may~~or ~~materially~~use ~~and~~digital ~~adversely~~assets ~~affect~~in ~~our business and results of operations. Some manufacturers, such as NVIDIA are splitting their processors into two categories,~~ one ~~for~~or ~~gamers~~more ~~(GPUs) and another for miners now being marketed as Cryptocurrency Mining Processor (CMP) for miners~~countries. 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~~The United States has current ~~mining~~regulations ~~operating~~in ~~costs~~place ~~could~~applicable ~~outpace~~to ~~our~~digital ~~mining~~assets, ~~revenues~~including with respect to when digital assets may be a security for purposes of the U.S. federal securities laws. Additionally, ~~which~~the ~~could~~recent ~~seriously~~bankruptcy ~~harm~~filings ~~our~~of ~~business~~FTX, the third largest digital asset exchange by volume at the time of its filing, and its affiliated hedge fund Alameda Research LLC, in addition to other bankruptcy filings of crypto companies throughout calendar year 2022, the industry has faced increased regulatory scrutiny from U.S. regulatory agencies such as the SEC and CFTC. On June 5, 2023, the SEC filed lawsuits against cryptocurrency exchanges Coinbase and Binance. Additionally, the United States, one or ~~increase~~more countries such as China, India, and Russia may take further 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 ~~losses~~securities. Such restrictions may adversely affect an investment in us. For example, the Bank of England, in June of 2021, issued a paper for comments in which it explains that stablecoins should have the same regulations as fiat currencies.

~~Our~~The ~~mining~~SEC ~~operations~~has ~~are~~been ~~costly~~active in asserting its jurisdiction over Initial Coin Offerings (“ICO”) and digital assets and in bringing enforcement cases. The SEC has directed enforcement activity toward digital assets, and ~~our~~more ~~expenses~~specifically, ~~may~~ICOs. ~~increase~~The inSEC has issued guidance and made numerous statements regarding the ~~future~~application of securities laws to digital assets. ~~Future~~For ~~increase~~example, inon ~~expenses~~July ~~may~~25, ~~not~~2017, bethe ~~offset~~SEC issued a Report of Investigation (the “Report”) which concluded that “DAO Tokens” offered and sold by the Decentralized Autonomous Organization (“DAO”), a ~~corresponding~~digital decentralized autonomous organization and investor-directed venture capital fund ~~increase~~for indigital ~~revenue~~assets, were issued for the purpose of raising funds. IfThe ~~our~~Report ~~expenses~~concluded ~~are~~that ~~greater~~these ~~than~~tokens wewere ~~anticipate,~~“investment contracts” within the meaning of Section 2(a)(1) of the Securities Act and ~~our~~Section ~~business~~3(a)(10) ~~investments~~of ~~are~~the ~~not~~Exchange ~~successful~~Act, ~~our~~and ~~expenses~~therefore ~~may~~securities subject ~~outpace~~to ~~monetization~~the ~~efforts~~federal securities laws. ~~Increases~~In inDecember ~~our~~2017, ~~costs~~the ~~without~~SEC issued a ~~corresponding~~cease-and-desist ~~increase~~letter inordering ~~our~~a ~~revenue~~company ~~would~~to ~~increase~~stop ~~our~~its ~~losses~~initial ~~and~~coin offering ~~could~~of tokens on the grounds that it failed to file a registration statement or qualify for an exemption from registration. Similar ~~seriously~~to ~~harm~~the ~~our~~tokens ~~business~~issued by the DAO, the SEC found that these tokens satisfied the definition of an “investment contract,” and were ~~financial~~therefore ~~performance~~subject to the federal securities laws.

ToIn September 2017, the ~~extent~~SEC ~~that~~created a new division known as the ~~profit~~“Cyber ~~margins~~Unit” ofto ~~Ethereum~~address, ~~mining~~among ~~operations~~other ~~are~~things, ~~not~~violations ~~high~~involving distributed ledger technology and ICOs, ~~operators~~and filed a civil complaint in the Eastern District of ~~Ethereum~~New ~~mining~~York ~~operations~~charging ~~are~~a ~~more~~businessman ~~likely~~and two tocompanies ~~immediately~~with ~~sell~~defrauding ~~Ethereum~~investors ~~rewards~~in ~~earned~~a pair of so-called ICOs purportedly backed by ~~mining~~investments in ~~the~~real ~~market,~~estate ~~thereby~~and ~~constraining~~diamonds. Subsequently, the ~~growth~~SEC has filed several orders instituting cease-and-desist proceedings against certain entities in connection with their unregistered offerings of tokens for failing to register a hedge fund formed for the ~~price~~purpose of ~~Ethereum~~investing ~~that~~in ~~could~~digital assets as an investment company ~~adversely~~for ~~impact~~failing usto register as a broker-dealer, ~~and~~even ~~similar~~though ~~actions~~it ~~could~~did ~~affect~~not ~~other~~meet ~~cryptocurrencies~~the definition of an exchange for failing either to register as a national securities exchange or to operate pursuant to an exemption from registration as an exchange after creating a platform that clearly fell within the definition of an exchange.

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~~On March 9, 2022, President ~~extent~~Biden tosigned ~~which~~an executive order on cryptocurrencies. While the ~~value~~executive oforder ~~Ethereum~~did ~~mined~~not bymandate aany ~~professional~~specific ~~mining~~regulations, ~~operation~~it ~~exceeds~~instructs various ~~the~~federal ~~allocable~~agencies ~~capital~~to ~~and~~consider ~~operating~~potential ~~costs~~regulatory ~~determines~~ measures, including the ~~profit~~evaluation ~~margin~~of the creation of ~~such~~a ~~operation~~U.S. ACentral ~~professional~~Bank ~~mining~~digital currency. ~~operation~~We ~~may~~cannot be ~~more~~certain ~~likely~~as to ~~sell~~how afuture ~~higher~~regulatory ~~percentage~~developments will impact the treatment of ~~its~~digital ~~newly~~assets ~~mined~~under the law, including, ~~Ethereum~~but ~~rapidly~~not iflimited itto, iswhether ~~operating~~digital atassets will be classified as a ~~low-profit~~security, ~~margin~~commodity, currency and/or itnew or other existing classification. Such additional regulations may ~~partially~~result orin ~~completely~~extraordinary, ~~cease~~non-recurring ~~operations~~expenses, ifthereby ~~its~~materially ~~profit~~and ~~margin~~adversely isaffecting an investment ~~negative~~in us. InIf awe ~~low-profit~~determine ~~margin~~not ~~environment,~~to acomply ~~higher~~with ~~percentage~~such ~~could~~additional beregulatory ~~sold~~and ~~more~~registration ~~rapidly~~requirements, ~~thereby~~we ~~potentially~~may ~~depressing~~seek ~~Ethereum~~to cease certain or all ~~prices~~of our operations. ~~Lower~~Any ~~Ethereum~~such ~~prices~~action could ~~result~~have ina ~~further~~material ~~tightening~~adverse ofeffect ~~profit~~on ~~margins~~our ~~for~~business, ~~professional~~financial ~~mining~~condition and results of operations. Further, ~~creating~~we may be subject to investigation, administrative or court proceedings, and civil or criminal monetary fines and penalties as a ~~network~~result of any regulatory enforcement actions, all of which could harm our reputation and affect the value of our common stock. On ~~effect~~April 4, 2022, shortly after President Biden’s executive order, SEC Chairman Gary Gensler announced that ~~may~~he ~~further~~has ~~reduce~~instructed the SEC ~~price~~staff ofto ~~Ethereum~~work ~~until~~(i) ~~mining~~to ~~operations~~register and regulate digital asset platforms like securities exchanges; (ii) with ~~higher~~the ~~operating~~CFTC ~~costs~~on ~~become~~how ~~unprofitable~~to ~~forcing~~jointly ~~them~~address todigital ~~reduce~~asset ~~mining~~platforms ~~power~~that trade both securities and non-securities; (iii) on segregating out digital asset platforms’ custody of customer assets, if appropriate; and (iv) on segregating out the market making functions of digital asset platforms, if appropriate. These efforts have a high likelihood or ~~cease~~result ~~mining~~in ~~operations~~new ~~temporarily~~interpretations or regulations that would have material effects on our business that are impossible to predict.

~~The foregoing~~Although ~~risks~~we ~~associated~~previously ~~with~~engaged in ~~Ethereum~~the ~~could~~mining beof ~~equally applicable to other cryptocurrencies~~cryptocurrency, ~~whether~~and ~~existing~~previously ~~now~~held orcryptocurrency ~~introduced~~assets, in the ~~future.~~Company ~~Such~~no ~~circumstances~~longer ~~could~~holds ~~have~~any aEthereum ~~material~~or ~~adverse~~other ~~effect~~crypto ~~on our ability to continue as a going concern~~ tokens or tocrypto ~~pursue~~assets ~~our new strategy~~ at ~~all,~~this ~~which~~time ~~could~~and ~~have~~the acompany ~~material~~does ~~adverse~~not ~~effect~~conduct onany ~~our~~mining ~~business,~~activities ~~prospects, or operations~~ and ~~potentially~~does ~~the~~not ~~value~~have ~~of Ethereum and~~ any ~~other~~plans ~~cryptocurrencies~~to we mine orcrypto ~~otherwise~~tokens in ~~acquire~~the ~~or hold for our own account, and thus harm investors~~future.

WeRecent ~~may~~bankruptcies ~~not~~and befinancial ~~able~~distress toamong ~~realize~~crypto asset market participants have caused widespread disruption in the ~~benefits~~crypto ofasset ~~forks~~markets which may cause reputational harm to the Company.

ToThe recent bankruptcies and financial distress among crypto asset market participants have caused widespread disruption in the ~~extent~~crypto ~~that~~asset amarkets. ~~significant~~Additionally, although ~~majority~~we ofare ~~users~~not ~~and~~directly ~~miners~~connected onto athe recent cryptocurrency ~~network~~market ~~install~~events, ~~software~~we ~~that~~may ~~changes~~still suffer reputational harm due to our association with the cryptocurrency ~~network~~ orindustry ~~properties~~in light of athe ~~cryptocurrency,~~recent ~~including~~disruption in the ~~irreversibility~~crypto ofasset ~~transactions~~markets. ~~and~~Although ~~limitations~~we onpreviously ~~the~~engaged in the mining of ~~new~~cryptocurrency, and previously held cryptocurrency assets, the ~~cryptocurrency~~Company ~~network~~no ~~would~~longer beholds ~~subject~~any toEthereum ~~new~~or ~~protocols~~other ~~and~~crypto ~~software.~~tokens ~~However,~~or crypto ifassets ~~less~~at ~~than~~this atime ~~significant~~and ~~majority~~the ofcompany ~~users~~does not conduct any mining activities and ~~miners~~ ondoes ~~the~~not ~~cryptocurrency~~have ~~network~~any ~~consent~~plans to ~~the~~mine ~~proposed~~crypto ~~modification,~~tokens ~~and~~ in the ~~modification~~future. isThe ~~not~~recent ~~compatible~~disruptions ~~with~~in the ~~software~~crypto ~~prior to~~asset ~~its~~markets ~~modification~~have caused regulators, such as the ~~consequence~~SEC, ~~would~~to bemore ~~what~~closely isfocus ~~known~~on ascompanies with aany ~~“fork”~~level of ~~the~~involvement ~~network~~in crypto assets, ~~with~~whether ~~one~~past ~~prong~~or ~~running~~present, such as the ~~pre-modified software~~Company. ~~and~~With the ~~other~~recent ~~running~~developments in the ~~modified~~market, our ~~software.~~assets ~~The~~(GPUs ~~effect~~and ofdatacenter) ~~such~~may be impacted from a ~~fork~~valuation ~~would~~perspective bedue to the ~~existence~~uncertainty ofin ~~two~~the ~~versions~~market. ofGPUs, ~~the~~which ~~cryptocurrency~~are typically ~~running~~used into ~~parallel~~mine ~~yet~~cryptocurrencies, ~~lacking~~have ~~interchangeability~~returned ~~and~~to ~~necessitating~~pricing ~~exchange-type~~that ~~transactions~~is closer to ~~convert~~retail ~~currencies~~value ~~between~~rather ~~the~~than ~~two~~overvalued (i.e., marked up above retail ~~forks~~due to supply constraints and demand). Additionally, itthere ~~may~~has bebeen ~~unclear~~general ~~following~~reputational aharm ~~fork~~to ~~which~~the ~~fork~~market ~~represents~~due to the ~~original~~volatility ~~asset~~of ~~and~~crypto exchanges, which ishas ~~the~~affected ~~new~~crypto ~~asset~~token pricing negatively as well as pricing of mining equipment. ~~Different~~The Company has minimized its impact, ~~metrics~~since ~~adopted~~it bystopped ~~industry~~mining ~~participants~~crypto totokens ~~determine~~on ~~which~~September is15, 2022, and the ~~original~~Company ~~asset~~liquidated ~~include:~~its ~~referring~~crypto totoken holdings before the ~~wishes~~mass ofdisruption in the ~~core~~market ~~developers of~~due ato ~~cryptocurrency,~~bankruptcies ~~blockchains~~and ~~with~~increased risks in the ~~greatest~~market. ~~amount~~Additionally, ofthe ~~hashing~~Company’s ~~power~~crypto ~~contributed~~assets bywere ~~miners~~not orbased ~~validators;~~on client orholdings ~~blockchains~~and ~~with~~crypto tokens were mined for the ~~longest~~ ~~chain~~benefit of the Company and its shareholders’ value. AHowever, ~~fork~~the volatility in the ~~network~~market ofhas acaused ~~particular~~the ~~cryptocurrency~~Company’s ~~could~~assets ~~adversely~~(GPUs ~~affect~~and andatacenter) ~~investment~~to decline in ~~our~~value. ~~securities~~The Company no longer holds any Ethereum or ~~our~~other ~~ability~~crypto tokens or crypto assets at this time and the company does not conduct any mining activities and does not have any plans to ~~operate~~mine crypto tokens in the future.

WeOur ~~may not be able to realize the economic benefit of a fork~~business, ~~either~~financial ~~immediately or ever~~condition, ~~which~~share ~~could~~price ~~adversely~~and ~~affect~~results ~~an investment in our securities. If we hold a cryptocurrency at the time~~ of aoperations ~~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~~still be ~~able,~~adversely oraffected itby ~~may not~~recent becryptocurrency ~~practical, to secure or realize the economic benefit of the new asset for various reasons. For instance, we may determine that~~industry-wide ~~there~~developments isbeyond ~~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~~control. ~~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~~Even isthough aneither ~~possibility~~TTM Digital nor the Company holds any cryptocurrency assets at this time, our business, financial condition, share price and results of operations may still be adversely affected by recent cryptocurrency industry-wide developments beyond our control, including the continued industry-wide fallout from the recent Chapter 11 bankruptcy filings of cryptocurrency exchanges FTX Trading Ltd., et al. (“FTX”) (including its affiliated hedge fund Alameda Research LLC), crypto hedge fund Three Arrows Capital (“Three Arrows”) and crypto lenders Celsius Network LLC, et al. (“Celsius”), Voyager Digital Ltd., et al. (“Voyager”) and BlockFi Inc., et al. (“BlockFi”). Although our former cryptocurrency mining ~~algorithms~~business ~~transitioning~~has no exposure to ~~proof-~~any of~~-stake~~ ~~validation~~the cryptocurrency market participants that recently filed for Chapter 11 bankruptcy; we have no assets, material or otherwise, that may not be recovered due to these bankruptcies; and we have no exposure to any other ~~mining-related~~counterparties, ~~risks~~customers, ~~which~~custodians or other crypto asset market participants ~~could~~known ~~make~~to ushave ~~less~~(i) ~~competitive~~experienced ~~and~~excessive ~~ultimately~~redemptions ~~adversely~~or ~~affect~~suspended redemptions or withdrawal of crypto assets, (ii) their crypto assets of their customers unaccounted for, or (iii) experienced material corporate compliance failures; and our other business ~~and~~activities are unaffected by the ~~value~~recent ofcrypto market events; our ~~stock~~business, financial condition, share price and results of operations may not be immune to unfavorable investor sentiment resulting from these recent developments in the broader cryptocurrency industry.

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.

When and if Ethereum transitions to proof-of-stake, our GPUs will no longer be able to mine Ethereum, which could have a material adverse effect on our results of operations and the value of our common stock.

Once Ethereum transitions to proof of stake, revenue will be generated from Ethereum by “staking” coins.

Ethereum’s change to proof of stake will require staking of Ethereum to generate revenue. The Ethereum will be locked for a yet to be determined period of time to generate staking rewards. The reward amount is variable and while estimates exist, the actual reward rate is unknown at this time. If the Company does not earn such rewards, it could have a material adverse effect on the Company’s results of operations and on the value of our common stock.

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 ETH (ETH is the cryptocurrency/token off of the Ethereum blockchain) 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 ETH. In addition, our operating results are directly impacted by changes in the value of Ethereum. The Company records it’s ETH at cost and will adjust the cost if impaired.

~~Our~~Although we previously engaged in the mining ~~operations~~of cryptocurrency, ~~including~~and previously held cryptocurrency assets, the ~~facilities~~Company no longer holds any Ethereum or other crypto tokens or crypto assets at this time and the company does not conduct any mining activities and does not have any plans to mine crypto tokens in ~~which~~the ~~our~~future. ~~miners~~With ~~are~~the ~~operated~~aforementioned developments in the market, our assets (GPUs and datacenter) may ~~experience~~be ~~damages~~impacted from a valuation perspective due to the uncertainty in the market. GPUs, ~~including~~which ~~damages~~are typically used to mine cryptocurrencies, have returned to pricing that ~~are~~is closer to retail value rather than overvalued (i.e., marked up above retail due to supply constraints and demand). Additionally, there has been general reputational harm to the market due to the volatility of crypto exchanges, which has affected crypto token pricing negatively as well as pricing of mining equipment. The Company has minimized its impact, since it stopped mining crypto tokens on September 15, 2022, and the Company liquidated its crypto token holdings before the mass disruption in the market due to bankruptcies and increased risks in the market. Additionally, the Company’s crypto assets were not based on client holdings and crypto tokens were mined for the ~~covered~~benefit byof ~~insurance~~the Company and its shareholders’ value. However, the volatility in the market has caused the Company’s assets (GPUs and datacenter) to decline in value. The Company no longer holds any Ethereum or other crypto tokens or crypto assets at this time and the company does not conduct any mining activities and does not have any plans to mine crypto tokens in the future.

~~Our~~The ~~current~~Company ~~mining~~may ~~operation~~be ~~is,~~at ~~and~~a ~~any~~higher ~~future~~risk ~~mines~~of welitigation ~~establish~~and ~~will~~other ~~be,~~legal ~~subject~~proceedings due to aheightened ~~variety~~regulatory scrutiny of ~~risks~~the ~~relating~~cryptocurrency industry, towhich ~~physical~~could ~~condition and~~ultimately ~~operation,~~be ~~including~~resolved against the Company requiring future cash payments or charges, ~~but~~which ~~not~~could ~~limited~~impair ~~to:~~the Company’s financial condition and results of operations.

●Although we previously engaged in the ~~presence~~mining of ~~construction~~cryptocurrency, orand ~~repair~~previously ~~defects~~held cryptocurrency assets, the Company no longer holds any Ethereum or other ~~structural~~crypto tokens or ~~building~~crypto ~~damage;~~assets at this time and the Company does not conduct any mining activities and does not have any plans to mine crypto tokens in the future. The cryptocurrency aspect of the Company’s former business could make it susceptible to various claims, both in litigation and binding arbitration proceedings, legal proceedings, and government investigations, due to the heightened regulatory scrutiny following the recent disruptions in the crypto asset markets. The Company believes that since cryptocurrency mining, and the digital asset industry generally, is a relatively new business sector, it is more likely subject to government investigation and regulatory determination, particularly following the recent cryptocurrency market participant bankruptcies described elsewhere herein. Any claims, regulatory proceedings or litigation that could arise in the course of the Company’s business could have a material adverse effect on the Company and its business or operations.

● any noncompliance with or liabilities under applicable environmental, health, or safety regulations or requirements or building permit requirements;

● any damage resulting from natural disasters, such as hurricanes, earthquakes, fires, floods, and windstorms; and

● claims by employees and others for injuries sustained at our properties.

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,~~Risks ~~certain~~Related 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~~Restatement 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~~Our ~~global~~Consolidated ~~hash~~Financial 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.Statements

~~If the~~We ~~feasibility~~had ofto arestate ~~bad~~our ~~actor~~previously ~~gaining~~issued consolidated ~~control~~financial ofstatements, ~~the~~as ~~processing~~previously ~~power~~disclosed, onand ~~the~~as ~~Ethereum~~disclosed ~~network~~in ~~increases,~~the ~~there~~Amendments ~~may~~to beour aForm ~~negative~~10-K ~~effect on~~for anthe ~~investment~~year inended ~~the~~December 31, ~~Company~~2021. ToWe ~~the~~have ~~extent~~identified ~~that~~material ~~the~~weakness ~~Ethereum~~in ~~ecosystem,~~our ~~including~~internal ~~the~~control ~~core~~over ~~developers~~financial ~~and~~reporting for the ~~administrators~~year ofended ~~mining pools~~December 31, ~~does~~2022. If ~~not~~we ~~act~~are unable to ~~ensure~~develop ~~greater~~and ~~decentralization~~maintain ofeffective ~~mining~~internal ~~processing~~control ~~power~~over financial reporting, ~~the~~we ~~feasibility~~may ofnot abe ~~malicious~~able ~~actor~~to ~~obtaining~~accurately ~~control~~report ofour ~~the~~financial ~~processing~~results ~~power~~in ona ~~the~~timely ~~Ethereum network will increase~~manner, which may adversely affect ~~the~~investor ~~value~~confidence ofin us and may adversely affect our ~~common~~business, financial ~~stock~~condition, and results of operations.

~~The~~On May 17, 2022, subsequent to the evaluation as of December 31, 2021, management, in agreement with the audit committee of the Company’s ~~reliance~~Board of Directors, determined that the previously issued financial statements for the Affected Periods (as hereinafter defined) should no longer be relied upon and required restatement. We then filed Amendment No. 1 to our Form 10-K for the year ended December 31, 2021 (the “Amendment No. 1”) on ~~third~~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 (collectively, the “Affected Periods”), contained in our Annual Report on Form 10-~~party~~K ~~mining~~for ~~pool~~the ~~service~~fiscal ~~providers~~year ~~may~~ended ~~have~~December 31, 2021, with the Securities and Exchange Commission (the “SEC”) on April 14, 2022 (the “Original Form 10-K”) and in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021 (the “Form 10-Q”). On June 1, 2022, we filed Amendment No. 2 to our Form 10-K because Amendment No. 1 contained a ~~negative~~typographical error ~~impact~~on the date of the audit report of Friedman LLP (“Friedman”). Although Friedman’s audit report was dated April 14, 2022, except for the effects of the restatement discussed in Note 1A, Note 12, Note 13, and Note 19 to the consolidated financial statements, as to which the date is May 23, 2022, the copy of Friedman’s audit report that was included in Amendment No. 1 incorrectly included a date of April 13, 2022 (instead of April 14, 2022). Amendment No. 2 on Form 10-K (“Amendment No. 2”) was filed to correct the ~~Company~~typographical error regarding the date on Friedman’s ~~operations~~audit report, such that the date of Friedman’s audit report is April 14, 2022, except for the effects of the restatement discussed in Note 1A, Note 12, Note 13, and Note 19 to the consolidated financial statements, as to which the date is May 23, 2022.

~~We use~~As ~~third-party~~discussed ~~mining~~in ~~pools~~Note to1A, ~~receive~~“Restatement of ~~our~~Consolidated ~~mining~~Financial ~~rewards~~Statements,” ~~from~~of the ~~network.~~notes ~~Ethereum~~to ~~mining~~the ~~pools~~accompanying ~~allow~~consolidated ~~miners~~financial tostatements ~~combine~~as ~~their~~of ~~computing~~and for the year ~~power,~~ended ~~increasing~~December ~~their~~31, ~~chances~~2021 ofincluded ~~solving~~in aAmendment ~~block~~No. 1 and ~~getting~~Amendment ~~paid~~No. by2, the ~~network.~~correction ~~The~~of ~~rewards~~certain ~~are~~errors, ~~distributed~~as bydiscussed ~~the~~in ~~pool~~Amendment ~~operator,~~No. ~~proportionally~~1 toand ~~our~~Amendment ~~contribution~~No. to2, from previously reported information for the ~~pool’s~~year ~~overall~~ended ~~mining~~December ~~power~~31, ~~used~~2021, tohas ~~generate~~resulted ~~each~~in ~~block.~~an ~~Should~~increase ~~the~~in ~~pool~~net ~~operator’s~~loss ~~system~~of ~~suffer~~$8.4 ~~downtime~~million, ~~due~~primarily toas a ~~cyber-attack,~~result ~~software~~of ~~malfunction,~~a or$6.3 ~~other~~million ~~similar~~in ~~issues,~~expense itrelated ~~will~~to ~~negatively~~the ~~impact~~revaluation ~~our~~on ~~ability~~the toderivative conversion liability, ~~mine~~an increase in interest expense of $0.9 million, and ~~receive~~an ~~revenue~~increase in the loss contingency on debt default of $1.2 million.

~~The~~As ~~open~~previously disclosed in the Company’s Current Report on Form 8-~~source~~K ~~structure~~filed ofon May 17, 2022 with the ~~Ethereum~~SEC, ~~network~~on ~~protocol~~May ~~means~~17, ~~that~~2022, the ~~core~~Company’s management ~~developers~~determined ~~and~~that ~~other~~its ~~contributors~~prior ~~are~~conclusion ~~generally~~that ~~not~~the ~~directly~~“conversion feature” of the Company’s 12.5% senior secured ~~compensated~~convertible ~~for~~debentures ~~their~~(the ~~contributions~~“Debentures”) inqualified ~~maintaining~~for equity classification and, ~~developing~~therefore, qualified for the ~~Ethereum~~application of ~~network~~the ~~protocol.~~guidance Ain ~~failure~~the toFinancial ~~properly~~Accounting ~~monitor~~Standards ~~and~~Board’s ~~upgrade~~(the “FASB”) Accounting Standards Update (ASU) 2020-06 was incorrect. Management has determined that the ~~Ethereum~~conversion ~~network~~feature ~~protocol~~was ~~could~~a ~~damage~~liability classified derivative under the ~~Ethereum~~FASB’s ~~network~~Accounting Standards Codification (ASC) 815-40, Derivatives and ~~the~~Hedging ~~Company~~– Contracts in Entity’s ~~business~~Own Equity from the inception requiring recognition at fair value for each reporting period.

The ~~Ethereum~~Company’s ~~network~~management, ~~operates~~in ~~based~~agreement onwith ~~an open-source protocol maintained by~~ the ~~core~~audit ~~developers~~committee ~~and~~of ~~other contributors. As~~ the ~~Ethereum network~~Company’s ~~protocol~~Board isof ~~not~~Directors, ~~sold~~have ordetermined ~~made~~that ~~available subject to licensing or subscription fees and its use does not generate revenues for its~~the ~~development~~previously ~~team,~~issued ~~the~~financial ~~core~~statements ~~developers are generally not compensated~~ for ~~maintaining and updating~~ the ~~Ethereum~~Affected ~~network~~Periods ~~protocol.~~should ~~Consequently, there~~no islonger abe ~~lack~~relied ofupon ~~financial~~due ~~incentive for developers~~ to ~~maintain~~this orerror ~~develop the Ethereum network~~ and ~~the~~require ~~core developers may lack the~~restatement. ~~resources~~Amendment toNo. ~~adequately~~1 ~~address~~and ~~emerging~~Amendment ~~issues~~No. ~~with~~2 ~~the~~(i) ~~Ethereum~~reflect ~~network protocol. Although~~ the ~~Ethereum~~changes ~~network~~discussed isabove ~~currently~~for ~~supported by~~ the ~~core~~Affected ~~developers~~Periods, ~~there~~(ii) ~~can~~restates ~~be no guarantee that such support will continue or be sufficient in~~ the ~~future. Alternatively, some~~Company’s ~~developers~~consolidated ~~may~~financial bestatements ~~funded~~as byand ~~entities~~for ~~whose~~the ~~interests~~year ~~are~~ended atDecember ~~odds~~31, ~~with~~2021, ~~other~~and ~~participants~~(iii) inprovides ~~the~~restated ~~Ethereum~~unaudited ~~network.~~financial Toinformation as ~~the~~of ~~extent~~September ~~that material~~30, ~~issues~~2021, ~~arise~~and ~~with~~for the ~~Ethereum~~three ~~network protocol~~ and ~~the~~nine ~~core~~months ~~developers~~then ~~and~~ended. ~~open-source~~The ~~contributors~~error ~~are~~does ~~unable~~not toimpact ~~address~~ the ~~issues~~ ~~adequately~~Company’s orconsolidated infinancial statements afor ~~timely manner,~~ the ~~Ethereum~~quarters ~~network~~ended ~~and~~March ~~the~~31, ~~business~~2021, ofor ~~the~~June ~~Company~~30, ~~may be adversely affected~~2021.

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.

~~Risks~~As a result of the factors ~~Related~~described toabove, ~~Ownership~~the Company has included in Amendment No. 1 and Amendment No. 2 the restated consolidated financial statements as of and ~~our~~for ~~Common~~the ~~Stock~~year ended December 31, 2021:

~~A large~~● ~~number~~Total ofnet ~~shares~~loss of– ~~Common~~Restated ~~Stock has recently become eligible for public sale or may be subject~~ to ~~rights~~reflect ~~requiring us to register them for public sale which could depress~~ the ~~market~~understatement ~~price~~ of ~~our~~total ~~Common~~other ~~Stock~~income (expense), ~~even~~and ifnet ~~our~~loss ~~business~~by ~~is doing well~~$8.4 Amillion ~~substantial~~for ~~number of~~the ~~shares~~year ofended ~~our~~December ~~Common~~31, ~~Stock may be sold in the near future.~~2021

~~The~~● ~~market~~Liabilities ~~price~~and ofaccumulated ~~our~~deficit ~~Common~~– ~~Stock~~Restated 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~~reflect ~~shares of our Common Stock in connection with~~ the ~~Merger~~understatement ~~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~~liabilities ~~144~~ and ~~applicable~~accumulated ~~securities~~deficit ~~laws), to sell or to require us to register shares owned~~ by ~~them for public sale in the United States~~$8.4 ~~Additionally,~~million ~~holders~~as of ~~our~~December outstanding convertible debentures are entitled to convert their debentures into potentially millions of shares of common stock at a substantial discount to the current market price of our common stock31, ~~which may, in turn, result in substantial dilution to our existing shareholders.~~2021

~~Exempted~~A ~~sales~~material weakness is a deficiency, or a combination of ~~our~~deficiencies, ~~shares~~in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of ~~Common~~our ~~Stock~~annual or ~~sales~~interim ~~pursuant~~financial tostatements ~~registration~~will ~~rights~~not ~~may~~be ~~make~~prevented itor ~~more~~detected on ~~difficult~~a ~~for~~timely usbasis. toEffective ~~sell~~internal ~~equity~~control ~~securities in~~over ~~the~~financial ~~future~~reporting atis anecessary ~~time~~for ~~and~~us atto aprovide ~~price~~reliable ~~that~~financial wereporting ~~deem~~and prevent ~~appropriate~~fraud. ~~These~~We ~~sales~~continue ~~also~~to ~~could~~evaluate ~~cause~~steps to remediate the ~~trading~~material ~~price~~weaknesses. ofThese ~~our~~remediation ~~Common~~measures ~~Stock~~may tobe time consuming and ~~fall~~costly and ~~make~~there itis ~~more~~no ~~difficult~~assurance ~~for~~that ~~investors~~these toinitiatives ~~sell~~will ~~shares~~ultimately ofhave ~~our~~the ~~Common~~intended ~~Stock~~effects.

Any failure to maintain effective internal control over financial reporting could adversely impact on our ability to report our financial position and results from operations on a timely and accurate basis. If our financial statements are not accurate, investors may not have a complete understanding of our operations. Likewise, if our financial statements are not filed on a timely basis, we could be subject to sanctions or investigations by the SEC or other regulatory authorities. In either case, there could be a material adverse effect on our business, financial condition, and results of operations. Ineffective internal control over financial reporting could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.

We can give no assurance that the measures we are taking and plan to take in the future will remediate the material weaknesses identified or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls. In addition, even if we are successful in strengthening our controls and procedures, in the future those controls, and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our consolidated financial statements.

We may face litigation and other risks as a result of the Restatement and material weakness in our internal control over financial reporting.

As a result of the Restatement and the identified material weaknesses, and other matters that may in the future be raised by the SEC, we face the potential for litigation or other disputes which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the Restatement and/or the material weaknesses in our internal control over financial reporting and the preparation of our financial statements. As of the date of this Registration Statement, we have no knowledge of any such litigation or dispute. However, we can provide no assurance that such litigation or dispute will not arise in the future. Any such litigation or dispute, whether successful or not, could adversely affect our business, financial condition, and results of operations.

Risk Factors Relating to Our Common Stock

Trading on the OTC Markets is volatile and sporadic, which could depress the market price of our common stock and make it difficult for you to resell your common stock.

Our common stock is quoted on the Pink Tier of the OTC Markets Group, Inc. (“OTC Markets”). Trading in securities quoted on the OTC Markets is often thin and characterized by wide fluctuations in trading prices, due to many factors, some of which may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Markets is not a stock exchange, and trading of securities on the OTC Markets is often more sporadic than the trading of securities listed on a quotation system like Nasdaq Capital Market or a stock exchange like the NYSE American. These factors may result in your having difficulty reselling any shares in our common stock.

The market price of our common stock is likely to be highly volatile because of several factors, including a limited public float.

The market price of our common stock has been volatile in the past and the market price of our common stock is likely to be highly volatile in the future. You may not be able to resell shares of our common stock following periods of volatility because of the market’s adverse reaction to volatility.

Other factors that could cause such volatility may include, among other things:

	●	actual or anticipated fluctuations in our operating results;

	●	the absence of securities analysts covering us and distributing research and recommendations about us;

	●	we may have a low trading volume for several reasons, including that a large portion of our stock is closely held;

	●	overall stock market fluctuations;

	●	announcements concerning our business or those of our competitors;

	●	actual or perceived limitations on our ability to raise capital when we require it, and to raise such capital on favorable terms;

	●	conditions or trends in the industry;

	●	litigation;

	●	changes in market valuations of other similar companies;

	●	future sales of common stock;

	●	departure of key personnel or failure to hire key personnel; and

	●	general market conditions.

Any of these factors could have a significant and adverse impact on the market price of our common stock. In addition, the stock market in general has at times experienced extreme volatility and rapid decline that has often been unrelated or disproportionate to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock, regardless of our actual operating performance.

Our common stock is currently a “penny stock” under SEC rules. It may be more difficult to resell securities classified as “penny stock.”

Our common stock is currently a “penny stock” under applicable SEC rules (generally defined as non-exchange traded stock with a per-share price below $5.00). If our common stock becomes listed on the Nasdaq Capital Market, it will not be considered “penny stock,” however, if we are unable to maintain that listing and our common stock is no longer listed on the Nasdaq Capital Market, unless we maintain a per-share price above $5.00, our common stock will become “penny stock.” These rules impose additional sales practice requirements on broker-dealers that recommend the purchase or sale of penny stocks to persons other than those who qualify as “established customers” or “accredited investors.” For example, broker-dealers must determine the appropriateness for non-qualifying persons of investments in penny stocks. Broker-dealers must also provide, prior to a transaction in a penny stock not otherwise exempt from the rules, a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, disclose the compensation of the broker-dealer and its salesperson in the transaction, furnish monthly account statements showing the market value of each penny stock held in the customer’s account, provide a special written determination that the penny stock is a suitable investment for the purchaser, and receive the purchaser’s written agreement to the transaction.

Legal remedies available to an investor in “penny stocks” may include the following:

	●	If a “penny stock” is sold to the investor in violation of the requirements listed above, or other federal or states securities laws, the investor may be able to cancel the purchase and receive a refund of the investment.

	●	If a “penny stock” is sold to the investor in a fraudulent manner, the investor may be able to sue the persons and firms that committed the fraud for damages.

These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit the market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock and may affect your ability to resell our common stock.

Many brokerage firms will discourage or refrain from recommending investments in penny stocks. Most institutional investors will not invest in penny stocks. In addition, many individual investors will not invest in penny stocks due, among other reasons, to the increased financial risk generally associated with these investments.

For these reasons, penny stocks may have a limited market and, consequently, limited liquidity. We can give no assurance at what time, if ever, our common stock will not be classified as a “penny stock” in the future.

If the benefits of any proposed acquisition do not meet the expectations of investors, stockholders or financial analysts, the market price of our common stock may decline.

If the benefits of any proposed acquisition do not meet the expectations of investors or securities analysts, the market price of our common stock prior to the closing of the proposed acquisition may decline. The market values of our common stock at the time of the proposed acquisition may vary significantly from their prices on the date the acquisition target was identified.

In addition, broad market and industry factors may materially harm the market price of our common stock irrespective of our operating performance. The stock market in general has experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar to us could depress our stock price regardless of our business, prospects, financial conditions or results of operations. A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.

Changes in accounting principles and guidance, or their interpretation, could result in unfavorable accounting charges or effects, including changes to our previously filed financial statements, which could cause our stock price to decline.

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These principles are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting principles and guidance. A change in these principles or guidance, or in their interpretations, may have a significant effect on our reported results and retroactively affect previously reported results.

Being a public company results in additional expenses, diverts management’s attention, and could also adversely affect our ability to attract and retain qualified directors.

As a public reporting company, we are subject to the reporting requirements of the Exchange Act. These requirements generate significant accounting, legal and financial compliance costs and make some activities more difficult, time-consuming, or costly and may place significant strain on our personnel and resources. The Exchange Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to establish the requisite disclosure controls and procedures and internal control over financial reporting, significant resources and management oversight are required.

As a result, management’s attention may be diverted from other business concerns, which could have an adverse and even material effect on our business, financial condition, and results of operations. These rules and regulations may also make it more difficult and expensive for us to obtain director and officer liability insurance. If we are unable to obtain appropriate director and officer insurance, our ability to recruit and retain qualified officers and directors, especially those directors who may be deemed independent, could be adversely impacted.

We are an “emerging growth company” and our election to delay adoption of new or revised accounting standards applicable to public companies may result in our financial statements not being comparable to those of some other public companies. As a result of this and other reduced disclosure requirements applicable to emerging growth companies, our securities may be less attractive to investors.

As a public reporting company with less than $1,235,000,000 in revenue during our last fiscal year, we qualify as an “emerging growth company” under the JOBS Act. An emerging growth company may take advantage of certain reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. In particular, as an emerging growth company we:

	●	are not required to obtain an attestation and report from our auditors on our management’s assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act;

	●	are not required to provide a detailed narrative disclosure discussing our compensation principles, objectives and elements and analyzing how those elements fit with our principles and objectives (commonly referred to as “compensation discussion and analysis”);

	●	are not required to obtain a non-binding advisory vote from our stockholders on executive compensation or golden parachute arrangements (commonly referred to as the “say-on-pay,” “say-on-frequency” and “say-on-golden-parachute” votes);

	●	are exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and CEO pay ratio disclosure;

	●	may present only two years of audited financial statements and only two years of related Management’s Discussion & Analysis of Financial Condition and Results of Operations (“MD&A”); and

	●	are eligible to claim longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act.

We intend to take advantage of all these reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act. Our election to use the phase-in periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the phase-in periods under §107 of the JOBS Act.

Certain of these reduced reporting requirements and exemptions were already available to us due to the fact that we also qualify as a “smaller reporting company” under SEC rules. For instance, smaller reporting companies are not required to obtain an auditor attestation and report regarding management’s assessment of internal control over financial reporting; are not required to provide a compensation discussion and analysis; are not required to provide a pay-for-performance graph or Chief Executive Officer pay ratio disclosure; and may present only two years of audited financial statements and related MD&A disclosure.

Under the JOBS Act, we may take advantage of the above-described reduced reporting requirements and exemptions for up to five years after our initial sale of common equity pursuant to a registration statement declared effective under the Securities Act or such earlier time that we no longer meet the definition of an emerging growth company. In this regard, the JOBS Act provides that we would cease to be an “emerging growth company” if we have more than $1,235,000,000 in annual revenues, have more than $700 million in market value of our Common Stock held by non-affiliates, or issue more than $1.0 billion in principal amount of non-convertible debt over a three-year period. Further, under current SEC rules we will continue to qualify as a “smaller reporting company” for so long as we have a public float (i.e., the market value of common equity held by non-affiliates) of less than $250 million as of the last business day of our most recently completed second fiscal quarter.

We cannot predict if investors will find our securities less attractive due to our reliance on these exemptions.

If we fail to maintain effective internal control over financial reporting, the price of our securities may be adversely affected.

Our internal control over financial reporting has weaknesses and conditions that require correction or remediation. For the year ended December 31, 2022, we identified a material weakness in our assessment of the effectiveness of disclosure controls and procedures. Our internal control over financial reporting was not effective due to the following material weaknesses:

The Company does not have a formal top-down risk assessment process or cyber risk assessment to identify significant process areas, underlying key controls, nor does the Company have a monitoring process in place to monitor internal control over financial reporting.

The Company did not properly design or maintain effective entity level monitoring controls over the financial close and reporting process. The Company’s controls surrounding the review of financial statements, vendor agreements, key reconciliations and accounting for complex transactions were not designed and did not operate at a level of precision that would prevent or detect a material misstatement.

The Company has not implemented formalized and documented detective compensating controls over significant process areas integral to financial reporting that mitigate insufficient segregation of duties.

The Company did not properly design or maintain effective controls over its service organizations and IT vendors. More specifically, the Company did not properly design or implement controls to ensure that data received from third parties is complete and accurate or have controls in place to review the applicable complementary user entity controls described in service organizations’ reports for their potential impact on the Company’s financial reporting.

If we fail to comply with the rules under the Sarbanes-Oxley Act related to disclosure controls and procedures in the future, or, if we continue to have material weaknesses or other deficiencies in our internal control and accounting procedures and disclosure controls and procedures, our stock price could decline significantly and raising capital could be more difficult. If additional material weaknesses or significant deficiencies are discovered or if we otherwise fail to address the adequacy of our internal control over financial reporting and disclosure controls and procedures, our business may be harmed. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our securities could drop significantly.

We are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act and if we fail to continue to comply, our business could be harmed, and the price of our securities could decline.

Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act require an annual assessment of internal control over financial reporting, and for certain issuers an attestation of this assessment by the issuer’s independent registered public accounting firm. The standards that must be met for management to assess the internal control over financial reporting as effective are evolving and complex, and require significant documentation, testing, and possible remediation to meet the detailed standards. We expect to incur significant expenses and to devote resources to Section 404 compliance on an ongoing basis. It is difficult for us to predict how long it will take or costly it will be to complete the assessment of the effectiveness of our internal control over financial reporting for each year and to remediate any deficiencies in our internal control over financial reporting. As a result, we may not be able to complete the assessment and remediation process on a timely basis. In the event that our Chief Executive Officer or Chief Financial Officer determines that our internal control over financial reporting is not effective as defined under Section 404, we cannot predict how regulators will react or how the market prices of our securities will be affected; however, we believe that there is a risk that investor confidence and the market value of our securities may be negatively affected.

Shares eligible for future sale may adversely affect the market.

From time to time, certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act, subject to certain limitations. In general, pursuant to Rule 144, non-affiliate stockholders may sell freely after six months, subject only to the current public information requirement. Affiliates may sell after six months, subject to the Rule 144 volume, manner of sale (for equity securities), current public information, and notice requirements. Of the approximately 2,484,426,501 shares of our common stock outstanding as of June 12, 2023, approximately 1,933,270,220 shares are tradable without restriction. Given the limited trading of our common stock, resale of even a small number of shares of our common stock pursuant to Rule 144 or an effective registration statement may adversely affect the market price of our common stock.

We have never paid dividends on our common stock and have no plans to do so in the future.

Holders of shares of our common stock are entitled to receive such dividends as may be declared by our board of directors. To date, we have paid no cash dividends on our shares of common stock, and we do not expect to pay cash dividends on our common stock in the foreseeable future. We intend to retain future earnings, if any, to provide funds for the operations of our business. Therefore, any return investors in our common stock may have will be in the form of appreciation, if any, of the market value of their shares of common stock. See “Dividend Policy.”

We will indemnify and hold harmless our officers and directors to the maximum extent permitted by Nevada law.

Our bylaws provide that we will indemnify and hold harmless our officers and directors against claims arising from our activities to the maximum extent permitted by Nevada law. If we were called upon to perform under our indemnification agreement, then the portion of our assets expended for such a purpose would reduce the amount otherwise available for our business.

The planned Reverse Stock Split may decrease the liquidity of the shares of our common stock.

On June 15, 2022, the Company’s Board of Directors approved to affect 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. On September 22, 2022, the Company held its 2022 virtual annual meeting of stockholders, at which the Company’s stockholders voted in favor of, among other matters, 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. On November 1, 2022, the Company’ Board of Directors approved an Articles of Amendment to the Company’s Articles of Incorporation to affect a 1 for 1,000 reverse stock split (“Reverse Stock Split”) of the Company’s common stock. The current status of the Reverse Stock Split is that the Company has notified the Financial Industry Regulatory Authority (FINRA) of the Reverse Stock Split, which will not be effective until FINRA processes it, and at such time we’ll file the Articles of Amendment with the State of Nevada to effectuate the Reverse Stock Split. The liquidity of the shares in our common stock may be affected adversely by the planned Reverse Stock Split given the reduced number of shares outstanding following the Reverse Stock Split. In addition, the planned Reverse Stock Split may have increased the number of shareholders who own odd lots (less than 100 shares) of our common stock, creating the potential for such shareholders to experience an increase in the cost of selling their shares and greater difficulty affecting such sales.

Our common stock is now quoted on OTC Market’s Pink Tier as a result of failing to satisfy the minimum bid price requirement for the OTCQB.

Our common stock is now quoted on OTC Markets Group, Inc. (“OTC Markets”) Pink Tier under the symbol “SYSX,” as a result of failing to satisfy the minimum bid price requirement for the OTCQB. Our common stock was previously quoted on the OTCQB Tier under the symbol “SYSX.” In order to be in compliance with OTCQB Standards, among other things, a company must maintain a minimum closing bid price of $0.01 per share on at least one of the prior 30 consecutive calendar days. Further, pursuant to the OTCQB Standards, in the event that a company’s closing bid price falls below $0.001 at any time for five consecutive trading days, such company will be immediately removed from OTCQB. Effective November 25, 2022, the Company’s common stock was removed by OTC Markets from the OTCQB as a result of failing to satisfy the minimum bid price requirement for the OTCQB, and as of such date began being quoted on the OTC Market’s Pink Tier.

ITEM 1B: UNRESOLVED STAFF COMMENTS

None.

ITEM 2: PROPERTIES

Our principal executive offices are located at 13880 Dulles Corner Lane, Suite 120, Herndon, Virginia 20171. We lease this premise, which consists of approximately 5,758 square feet pursuant to a lease that expires on May 31, 2025, with the following gross monthly rent payments:

	Gross
	Monthly
	Rent
Month	Payment
Month 1 – Month 12	$	17,514
Month 13 – Month 24	$	17,996
Month 25 – Month 36	$	18,490
Month 37 – Expiration Date	$	18,999

In addition, the Company owns and operates its data center in New York. The data center facility is located in an industrial redevelopment area which has a property tax abatement and pays certain fees in lieu of property taxes under an agreement with the Industrial Development Agency. We believe that our facilities are adequate for our current needs.

ITEM 3: LEGAL PROCEEDINGS

There ~~are~~is 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~~ 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 more than $4.2 million, and on January 13, 2022, the Company and Tech Data entered into a Settlement and Release Agreement (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the Company paid $1,375,000 on January 14, 2022. The Company recognized a gain on settlement of $1.5 million. The Award was deemed satisfied in full. Among other things, Tech Data agreed to file an acknowledgment of full satisfaction of judgment attached as an exhibit to the Settlement Agreement, not take any further action against the Company in connection with or relating to the Judgment, and release the Company and its representatives from any and all claims, including the Judgment, which Tech Data may have against the Company based upon any transaction that occurred at any time before the date of the Settlement Agreement.

~~Following a~~On ~~negotiation~~June ~~with~~3, ~~Tech Data~~2022, the Company became ~~was~~aware ~~able~~that toa ~~reduce~~Complaint ~~the~~had ~~Award~~been byentered inagainst ~~excess of $4.2 million, and on January 13, 2022,~~ the Company ~~and~~ ~~Tech~~in ~~Data~~the ~~entered~~United ~~into~~States aDistrict ~~Settlement~~Court ~~and~~Southern ~~Release~~District ~~Agreement~~of ~~(the~~New ~~“Settlement Agreement”). Pursuant to the Settlement Agreement,~~York ~~the~~by ~~Company~~ProActive ~~paid~~Capital $1Partners,~~375,000~~ L.00P, ona ~~January~~convertible ~~14,~~debenture ~~2022~~holder. The ~~Award~~Complaint ~~was~~is ~~deemed~~entered ~~satisfied~~for ininjunctive ~~full.~~relief ~~Among~~to ~~other~~honor ~~things,~~is ~~Tech Data agreed to file~~stock anconversion, ~~acknowledgment~~recover ofdamages, ~~full~~and ~~satisfaction~~receive ofpayments ~~judgment~~due ~~attached~~under ~~as an exhibit to~~ the ~~Settlement~~Debenture ~~Agreement,~~agreement. ~~not~~The ~~take~~convertible ~~any~~debenture ~~further~~principal ~~action~~and ~~against~~interest ~~the~~of ~~Company~~$0.2 inmillion ~~connection~~is ~~with~~recorded orin ~~relating to~~ the ~~Judgment,~~consolidated ~~and~~balance ~~release~~sheets ~~the~~– ~~Company~~accrued ~~and~~liabilities ~~its~~for ~~representatives~~the ~~from~~year ~~any~~ended ~~and~~December ~~all claims~~31, ~~including~~2022. ~~the~~The ~~Judgment,~~notice ~~which~~of ~~Tech~~conversion ~~Data~~to ~~may~~convert ~~have~~its ~~against~~convertible ~~the~~debt ~~Company~~to ~~based~~shares ~~upon~~of ~~any transaction that occurred at any time before~~ the ~~date~~Company’s ofstock ~~the Settlement~~will ~~Agreement.~~be honored.

There are no proceedings in which any of the directors, officers, or affiliates of the Company, or any registered or beneficial holder of more than 5% of the Company’s voting securities, is an adverse party or has a material interest adverse to that of the Company.

ITEM 4: MINE SAFETY DISCLOSURES

Not Applicable.

1219

PART II

ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Shares of our common stock trade on the ~~OTCQB~~OTC Markets, Pink Tier under the symbol “SYSX.” The following table sets forth the high and low closing prices for our common stock for each quarterly period during the years ended December 31, ~~2020~~2022, and 2021, as reported by the OTC Markets. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

	Common Stock
	High		Low
Year Ended December 31, 2020:
January 1, 2020, through March 31, 2020	$	0.15	$	0.15
April 1, 2020, through June 30, 2020	$	0.42	$	0.25
July 1, 2020, through December 31, 2020	$	0.38	$	0.38
October 1, 2020, through December 31, 2020	$	0.43	$	0.43
Year Ended December 31, 2021:
January 1, 2021, through March 31, 2021	$	3.40	$	0.30
April 1, 2021, through June 30, 2021	$	15.00	$	0.79
July 1, 2021, through September 31, 2021	$	4.05	$	0.68
July 1, 2021, through December 31, 2021	$	4.05	$	0.68
October 1, 2021, through December 31, 2021	$	0.97	$	0.19
Year Ended December 31, 2022:
January 1, 2022, through March 31, 2022	$	0.23	$	0.02
April 1, 2022, through June 30, 2022	$	0.11	$	0.005
July 1, 2022, through September 31, 2022	$	0.04	$	0.003
October 1, 2022, through December 31, 2022	$	0.004	$	0.0005

The closing price of our common stock on the ~~OTCQB~~OTC Markets, Pink Tier on ~~April~~June 115, ~~2022~~2023, was $0.~~0195~~0008.

Stockholders of Record

As of ~~April~~December 1131, 2022, there were ~~211~~219 stockholders of record of our common stock. A substantially greater number of holders of our common stock are “street name” or beneficial holders, whose shares of record are held through banks, brokers, other financial institutions , and registered clearing agencies.

Dividend Policy

We have never declared nor paid any cash dividends to stockholders. We do not currently expect to pay dividends on our capital stock. The payment of any dividends in the future, and the timing and amount thereof, is within the discretion of our board of directors. The board’s decisions regarding the payment of dividends will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations, restrictive covenants in any debt instrument, industry practice, legal requirements, regulatory constraints, and other factors that the board deems relevant. Our ability to pay dividends will depend on our ongoing ability to generate cash from operations. We cannot guarantee that we will pay a dividend in the future or continue to pay any dividends if we ~~began~~begin paying dividends.

Securities Authorized for Issuance under Equity Compensation Plans

Information about our equity compensation plans is incorporated herein by reference to Part III, Item 11 of this report.

Performance Graph

Pursuant to the accompanying instructions, the information called for by Item 201~~(e)~~ I of Regulation S-K is not required.

Unregistered Sales of Securities and Use of Proceeds

On ~~April~~October 1418, ~~2021~~2022, ~~pursuant~~the Company entered into a Securities Purchase toAgreement (the ~~terms~~“SPA”), dated as of October 18, 2022, by and among the ~~Merger~~Company ~~Agreement~~and each of the each of the investor’s signatories thereto (each an “Investor” and collectively, the “Investors”). Pursuant to the terms of the SPA, the Company agreed to ~~issue~~sell anto ~~aggregate~~each Investor a number of ~~150~~Units of securities of the Company (each,~~043~~ a “Unit”),~~116~~ at a purchase price of $0.001 per Unit, ~~less~~with ~~certain~~each ~~pre-funded~~Unit ~~warrants~~being comprised of: (i) one share of common stock (each, a “Purchased Share” and collectively, ~~rights~~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 ~~receive~~adjustment ~~shares~~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 ~~follows:~~a result of any forward or reverse split of the common stock (each, a “Warrant 2”). The Investors, collectively, subscribed for a total 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 payable to the Company of $500,000.

(i) 124,218,268 shares of common stock to the shareholders of TTM Digital in connection with the Merger;

(ii) 20,870,088 shares of common stock (excluding shares reserved for issuance), in exchange for cancellation of $13,582,081 of Company indebtedness and accounts payable as part of the transactions contemplated by the Merger Agreement; and

(iii) 4,954,760 shares of common stock issued in certain other transactions contemplated by the Merger Agreement.

On May 4, 2021, the Company issued the aggregate of 60,000 shares of Common Stock to consultants in consideration of corporate communications/media relations and investor relations services pursuant to a consulting agreement.

On May 19, 2021, the Company issued 5,000 shares of Common Stock to an attorney in consideration of legal services provided.

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 3, 2021, the Company issued the aggregate of 50,000 shares of Common Stock to an individual elected to serve as a Board of Director.

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.

On November 2, 2021, the Company issued the aggregate of 1,000,000 shares of Common Stock in consideration for the purchase of the remaining 50% membership interest in Up North.

The above shares have been sold and issued in reliance on the exemption from registration afforded by Section 4(a)(2) of the Securities Act and/or Rule 506(b) of Regulation D promulgated thereunder.

ITEM 6: [RESERVED]

ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited financial ~~statements~~ statements and related notes included elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion and analysis here and throughout the Form 10-K contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements due to a number of factors, including but not limited to, risks described in the section entitled “Risk Factors”.

Overview of the Company’s Subsidiaries

The Company is a technology company focused on Ethereum mining and the Ethereum blockchain and information technology solutions primarily in the public sector segments including federal, state and local governments. The Company has two wholly owned subsidiaries: TTM Digital Assets & Technologies, Inc. (“TTM Digital”) and Sysorex Government Services, Inc. (“SGS”).

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 business segment of the Company.

In the fall of 2021, the Company made the decision to divest certain mining equipment and the data center of the TTM Digital reporting unit (“TTM Assets”) and commenced discussions with a third party to execute an asset sale in the spring of 2022. . On March 24, 2022, Company executed with a third party an agreement which includes certain binding and non-binding provisions. Pursuant to the agreement, the Company and the third party agreed to certain terms related to the Company’s sale of approximately 75% of its Ethereum mining assets and certain associated real property. The TTM Assets to be sold will not include the Company’s Ether funds generated prior to and held at Closing and any graphics processing units or associated assets maintained and operated by the Company at a co-located facility in North Carolina. The definitive terms of the sale of TTM Assets will be set forth in definitive transaction agreements (the “Definitive Documentation”) to be executed by the parties.

The Definitive Documentation will include certain other terms and conditions which are customary in asset sale and real property sale agreements.

Sysorex Government Services

14The 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.

The financial statements present the consolidated results of operations, financial condition, and cash flows of Sysorex and its subsidiaries. These financial statements were prepared on a consolidated basis because the operations were under common control. All intercompany accounts and transactions have been eliminated between the consolidated entities.21

TTM Digital

TTM Digital is a digital asset technology company that previously operated 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 and as a result, the Company is no longer mining Ethereum or any other cryptocurrency.

The Company made the decision to divest certain mining equipment and the data center of the TTM Digital reporting unit and commenced discussions with a third party to execute an asset sale in the spring of 2022. On March 24, 2022, the Company executed Heads of Terms (“Heads of Terms”) with Ostendo Technologies, Inc. (“Ostendo”). 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 Company 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. 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 2022 that the transaction will not proceed. In November 2022, the Company received a certificate, dated November 14, 2022, for the shares, and thereafter, the Company received confirmation that the Certificate of Designations for the preferred stock had been filed and accepted by the California Secretary of State on November 14, 2022.

Subsequent to the Ostendo transaction not proceeding, TTM Digital explored alternate long-term uses for its assets and concluded that mining other coins was not a feasible path forward due to the volatility in crypto prices, and repurposing its assets was not a viable path forward as it would require significant upfront investments to its datacenter infrastructure. TTM Digital is currently exploring sales opportunities for its GPU assets and datacenter located in Lockport, NY.

Known Trends or Uncertainties

SGS experiences variability in our net sales and operating results on a quarterly basis as a result of many factors. SGS experiences some seasonal trends in our sales of technology solutions to government and educational institutions. For example, the fiscal year-ends of U.S. Public Sector customers vary for those in the federal government space and those in the state and local government and educational institution (“SLED”) space. SGS generally sees an increase in our second quarter sales related to customers in the U.S. SLED sector and in our third quarter sales related to customers in the federal government space as these customers close out their budgets for their fiscal year (June 30th and December 31st, respectively). SGS may experience variability in our gross profit and gross profit margin as a result of changes in the various vendor programs we participate in and its effect on the amount of vendor consideration we receive from a particular vendor or their authorized distributor/wholesaler, may be impacted by a number of events outside of our control.

Basis of Presentation

In connection with the preparation of our consolidated financial statements, we are required to make assumptions 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 believes 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 accounting principles generally accepted in the United States (“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~~Discussion ~~significant~~of ~~accounting~~Results ~~policies~~of ~~are~~Operations ~~discussed in Note 4~~ of ~~the~~SGS ~~consolidated~~for ~~financial statements. We believe that~~ the ~~following~~years ~~accounting estimates~~ended ~~are~~December ~~the~~31, ~~most critical to aid in fully understanding and evaluating our reported financial results~~2022, 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.~~2021

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 stake to the network in the “proof-of-stake model” Proof-of-stake will earn the Company rewards based on the amount of Ethereum you have. 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 1’59'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.

SGS experiences variability in our net sales and operating results on a quarterly basis as a result of many factors. SGS experiences some seasonal trends in our sales of technology solutions to government and educational institutions. For example, the fiscal year-ends of U.S. Public Sector customers vary for those in the federal government space and those in the state and local government and educational institution (“SLED”) space. SGS generally sees an increase in our second quarter sales related to customers in the U.S. SLED sector and in our third quarter sales related to customers in the federal government space as these customers close out their budgets for their fiscal year (June 30th and December 31st, respectively). SGS may 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, 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 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 on July 7, 2022, subject to a three-month extension upon mutual agreement of the Company and the holder. We believe we are currently in default under the terms of our secured convertible notes.

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. We believe we are currently in default under the terms of our secured convertible notes.

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).

On November 2, 2021, the Company through a wholly owned subsidiary of TTM Digital executed a Membership Interest Purchase Agreement (“Up North Agreement”) with BWP Holdings, LLC (“BWP”) whereby the Company acquired the remaining 50.0% membership interest (“Transferred Membership Interest”) in Up North Hosting LLC (“Up North”) that it did not already own to bring its ownership in Up North to 100.0% (“UNH Acquisition”). In addition to the Transferred membership Interest the Company acquired certain data mining equipment of BWP (“Bitworks Equipment” and collectively the “Acquisition”) that was resident in the Up North data center facility. Total transaction consideration paid for the acquired interests of Up North and the Bitworks Equipment were $1.0 million and the issuance of 1.0 million shares of restricted common stock, $0.00001 par value of the Company.

In the fall of 2021, the Company made the decision to divest certain mining equipment and the data center of the TTM Assets and commenced discussions with a third party to execute an asset sale in the spring of 2022. On March 24, 2022, the Company executed with a third party an agreement which includes certain binding and non-binding provisions. Pursuant to the agreement, the Company and the third party agreed to certain terms related to the Company’s sale of approximately 75% of its Ethereum mining assets and certain associated real property. The TTM Assets to be sold will not include the Company’s Ether funds generated prior to and held at Closing (as hereinafter defined) and any graphics processing units or associated assets maintained and operated by the Company at a co-located facility in North Carolina. The definitive terms of the sale of TTM Assets will be set forth in definitive transaction agreements (the “Definitive Documentation”) to be executed by the parties.

Summary of TTM Digital Mining Result

The following is a discussion on continuing and discontinued operations is discussed further in the following sections, Liquidity and Capital Resources as of December 31, 2021, and 2020.

The following table presents the roll forward of digital asset activity from both continuing and discontinued operations during the respective periods:

	December 31,
	2021			2020
Opening Balance	$	24		$	25
Revenue from mining		12,534	*		1,868	*
Received for membership interest		-			46
Payment of Mining equipment under lease to buy arrangement		(1,091	)		-
Mining pool operating fees		(129	)		(4	)
Management fees		(321	)		(189	)
Transaction fees		(26	)		-
Owners’ distributions		(1,521	)		(1,211	)
Digital asset impairment		(704	)		-
Proceeds from sale of digital assets		(3,670	)		(555	)
Realized gain on sale of digital assets		106			44
Ending Balance	$	5,202		$	24

* Of the $12.5 million revenue from mining, $4.4 million in continuing operations and $8.1 million in discontinued operations. The $1.8 million in 2020 is included in discontinued operations.

Discussion of Results of Operations of TTM Digital for the year ended December 31, 2021, and 2020

For the year ending 2021, TTM Digital reported $12.5 million in revenues, ($4.4 million in continuing operations and $8.1 million in discontinued operations). TTM Digital reported $1.3 million in mining costs ($0.5 in continuing operations and $0.8 million in discontinued operations), $0.2 million in sales and marketing costs (continuing operations), $6.3 million in general and administrative costs (continuing operations), ($6.0 million in continuing operations and $0.3 million in discontinued operations), $0.3 million in management fees (continuing operations), $4.1 million in amortization and depreciation costs ($2.5 million in continuing operations and $1.6 million in discontinued operations), $3.2 million of fixed asset impairment ( continuing operations), $0.7 million of digital asset impairment (continuing operations), $6.6 million in loss contingency on debt default (continuing operations), $22.0 million in merger charges (continuing operations), $2.0 million in restructuring fees (continuing operations), $0.08 in other net income and expenses ($0.012 million in other income from continuing operations and $0.1 million in other expenses in discontinued operations), resulting in a net loss from operations of $13.3 million ($18.5 million net loss from continuing operations and $5.2 million net income from discontinued operations).

For the year ending 2020, TTM reported its results as discontinued operations. TTM Digital reported $1.8 million in revenues. TTM Digital reported $0.4 million in mining costs, $0.1 million in management fees, $0.8 million in depreciation costs, resulting in a net income from operations of $0.5 million.

TTM Digital margins are affected by new and existing competitors in the digital asset mining industry. As an increasing number of new miners enter the Ethereum network, and as existing miners acquire additional mining equipment, the total rewards per miner decrease and the difficulty to obtain mining equipment increases. Margins are also affected by increases in natural gas prices. At times of peak usage on the power grid, and in times of inclement weather, natural gas prices tend to rise. Additionally, for the year ended December 31, 2021, there were significant merger and acquisition related costs due to the triangular reverse merger with Sysorex Inc.

Discussion of Results of Operations of SGS for the year ended December 31, 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.

For the year ending 2021, the SGS reported $8.3 million in revenues. This includes approximately 70% of revenues coming from the Company’s top two customers. SGS reported $6.9 million in product and services costs, $0.8 million in sales and marketing costs, $3.4 million in general and administrative costs, $0.4 million in amortization costs, resulting in a loss from operations of $3.2 million. See Note 4 — Summary of Significant Accounting Policies for discussion of the accounting treatment under ASC 606 included in the notes to the financial statements. Based on the two contracts, the Company acted as the agent and is required to record the costs against the related revenues, resulting in a reduced revenue line, offset by a reduced cost of goods sold line in the financial statements.23

~~SGS~~For ~~margins~~the ~~are~~years ~~affected~~ending by2022 and ~~the~~2021, ~~diversity~~SGS ofreported ~~our supplier~~$17.3 ~~Supplier~~million ~~diversity~~and ~~allows~~$8.3 ~~companies~~million ~~such~~in asrevenues, ~~SGS~~respectively. toThis ~~seek~~includes ~~better~~approximately ~~cost~~87% ~~through competition~~ of ~~multiple~~revenues ~~suppliers~~coming of from the ~~same~~Company’s ~~product~~top two customers. ~~Currently,~~ SGS product ~~does~~and ~~not~~service ~~have~~costs for the ~~supplier~~years ~~diversity~~ending ~~that~~2022 isand ~~required~~2021, towere ~~increase~~approximately ~~margin~~$12.0 million ~~SGS~~and is$6.9 onmillion, arespectively. ~~prepay~~SGS ~~basis~~improved ~~with~~its ~~many~~gross ~~suppliers and~~margins ~~this~~from ~~requires~~17% ~~SGS~~in 2021 to ~~finance~~20% ~~cash~~in ~~advances~~2022. The toreported ~~suppliers~~gross ~~from~~margin of ~~our~~31% ~~finance~~in ~~source~~2022 if normalized, ~~South~~removal ~~Star~~of ~~credit~~approximately ~~facility~~$2.0 ~~Our~~million ~~financial~~of ~~source charges~~settlement ~~high~~gains ~~fees~~from ~~and~~prior ~~interest,~~years; ~~which~~the ~~also~~result ~~affects~~would ~~our~~be ~~net~~a normalized gross margin of 20%.

17SGS’ margins are affected by the diversity of our suppliers. Supplier diversity allows companies such as SGS to seek better costs through competition of multiple suppliers of the same product. Currently, SGS does not have the supplier diversity that is required to increase the margin. SGS is on a prepay basis with many suppliers and this requires SGS to finance cash advances to suppliers from our finance source, SouthStar credit facility.

~~Liquidity~~For the years ended 2022 and 2021, SGS reported $1.0 million and ~~Capital~~$0.8 ~~Resources~~million asin ofsales ~~December~~and 31marketing costs, ~~2021~~respectively; $3.9 million and $3.2 million in general and administrative costs. The increase in general and administrative costs was mainly driven by increases in consulting and professional fees. In 2022, Sysorex incurred a $0.2 million impairment charge on its investment of its Ostendo preferred shares.

In addition, for the years ended 2022 and 2021, SGS reported $3.4 million and $3.8 million in interest expense. A revaluation conversion feature gain (loss) of $2.0 million and $(6.3) million was incurred. As noted below in Discussion of Results of Operations for TTM Digital, the Company realized a gain on the sale of digital assets of $1.7 million and $0.01 million, and an impairment of its digital assets of $2.7 million and $0.7 million. The Company performed an evaluation of its goodwill and as a result, recorded an impairment of $1.6 million.

Summary of TTM Digital Mining Result

The following is a discussion on continuing and discontinued operations is discussed further in the following sections, Liquidity and Capital Resources as of December 31, 2022, and 2021.

The following table presents the roll forward of digital asset activity from both continuing and discontinued operations during the respective periods:

	December 31,
	2022			2021
Opening Balance	$	5,202		$	24
Revenue from mining*		4,094			12,534
Payment of Mining equipment under lease to buy arrangement		-			(1,091	)
Mining pool operating fees		(42	)		(129	)
Management fees		-			(321	)
Transaction fees		(138	)		(26	)
Owners’ distributions		-			(1,521	)
Digital asset impairment		(2,748	)		(704	)
Proceeds from sale of digital assets		(8,119	)		(3,670	)
Realized gain on sale of digital assets		1,751			106
Ending Balance	$	-		$	5,202

Included in discontinued operations

Discussion of Results of Operations of TTM Digital for the year ended December 31, 2022, and 2021

The activities for TTM Digital revenues and costs for the year ended December 31, 2022, represent discontinued operations.

Total Ethereum mined during the year ended December 31, 2022, was approximately 1,746 ETH vs approximately 4,783 ETH during the year ended December 31, 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. TTM Digital no longer holds any Ethereum or other crypto tokens or crypto assets currently, does not conduct any mining activities, and does not have any plans to mine crypto tokens in the future.

For the year ended December 31, 2022, the Company recorded approximately $4.1 million of impairment of fixed assets in its discontinued operations.

As noted above, the Closing of the TTM Digital Asset sale transaction did not occur. The investment in Ostendo shares of $1.6 million was subsequently sold on April 3, 2023, for approximately $0.2 million. The Company retained 30,000 shares of the investment in Ostendo. For the year ended December 31, 2022, the Company recorded an impairment charge of approximately $0.2 million.

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 $0.5 million. The purchase of common stock on September 26, 2021, for a minority interest in Style Hunt’s common stock of $0.5 million was impaired and recorded in the statement of operations and disclosed in Note 5 Discontinued Operations as of December 31, 2022.

Liquidity and Capital Resources as of December 31, 2022

Going Concern

As of December 31, ~~2021~~2022, the Company had an approximate cash balance of $0.603 million, working capital deficit of approximately $1318.21 million, and an accumulated deficit of approximately $4061.94 million. In an effort to raise capital, on October 18, 2022, the Company completed a $.5 million private placement, and subsequent to December 31, 2022, the Company sold investments in certain preferred shares held for approximately $0.18 ~~The~~million to a related party. Despite these efforts to raise capital, the aforementioned factors continue to raise substantial doubt about the Company’s ability to continue as a going concern for the next twelve months ~~following~~from the date of issuance of these consolidated financial statements. The accompanying 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 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 consolidated financial statements are issued.

The Company does not believe that its capital resources as of December 31, ~~2021~~2022, its ability to ~~mine~~settle ~~cryptocurrency~~a portion of existing convertible debt obligations through issuance of the Company’s shares, availability on the ~~SGS~~ SouthStar ~~credit~~ facility to finance cash advances to suppliers, purchase orders and invoices, reauthorization of key vendors and credit limitation improvements will be sufficient to fund planned operations during the next twelve months. Additionally, the Company is in default on the aforementioned convertible debt, which was due to be repaid in July 2022, and is accruing related interest, late fees and other penalties. As a result of the above factors, the Company will need additional funds to fulfil ~~support~~ its obligations. ~~for~~On ~~the~~September ~~next~~22, ~~twelve~~2022, ~~months.~~the ~~The~~shareholders ~~Company~~of isthe ~~exploring~~Company aapproved ~~number~~the authorization of ~~possible~~3 ~~solutions to~~billion ~~its~~shares ~~financing~~of ~~needs~~common stock, ~~including~~however, ~~efforts~~all toof ~~raise~~the ~~additional~~Company’s ~~capital~~authorized asshares ~~needed,~~have ~~through~~been ~~the~~issued ~~issuance~~or ofreserved ~~equity~~since October 21, ~~equity-linked~~2022, orresulting ~~debt~~in unfilled ~~securities,~~conversion asnotices ~~well~~and asan ~~possible~~inability ~~transactions~~to ~~with~~fill ~~other~~potential ~~companies,~~future ~~strategic~~conversion ~~partnerships,~~notices ~~and~~from ~~other~~convertible ~~mechanisms~~debt ~~for~~holders. ~~addressing~~In ~~our~~order ~~financial~~for the Company ~~condition.~~to Onfulfil ~~March~~any ~~24,~~further ~~2022~~conversion obligations, the Company ~~executed~~would anneed ~~agreement~~to ~~with~~receive approval from the Financial Industry Regulatory Authority (“FINRA”) for a ~~third~~reverse ~~party~~stock-split toand ~~certain~~obtain ~~terms~~shareholder ~~related~~approval tofor ~~the~~an ~~Company’s~~increase ~~sale~~in ofauthorized shares. Existing unfilled ~~approximately~~conversion ~~75%~~notices ofreceived ~~its~~in ~~Ethereum~~excess ~~mining~~of ~~assets~~available and ~~certain~~authorized ~~associated~~shares ~~real~~as ~~property~~of ~~which~~June is12, ~~expected~~2023, total 1,159,494,989. In order to ~~close~~satisfy all onpossible ~~May~~conversion 24obligations from existing debtholders as of December 31, 2022., ~~There~~the Company estimates a share deficit of approximately ~~can~~43.4 bebillion noshares ~~assurance~~based on the 3 billion currently authorized. Given these circumstances, it is improbable that the Company will ~~consummate~~be able to satisfactorily fulfil such obligations, even if the ~~sale~~above steps are successfully taken.

~~Our~~The Company continues to explore a number of other possible solutions to its financing needs, including efforts to raise additional capital as ~~resources~~needed, ~~and~~through ~~operating~~the ~~results~~issuance of equity, ~~continuing~~equity-linked ~~and~~or ~~discontinued~~debt ~~operations~~securities, as ofwell ~~and~~as ~~through~~possible ~~December~~transactions 31with other companies, ~~2021~~strategic partnerships, ~~consist~~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 as these contracts can provide the: Company with 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 utilizes SouthStar to finance purchase orders and it also can factor its receivables if needed to fund operations. After considering the plans to alleviate substantial doubt, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.

~~1) An overall working capital deficit of $13.2 million,~~25

2)Our ~~Cash~~capital resources and operating ~~cash~~results, ~~equivalents~~continuing and discontinued operations, as of ~~$0.6~~and ~~million~~through December 31, 2022, consist of the:

31) ~~Net~~An ~~cash~~overall ~~used~~working incapital ~~operating~~deficit ~~activities~~ of $(818.5) 1 million,

42) Cash ~~Net~~and cash ~~provided~~equivalents ~~by investing activities~~ of $20.203 million, ~~and~~

53) Net cash ~~provided~~used in ~~financing~~operating activities of $6(7.95) million.,

~~Operating~~4) Net ~~Activities~~cash provided by investing activities of $6.5 million, and

~~Net cash used in operating activities was $(8.~~5) ~~million~~ ~~during~~Net ~~the~~cash ~~year~~provided ~~ended December 31, 2021. Cash was consumed from operations~~ by ~~the~~financing ~~net~~activities ~~loss~~ of ~~$(46.0) million, plus non-cash and~~ ~~one-time items of~~ $~~41.3 million, consisting primarily of merger charges of $22.~~0 ~~million, non-employee compensation costs of $2~~.6 million, in shares issued in exchange for services, restructuring fees of $2.0 million, loss contingency for debt default of $6.6 million, impairment of mining assets of $3.2 million, impairment of digital assets of $0.7 million, and depreciation and amortization of $4.2 million ~~and cash flows provided by discontinued operations of $1~~.~~3 million, offset by changes in assets and liabilities of $(5.1) million.~~

~~Investing~~Liquidity and ~~Activities:~~Capital Resources as of December 31, 2022, Compared to December 31, 2021

~~Net~~The Company’s net cash flow ~~provided~~used byin operating, investing, and financing activities for the year ended December 31, ~~2021~~ 2022, ~~was~~and ~~approximately~~certain ~~$2.2~~balances ~~million,~~as ~~primarily driven from proceeds from~~ of the ~~sale~~end of ~~digital~~those ~~assets~~periods ofare ~~$3.7~~as ~~million, offset~~follows by(in ~~investing cash flows from discontinued operations of $1.5 million.~~thousands):

Financing Activities:

	December 31,
(Thousands, except per share data)	2022			2021 (As Restated)
Net cash used in operating activities	$	(7,546	)	$	(8,473	)
Net cash provided by investing activities		6,519			2,178
Net cash provided by financing activities		397			6,887

Net (decrease) increase in cash	$	(630	)	$	592
Cash		29			659
Working capital (deficit)		(18,071	)		(17,413	)

Net cash provided by financing activities during the year ended December 31, 2021, was approximately $6.9 million. The net cash provided by financing activities during the year ended December 31, 2021, was from the repayment of loans of $4.3 million and offset by proceeds received for convertible debt of $12.4 million and payments for convertible debt transaction costs of $1.2 million.

Liquidity and Capital Resources as of December 31, 2021, Compared to December 31, 2020

The Company’s net cash flow used in operating, investing and financing activities, continuing and discontinued operations for the year ended December 31, 2021, and certain balances as of the end of those periods are as follows (in thousands):

	December 31,
(Thousands, except per share data)	2021			2020
Net cash used in operating activities	$	(8,473	)	$	(514	)
Net cash provided by (used in) investing activities		2,178			(27	)
Net cash provided by financing activities		6,887			574
Net increase in cash	$	592		$	33
Cash		659			67
Working capital (deficit)		(13,169	)		91

Operating Activities:

Net cash used in operating activities during the year ended December 31, ~~2021~~2022, was $(8$7,~~473~~546). Net cash used in operating activities during the year ended December 31, ~~2021~~2022, consisted of the following (in thousands):

The non-cash income and expenses of ($~~41,257~~234) consisted of (in thousands):

$	~~2,917~~576		Depreciation expense
	113		Stock compensation
	111		Stock compensation
	1,323		Amortization of debt discount
	149		Amortization of debt discount
	2,000		Debt extinguishment fee
	(570	)	Change in fair value of derivative liability
	22,004		Merger charges
	203		Impairment of investments
	(145	)	Gain on settlement of vendor liabilities
	(1,998	)	Gain on settlement of vendor liabilities
	3,276		Impairment of data mining assets
	(1,962	)	Change in fair value of debt conversion feature
	704		Impairment of digital assets
	2,748		Impairment of digital assets
	(106	)	Realized gain on sale of digital assets
	1,634		Impairment of goodwill
	6,594		Loss contingency on debt default
	(1,751	)	Realized gain on sale of digital assets
	2,577		Issuance of shares in exchange for services
	249		Loss on extinguishment of debt
$	41,257		Total non-cash income and expenses
	240		Issuance of shares in exchange for services
	137		Loss on excess fair value of liability classified warrant
$	(234	)	Total non-cash income and expenses

~~The net proceeds of cash due to changes in operating assets and liabilities totaled $(3,719) and consisted of the following (in thousands):~~26

$	1,650		Increase in accounts receivable and other receivables
	(173	)	Prepaid assets and other current assets
	8,729		Increase in accounts payable
	2,859		Decrease in accrued liabilities and other payables
	1,369		Operating cash flows – discontinued operations
	(18,153	)	Decrease in digital assets
$	(3,719	)	Net use of cash in the changes in operating assets and liabilities

The net proceeds of cash due to changes in operating assets and liabilities totaled $1,344 and consisted of the following (in thousands):

Operating cash flows – discontinued operations of approximately $1.4 million for the year ended December 31, 2021, is primarily driven by net income of $5.2 million, depreciation and amortization of $1.6 million and a gain on sale of mining equipment of $0.2 million, equity in earnings of equity method investments of $0.1 million, offset by decreases in digital assets of $6.1 million and a decrease in accounts payable and accrued liabilities of $11.8 million.

$	(1,029	)	Increase in accounts receivable and other receivables
	792		Prepaid assets and other current assets
	(490	)	Decrease in accounts payable
	4,108		Increase in accrued liabilities and other payables
	(1,966	)	Operating cash flows – discontinued operations
	(71	)	Operating lease liability

$	1,344		Net use of cash in the changes in operating assets and liabilities

~~Net~~Operating cash used in operating activities for the year ended December 31, 2020, of $(0.5) million were primary driven by a net loss from continuing operations of $0.1 million, decreases in digital assets of $1.0 million offset by operating cash flows – discontinued operations of $0.6 million.Activities:

~~Operating~~Net cash ~~flows~~used –in ~~discontinued~~operating activities ~~operations~~ for the year ended December 31, ~~2020~~2022, ~~is primarily driven by net income~~ of $0(7.65) million, ~~depreciation~~were ~~and~~primarily ~~amortization~~driven ofby ~~$0.8~~net ~~million,~~cash ~~offset~~used ~~by decreases~~ in ~~digital~~continuing ~~assets~~operations of $0(5.76) million and anet ~~decrease~~cash used in ~~accrued~~discontinued ~~liabilities~~operations of $0.(1.9) million.

Net cash used from continuing operations of $(5.6) million, was primarily driven by realized gains on sale of digital assets of $(1.7) million, gains on settlement of vendor liabilities of $(2.0) million, changes in fair valuations of debt conversion features and share derivative liabilities of $(2.5) million, offset by depreciation and amortization of $0.6 million, stock based compensation of $0.1 million, issuance of shares in exchange for services of $0.2 million, loss on debt extinguishment and loss on excess fair value liability of $0.4 million, impairment of digital assets of $2.7 million, impairment of investments of $0.2 million, impairment of goodwill of $1.6 million and changes in assets and liabilities $3.0 million; increases in prepaid assets and other current assets of $0.8 million, accrued liabilities and other current liabilities of $4.1 million, offset by decreases in accounts receivable and other receivables of $(1.0) million and accounts payable and lease liability of $(0.5) million.

Net cash used in operating activities for the year ended December 31, 2021, of $(8.5) million were primarily driven by net cash provided by continuing operations of $4.7 million and net cash used in discontinued operations of $(13.2) million.

Net cash provided by continuing operations of $4.7 million was primarily driven by a net loss from continuing operations of $(52.5) million, merger charges and debt restructuring fees of $24.0 million, loss contingency on debt default of $7.8 million, changes in fair value of the debt conversion feature of $6.3 million, issuance of shares in exchange for services of $2.6 million offset by increases in digital assets of $0.3 million, increases in accounts receivable and other assets $1.5 million, and a increases in accounts payable and accrued liabilities of $11.6 million.

Investing Activities:

Net cash provided by investing activities for the year ended December 31, ~~2021~~2022, was approximately $26.25 million, primarily driven from proceeds from the sale of digital assets of $38.61 million, offset by ~~investing~~an ~~cash~~investment ~~flows~~in –Ostendo ~~discontinued~~preferred ~~operations~~shares of $1.46 million.

~~Investing~~Net cash ~~flows~~provided -by ~~discontinued operations~~investing activities for the year ended December 31, 2021, isof $2.2 million, were primarily driven by ~~purchase~~net cash provided by continuing operations of ~~mining~~$3.7 ~~equipment~~million from proceeds from the sale of its digital assets and net cash used in discontinued investing activities of $0(1.5) million, for ~~UpNorth~~purchase ~~business~~of ~~combination~~ mining equipment of $0.35 million, ~~investments~~purchases in investments of UpNorth and Style Hunter of approximately $0.16 million and other anbusiness ~~investment~~combination incost ~~Style Hunter~~ of $0.53 million.

Net cash provided by investing activities for the year ended December 31, 2020, was approximately $0.03 million, primarily driven from proceeds from the sale of digital assets of $0.55 million and investing cash flow – discontinued operations of $0.6 million.27

Investing cash flows - discontinued operations for the year ended December 31, 2020, is primarily driven by purchase of mining equipment of $0.9 million offset by proceeds from the sale of mining equipment of $0.3 million.

Financing Activities:

Net cash provided by financing activities during the year ended December 31, 2022, of $0.4 million was from the proceeds received for issuance of common stock of $0.4 million.

Net cash provided by financing activities during the year ended December 31, 2021, of $6.9 million was from the proceeds received for convertible debt of $12.4 million and offset by the payments for convertible debt transaction costs of $1.2 million and the repayment of loans of $4.3 million.

Net cash provided by financing activities during the year ended December 31, 2020, was approximately $0.6 million, primarily driven by proceeds received from the issuance of members’ interest.

Critical Accounting Policies and Estimates

We believe the following accounting estimates to be the most critical estimates we used in preparing our consolidated financial statements for the year ended December 31, ~~2021~~ 2022.

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.

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~~ASC-350-35-19 ~~exists~~requires ~~when~~an impairment at any time the fair value of the digital asset is below its carrying value. 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. The Company recorded a $02.7 million impairment charge during the year ended December 31, ~~2021~~2022, and a $0.7 Nomillion impairment ~~was~~charge ~~taken~~ during the year ended December 31, ~~2020~~ 2021.

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 (losses) through the sale and disbursement of digital assets during the ~~year~~years ended December 31, ~~2021~~2022, and ~~2020~~2021 of $0.1 .8 million and $0.041 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. The ~~Recoverability~~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. An impairment loss of $4.1 million and $3.3 million was recorded for long-lived assets in discontinued operations during the ~~period~~years ended December 31, 2022, and 2021, respectively.

Impairment of Intangible Assets, including Goodwill

The Company accounts for intangible assets under ASC 350-30, Intangibles-Goodwill and Other. Goodwill represents the cost of a business acquisition in excess of the fair value of the net assets acquired. Goodwill is not amortized and is reviewed for impairment annually as of December 31, or more frequently if facts and circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the company performs a quantitative test to identify and measure the amount of goodwill impairment loss. The Company compares the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds fair value, goodwill of the reporting unit is considered impaired, and that excess is recognized as a goodwill impairment loss.

Intangible assets with finite lives are comprised of customer contracts, and trademarks that are amortized on a straight-line basis over their expected useful lives. The carrying value of finite-lived assets and the remaining useful lives are reviewed at least annually to determine if circumstances exist which may indicate a potential impairment or revision to the amortization period.

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 arrangement 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 block 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.

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 a direct warranty to the customer with the Company’s own personnel as the customer requires a 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~~of 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. 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 year ended December 31, ~~2021~~2022, 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~~Mining ~~information~~Revenue

~~EBITDA~~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 arrangement 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 earned, 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 block 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.

~~EBITDA~~The isfair ~~defined~~value asof ~~net~~the ~~income~~digital ~~(loss)~~asset ~~before~~award ~~interest,~~received ~~provision~~is ~~for~~determined ~~(benefit~~using ~~from)~~the ~~income~~quoted ~~taxes,~~price ~~and~~of ~~depreciation~~the ~~and~~related ~~amortization~~digital asset at the time earned. ~~Adjusted~~The Company monitors the ~~EBITDA~~market isand ~~used~~when byan ~~our~~identical ~~management~~digital asasset ~~the~~is ~~matrix~~bought inand ~~which~~sold itat ~~manages~~a price below the ~~business.~~Company’s Itcarrying value, often an indicator that impairment is ~~defined~~more aslikely ~~EBITDA~~than ~~plus~~not, ~~adjustments~~the ~~for~~Company ~~other~~will ~~income or~~follow ~~expense~~ASC ~~items~~820, Fair ~~non-recurring~~Value ~~items~~Measurement, and ~~non-cash~~record an ~~stock-based~~impairment ~~compensation~~if necessary.

2130

~~Adjusted~~Convertible ~~EBITDA for the year ended December 31, 2021, was a gain of $ 3.8 million compared to a gain of $ 1.3 million for the prior year period.~~Debt

The ~~following~~Company’s ~~table~~debt ~~presents~~instruments contain a ~~reconciliation~~host ofliability, freestanding warrants, and an embedded conversion feature. The Company uses the guidance under FASB ASC Topic ~~continuing~~815 Derivatives and ~~discontinued~~Hedging ~~operations~~(“ASC ~~net~~815”) ~~income~~to determine if the embedded conversion feature must be bifurcated and separately accounted for as a derivative under ASC 815. It also determines whether any embedded conversion features requiring bifurcation and/~~loss~~or freestanding ~~attributable~~warrants toqualify ~~stockholders~~for ofany ~~Sysorex~~scope exceptions contained within ASC 815. Generally, ~~which~~contracts isissued ~~our~~or ~~GAAP~~held ~~operating~~by ~~performance~~a reporting entity ~~measure,~~that are both (i) indexed to ~~Adjusted~~their ~~EBITDA~~own stock, and (ii) classified in shareholders equity, would not be considered a derivative for the purposes ~~years~~of ~~ended~~applying ~~December~~ASC 31815. Any embedded conversion features and/or freestanding warrants that do not meet the scope exception noted above are classified as derivative liabilities, ~~2021~~initially measured at fair value, and ~~2020~~remeasured (at fair value each reporting period with change in ~~thousands):~~fair value recognized in the consolidated statements of operations. Any embedded conversion features and/or freestanding warrants that meet the scope exception under ASC 815 are initially recorded at their relative fair value in paid-in-capital and are not remeasured at fair value in future periods.

	December 31,
	2021			2020
Net (loss) income	$	(40,775	)	$	452
Interest expense		2,991			-
Depreciation and amortization		4,551			827
EBITDA		(33,233	)		1,279
Adjustments:
Non-recurring one-time charges:
Merger charges		22,004			-
Debt Restructuring fee		2,000			-
Impairment of fixed assets		3,276			-
Loss Contingency on debt default		6,594			-
Stock Compensation		113			-
Acquisition related costs – Accounting acquirer		2,884			-
Acquisition related costs – Accounting acquiree		209			-
Adjusted EBITDA	$	3,847		$	1,279

The host debt instrument is initially recorded at its relative fair value in long-term debt. The host debt instrument is accounted for in accordance with guidance applicable to non-convertible debt under FASB ASC Topic 470 Debt (“ASC 470”) and is accreted to its face value over the term of the debt with accretion expense and periodic interest expense recorded in the consolidated statements of operations.

~~We have~~Issuance ~~presented~~costs ~~Adjusted~~are ~~EBITDA~~allocated ~~above~~to ~~because~~each weinstrument in ~~believe~~the itsame ~~conveys~~proportion ~~useful~~as ~~information~~the toproceeds ~~investors~~that ~~regarding~~are ~~our~~allocated ~~operating~~to ~~results~~each instrument. ~~We believe~~Issuance itcosts ~~provides~~allocated ~~an additional way for investors~~ to ~~view~~the ~~our~~debt ~~operations,~~hosted ~~when~~instrument are ~~considered~~netted ~~with~~against ~~both~~the ~~our~~proceeds ~~GAAP~~allocated ~~results~~to ~~and~~ the ~~reconciliation to~~debt ~~net income (loss)~~host. ByIssuance ~~including~~costs ~~this~~allocated ~~information,~~to wefreestanding ~~can~~warrants ~~provide~~classified ~~investors~~in ~~with~~equity ~~a more complete understanding of our business. Specifically,~~are werecorded ~~present~~in ~~Adjusted EBITDA as supplemental disclosure because of the following:~~paid-in-capital.

● 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, change in the fair value of shares to be issued, impairment of fixed assets and one-time charges including 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.

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 4 to our consolidated financial statements, which is included in this Form 10-K in Item 1.

Item 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not required for smaller reporting companies.

2231

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Sysorex, INC.

Index to Consolidated Financial Statements		Pages

Reports of Independent Registered Public Accounting Firms (PCAOB Firm ID 688 and 711)		F-2

Consolidated Balance Sheets as of December 31, 2022 and 2021		F-4

Consolidated Statement of Operations for the years ended December 31, 2022 and 2021		F-5

Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2022 and 2021		F-6

Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021		F-7

Notes to Consolidated Financial Statements		F-8

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors ~~and Stockholders~~ of Sysorex, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance ~~sheets~~sheet of Sysorex, Inc. ~~and subsidiaries~~ (the “Company”) as of December 31, ~~2021~~2022, ~~and 2020, and~~ the related consolidated ~~statements~~ statement of operations, stockholders’ equity (deficit), and cash flows for ~~each~~year ~~of the years~~ ended December 31, ~~2021~~2022, and ~~2020, and~~ the related notes and schedules (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, ~~2021~~2022, and ~~2020, and~~ the results of its operations and its cash flows for ~~each of~~ the ~~years~~year ended December 31, ~~2021~~2022, ~~and 2020,~~ in conformity with accounting principles generally accepted in the United States of America.

We also audited adjustments to the 2021 financial statements to retroactively apply the effects of the reclassification of the balance of certain assets from their historical presentation to assets held for sale and certain operations from continuing to discontinued, as described in Note 3. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the Company’s 2021 financial statements other than with respect to the reclassification adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2021 financial statements as a whole.

Explanatory Paragraph – Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company is currently in default of their convertible debt and does not have sufficient authorized shares to settle all outstanding share conversion rights. The Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds as well as increase the authorized shares and effect a reverse stock split of shares to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Emphasis of Matter – Digital Asset Activities

In forming our opinion, we have considered the adequacy of the disclosures and accounting policies included in the consolidated financial statements concerning among other things the risks and uncertainties related to the Company’s digital asset activities. The risks to the Company associated with its digital asset activities will be dependent on many factors outside of the Company’s control. Uncertainties related to the regulatory regimes governing blockchain technologies, digital assets, cryptocurrency exchanges and new international, federal, state and local regulations or policies may materially adversely affect the Company. The currently uncertain and immature nature of the digital asset markets, including clearing, settlement, custody and trading mechanisms, the dependency on information technology to sustain digital asset continuity, as well as valuation and volume volatility all subject digital assets to unique risks of theft, loss or other misappropriation. As more fully described in Note 1 and 5, the Company no longer holds digital assets and in connection with the Ethereum transition to proof of stake, the Company is no longer mining digital assets. Our opinion is not modified with respect to this matter.

/s/ Marcum llp

We have served as the Company’s auditor since 2021 (such date takes into account the acquisition of certain assets of Friedman LLP by Marcum LLP effective September 1, 2022).

New York, New York
June 13, 2023

PCAOB ID Number 688

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Sysorex, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Sysorex, Inc. and subsidiaries (the “Company”) as of December 31, 2021, and the related consolidated statement of operations, stockholders’ equity (deficit), and cash flows for the year ended December 31, 2021, and the related notes and schedules (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We were not engaged to audit, review or apply any procedures to retroactively apply the effects of the reclassification of the balances of certain assets from their historical presentation to assets held for sale and certain operations from continuing to discontinued, as described in Note 3, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by Marcum LLP.

Restatement of Previously Issued Financial Statements

As discussed in Note 1A to the accompanying financial statements, the Company has restated its 2021 financial statements to correct an error.

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has a working capital deficiency, an accumulated deficit, and has incurred significant losses and cash outflows from operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our ~~audits~~audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are ~~required~~ required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and ~~regulations~~ regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our ~~audits~~audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our ~~audits~~audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our ~~audits~~audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our ~~audits~~audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our ~~audits~~audit ~~provide~~provides a reasonable basis for our opinion.

Emphasis of Matter- Digital Asset Activities

In forming our opinion, we have considered the adequacy of the disclosures and accounting policies included in the financial statements concerning among other things the risks and uncertainties related to the Company’s digital asset activities. The risks and rewards to be recognized by the Company associated with its digital asset activities will be dependent on many factors outside of the Company’s control. Uncertainties related to the regulatory regimes governing blockchain technologies, digital assets, cryptocurrency exchanges and new international, federal, state and local regulations or policies may materially adversely affect the Company. The currently uncertain and immature nature of the digital asset markets, including clearing, settlement, custody and trading mechanisms, the dependency on information technology to sustain digital asset continuity, as well as valuation and volume volatility all subject digital assets to unique risks of theft, loss or other misappropriation. Furthermore, these factors also contribute to the significant uncertainty with respect to the future viability and value of digital assets. Our opinion is not modified with respect to this matter.

/s/ Friedman LLP We ~~have~~ served as the Company’s auditor ~~since~~from 2021 through 2022. New York, New York April 14, 2022, except for the effects of the restatement discussed in Note 1A, Note 8 and Note 9 to the financial statements, as to which the date is May 23, 2022. PCAOB ID Number 711

~~PCAOB ID Number 711~~F-3

F-1

Sysorex, Inc. and Subsidiaries

Consolidated Balance Sheets

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

	December 31,
	2021			2020
	2022			2021
				(As Restated)
Assets
Current Assets
Cash and cash equivalents	$	~~659~~29		$	67659
Digital assets		5,202			24
Digital assets, net		-			5,202
Accounts receivable, net		34,~~023~~052			-3,023
Prepaid expenses and other current assets		~~1,402~~638			-1,402
Assets held for sale		64,~~071~~663			-10,148
Current assets – discontinued operations		-			17
Equity investment in Ostendo		1,397			-
Total Current Assets		1610,~~357~~779			~~108~~20,434
Mining Equipment, net		4,077			-
Intangible assets, net		1,979			2,553
Intangible assets, net		2,553			-
Goodwill		-			1,634
Goodwill		1,634			-
Operating lease right-of-use asset, net		409			558
Operating lease right-of-use asset, net		558			--
Other assets		73			103
Other assets		103			-
Total Assets	$	13,240		$	25,282
Noncurrent assets - discontinued operations		-			1,916
Liabilities and Stockholders’ Deficit
Total Assets	$	25,282		$	2,024
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	64,~~724~~236		$	-6,724
Accrued liabilities		24,~~382~~450			-2,382
Short Term Debt		19,439			-
Short Term Convertible Debt		15,272			19,439
Operating lease obligation, current		49			-
Conversion feature derivative liability		3,472			8,355
Deferred Revenue		932			-
Operating lease obligation, current		216			49
Current liabilities - discontinued operations		-			199
Common Stock Derivative Liability		273			-
Total Current Liabilities		29,526			199
Deferred Revenue		931			932
Operating lease obligation - noncurrent		509			-
Total Current Liabilities		28,850			37,881
Total Liabilities		30,035			199
Operating lease obligation – noncurrent		271			509
Total Liabilities		29,121			38,390
Commitments and Contingencies
Stockholders’ Equity
Stockholders’ Deficit
Common stock, par value $0.00001 per share, 499,560,659 shares authorized; 145,713,591 shares issued as of December 31, 2021, and 66,431,920 shares issued as of December 31, 2020, 145,638,212 shares outstanding as of December 31, 2021, and 66,431,920 shares outstanding as of December 31, 2020		1			-
Common stock, par value $0.00001 per share, 3,000,000,000 shares authorized; 2,484,501,880 shares issued as of December 31, 2022, and 145,713,591 shares issued as of December 31, 2021, 2,484,426,501 shares outstanding as of December 31, 2022, and 145,638,212 shares outstanding as of December 31, 2021		24			1
Treasury stock, at cost, 75,379 shares as of December 31, 2021, and 0 shares as of December 31, 2020		-			-
Treasury stock, at cost, 75,379 shares as of December 31, 2022, and as of December 31, 2021		-			-
Subscription receivables		-			(100	)
Additional paid-in-capital		45,553			36,156
Additional paid-in-capital		36,156			2,060
Accumulated Deficit		(61,458	)		(49,265	)
Accumulated Deficit		(40,910	)		(135	)
Total Stockholders’ Deficit		(15,881	)		(13,108	)
Total Stockholders’ (Deficit) Equity		(4,753	)		1,825
Total Liabilities and Stockholders’ Deficit	$	13,240		$	25,282
Total Liabilities and Stockholders’ Equity	$	25,282		$	2,024

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

F-2 4

Sysorex, Inc. and Subsidiaries

Consolidated Statement of Operations

(In thousands of dollars, except share and per share data)

	For the Year Ended
	December 31,
	2021			2020
	2022			2021
				(As Restated)
Revenues
Mining income	$	4,394		$	-
Product revenue	$	14,431		$	6,516
Product revenue		6,516			-
Services revenue		2,882			1,756
Services revenue		1,756			-
Total Revenues		17,313			8,272
Total Revenues		12,666			-
Operating costs and expenses
Mining cost		457			-
Product cost		10,258			6,036
Product cost		6,036			-
Services cost		1,805			868
Services cost		868			-
Sales and marketing		1,181			954
Sales and marketing		954			-
General and administrative		8,135			9,672
General and administrative		9,672			-
Management fees		-			321
Management fee		321			145
Realized gain on sale of digital assets		(1,751	)		(106	)
Depreciation		2,510			-
Impairment of digital assets		2,748			704
Impairment of fixed assets		3,276			-
Impairment of goodwill		1,634			-
Impairment of digital assets		704			-
Amortization of intangibles		573			407
Amortization of intangibles		407			-
Total Operating Costs and Expenses		24,583			18,856
Total Operating Costs and Expenses		25,205			145
Loss from Continuing Operations		(7,270	)		(10,584	)
Loss from Continuing Operations		(12,539	)		(145	)
Other Income (Expense)
Merger charges		~~(22,004~~-	)		-(22,004	)
Restructuring fee		(2,000	)		-
Debt restructuring fee		-			(2,000	)
Interest expense		(23,~~991~~370	)		-(3,841	)
Loss contingency on debt default		(6,594	)		-
Revaluation of conversion feature derivative liability		1,962			(6,278	)
Gain on sale of digital assets		106			44
Loss contingency on debt default		-			(7,821	)
Other income, net		11			-
Loss on extinguishment of debt		(249	)		-
Total Other Income (Expense)		(33,472	)		44
Change in fair value of common stock derivative liability		570			-
Loss from continuing operations before Income taxes		(46,011	)		(101	)
Loss contingency on equity issuance		(136	)		-
Income tax benefit		-			-
Impairment of investments		(203	)		-
Loss from continuing operations		(46,011	)		(101	)
Other income, net		87			11
Gain from discontinued operations, net of tax		5,236			553
Total Other Income (Expense)		(1,339	)		(41,933	)
Net (Loss) Income	$	(40,775	)	$	452
Loss from continuing operations before Income taxes		(8,609	)		(52,517	)
Net Loss per share - basic and diluted - continuing operations	$	(0.33	)	$	(0.001	)
Income tax expense		(47	)		-
Net Income per share - basic and diluted - discontinued operations	$	0.04		$	0.007
Loss from continuing operations		(8,656	)		(52,517	)
Weighted Average Shares Outstanding - basic and diluted		139,061,084			75,540,013
(Loss) Gain from discontinued operations, net of tax		(3,537	)		3,387
Net Loss	$	(12,193	)	$	(49,130	)
Net Loss per share – basic and diluted – continuing operations	$	(0.010	)	$	(0.38	)
Net (Loss) Income per share – basic and diluted – discontinued operations	$	(0.004	)	$	0.02
Weighted Average Shares Outstanding – basic and diluted		843,858,474			139,061,084

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

F-3 5

Sysorex, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

For the Years Ended December 31, ~~2021~~2022, and ~~2020~~ 2021

(In thousands, except share data)

	Common Stock				Treasury Stock				Additional Paid-In			Subscription			Accumulated
	Shares		Amount		Shares		Amount		Capital			Receivables			Deficit			Total
Balance – December 31, 2019		55,776,240	$	-		-	$	-	$	2,671		$	(100	)	$	(587	)	$	1,984
Balance – December 31, 2020		66,431,920	$	-		-	$	-	$	2,060		$	(100	)	$	(135	)	$	1,825
Issuance of members’ equity		10,655,680		-		-		-		600			-			-			600
Distributions to shareholders		-		-		-		-		(1,211	)		-			-			(1,211	)
Net Income		-		-		-		-		-			-			452			452
Balance – December 31, 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		-		-		-		-			-			-			-
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		1,529,820		-		-		-		2,577			-			-			2,577
Up North/Bitworks transaction		1,000,000		-		-		-		400			-			-			400
Convertible debt warrants		-		-		-		-		896			-			-			896
Stock based compensation		-		-		-		-		63			-			-			63
Net Loss		-		-		-		-		-			-			(40,775	)		(40,775	)
Net Loss (As Restated)		-		-		-		-		-			-			(49,130	)		(49,130	)
Balance - December 31, 2021		145,638,212	$	1		75,379	$	-	$	36,156		$	-		$	(40,910	)	$	(4,753	)
Balance – December 31, 2021 (As Restated)		145,638,212	$	1		75,379	$	-	$	36,156		$	-		$	(49,265	)	$	(13,108	)
Convertible debt conversions		1,819,105,913		18		-		-		9,355			-			-			9,373
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		1,100,000		-		-		-		5			-			-			5
Issuance of common stock		500,000,000		5		-		-		-									5
Net Loss		-		-		-		-		-			-			(12,193	)		(12,193	)
Balance – December 31, 2022		2,484,426,501	$	24		75,379	$	-	$	45,553			-		$	(61,458	)	$	(15,881	)

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

F-4 6

Sysorex, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Years Ended December 31, ~~2021~~2022, and ~~2020~~ 2021

(In thousands, except share data)

	For the Year Ended
	December 31,
	2021			2020
	2022			2021
				(As Restated)
Cash Flows from Operating Activities
Net loss from continuing operations	$	(468,~~011~~656	)	$	(~~101~~52,520	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		~~2,917~~576			-407
Stock based compensation expense		~~113~~111			-113
Amortization of debt discount and debt issuance costs		1,323			-
Amortization of right of use asset		149			-
Realized gain on sale of digital assets		(106	)		(44	)
Amortization of debt discount and debt issuance costs		-			2,173
Gain on settlement of vendor liabilities		(145	)		-
Realized gain on sale of digital assets		(1,751	)		(106	)
Impairment of data mining assets		3,276			-
Gain on settlement of vendor liabilities		(1,998	)		(145	)
Impairment of digital assets		~~704~~2,748			-704
Loss contingency on debt default		6,594			-
Impairment of investments		203			-
Issuance of shares in exchange for services		2,577			-
Impairment of goodwill		1,634			-
Merger charges		22,004			-
Loss contingency on debt default		-			7,821
Debt restructuring fee		2,000			-
Loss on extinguishment of debt		249			-
Change in fair value of debt conversion feature		(1,962	)		6,278
Change in fair value of common stock derivative liability		(570	)		-
Issuance of shares in exchange for services		240			2,577
Loss on excess fair value of liability classified warrant		137			-
Merger charges		-			22,004
Debt restructuring fee		-			2,000
Changes in assets and liabilities:
Digital assets - mining net of pool fees and management fees		(18,153	)		(966	)
Digital assets–- management fees		-			321
Prepaid assets and other current assets		~~(173~~792	)		-(173	)
Accounts receivable and other receivables		(1,~~650~~029	)		21,650
Accounts payable		~~8,729~~(490	)		-8,729
Accrued liabilities and other current liabilities		24,~~859~~108			-2,859
Net cash used in operating activities- continuing operations		(9,842	)		(1,109	)
Operating lease liability		(71	)		-
Net cash provided by operating activities – discontinued operations		1,369			595
Net cash (used in) provided by operating activities- continuing operations		(5,580	)		4,692
Net cash used in operating activities		(8,473	)		(514	)
Net cash used in operating activities – discontinued operations		(1,966	)		(13,165	)
Net cash used in operating activities		(7,546	)		(8,473	)
Cash Flows from Investing Activities
Proceeds from sale of digital assets		38,~~670~~119			~~555~~3,670
Purchase of mining equipment		(50	)		-
Equity investment in Ostendo		(1,600	)		-
Reverse acquisition of Sysorex business		28-			-28
Up North business combination, net of cash received		(34	)		-
Net cash provided by investing activities -continuing operations		6,519			3,698
Net cash provided by investing activities -continuing operations		3,614			555
Net cash used in investing activities – discontinued operations		-			(1,520	)
Net cash used in investing activities – discontinued operations		(1,436	)		(582	)
Net cash provided by (used in) investing activities		6,519			2,178
Net cash provided by (used in) investing activities		2,178			(27	)
Cash Flows from Financing Activities
Repayment of loans		~~(4,349~~-	)		-(4,349	)
Payments for convertible debt transaction costs		~~(1,279~~-	)		-(1,279	)
Issuance of Members Interest		~~100~~-			~~554~~100
Proceeds received from issuance of convertible debt		12,415			-
Proceeds received from issuance of common stock, net of fees		397			-
Net cash provided by financing activities- continuing operations		6,887			554
Proceeds received from issuance of convertible debt		-			12,415
Net cash provided by financing activities – discontinued operations		-			20
Net cash provided by financing activities- continuing operations		397			6,887
Net cash provided by financing activities		6,887			574
Net cash provided by financing activities – discontinued operations		-			-
Net increase in cash and cash equivalents		592			33
Net cash provided by financing activities		397			6,887
Cash and cash equivalents at beginning of period		67			34
Net increase in cash and cash equivalents		(630	)		592
Cash and cash equivalents at end of period	$	659		$	67
Cash and cash equivalents at beginning of period		659			67
Cash and cash equivalents at end of period	$	29		$	659
Supplemental disclosure of cash flow information:
Cash paid for:
Interest	$	~~344~~1,009		$	-344
Income taxes		-			-
Supplemental disclosure of noncash investing and financing activities:
Sysorex recapitalization	$	~~19,401~~-		$	-19,401
Debt discount attributed to the fair value of the warrants		~~896~~-			-896
Equipment exchanged for equity		7,620			-
Debt discount attributed to the fair value of the conversion option		-			2,077
Equipment acquired through lease purchase arrangement		2,130			-
Equipment exchanged for equity		-			7,620
Digital assets received for members interest		-			46
Equipment acquired through lease purchase arrangement		-			2,130
Distributions of digital assets to members		~~1,521~~-			1,~~211~~521
Payments of short-term borrowing with digital assets		~~1,091~~-			-1,091
Right of use assets exchanged for lease obligation		~~558~~-			-558
Conversion of debt to equity		9,360			-
Reclassification of equity contracts to liabilities		314			-
Issuance of warrant derivative liability		534
Issuance of restricted stock		5			-

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

F-5 7

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Nature and description of Business

Description of Business

Sysorex, Inc. isthrough ~~a technology company focused on Ethereum~~its ~~mining and the Ethereum blockchain blockchain and information technology solutions primarily in the public sector segments including federal, state and local governments. The Company has two~~ wholly owned ~~subsidiaries: TTM Digital Assets & Technologies~~subsidiary, ~~Inc. (“TTM Digital”) and~~ Sysorex Government Services, Inc. (“SGS”)~~. Following the Company’s Merger with TTM Digital in April 2021~~, ~~the~~provides ~~Company shifted~~information ~~its~~technology ~~business~~solutions ~~focus~~primarily to the ~~mining~~public ~~of Ethereum and opportunities related to the Ethereum blockchain~~sector. InThese ~~addition~~solutions toinclude ~~the mining of Ethereum~~cybersecurity, ~~the~~professional ~~Company continues to operate its wholly owned subsidiary~~services, ~~SGS,~~engineering ~~a business that provides information technology products~~support, ~~solutions,~~ ~~and~~IT ~~services to federal~~consulting, ~~state,~~enterprise ~~and local government, including system integrators. SGS provides these services to enable its~~level ~~customers to manage~~technology, ~~protect~~networking, ~~and monetize their enterprise assets whether on-premises~~wireless, inhelp ~~the~~desk ~~cloud,~~and orcustom ~~via~~IT ~~mobile technology~~solutions. ~~The Company is headquartered in Virginia.~~

In addition to SGS, the Company has another wholly owned subsidiary, TTM Digital ~~was~~Assets ~~originally~~&Technologies, ~~formed~~Inc. as(“TTM aDigital”). ~~Delaware~~TTM ~~limited~~Digital ~~liability~~is a digital asset technology company onthat ~~June~~previously ~~28,~~operated ~~2017,~~specialized ~~under~~cryptocurrency ~~the~~mining ~~name~~processors ofand ~~TTM~~was ~~Ventures~~previously ~~LLC~~focused on the Ethereum blockchain ecosystem. ~~Thereafter,~~As onof ~~March~~September 3015, ~~2021~~2022, itEthereum ~~filed~~switched from a ~~certificate~~Proof of ~~conversion~~Work model to a ~~non-Delaware~~Proof ~~entity~~of ~~with~~Stake model and as a result, the ~~Secretary~~Company ofis ~~State~~no oflonger ~~the~~mining ~~State~~Ethereum ofor ~~Delaware~~any ~~together~~other ~~with~~cryptocurrency. ~~Articles~~TTM ofDigital ~~Conversion~~no ~~and~~longer ~~Articles~~holds ofany ~~Incorporation~~Ethereum or other crypto tokens ~~with~~or ~~the~~crypto ~~Nevada~~assets ~~Secretary~~at ofthis ~~State~~time ~~filed~~and ondoes ~~the~~not ~~same~~conduct ~~date.~~any Asmining aactivities ~~result,~~and ofdoes ~~such~~not ~~conversion,~~have any plans to mine crypto tokens in the future. TTM Digital ~~has~~is ~~become~~currently aexploring ~~Nevada~~sales ~~corporation under~~opportunities ~~the~~for ~~name~~its ofGraphics Processing Units (“~~TTM~~GPU”) ~~Digital~~assets ~~Assets~~and &datacenter ~~Technologies~~located in Lockport, ~~Inc~~NY. The Company had previously been in discussions with a third party to sell its mining assets and certain associated real property. The Company is headquartered in Virginia.

Note 21A — ~~Going~~Restatement ~~Concern~~of Previously Issued Financial Statements

As of December 31, 2021, the Company had an approximate cash balance of $0.6 million, working capital deficit of approximately $(13.2) million, and an accumulated deficit of approximately $40.9 million. The aforementioned factors 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 financial statements. The accompanying 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 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 consolidated financial statements are issued.Background

~~The~~Subsequent ~~Company does not believe that its capital resources as of December 31, 2021, its ability~~ to ~~mine~~the ~~cryptocurrency,~~filing ~~its expected sale~~ of ~~certain~~the ~~mining~~Original ~~assets and data center~~Form 10-K, ~~availability~~ on ~~the~~May ~~SGS SouthStar credit facility to finance purchase orders and invoices~~17, ~~reauthorization of key vendors and credit limitation improvements will be sufficient to fund planned operations. As a result~~2022, the Company’s ~~will~~management ~~need~~determined ~~additional~~that ~~funds~~its toprior ~~support~~conclusion ~~its~~that ~~obligations~~the ~~for~~“conversion ~~the~~feature” ~~next~~of ~~twelve~~the ~~months. The~~ Company’s ~~continues~~12.5% tosenior ~~explore~~secured aconvertible ~~number~~debentures ~~of other possible solutions to its financing needs, including additional efforts to raise additional capital as needed, through~~ (the ~~issuance~~“Debentures”) ofqualified ~~equity,~~for equity~~-linked~~ ~~or debt securities, as well as possible transactions~~classification ~~with other companies~~and, ~~strategic partnerships~~therefore, ~~and~~qualified ~~other mechanisms~~ for ~~addressing~~the ~~our~~application ~~financial~~of ~~condition.~~the Asguidance ~~such,~~in onthe ~~March~~Financial ~~24,~~Accounting ~~2022, Company~~Standards ~~executed~~Board’s an(the ~~agreement~~“FASB”) Accounting ~~with~~Standards aUpdate ~~third~~(ASU) ~~party which includes certain binding and non~~2020-~~binding~~06 ~~provisions~~was incorrect. ~~Pursuant~~Management tohas ~~the~~determined ~~agreement, the~~that ~~Company and~~ the ~~third~~conversion ~~party~~feature ~~agreed~~was toa ~~certain~~liability ~~terms~~classified derivative ~~related~~under to the ~~Company~~FASB’s ~~sale~~Accounting ofStandards ~~approximately~~Codification ~~75%~~(ASC) of815-40, ~~its~~Derivatives ~~Ethereum mining assets~~ and ~~certain~~Hedging ~~associated~~– ~~real~~Contracts ~~property which is expected to close on May 24, 2022. The transaction is a sale of assets~~ in ~~exchange~~Entity’s ~~for~~Own ~~stock.~~Equity ~~There~~from ~~can~~the beinception norequiring ~~assurance~~recognition ~~that~~at ~~the~~fair ~~Company~~value ~~will~~for ~~consummate~~each ~~the~~reporting ~~sale~~period.

IfThe ~~the~~ Company’s ismanagement ~~unable~~and toin agreement with the audit committee ~~raise~~have ~~additional~~determined ~~capital~~that onthe ~~terms~~previously ~~acceptable~~issued tofinancial statements for the ~~Company~~year ended December 31, 2021, and onthe aunaudited ~~timely~~interim ~~basis~~financial information for the three- and nine-month period ended September 30, 2021 “the ~~Company~~Affected ~~will~~period should no longer be ~~required~~relied upon due to ~~downsize~~this orerror ~~wind~~and ~~down~~require restatement. The correction of this error is included in the accompanying Consolidated Financial Statements ~~its~~in ~~operations~~this ~~through~~Amended ~~liquidation~~10-K, ~~bankruptcy~~the financial effect of this error from previously reported information for the year ended December 31, or2021, ~~sale~~has resulted in an increase in net loss of ~~its~~$8.4 ~~assets~~million, primarily as a result of a $6.3 million in fair value expense on the derivative conversion liability, interest expense increase of $0.9 million and an increase in the loss contingency on debt default of $1.2 million.

~~Note 3 — Basis of Presentation~~F-8

TTM Digital Reverse Merger and Sysorex Recapitalization

On April 8, 2021, the Company, TTM Digital, and TTM Acquisition Corp., a Nevada corporation, 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.

F-6

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

~~Under~~Note ~~the~~2 ~~terms~~— ofGoing the Merger Agreement, the shareholders of TTM Digital received a right to receive an aggregate of 124,218,268 shares of Sysorex common stock, $0.00001 par value per share (the “Merger Shares”) in exchange for their shares of TTM Digital. Simultaneously, upon the issuance of the Merger Shares to the TTM Digital shareholders, Sysorex was issued all of the authorized capital of TTM Digital and TTM Digital became a wholly owned subsidiary of Sysorex (together, the “Combined Company”). The Merger resulted in a change of control, with the shareholders of TTM Digital receiving that number of Merger Shares equal to approximately eighty percent (80%) of the outstanding shares of capital stock of Sysorex including the effect of the Sysorex Recapitalization as discussed in TTM Digital Reverse Merger and Sysorex Recapitalization. Due to the TTM Digital shareholders acquiring a controlling interest in Sysorex after the merger, the transaction was accounted for as a reverse acquisition for accounting purposes, with TTM Digital being the accounting acquirer and reporting entity. Therefore, the historical amounts presented prior to the Merger are those of TTM Digital. The Merger is accounted for under the acquisition method of accounting applied to Sysorex as the accounting acquiree under the guidance of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 805 Business Combinations (“ASC 805”). In accordance with acquisition method guidance under ASC 805, the purchase consideration was $0.3 million.Concern

As ~~discussed~~of inDecember ~~Note~~31, 52022, ~~Segment~~the Company ~~Reporting~~had ~~after~~an ~~the~~approximate ~~completion~~cash balance of ~~the~~$0.03 million, working capital deficit of approximately $18.1 million, and an accumulated deficit ~~Merger~~of approximately $61.4 million. In an effort to raise capital, on October 18, 2022, the Company ~~reports~~completed ~~two~~a ~~segments~~$.5 ~~(“TTM~~million ~~Digital”~~private placement, and ~~“Sysorex~~subsequent ~~Government~~to ~~Services”)~~December ~~which~~31, ~~are~~2022, ~~also~~the ~~defined~~Company sold investments in certain preferred shares held for approximately $0.18 million to a related party. Despite these efforts to raise capital, the aforementioned factors continue to raise substantial doubt about the Company’s ability to continue as ~~reporting~~a ~~units~~going concern for ~~impairment~~the ~~assessment~~next ~~purposes~~twelve months from the date of issuance of these consolidated financial statements. The ~~See~~accompanying ~~Note~~consolidated 5-financial ~~Segment~~statements ~~Reporting~~have ~~and~~been ~~Note~~prepared 6on a going concern basis, ~~Discontinued~~which ~~Operations~~contemplates ~~for~~the ~~additional~~realization of ~~information~~assets and the satisfaction of liabilities in the normal course of business. The 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 consolidated financial statements are issued.

InThe ~~the~~Company ~~purchase~~does ~~price~~not ~~allocation~~believe that its capital resources as of ~~the~~December ~~fair value~~31, 2022, its ability to settle a portion of ~~assets~~existing ~~acquired~~convertible ~~and~~debt ~~liabilities~~obligations ~~assumed,~~through issuance of the Company’s ~~has~~shares, ~~recognized~~availability anon ~~excess~~the SouthStar facility to finance cash advances to suppliers, purchase orders and invoices, reauthorization of ~~net~~key ~~liabilities~~vendors ~~assumed~~and ~~over~~credit limitation improvements will be sufficient to fund planned operations during the ~~determined~~next twelve ~~fair~~months. ~~value~~Additionally, ofthe Company is in default on the ~~Sysorex~~aforementioned ~~Government~~convertible ~~Services~~debt, ~~Reporting~~which ~~Unit~~was due to be repaid in July 2022, and is accruing related interest, late fees and other penalties. ~~The~~As ~~excess~~a result of the ~~purchase~~above ~~price~~factors, ~~over~~ the ~~net~~Company ~~liabilities~~will ~~assumed~~need ~~was~~additional ~~allocated~~ funds to fulfil ~~goodwill~~its inobligations. On September 22, 2022, the ~~amount~~shareholders of ~~$1.6~~the ~~million~~Company ~~based~~approved ~~upon~~ the ~~underlying~~authorization ~~value~~of 3 billion shares of common stock, however, all of the ~~Sysorex~~Company’s ~~Government~~authorized ~~Services~~shares ~~Reporting~~have ~~Unit~~been ~~with~~issued ~~any~~or reserved since October 21, 2022, resulting in unfilled ~~additional~~conversion ~~excess~~notices ~~determined~~and an inability to befill apotential ~~separate~~future ~~transaction~~conversion notices from convertible debt holders. In order for the ~~business~~Company to ~~combination~~fulfil ~~attributable~~any further conversion obligations, the Company would need to ~~acquisition~~receive approval from the Financial Industry Regulatory Authority (“FINRA”) for a reverse stock-~~related~~split ~~costs~~and obtain shareholder approval for ~~the~~ ~~benefit~~an ofincrease ~~the~~in ~~TTM~~authorized ~~Digital~~shares. ~~shareholders~~Existing unfilled conversion notices received in ~~achieving~~excess ~~liquidity~~of ~~for~~available ~~their~~and authorized shares as ~~publicly~~of ~~traded~~June ~~instruments~~12, 2023, total 1,159,494,989. ~~These~~In ~~costs~~order ~~were~~to satisfy ~~determined~~all topossible ~~not~~conversion ~~have~~obligations ~~future~~from ~~economic~~existing ~~benefits~~debtholders oras ~~synergies~~of toDecember ~~the~~31, ~~Combined~~2022, the Company ~~operations~~estimates ~~and~~a ~~were~~share ~~expensed~~deficit as of approximately 43.4 billion shares based on the ~~Effective Time~~3 ~~under~~billion currently authorized. Given these circumstances, it is improbable that the ~~caption~~Company ~~“Merger~~will ~~Charges”~~be able into satisfactorily fulfil such obligations, even if the ~~accompanying~~above ~~consolidated~~steps ~~statement~~are ofsuccessfully ~~operations~~taken.

~~Subsequent~~The toCompany ~~the~~continues ~~Merger~~to ~~Agreement~~explore ~~the majority~~a number of ~~the~~other ~~Sysorex~~possible ~~debt,~~solutions to ~~certain~~its ~~liabilities~~financing ~~classified~~needs, asincluding ~~current~~efforts ~~and~~to araise ~~forward~~additional ~~consulting~~capital ~~contract~~as ~~with~~needed, athrough ~~former~~the ~~member~~issuance ~~Sysorex board~~ of ~~director’s~~equity, ~~(the~~equity-linked ~~“Debt~~or ~~Items”) aggregating $19.4 million were converted to 34~~debt securities,~~097,255~~ ~~Sysorex~~as ~~shares~~well ~~when~~as ~~fully issued~~possible ~~(the~~transactions ~~“Sysorex~~with ~~Recapitalization”).~~other 25companies,~~985,633~~ ~~shares~~strategic ~~were immediately issued~~partnerships, aand ~~prefunded~~other ~~warrant~~mechanisms ~~was~~for ~~issued~~addressing ~~for~~our ~~5,111,622~~financial ~~shares~~condition. ~~and~~The ~~the~~Company ~~right~~will toutilize ~~receive~~its ~~3,000,000~~current ~~shares~~contracts ofthat ~~Sysorex~~are ~~stock~~not atlimited to a ~~future~~single ~~date~~branch ~~at the option~~ of ~~the~~government ~~holder~~or ~~subject~~a tospecific ~~certain~~agency ~~events.~~as Asthese acontracts ~~result~~can ofprovide the ~~Debt~~Company ~~Items~~with ~~not~~an ~~having~~opportunity ~~original~~to ~~contractual~~attain ~~conversion~~new ~~features~~solutions ~~the~~and ~~holders~~service oftype ~~the~~orders. ~~Debt~~The ~~Items~~Company ~~are~~will ~~not~~also ~~classified as~~utilize ~~owners~~SGS’s ofsmall ~~Sysorex~~business instatus ~~the~~to ~~Merger~~partner ~~and~~with ~~the~~prime ~~Sysorex~~contractors ~~Recapitalization~~on islarger ~~accounted~~orders. ~~for~~The asCompany acurrently ~~separate~~utilizes ~~transaction~~SouthStar ~~occurring~~to ~~immediately following~~finance ~~the~~purchase ~~Merger~~orders ~~under~~and ~~the~~it ~~guidance~~also ofcan ~~ASC~~factor ~~805.~~its ~~Under~~receivables ~~the~~if ~~Exchange~~needed ~~Agreement~~to ~~executed~~fund ~~with~~operations.. ~~each~~After ~~debt~~considering ~~holder,~~ the ~~Debt~~plans ~~Items~~to ~~were~~alleviate ~~converted~~substantial atdoubt, amanagement ~~contractual~~has ~~conversion~~concluded ~~rate~~that ofthere ~~$0.569~~is ~~per~~substantial ~~share~~doubt ~~(the~~about ~~“Conversion Price”). As a part of~~ the ~~Sysorex Recapitalization, the~~ Company’s ~~recognized~~ability ~~$2.0~~to ~~million~~continue inas ~~debt~~a ~~restructuring~~going ~~fees~~concern ~~expense~~within one ~~and~~year ~~consulting~~after ~~contract costs of $0.7 million in~~ the ~~consolidated statement~~date ofthat ~~operations for~~ the ~~period~~financial ~~ended~~statements ~~December~~are ~~31, 2021, respectively~~issued.

F-7 9

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

~~The~~Note ~~following~~3 ~~table~~— ~~presents~~Basis ~~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:Presentation

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

TTM Digital Reverse Merger and Sysorex Recapitalization

~~For the~~On ~~year~~April ~~ended December 31~~8, 2021, the Company, ~~incurred~~TTM ~~approximately~~Digital, and $3TTM Acquisition Corp.1, ~~million~~a ofNevada ~~acquisition~~corporation, ~~related~~a ~~costs~~wholly ~~that~~owned ~~are~~subsidiary ~~included~~of inSysorex ~~general~~(“MergerSub”), entered into an Agreement and ~~administrative~~Plan ~~expenses~~of inMerger (the ~~accompanying~~“Merger ~~consolidated~~Agreement”). ~~statement~~ Under the terms of ~~operations.~~the ~~From~~Merger Agreement, the ~~acquisition~~parties ~~date~~agreed tothat ~~December~~Sysorex ~~31,~~would acquire ~~2021,~~TTM ~~revenues,~~Digital ~~and~~by ~~operating~~way ~~loss~~of ~~for~~a ~~the~~reverse ~~accounting~~triangular ~~acquiree~~merger, ~~Sysorex~~subject ~~were~~to ~~approximately $~~certain 8closing conditions (the “Merger”).3 ~~million~~On ~~and~~April 14, $2021 (~~3.2~~the “Effective Time”), ~~million~~the ~~(excluding~~closing conditions delineated in the ~~acquisition~~Merger ~~related~~Agreement ~~costs~~were satisfied and the Merger closed. At the Effective Time, ~~merger~~the ~~charges~~MergerSub was merged with and ~~debt~~into ~~restructuring~~TTM ~~fees~~Digital ~~described~~with ~~above), respectively~~TTM Digital surviving the Merger.

~~F-8~~ 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. Due to TTM Digital shareholders acquiring a controlling interest in Sysorex after the merger, the transaction was accounted for as a reverse acquisition for accounting purposes, with TTM Digital being the accounting acquirer and reporting entity. Therefore, the historical amounts presented prior to the Merger are those of TTM Digital. The Merger is accounted for under the acquisition method of accounting applied to Sysorex as the accounting acquiree under the guidance of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 805 Business Combinations (“ASC 805”).

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Pro Forma Financial Information

The following proforma results of operations are presented for information purposes. The 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. The revenue and net loss of the reverse merger accounting acquiree for the year ended December 31, 2021, included in the consolidated statement of operations amounted to approximately $8.3 million and $(27.4) million, respectively:

	December 31,
	2021			2020
Total Revenues	$	26,519		$	13,394
Net Loss (b)		(15,804	)		(1,993	)
Net Loss per share - basic and diluted		(0.114	)		(0.026	)
Weighted Average Shares Outstanding - basic and diluted		139,061,084			75,540,013
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

(b) Net Loss does not include supplemental pro forma information included in (a) above.

Discontinued Operations

As presented ~~discussed~~ in ~~Note~~Form 610K/A, –(Amendment ~~Discontinued~~No. ~~Operation, in~~1) ~~the~~filed ~~fall~~on ofMay ~~December 2021~~23, ~~the~~2022 ~~Company~~and ~~made~~Form ~~the~~10K/A ~~decision~~(Amendment toNo. ~~divest~~2) ~~certain~~filed ~~mining~~June ~~equipment~~1, ~~and~~2022, the ~~data~~following ~~center of the TTM Digital~~reclassifications ~~reporting~~were ~~unit~~made ~~(“TTM~~to ~~Assets”)~~the ~~and~~prior ~~commenced~~year; ~~discussions~~mining ~~with~~revenue aof ~~third~~$4.4 ~~party~~million, tomining ~~execute~~costs anof ~~asset sale~~$0.4 Asmillion, adepreciation ~~result~~ of ~~the~~$2.5 ~~decision to~~million ~~divest~~and ~~certain~~impairment of ~~operating~~fixed assets of ~~the~~$3.3 ~~TTM~~million ~~Digital~~from ~~reporting~~continuing ~~unit,~~operations ~~the~~were ~~Company~~reclassified ~~has~~to ~~determined~~discontinued ~~that~~operations. ~~the~~The ~~subject~~net ~~assets~~effect ~~met~~for the ~~definition~~year ofended ~~assets~~December ~~held~~31, ~~for~~2021, ~~sale~~was asa ~~defined~~$1.8 bymillion ~~ASC 205-20 – Presentation of Financial Statements – Discontinued Operations~~change. The ~~Company determined~~net ~~the~~loss ~~TTM~~from ~~Assets represented discontinued~~ operations as itreported ~~constituted~~in athe ~~disposal~~form of10K/A awas ~~significant~~$5.2 ~~component~~million, ~~and~~resulting in a ~~strategic shift~~restated ~~that~~change ~~will~~of ~~have~~net aincome ~~material~~from ~~effect~~discontinued onoperations for the ~~Company’s~~year ~~operations~~ended ~~and~~December ~~financial~~31, ~~results~~2021, to $3.4 Asmillion aas ~~result,~~noted ~~the~~above. The Company reclassified ~~the~~ ~~balances~~in ~~and~~2021, ~~activities~~$4.0 ofmillion ~~the TTM Assets~~ from ~~their~~mining ~~historical~~equipment ~~presentation~~ to assets held for sale, ~~and assets and liabilities – discontinued operations~~ on the consolidated balance sheets ~~and to gain (loss) from discontinued operations on the consolidated statements of operations for the periods presented~~.

FIn the fall of 2021, the Company made the decision to divest certain mining equipment and the data center of the TTM Digital reporting unit (“TTM Assets”) and commenced discussions with a third party to execute an asset sale. As a result of the decision to divest certain operating assets of the TTM Digital reporting unit, the Company has determined that the subject assets met the definition of assets held for sale as defined by ASC 205-9 20 – Presentation of Financial Statements – Discontinued Operations. The Company determined the TTM Assets represented discontinued operations as it constituted a disposal of a significant component and a strategic shift that will have a material effect on the Company’s operations and financial results. As a result, the Company reclassified the balances and activities of the TTM Assets from their historical presentation to assets held for sale and assets and liabilities – discontinued operations on the consolidated balance sheets and to gain (loss) from discontinued operations on the consolidated statements of operations for the periods presented.

F-10

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 4 — Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements have been prepared using the accounting records of Sysorex, TTM Digital and SGS. All inter-company balances and transactions have been eliminated in consolidation. Up until November 2, 2021, the Company’s wholly owned subsidiary, TTM Digital had a 50% interest in Up North Hosting, LLC (“UNH”) which was accounted for as an equity method investment. On November 2, 2021, the Company acquired the remaining 50% interest in UNH making it a wholly owned subsidiary of the Company.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“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 ~~for mining revenue~~

● ~~Expected~~Fair ~~useful~~value ~~lives and impairment~~ of ~~mining~~the ~~equipment~~Company’s stock

● ~~Business~~Expected ~~combinations~~useful lives and ~~reverse~~valuation ~~merger~~of ~~accounting~~long-lived assets

●

Fair value of derivative liabilities

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity from the date of purchase of years 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~~and may exceed federally insured limits from time to time. The recorded carrying amount of cash and cash equivalents approximates their fair value. The Company uses a digital asset exchange to custody and liquidate its digital assets. If demand for digital assets decline the Exchange could be negatively impacted. The Company’s digital assets are not insured under the third-party custody provider or exchanges.

F-10

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Mining Equipment

Mining Equipment is stated at cost. Depreciation is computed using the straight-line method regardless of the category of asset. In the fall of 2021, the Company made the decision to divest certain mining equipment and the data center of the TTM Digital reporting unit. As a result, the Company reports these assets as held for sale in discontinued operations and no longer depreciates these assets. Prior to this classification, The Company ~~has~~had 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~~The complexity of the transaction verification process which is driven by the algorithms contained within the Ethereum open-source software;

- ~~the~~The general availability 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

- ~~technological~~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 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 on average a lower cost of purchase.

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

F-11

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

To the extent that any of the assumptions underlying management’s estimate of useful life or values 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 or value could change and have a prospective impact on 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. An impairment loss of $4.1 million and $3.3 million was recorded for long-lived assets for the years ended December 31, 2022, and 2021. As of September 15, 2022, Ethereum switched from a Proof of Work model to a Proof of Stake model, The Company is no longer mining Ethereum or any other cryptocurrency. TTM Digital no longer holds any Ethereum or other crypto tokens or crypto assets at this time and does not conduct any mining activities and does not have any plans to mine crypto tokens in the future. TTM Digital is currently exploring sales opportunities for its Graphics Processing Unit (GPU) assets and datacenter located in Lockport, NY.

Revenue Recognition

●

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 a mining pool with the operator 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 arrangement 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~~earned, 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 block 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~~The fair value of the digital asset award received is determined using the quoted price of the related digital asset at the time ~~of receipt~~earned. ~~There is currently no specific definitive guidance under GAAP or~~ ~~alternative~~The ~~accounting~~Company ~~framework~~monitors ~~for~~ the ~~accounting~~market ~~for~~and ~~digital~~when ~~assets~~an ~~recognized~~identical asdigital ~~revenue~~asset oris ~~held,~~bought and ~~management~~sold ~~has~~at ~~exercised~~a ~~significant judgment~~price inbelow ~~determining~~ the ~~appropriate~~Company’s carrying ~~accounting~~value, ~~treatment.~~often Inan ~~the~~indicator ~~event~~that ~~authoritative~~impairment ~~guidance~~ is ~~enacted~~more bylikely ~~the~~than ~~FASB~~not, the Company ~~may~~ bewill ~~required~~follow toASC ~~change~~820, Fair ~~its policies~~Value Measurement, ~~which~~and ~~could~~record ~~impact~~an ~~the~~impairment ~~Company’s~~if ~~consolidated financial position and results from operations~~necessary.

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.

F-12

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company may provide integration of products from multiple vendors as a solution it sells to the customer. In this arrangement, the Company provides a direct warranty to the customer with the Company’s own personnel as the customer requires a 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 in the transaction and records revenue on a gross basis over time.

License and Maintenance Services Revenue Recognition

SGS provides a customized design and ~~configuration~~ 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~~ obligation to provide the overall systems solution is satisfied at that time. The Company’s customers generally pay within 30 to 60 days of ~~from~~ the receipt of a customer-approved invoice.

SGS’s professional services include fixed fee contracts. Fixed fees are paid monthly, in phases, or upon acceptance of deliverables. 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. Anticipated losses are recognized as soon as they become known. For the years ended December 31, 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.

Contract Balances

The timing of revenue recognition may differ from 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 provision of the related services, the Company records deferred revenue until the performance obligations are satisfied. The Company had deferred revenue of $0.9 million as of December 31, 2021.

F-13

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

~~Accounts~~SGS’s ~~Receivable~~professional services include fixed fee contracts. Fixed fees are paid monthly, ~~net~~in phases, or upon acceptance of deliverables. 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. Anticipated losses are recognized as soon as they become known. For the year ended December 31, 2022, 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.

~~Account~~Contract 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 December 31, 2021.Balances

~~Equity~~The timing ~~Method~~of ~~Investments~~revenue recognition may differ from the timing of payment by customers. The Company records receivables when revenue is recognized prior to payment and there is an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, the Company records deferred revenue until the performance obligations are satisfied. The following table details the contract balances presented (in thousands):

~~Equity~~Deferred 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 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. The Company’s equity method investment up through November 1, 2021, related to Up North Hosting, LLC is presented as discontinued operations. Refer to Note 7.Revenue:

Investments

	Balance as of 12/31/2021			Additions		Revenue Amortization		Deletions		Balance as of 12/31/2022

Customer A	$	246		$	639	$	476	$	-	$	409
Customer B		725			15		236		-		504
Various		-			43		25		-		18
Valuation Adjustment		(39	)		-		-		39		-
	$	932		$	697	$	737	$	39	$	931

~~The~~Accounts ~~Company accounts for its investments that represent less than 20% ownership~~Receivable, and for which the Company does not have the ability to exercise significant influence, using the FASB’s Accounting Standards Update (“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. As of December 31, 2021, the Company’s equity investment is classified as assets held for sale.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 December 31, 2022, and $0.05 million as of December 31, 2021.

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. ASC-350-35-19 ~~Impairment~~requires ~~exists~~an ~~when~~impairment ~~the~~at ~~carrying~~any ~~amount~~time ~~exceeds~~the ~~its~~ fair value, ~~which is measured using the quoted price~~ of the digital asset atis ~~the~~below ~~time~~ its ~~fair~~carrying value ~~is being measured~~. InImpairment ~~testing~~exists ~~for impairment,~~ when the ~~Company~~carrying ~~has~~amount ~~the~~exceeds ~~option to~~its ~~first~~fair ~~perform~~value, awhich ~~qualitative assessment to determine whether it~~ is ~~more~~measured ~~likely~~using ~~than~~the ~~not~~quoted ~~that~~price anof ~~impairment~~the ~~exists.~~digital Ifasset itat isthe ~~determined that~~time itits isfair ~~not~~value ~~more likely than not that an impairment exists, a quantitative impairment test~~ is ~~not necessary. If the Company concludes~~ ~~otherwise,~~being ~~it is required to perform a quantitative impairment test~~measured. 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. The Company recorded a $2.7 million and $0.7 million impairment charge during the ~~year~~years ended December 31, ~~2021.~~2022, Noand ~~impairment was taken during the year ended December 31~~2021, ~~2020~~respectively.

Digital assets awarded to the Company through its mining activities are included within operating activities on the accompanying consolidated statements of cash flows and it’s mining activities are disclosed in Note 5-Discontinued Operations. The sales of digital assets are included within investing activities in the accompanying consolidated statements of cash flows. 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 (losses) through the sale and disbursement of digital assets during the year ended December 31, ~~2021~~2022, and ~~2020~~2021 of $0.1.7 million and $0.041 million, respectively.

Business Combinations

The Company applies the provisions of ASC Topic 805, Business Combinations (“ASC 805”) in the accounting for acquisitions of businesses. ASC 805 requires the Company to use the acquisition method of accounting by recognizing the identifiable tangible and intangible assets acquired and liabilities assumed, and any non-controlling interest in the acquired business, measured at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the aforementioned amounts.

F-14

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

~~While~~Goodwill ~~the company uses its best estimates~~ and ~~assumptions to~~Intangible ~~accurately~~Assets apply preliminary values to assets acquired and liabilities assumed at the acquisition date, these estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of the assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in the consolidated statements of operations. As of December 31, 2021, no adjustments have been made to the purchase price accounting under the Company’s transactions accounted for under ASC 805.

~~Accounting~~The Company accounts for intangible assets under ASC 350-30, Intangibles-Goodwill and Other. Goodwill represents the cost of a business ~~combinations~~acquisition ~~requires~~in ~~management~~excess of the tofair ~~make~~value ~~significant~~of ~~estimates~~the net assets acquired. Goodwill is not amortized and ~~assumptions~~is reviewed for impairment annually as of December 31, ~~especially~~or atmore frequently if facts and circumstances indicate that it is more likely than not that the ~~acquisition~~fair ~~date~~value of a reporting unit is less than its carrying amount, including ~~estimates~~goodwill. ~~for~~If ~~intangible~~it ~~assets.~~is ~~Although the~~more ~~Company~~likely ~~believes~~than not that the ~~assumptions~~fair ~~and~~value ~~estimates~~of ~~that~~a ~~have~~reporting ~~been~~unit ~~made~~is ~~are~~less ~~reasonable~~than ~~and~~its ~~appropriate~~carrying amount, ~~they~~the company ~~are~~performs ~~based~~a inquantitative ~~part~~test onto ~~historical experience~~identify and ~~information~~measure ~~obtained~~the ~~from~~amount of goodwill impairment loss. The Company compares the ~~acquired~~fair ~~companies~~value of ~~and~~the ~~are~~reporting ~~inherently~~unit ~~uncertain~~with its carrying amount. ~~Critical~~If ~~estimates~~the incarrying ~~valuing~~amount ~~certain~~exceeds fair value, goodwill of the ~~intangible~~reporting ~~assets~~unit is considered impaired, and that excess is recognized as a goodwill impairment loss. As of December 31, 2022, the Company ~~has~~determined ~~acquired~~the ~~include~~carrying ~~future~~amount of ~~expected~~its ~~cash~~goodwill ~~flows,~~exceeded ~~and~~the ~~discount~~fair ~~rates~~value. The Company recorded a $1.6 million goodwill impairment loss.

Goodwill and Other Intangible Assets

The Company accounts for intangible assets under ASC 350-30, Intangibles-Goodwill and Other. Goodwill represents the cost of a business acquisition in excess of the fair value of the net assets acquired. Goodwill is not amortized and is reviewed for impairment annually as of December 31, or more frequently if facts and circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the company performs a quantitative test to identify and measure the amount of goodwill impairment loss. The Company compares the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds fair value, goodwill of the reporting unit is considered impaired, and that excess is recognized as a goodwill impairment loss.

Investments in Equity

The Company’s investment in Ostendo include an investment in an equity instruments, accounted for under ASC 321 Investments – Equity Securities, where the Company (1) holds less than 20% ownership in the entity, and (2) does not exercise significant influence. These are recorded at cost and adjusted for observable transactions for same or similar investments of the same issuer (referred to as the measurement alternative) or impairment.

Fair Value

The Company follows the accounting guidance under FASB’s Accounting Standards Codification 820, Fair Value Measurements, for its fair value measurements of financial assets and liabilities measured at fair value on a recurring basis. Under this accounting guidance, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about 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:

Level 1

—

quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2

—

observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and

Level 3

—

assets and liabilities whose significant value drivers are unobservable.

F-15

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE 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.

Certain nonfinancial assets such as property and equipment, land and intangible assets are subject to nonrecurring fair value measurements if they are deemed to be impaired. The impairment models used for nonfinancial assets depend on the type of asset.

For the year ended December 31, ~~2021~~2022, the Company recorded impairment charges related to assets measured on a non-recurring basis of $34.31 million for graphics processing units in Note 5 – Discontinued Operations and $02.7 million for digital assets in the Consolidated Statement of Operations. The Company utilized a market approach as of December 31, ~~2021~~2022, to determine fair value.

The ~~carrying~~Company ~~amounts~~evaluated its equity investment in Ostendo of ~~the~~$1.6 ~~Company’s~~million ~~financial~~and ~~assets~~its Style Hunter investment and ~~liabilities~~recorded an impairment of approximately $0.2 million, ~~such~~reported asin ~~cash~~the Consolidated Statement of Operations and ~~cash~~$0.5 ~~equivalents~~million, ~~accounts~~reported ~~receivable,~~in ~~accrued~~Note ~~liabilities,~~5 ~~and~~– ~~accounts~~Discontinued ~~payable~~Operations, ~~approximate~~respectively The ~~fair~~Company ~~value~~utilized ~~due~~inputs of market data and trends of peer group companies to determine the ~~short-term nature~~fair value of ~~these~~the ~~instruments~~equity investment.

~~Held~~The ~~for~~carrying ~~Sale~~amounts of the Company’s financial assets and ~~Discontinued~~liabilities, ~~Operations~~such ~~Classification~~as cash and cash equivalents, accounts receivable, accrued liabilities, and accounts payable, are of approximate fair value due to the short-term nature of these instruments.

Held for Sale Classification

The Company classifies a business as held for sale in the period in which management commits to a plan to sell the business, the business is available for immediate sale in its present condition, an active program to complete the plan to sell the business is initiated, the sale of the business within one year is probable and the business is being marketed at a reasonable price in relation to its fair value.

F-15

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Newly acquired businesses that meet the held-for-sale classification criteria upon acquisition are reported as discontinued operations. Upon a business’ classification as held for sale, net assets are measured for impairment. Goodwill impairment is measured in accordance with the method described in the accounting policy. An impairment loss is recorded for long-lived assets held for sale when the carrying amount of the asset exceeds its fair value less cost to sell. Other assets and liabilities are generally measured for impairment by comparing their carrying values to their respective fair values. A long-lived asset shall not be depreciated or amortized while it is classified as held for sale.

Stock Based Compensation

The Company accounts for its stock-based compensation awards to employees and directors in accordance with FASB ASC Topic 718, Compensation-Stock Compensation (“ASC 718”). ASC 718 requires all stock-based compensation to employees, including grants of employee stock options, and restricted stock, to be recognized in the consolidated statements of operations based on their grant date fair values. The fair value of stock options is estimated as of the date of grant using the Monte Carlo Simulation option pricing model. The fair value of restricted stock is calculated as the fair value of the Company’s common stock as of the date of the grant. The expense is recognized on a straight-line basis over the requisite service period.

Pre-funded Warrants / Rights to Shares

The Company has certain forward sale contracts for equity issuances (“Forward Contracts”) where the Holder has provided all funding towards the equity issuance and additional consideration is not required for equity issuance. The Forward Contracts are referred to as Pre-funded Warrants or Rights to Shares. Shares will be issued upon the contractual terms of the Forward Contracts. The Company includes the proceeds of the Forward Contracts in equity in Additional paid-in-capital. In accordance with ASC 260, Earnings Per Share, the underlying shares to be issued are included in the number of outstanding shares used for Basic earnings per share.

Income Taxes

The Company accounts for income taxes under the asset and liability method, in which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is required to the extent any deferred tax assets may not be realizable.

ASC 740-10, Accounting for Uncertainty in Income Taxes, defines uncertainty in income taxes and the evaluation of a tax position as a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest ~~amount~~ amount of benefit that is greater than 50 percent likelihood of being realized upon ultimate settlement. Tax positions that previously ~~failed~~ failed to meet the more-likely than-not threshold should be recognized in the first subsequent period in which the threshold is met. ~~Previously~~ Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent ~~financial~~ financial reporting period in which the threshold is no longer met. The Company had no uncertain tax positions as of December 31, ~~2021~~2022, and ~~2020~~2021.

Derivative Liabilities

The Company evaluates its convertible instruments, options, warrants, or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, Derivatives and Hedging. The Company evaluates whether the amount of common stock on a as converted basis is in excess of its authorized share total which, if in excess, would result in derivative accounting treatment. The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to a liability at the fair value of the instrument on the reclassification date.

Convertible Debt

The Company’s debt instruments contain a host liability, freestanding warrants, and an embedded conversion feature. The Company uses the guidance under FASB ASC Topic 815 Derivatives and Hedging (“ASC 815”) to determine if the embedded conversion feature must be bifurcated and separately accounted for as a derivative under ASC 815. It also determines whether any embedded conversion features requiring bifurcation and/or freestanding warrants qualify for any scope exceptions contained within ASC 815. Generally, contracts issued or held by a reporting entity that are both (i) indexed to its own stock, and (ii) classified in shareholders equity, would not be considered a derivative for the purposes of applying ASC 815. Any embedded conversion features and/or freestanding warrants that do not meet the scope exception noted above are classified as derivative liabilities, initially measured at fair value, and remeasured at fair value each reporting period with change in fair value recognized in the consolidated statements of operations. Any embedded conversion features and/or freestanding warrants that meet the scope exception under ASC 815 are initially recorded at their relative fair value in paid-in-capital and are not remeasured at fair value in future periods.

F-16

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Issuance costs are allocated to each instrument in the same proportion as the proceeds that are allocated to each instrument. Issuance costs allocated to the debt hosted instrument are netted against the proceeds allocated to the debt host. Issuance costs allocated to freestanding warrants classified in equity are recorded in paid-in-capital.

Leases

The right of use asset (“ROU”) on the Company’s consolidated balance sheet represents a lessee’s right to use an asset over the life of a lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term, plus any lease payments made to the lessor before the lease commencement date, plus any initial direct costs incurred, minus any lease incentives received. The amortization period for the right of use asset is from the lease commencement date to the earlier of the end of the lease term or the end of the useful life of the asset. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has elected to exclude all short-term leases (i.e., leases with a term of 12 months or less) from recognition on the balance sheet.

The Company’s lease liabilities are determined by calculating the present value of all future lease payments using the rate implicit in the lease if it can be readily determined, or the lessee’s incremental borrowing rate. The Company uses its incremental borrowing rate at the inception of the lease to determine the present value of future lease payments as the rate implicit in its leases could not be readily determined.

Net Loss per Share

Basic loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding, plus potentially dilutive common shares. Convertible debt, restricted stock, stock options and warrants are excluded from the diluted net loss per share calculation when their impact is antidilutive. The Company reported a net loss for the years ~~year~~ ended December 31, 2022 and 2021, and as a result, all potentially dilutive common shares are considered antidilutive for this period.

The Company includes potentially issuable shares in the Weighted-average common shares – basic that include warrants and other agreements that are exercisable for little or no consideration without substantive contingencies and others once any contingencies relative to the issuance of the shares is resolved.

Computations of basic and diluted weighted average common shares outstanding were as follows for the periods reported:

	December 31,
	2021		2020
	2022		2021
Weighted-average common shares outstanding		~~128~~840,~~603~~858,~~982~~474		60128,~~365~~603,~~892~~982
Weighted-average potential common shares considered outstanding		103,~~457~~000,~~102~~000		1510,~~174~~457,~~121~~102
Weighted-average common shares outstanding – basic		~~139~~843,~~061~~858,~~084~~474		75139,~~540~~061,~~013~~084
Dilutive effect of options, warrants and restricted stock		-		-
Weighted-average common shares outstanding – diluted		~~139~~843,~~061~~858,~~084~~474		75139,~~540~~061,~~013~~084
Options, restricted stock, and warrants and convertible debt excluded from the computation of diluted loss per share because the effect of inclusion would be anti-dilutive		6129,~~603~~509,~~716~~270		6,603,716

F-17

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Recent Accounting Standards

InThe ~~December~~Company ~~2019,~~continually ~~the~~assesses ~~FASB~~any ~~issued~~new ~~ASU~~accounting pronouncements ~~2019-12,~~to ~~Income~~determine ~~Taxes~~their ~~(Topic~~applicability. ~~740):~~When ~~Simplifying~~it ~~the~~is ~~Accounting~~determined ~~for~~that ~~Income~~a ~~Taxes~~new ~~(“ASU 2019-12”), which simplifies income tax~~ accounting inpronouncement ~~various~~affects ~~areas~~the ~~including,~~Company’s ~~but~~financial ~~not limited to~~reporting, the ~~accounting~~Company ~~for~~undertakes ~~hybrid~~a ~~tax~~study ~~regimes, tax implications related~~ to ~~business combinations,~~determine ~~and~~the ~~interim~~consequences ~~period~~of ~~accounting~~the ~~for~~change ~~enacted~~to ~~changes~~its inconsolidated ~~tax~~financial ~~law,~~statements ~~along~~and ~~with~~assures ~~some~~that ~~codification improvements. ASU 2019-12 is~~there ~~effective~~are ~~for~~proper ~~fiscal~~controls ~~years,~~in ~~and~~place ~~interim~~to ~~periods~~ascertain ~~within~~that ~~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’s ~~implemented~~consolidated ~~ASU~~financial ~~2019-12~~statements ~~and~~properly itreflect ~~did~~the ~~not have a material impact on our consolidated financial statements~~change.

In ~~January 2020~~June 2016, the FASB issued Accounting Standards Update (“ASU ~~2020~~”) No. 2016-0113, Financial ~~Investments~~Instruments-Credit –Losses ~~Equity Securities~~ (Topic ~~321~~326): Measurement of Credit Losses on Financial Instruments, ~~Investments~~which –was ~~Equity~~codified ~~Method~~with ~~and~~its ~~Joint~~subsequent ~~Ventures~~amendments as Accounting Standards Codification (“ASC”) Topic ~~323)~~326, Financial ~~and Derivatives~~Instruments – ~~and~~Credit ~~Hedging~~ Losses (~~Topic~~“ASC ~~815~~326”). ~~The~~ASC ~~ASU~~326 ~~amends~~seeks to ~~and~~provide ~~clarifies~~financial ~~certain~~statement ~~interactions~~users ~~between~~with more decision-useful information about the ~~guidance~~expected ~~under~~credit ~~Topic~~losses ~~321,~~on ~~Topic 323~~financial instruments, including ~~and~~trade ~~Topic 815~~receivables, byand ~~reducing~~other ~~diversity~~commitments into ~~practice~~extend ~~and~~credit ~~increasing~~held ~~comparability~~by ofa ~~the~~reporting ~~accounting~~entity ~~for~~at ~~these~~each ~~interactions~~reporting date. The amendments inrequire ~~the~~an ~~ASU~~entity ~~should~~to bereplace ~~applied~~the onincurred aloss ~~prospective~~impairment ~~basis.~~methodology ~~The~~in ~~ASU~~other isGAAP ~~effective~~with ~~for~~a ~~fiscal~~methodology ~~years~~that ~~beginning~~reflects ~~after~~current ~~December~~expected credit ~~15,~~losses ~~2020,~~ and ~~interim periods~~requires ~~within~~consideration ~~those~~of ~~fiscal~~a ~~years.~~broader ~~Early~~range ~~adoption~~of isreasonable ~~permitted,~~and ~~including~~supportable ~~early~~information ~~adoption~~to ininform ancredit ~~interim~~loss ~~period for which financial statements~~estimates. ~~have~~The ~~not~~updated ~~yet~~guidance ~~been~~is ~~issued.~~effective ~~The~~for ~~new~~the ~~standard~~Company ~~has~~for ~~not~~annual ~~had~~reporting aperiods ~~material~~beginning ~~impact~~after onDecember 15, ~~the~~2022, ~~consolidated~~and ~~financial~~early ~~statements~~adoption is ~~or disclosures~~permitted.

In ~~August 2020~~December 2019, the FASB issued ASU ~~2020~~2019-0612, ~~Accounting~~“Income ~~for~~Taxes ~~Convertible Instruments~~(Topic ~~and~~740): ~~Contracts~~Simplifying inthe anAccounting ~~Entity’s~~for ~~Own~~Income ~~Equity,~~Taxes as(“ASU ~~part~~2019-12”), which ofis ~~its~~intended ~~overall simplification initiative~~ to ~~reduce~~simplify ~~costs~~various ~~and~~aspects ~~complexity of~~related ~~applying~~to accounting ~~standards~~for ~~while~~income ~~maintaining or improving the usefulness of the information provided to users of financial statements~~taxes. ~~Most~~ ~~significantly,~~ASU ~~the~~2019-12 ~~new guidance~~ removes ~~from~~certain ~~GAAP~~exceptions ~~separation~~to ~~models for convertible debt that require~~ the ~~convertible debt to be~~general ~~separated~~principles ~~into~~in aASC ~~debt~~Topic ~~and~~740 ~~equity component, unless the conversion feature is required to be bifurcated~~ and ~~accounted~~also ~~for~~clarifies ~~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~~amends ~~instead~~existing ~~account for the convertible debt wholly as debt. The new~~ guidance ~~also~~to ~~requires use~~improve ~~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~~application. ~~The~~This guidance is effective ~~for financial statements~~ ~~issued~~ for fiscal years ~~beginning after December 15~~, ~~2021,~~ and interim periods within those fiscal years, ~~with~~beginning ~~early~~after ~~adoption~~December 15, ~~permitted~~2020, ~~but~~ ~~only~~with atearly ~~the beginning of the fiscal year~~adoption permitted. The Company ~~has early~~ adopted ~~the~~this ~~new~~standard ~~guidance~~ on January 1, ~~2021~~2020, ~~with~~and ~~no impact to prior period financial statements given that~~ the ~~first~~adoption ~~applicable~~did ~~instruments were~~ not ~~executed~~have ~~until~~a ~~the~~material ~~third~~impact ~~quarter~~on ofthe ~~2021. See Note 12-Short~~financial ~~Term~~statements ~~Debt~~and ~~for~~related ~~further disclosure on the instrument~~disclosures.

~~Any~~In ~~new~~May 2021, ~~accounting~~the ~~standards~~FASB issued ASU 2021-04, Earnings ~~not~~Per ~~disclosed~~Share ~~above~~(Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40), (“ASU 2021-04”). This ASU reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that ~~have~~remain ~~been~~equity ~~issued~~classified after modification or ~~proposed~~exchange. byThis ~~FASB~~ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that dois not ~~require~~within ~~adoption~~the ~~until~~scope of another Topic. It specifically addresses: (1) how an entity should treat a ~~future~~modification ~~date~~of ~~are~~the ~~not~~terms ~~expected~~or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2) how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; and (3) how an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. This ASU will be effective for all entities for fiscal years beginning after December 15, 2021. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted, including adoption in an interim period. The adoption of ASU 2021-04 on January 1, 2022, did not have a material impact on the ~~consolidated~~Company’s financial statements ~~upon adoption~~.

Reclassifications

Certain prior year amounts reported on our Form 10-K/A (Amendment No. 2) have been reclassified for consistency with the current year presentation. The Company has retroactively restated its assets reported as discontinued operations as 100% held for sale. Costs associated with the TTM Digital reporting unit were reclassified from the consolidated statement of operations to discontinued operations.

Emerging Growth Company

Sysorex is an “emerging growth company” as defined in 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. 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 Exchange Act, 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

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 two (2) operating segments and two (2) reportable segments.

The following table reflects the results of continuing operations of the company’s segments consistent with the management and measurement system utilized within the company. Performance measurement is primarily based on revenue 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.

F-18

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

~~The~~Note ~~following~~5 ~~table~~— ~~provides~~Discontinued ~~a summary of the revenues, and cost of revenues from continuing operations for our subsidiary segments for the year ended December 31, 2021 (in thousands):~~Operations

	TTM Digital			Sysorex Government Services			Consolidated
Revenues
Products Revenue	$	-		$	6,516		$	6,516
Services Revenue		-			1,756			1,756
Mining Income		4,394			0			4,394
Total Revenues	$	4,394		$	8,272		$	12,666
Costs of Revenues
Product Cost of Revenue	$	-		$	6,036		$	6,036
Services Cost of Revenue		-			868			868
Mining Cost of Revenue		457			-			457
Other Operating Expenses		13,276			4,568			17,844
Operating Income (Loss)	$	(9,339	)	$	(3,200	)	$	(12,539	)
Total Segment Assets	$	10,271		$	8,940		$	19,211

In the fall of 2021, the Company made the decision to divest certain mining equipment and the data center of the TTM Digital reporting unit and commenced discussions with a third party to execute an asset sale in the spring of 2022. On March 24, 2022, the Company executed Heads of Terms (“Heads of Terms”) with Ostendo Technologies, Inc. (“Ostendo”). 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 Company 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. 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 2022 that the transaction will not proceed. In November 2022, the Company received a certificate, dated November 14, 2022, for the shares, and thereafter, the Company received confirmation that the Certificate of Designations for the preferred stock had been filed and accepted by the California Secretary of State on November 14, 2022.

~~Note~~Subsequent to 6the —Ostendo ~~Discontinued~~transaction ~~Operations~~not proceeding, TTM Digital explored alternate long-term uses for its assets and concluded that mining other coins was not a feasible path forward due to the volatility in crypto prices, and repurposing its assets was not a viable path forward as it would require significant upfront investments to its datacenter infrastructure. TTM Digital is currently exploring sales opportunities for its GPU assets and datacenter located in Lockport, NY.

In December 2021, the Company made the decision to divest certain mining equipment, graphic processing units and data center and its assets of TTM Digital reporting unit (“TTM Assets”) and commenced discussions with a third party to execute an asset sale. On March 24, 2022, the Company executed Heads of Terms agreement with a third party which includes certain binding and non-binding provisions. Pursuant to the Heads of Terms, the Company and the third party agreed to certain terms related to the Company’s sale of approximately 75% of its Ethereum mining assets and certain associated real property. The TTM Assets to be sold are those assets located in the facility in New York. The Company will continue to operate certain graphics processing units or associated assets at a co-located facility in North Carolina. See Note 18 – Subsequent Events for further discussion on the terms of the asset sale.

As a result of the decision to divest certain operating assets of the TTM Digital reporting unit, the Company has determined that subject assets met the definition of assets held for sale as defined by ASC 205-20 – Presentation of Financial Statements – Discontinued Operations. The Company determined the TTM Assets represented discontinued operations as it constituted a disposal of a significant component and a strategic shift that will have a material effect on the Company’s operations and financial results. As a result, the Company reclassified the balances and activities of the TTM Assets from their historical presentation to assets held for sale and assets and liabilities – discontinued operations on the consolidated balance sheets and to loss from discontinued operations on the consolidated statements of operations for the periods presented.

The carrying value of the TTM Digital asset disposal group was $64.077 million as of December 31, ~~2021.~~2022, Noand ~~adjustments~~the ~~were~~Company recorded toapproximately $4.1 ~~the~~million ~~carrying~~of ~~value~~impairment of ~~the~~fixed assets ~~held~~in ~~for~~its ~~sale~~discontinued ~~as the estimated fair value less selling costs exceeded the carrying value~~operations. 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):

	2021		2020
	2022		2021
Current Assets
Related Party receivables	$	-	$	17
Mining facilities, net		1,083		1,083
Mining equipment and facilities, net		5,571		-
Mining equipment, net		3,491		8,476
Investment in Style Hunter		~~500~~-		-500
Total Current Assets	$	6,071	$	17
Intangible assets, net		89		89
Noncurrent Assets
Total Assets associated with discontinued operations	$	4,663	$	10,148
Mining equipment and facilities, net		-		1,272
Investment in Up North Hosting, LLC		-		644
Total Noncurrent Assets		-		1,916
Total Assets associated with discontinued operations	$	6,071	$	1,933
Liabilities associated with discontinued operations
Accounts payable	$	-	$	7
Accrued liabilities		-		117
Related party loan		-		75
Total Current Liabilities		-		199
Total Liabilities associated with discontinued operations	$	-	$	199

F-19

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the TTM Digital assets statement of operations line items classified as discontinued operations included within loss from discontinued operations for the years ended December 31, ~~2021~~2022, and ~~2020~~2021 (in thousands):

	2021			2020
	2022			2021
Revenues
Mining income	$	84,~~150~~094		$	112,~~868~~534
Other revenue		2996			-38
Total Revenues		84,~~179~~190			112,~~868~~572
Operating costs and expenses
Mining cost		~~815~~1,457			~~433~~1,273
General and administrative		~~291~~785			4294
Depreciation		1,637			827
Impairment of investments		500			-
Total Operating Costs and Expenses		2,743			1,264
Impairment of fixed assets		4,061			3,274
Gain from Discontinued Operations		5,436			604
Depreciation		910			4,144
Total Operating Costs and Expenses		7,713			8,985
(Loss) Gain from Discontinued Operations		(3,523	)		3,587
Other Income (Expenses)
Gain (loss) on sale of fixed assets		(~~146~~14	)		17(146	)
Fair value loss on previously held equity interest		~~(18~~-	)		-(18	)
Other income (expenses), net		58-			~~(29~~58	)
Total Other Income		(~~106~~14	)		12(106	)
Income before net loss of equity method investee		5,330			592
(Loss) Income before net loss of equity method investee		(3,537	)		3,481
Share of net loss of equity method investee		~~(94~~-	)		(3994	)
Net income from discontinued operations	$	5,236		$	553
Net (loss) income from discontinued operations	$	(3,537	)	$	3,387

The following table summarizes the net cash flows from discontinued operations of TTM Digital for years ended December 31, 2022, and 2021 (in thousands):

	For the Year Ended December 31,
	2022			2021
Net cash used in operating activities – discontinued operations		(1,966	)		(13,165	)
Net cash used in investing activities – discontinued operations		-			(1,520	)
Net cash provided by financing activities – discontinued operations		-			-

F-20

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

~~The~~Note ~~following~~6 ~~table~~— ~~summarizes~~Intangible ~~the net cash flows from discontinued operations of TTM Digital for years ended December 31,2021 and 2020 (in thousands):~~Assets

	For the Year Ended December 31,
	2021			2020
Net cash provided by operating activities -discontinued operations		1,369			595
Net cash used in investing activities – discontinued operations		(1,436	)		(582	)
Net cash provided by financing activities – discontinued operations		-			20

Intangible assets as of December 31, 2022, consist of the following:

F-21

	Gross					Net
	Carrying		Accumulated			Carrying
	Amount		Amortization			Amount
Trade name	$	1,060	$	(179	)	$	881
Customer Relationships		1,900		(802	)		1,098
Total intangible assets	$	2,960	$	(981	)	$	1,979

SYSOREX, INC. AND SUBSIDIARIES

Calendar Years ending December 31,	Amount
2023		573
2024		573
2025		266
Thereafter		567
Total	$	1,979

~~NOTES~~Up TONorth ~~THE~~Business ~~CONSOLIDATED~~Combination ~~FINANCIAL~~/ ~~STATEMENTS~~Bitworks Asset Acquisition

Note 7 — Equity Method Investments

As discussed in Note 8 - Up North Business Combination / Bitworks Asset Acquisition, the acquisition by TTM Digital occurred on November 2, 2021; the schedule values below are up through November 1, 2021, immediately prior to the acquisition.

The Up North Hosting balance sheet is presented as of November 1, 2021, and December 31, 2020 (in thousands of dollars):

	November 1,			December 31,
	2021			2020
Current assets	$	260		$	121
Non-current assets		1,183			1,247
Total assets	$	1,443		$	1,368
Current liabilities		144			197
Total liabilities		144			197
Members’ equity		1,377			1,177
Retained Earnings (Deficit)		(78	)		(6	)
Total Members’ Equity		1,299			1,171
Total Liabilities and Members’ Equity	$	1,443		$	1,368

Fixed assets, net, which are owned by Up North Hosting, were comprised of the following (in thousands of dollars):

	November 1,			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		(244	)		(177	)
Property, plant, and equipment, net	$	1,149		$	1,212

The Up North Hosting statement of operations for the period ending November 1, 2021, and December 31, 2020 (in thousands of dollars):

	2021			2020
Revenues	$	930		$	898
Cost of revenues, excluding depreciation		776			725
Selling, general, and administrative		286			351
Other (Income)/Expense		(60	)		(5	)
Net loss		(72	)		(173	)
Net loss attributable to TTM	$	(36	)	$	(87	)

The Company’s main cost of revenues relates to the hosting and electricity expenses used to power the datacenter and the hosted equipment.

F-22

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 8 — Up North Business Combination / Bitworks Asset Acquisition

On November 2, 2021, the Company through a wholly owned subsidiary of TTM Digital executed a Membership Interest Purchase Agreement (“Up North Agreement”) with BWP Holdings, LLC (“BWP”) whereby the Company acquired the remaining 50.0% membership interest (“Transferred Membership Interest”) in Up North Hosting LLC (“Up North”) that it did not already own to bring its ownership in Up North to 100.0% (“UNH Acquisition”). In addition to the Transferred membership Interest the Company acquired certain data mining equipment BWP (“Bitworks Equipment” and collectively the “Acquisition”) that was resident in the Up North data center facility. The BWP transaction was accounted for as an asset acquisition. Total transaction consideration paid for the acquired interests of Up North and the Bitworks Equipment were $1.0 million and the issuance of 1.0 million shares of restricted common stock, $0.00001 par value of the Company.

The total transaction consideration paid for the Acquisition was valued at $1.4 million. The transaction consideration was allocated to the UNH Acquisition and the Bitworks Equipment in the amounts of $705,900 and $694,100, respectively. The UNH Acquisition was accounted for as a business combination using the acquisition method in accordance with Accounting Standards Codification 805, Business Combinations. In accounting for the UNH Acquisition the purchase consideration consisted of the fair value of the Up North membership interest previously owned by the Company and accounted for as an equity method investment of $631,500 and the transaction consideration allocated of $705,900 and reduced by the effective settlement of intercompany transactions of $104,285 for net purchase consideration of $1,233,115. The previous membership interest in Up North had a carrying value of $649,462 resulting in the recognition of a loss on the conversion of the equity method investment of $17,962.

Up North’s primary asset consists of a data center facility located in New York used for the hosting of cryptocurrency data mining operations. The ~~following~~value ~~table~~of ~~summarizes~~the data center facility building, and improvements installed for the ~~amounts~~data center operations are approximately $1.1 million. The data center facility is located in an industrial redevelopment area which has a property tax abatement and pays certain fees in lieu of property taxes under an agreement with the Industrial Development Agency. Proforma financial information was not ~~identified~~required as the acquisition was deemed not to have a material impact. All assets ~~acquired~~associated with this acquisition have been classified as held for sale, and ~~liabilities~~any ~~assumed~~income ~~relating~~or toloss ~~the~~has ~~Acquisition:~~been reported as discontinued operations.

(In thousands of dollars)	UNH Acquisition Fair Value			Bitworks Equipment Fair Value		Aggregate Fair Value
Cash	$	87		$	-	$	87
Accounts receivable		67			-		67
Prepaid assets and other current assets		1			-		1
Property and equipment		1,098			694		1,792
Property tax abatement intangible		90			-		90
Other assets		34			-		34
Accounts payable		(90	)		-		(90	)
Accrued liabilities		(54	)		-		(54	)
Fair value allocated to net assets / (liabilities)	$	1,233		$	694	$	1,927
Fair value of transaction consideration	$	706		$	694	$	1,400
Fair value of equity method investment exchanged		631			-		631
Effective settlement of intercompany transactions		(104	)		-		(104	)
Fair value of purchase consideration	$	1,233		$	694	$	1,927

F-21

Up North’s primary asset consists of a data center facility located in New York used for the hosting of cryptocurrency data mining operations. The value of the data center facility building, and improvements installed for the data center operations are approximately $1.1 million. The data center facility is located in an industrial redevelopment area which has a property tax abatement and pays certain fees in lieu of property taxes under an agreement with the Industrial Development Agency. Proforma financial information was not required as the acquisition was deemed not to have a material impact.

F-23

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 7 9 — ~~Mining~~Credit ~~Equipment,~~Risk ~~net~~and Concentrations

Mining equipment, net, was comprised of the following (in thousands of dollars):

	Balance as of
	December 31,			December 31,
	2021			2020
Gross Mining Equipment:
Mining Equipment (non-GPUs)	$	493		$	-
GPUs		6,033			-
Accumulated Depreciation
Mining Equipment (non-GPUs)		(123	)		-
GPUs		(2,326	)		-
Mining Equipment, net	$	4,077		$	-

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 $2.5 million during the year ended December 31, 2021.

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 lease to buy financing arrangement was fully paid as of December 31, 2021. 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 10 — Intangible Assets

Intangible assets as of December 31, 2021, consist of the following:

	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
2022		573
2023		573
2024		573
2025		266
2026		105
Thereafter		463
Total	$	2,553

F-24

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 11 — Credit Risk and Concentrations

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

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

The following table sets forth the percentages of sales derived by SGS from those customers that accounted for at least 10% of sales ~~during~~for the ~~period~~years ~~April~~ended ~~15,~~December ~~2021~~31, ~~through December 31~~2022, and 2021 (in thousands of dollars):

	For the Period April 15,
	The Years Ended
	2021, through
	December 31, 2022					December 31, 2021
	December 31, 2021
	$		%			$		%
	$		%
Customer A		4,388		26	%		4,826		44	%
Customer A		4,826		44	%
Customer B		10,421		61	%		2,946		27	%
Customer B		2,946		27	%

As of December 31, 2022, Customer A and Customer B represented approximately 61% and 30% of total accounts receivable, respectively.

As of December 31, 2021, Customer A represented approximately 72% of total accounts receivable. One other customer represented approximately 11% of total accounts receivable.

For the ~~period~~year ~~April~~ended ~~15, 2021, through~~ December 31, ~~2021~~2022, three vendors represented approximately 3641%, 2535%, and 2512% of total purchases. Purchases from these vendors during the year ended December 31, ~~2021~~2022, were $39.85 million, $28.61 million, and, $2.69 million respectively.

~~Mining~~For ~~equipment purchased from one TTM Digital vendor during~~ the year ended December 31, 2021, ~~was~~three ~~$14.2~~vendors ~~million.~~represented Ofapproximately ~~the~~36%, ~~$14.2 million~~25%, inand ~~consideration~~25% ~~exchanged~~of ~~$12~~total ~~million~~purchases. ~~was~~Purchases ~~paid in~~from ~~Common~~these ~~Stock~~vendors ofduring the ~~Company~~year ~~and~~ended December ~~the~~31, ~~balance~~2021, ofwere $23.28 million, ~~was settled through payment of~~ $12.16 million, ~~in digital assets~~ and $12.1 6 million ~~in cash~~respectively.

Geographic and Technology Concentration

The Company had geographic ~~concentration risk~~diversity ~~with~~between ~~mining~~April ~~operations~~1, ~~being exclusively carried out within New York in the first Quarter of~~ 2021, and ~~throughout~~June ~~2020~~30, ~~while~~2022, ~~the Company has added geographic diversity during April 2021~~ using a colocation datacenter in North Carolina. ~~Any legislation that restricts~~ After orJune ~~bans~~30, 2022, the ~~mining~~Company ofhad ~~proof-of-work~~consolidated ~~related~~its ~~digital~~mining ~~asset~~operations ~~mining~~exclusively in New York ~~State would have a negative impact on the Company’s ability to operate and generate revenues~~.

Further, the Company had concentrated exposure to the Ethereum blockchain infrastructure through its mining operations during the periods presented. On ~~There~~September is15, a2022, ~~possibility~~the ofEthereum ~~digital~~blockchain ~~asset~~transitioned ~~mining algorithms transitioning~~ to proof-of-stake ~~validation and other mining related risks,~~ which ~~could make us less competitive and ultimately~~ adversely ~~affect~~affected our business and our ability to generate revenues. ~~When~~The ~~and if Ethereum switches to proof-of stake the~~ Company’s ~~GPUs~~is ~~will~~ no longer be able to mine Ethereum. ~~Additionally,~~TTM onDigital ~~August~~assets 5,operations ~~2021,~~are ~~the~~classified ~~London~~as ~~Hard Fork protocol went into effect which includes changes in Ethereum’s~~discontinued ~~handling of transaction fees~~operations. 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 saw a financial impact during the year ended December 31, 2021. While the Company doubled mining capacity in the first half of the year, the difficulty to mine increased. This resulted in a steady decrease of average mining rewards, along with the market price of Ethereum, particularly during the second half of the year.

The Company has a mining pool optimized for the mining of ETH on the Ethereum blockchain. There are several factors taken into consideration when the Company elected to continue with exclusively mining ETH. F-22

F-25

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 12 8 — Short Term Convertible Debt

Short term convertible debt as of December 31, 2022, and December 31, 2021, consisted of the following (in thousands):

	December 31,		December 31,
		2021
	2022		2021
Convertible Debentures & Warrants, including interest payable to the Convertible Debenture Holders	$	19,439
Convertible Debentures, including interest payable to the Convertible Debenture Holders	$	15,272	$	19,439
Total Short-Term Convertible Debt	$	15,272	$	19,439

2021 Convertible Debentures & Warrants

On July 7, 2021, the Company consummated the initial closing of a private placement offering (the “Offering”) pursuant to the terms and conditions of a Securities Purchase Agreement for up to $15~~,187,500~~ .2 million 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~~.5 million shares of common stock of the Company. The Company received total gross proceeds of $8~~,880,000~~.9 million taking into account the 12.5% discount before deducting placement agent fees and expenses of approximately $~~913,000~~0.9 million. The convertible debt is collateralized by the assets of the Company. The Debentures ~~mature~~matured on July 7, 2022, subject to a three-month extension upon mutual agreement of the ~~Company~~ Company and the holder, as a result, the 2021 convertible debentures are in default.

On August 13, 2021, the company ~~consummated~~ 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~~.4 million 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~~.5 million in gross proceeds following the second closing taking into account the 12 % discount before ~~deducting~~ deducting placement agent fees and expenses of approximately $~~354,000~~0.3 million. The Debentures ~~mature~~matured on August 13, 2022, subject to a three-month ~~extension~~ extension upon mutual agreement of the Company and the holder, as a result, the 2021 convertible debentures are in default.

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 $896,000 on a relative fair value basis.

The Company recorded the debt net of the 12.5% discount, of which totaled $1.5 million,~~552,000,~~ the placement agent fees and expenses of $1~~,267,000~~.3 million and the debt ~~discount~~discounts attributed to the fair value of the warrants and conversion option derivative liability of approximately $~~810~~0.8 million and $2.1 million,~~000~~ respectively. The Company expensed the entire debt discount and issuance costs as a result of the debenture default, as disclosed below.

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~~ closes a registered public offering of its Common Stock and receives gross proceeds of not less than $40~~,000,000~~ million 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. An initial fair value of $2.1 million was assigned to the conversion option, The conversion option is marked to market at the end of each reporting period. The Company recorded a revaluation gain (loss) of approximately $2.0 million and ($6.3) million for the years ended December 31, 2022, and 2021, for the change in the fair value of the conversion option. As of December 31, 2022, the derivative liability associated with the conversion option was $3.5 million.

~~F-26~~ Convertible Debenture Conversion

For the year ended December 31, 2022, the convertible debenture holders converted approximately $6.2 million of convertible debt into approximately 1.8 billion shares. There were no conversions of convertible debt for the year ended December 31, 2021. As a result of the conversions, the Company recorded a loss on debt extinguishment of approximately $0.2 million and settled approximately $2.9 million of the derivative liability associated with the conversion option for the year ended December 31, 2022.

F-23

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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. The debentures also provide that nonpayment of debt constitutes an event of default. The Company defaulted on its interest payment. 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,~~9 million which is comprised of the principal sum of $3~~,341,801~~.80 3 million and prejudgment interest in the sum of $2~~,600,757~~.256 million. 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.

As a result of the ~~determination~~Default ~~of default event~~Notice, the Company has recorded for the year ended December 31, 2021, a loss of approximately $67.68 million on the Consolidated Statement of Operations on the line captioned Loss contingency on debt default (“Contingent Loss”). The Contingent Loss consists of the unamortized debt issuance costs and original interest discount of approximately $23.13 million and the Default Principal increase of approximately $4.2 million, and approximately $0.3 of debt and issuance costs incurred.

The Company recognized approximately $13.54 million of interest expense for the year ended December 31, ~~2021~~2022. Included in Convertible debt is $13.21 million of interest payable on December 31, ~~2021~~2022, to the Convertible Debenture Holders.

Non-Recourse Factoring and Security Agreement

Effective as June 19, 2020, prior to the merger, the Company and SouthStar Financial, LLC (“SouthStar”) entered into a Non-Recourse Factoring and Security Agreement (the “Agreement”) pursuant to which SouthStar may purchase receivables from the Company (the “Purchased Receivables”) for a price not to exceed 85% of the face value of the Purchased Receivables or a lesser percentage agreed upon between the Company and SouthStar. In consideration of SouthStar’s purchase of the Purchased Receivables, the Company will pay to SouthStar an amount equal to 0.8% of the face amount of the Purchased Receivables for the first 10-day period after payment for the Purchased Receivables is transmitted to SouthStar plus 0.9% for each additional 10-day period or part thereof, calculated from the date of purchase until payments received by SouthStar in collected funds on the Purchased Receivables equals the purchase price of the Purchased Receivables plus all charges due SouthStar from the Company at the time. An additional 1.0% per 10-day period will be charged for invoices exceeding 60 days from invoice date. The Company utilizes the security agreement to provide assurance of payment to the supplier. The Company currently utilizes SouthStar to finance its purchase orders and it also can factor its receivables if needed to fund operations. The Company, SouthStar and the Distributor/vendor enter a triparty agreement whereby SouthStar will pay the vendor under net 30-day terms the purchase order amount. As of December 31, 2022, the Company financed $0.9 million of purchase orders which is recorded in the consolidated balance sheet accrued liabilities.

As of December 31, ~~2021~~2022, the Company did not have any of its receivables financed.

~~Note 13 — Income taxes~~F-24

The income tax provision (benefit) for the years ended December 31, 2021, consists of the following (in thousands of dollars):

Net loss before income tax is as follows (in thousands):

		Year ended December 31, 2021
Net loss before income tax		$	(40,775	)

Income tax expense (benefit) consists of the following:

	Year ended December 31, 2021
U.S. Federal
Current	$	-
Deferred		(4,076	)
State and Local
Current		-
Deferred		(622	)
		(4,698	)
Change in Valuation Allowance		4,698
Total income tax provision (benefit)	$	-

F-27

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

~~The reconciliation between the U.S. statutory federal~~Note ~~income~~9 ~~tax~~— ~~rate~~Fair ~~and~~Value ~~the Company's effective rate for the years ended December 31, 2021, is as follows:~~ Measurements

	Year ended December 31, 2021
Pretax Income		21.0	%
State taxes, net of federal benefit		2.2	%
Merger Charges		-10.2	%
Other permanent items		-1.5	%
Change in valuation allowance		-11.5	%
Effective income tax rate		0.0	%

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 December 31, 2022 and 2021 (in thousands):

As of December 31, 2021, the Company's deferred tax assets consisted of the effects of temporary differences attributable to the following (in thousands of dollars):

			Fair value measurement at reporting date using
	Balance		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
As of December 31, 2022: (in thousands)
Recurring fair value measurements
Assets:
Equity investment in Ostendo	$	1,397	$	-	$	-	$	1,397
Derivative liabilities:
Conversion feature derivative liability	$	3,472	$	-	$	-	$	3,472
Common stock derivative liability		273		-		-		273
Total derivative liabilities		3,745		-		-		3,745
As of December 31, 2021: (in thousands)
Recurring fair value measurements
Derivative liabilities:
Conversion feature derivative liability	$	8,355	$	-	$	-	$	8,355
Total derivative liabilities		8,355		-		-		8,355

	Year ended December 31, 2021			Year ended December 31, 2020
Deferred tax assets:
Net operating loss carry forwards	$	4,812		$	-
Fixed assets		1,129			-
Accrued Compensation		40			-
Reserves		505			-
Intangible assets		3,061			-
Business interest limitation		729			-
Lease Liabilities		142			-
Tax Credits		211			-
Other		182			-
Total deferred tax assets before valuation allowance		10,811			-
Valuation allowance		(10,669	)		-
Total deferred tax assets after valuation allowance		142			-
Deferred tax liabilities:
Operating lease right of use assets		(142	)		-
Total deferred tax liabilities		(142	)
Net deferred tax assets and liabilities	$	-		$	-

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 year ended December 31, 2022, the Company recorded a gain of approximately $2.0 million for the change in fair value of debt conversion feature.

~~Prior~~The toCompany ~~the~~evaluated ~~merger~~its ~~(as~~equity ~~discussed~~investment in Ostendo ~~Note~~of $1),.6 ~~the Company~~million ~~was~~and arecorded ~~Partnership~~an ~~for~~impairment USof ~~Income~~approximately ~~Tax~~$0.2 ~~purposes~~million. ~~and~~The ~~therefore~~Company ~~had~~utilized noinputs ~~provision~~of ~~for~~market ~~income~~data ~~tax~~and as trends of ~~December~~peer ~~31,~~group ~~2020.~~companies ~~Subsequent~~ to ~~the~~determine ~~merger~~ the ~~entity~~fair ~~became~~value aof ~~taxable~~the ~~entity~~equity investment.

As discussed ofin ~~December~~Note ~~31,~~11 ~~2021~~– Equity below, the Company ~~had~~exceeded ~~approximately $20.8~~its ~~million~~authorized ofshare ~~U.S.~~limit ~~federal~~with ~~net~~respect ~~operating~~to ~~loss~~potentially ~~(“NOL”)~~issuable ~~carryovers~~shares under ~~available~~the toequity ~~offset~~contracts ~~future~~described ~~taxable~~with ~~income~~the Share Derivative Liabilities section. AsThe Company estimates the fair value of ~~December~~the Common ~~31,~~stock ~~2021,~~derivative ~~the~~liability ~~Company~~based ~~had~~on ~~approximately~~the ~~$9.1~~fair ~~million~~value of ~~state~~the ~~NOL~~potentially ~~carryovers~~issuable ~~available~~shares tofor ~~offset~~the ~~future~~warrants, ~~taxable~~stock ~~income.~~options ~~The~~and ~~U.S.~~RSUs ~~federal~~vested ~~NOLs~~but ~~generated~~unissued. inThis ~~2021~~liability doexcludes ~~not~~the ~~expire~~fair ~~and~~value ~~have~~of anthe ~~indefinite~~potentially ~~life.~~convertible ~~State~~shares ~~NOLs~~for ~~begin~~the toconvertible ~~expire~~Debentures atwhich ~~various~~are ~~dates~~accounted for ~~beginning~~through inthe ~~2038~~carrying value of the debt and the separate conversion feature derivative liability.

The ~~future utilization of federal net operating~~ ~~loss~~Company ~~carryforwards~~recorded ~~generated after 2017 is limited to 80% of taxable income. An additional limitation applies to~~ the ~~use~~common ofstock ~~federal~~derivative ~~net operating~~liability ~~loss~~at ~~and~~fair ~~credit~~value ~~carryforwards,~~as ~~under Section 382~~ of ~~the~~December ~~Internal Revenue Code of 1986~~31, ~~as amended~~2022, ~~that~~through ~~is applicable if the Company experiences an "ownership change." The Company completed~~ a ~~382~~transfer ~~study~~from ~~and~~equity ~~determined~~to ~~that~~the ~~there was a change in ownership~~common onstock ~~April~~derivative ~~14, 2021, which limits their NOL and Section 163(j) carryforwards~~liability. ~~The~~Changes ~~resulting~~in ~~Section~~the ~~382~~fair ~~limitations~~value ~~are~~of ~~not expected to materially impact~~ the ~~Company’s~~liability ~~ability~~in tofuture ~~utilize~~periods ~~carryforwards~~will ~~as NOLs and 163(j) should~~ be ~~available~~included ~~for~~in ~~utilization~~other ~~before expiration assuming sufficient future taxable~~ income. ~~Future~~(expense) ~~changes~~ in the ~~ownership~~consolidated statements of ~~the Company could further limit the Company’s ability to utilize its NOLs and credits~~operations.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing the realization of deferred tax assets, management considers, whether it is “more likely than not”, that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible.F-25

F-28

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

~~ASC 740, “Income Taxes” requires that~~The achange ~~valuation~~in ~~allowance~~Level be3 ~~established~~fair ~~when~~value ~~it is “more likely than not” that all, or a portion~~ of, ~~deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including~~ the ~~scheduled~~Company’s ~~reversal~~derivative ~~of deferred tax~~ liabilities, ~~projected~~is future taxable income, and tax planning strategies. After consideration of all the information available, management believes that uncertainty exists with respect to future realization of its deferred tax assets and has, therefore, established a full valuation allowance as ~~of December 31, 2021. As of December 31, 2021, the net change in valuation allowance was $10.7 million, including $6.0 million established in acquisition accounting.~~follows:

ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company is required to file federal and state income tax returns. Based on the Company’s evaluation, it has been concluded that there are no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements for the year ended December 31, 2021.

	Conversion feature derivative liability			Common stock derivative liability			Total level 3 derivative liability
Balance as of December 31, 2020	$	-		$	-		$	-
Issuance of convertible debentures		2,077			-			2,077
Increase in fair value included in earnings		6,278			-			6,278

Balance as of December 31, 2021	$	8,355		$	-		$	8,355

Transferred to equity on debt conversion		(2,921	)		-			(2,921	)
Transferred to equity on RSU issuance		-			(5	)		(5	)
Transferred from equity on recognition of derivative liability		-			314			314
Fair value of warrants issued		-			534			534
Decrease in fair value included in earnings		(1,962	)		(570	)		(2,532	)

Balance as of December 31, 2022	$	3,472		$	273		$	3,745

~~The Company’s policy for recording interest~~Note ~~and~~10 ~~penalties~~— ~~associated~~Digital with unrecognized tax benefits is to record such interest and penalties as interest expense and as a component of general and administrative expense, respectively. There were no amounts accrued for interest or penalties for the year ended December 31, 2021. Management does not expect any material changes in its unrecognized tax benefits in the next year.Assets

The Company operates in multiple tax jurisdictions, and, in the normal course of business, its tax returns are subject to examination by various taxing authorities. Such examinations may result in future assessments by these taxing authorities. The Company is subject to examination by U.S. tax authorities beginning with the year ended December 31, 2018. Currently, the Company is not subject to any examinations.

Note 14 — Digital Assets

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

	December 31,
	2021			2020
	2022			2021
Opening Balance	$	245,202		$	2524
Revenue from mining		124,~~534~~094	*		112,~~868~~534	*
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		(42	)		(129	)
Mining pool operating fees		(129	)		(4	)
Management fees		-			(321	)
Management fees		(321	)		(189	)
Transaction fees		(138	)		(26	)
Transaction fees		(26	)		-
Owners’ distributions		-			(1,521	)
Owners’ distributions		(1,521	)		(1,211	)
Digital asset impairment		(2,748	)		(704	)
Digital asset impairment		(704	)		-
Proceeds from sale of digital assets		(8,119	)		(3,670	)
Proceeds from sale of digital assets		(3,670	)		(555	)
Realized gain on sale of digital assets		1,751			106
Realized gain on sale of digital assets		106			44
Ending Balance	$	-		$	5,202
Ending Balance	$	5,202		$	24

*Note 11 Of— ~~the $12.5 million revenue from mining, $4.4 million in continuing operations and $8.1 million in discontinued operations. The $1.8 million in 2020 is included in discontinued operations.~~Equity

~~F-29~~As discussed in Note 3 Basis of Presentation the Company completed a reverse merger of Sysorex and TTM Digital with TTM Digital being the accounting acquirer and reporting entity. In a reverse merger, the capital accounts of the reporting entity (TTM Digital) are restated to reflect the legal capital structure of the legal acquirer (Sysorex). As a result, the share data of the reporting entity has been retroactively restated for all periods presented to the equivalent share values of Sysorex for the capital transaction activity of TTM Digital, as if the reverse merger occurred on January 1, 2020. The share data of the reporting entity has been retroactively stated for all periods presented to the equivalent share values of Sysorex. On September 22, 2022, the Company’s stockholders voted to approve an amendment to the Articles of Incorporation to increase the total number of authorized shares of the Company’s capital stock from 510,000,000 shares, par value $0.00001 per share, to 3,010,000,000 shares, of which 3,000,000,000 shares will be designated as common stock and 10,000,000 shares will be designated as preferred stock, in accordance with the voting results listed below. As of December 31, 2022, 2,484,501,880 shares were issued, 2,484,426,501 shares were outstanding. As of December 31, 2021, 499,560,659 common stock shares were authorized; 145,713,591 shares were issued, and 145,638,212 shares were outstanding. No preferred stock has been designated or issued.

F-26

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

~~Note~~Private Placement ~~15 — Equity~~Agreement

AsOn October ~~discussed~~18, in2022, the ~~Note~~Company 3sold ~~Basis~~to the Investors an aggregate of ~~Presentation~~500,000,000 ~~the~~Units, consisting of 500,000,000 shares of common ~~Company~~stock, ~~completed~~warrant a1s ~~reverse~~to ~~merger~~acquire 500,000,000 shares of ~~Sysorex~~common stock, and ~~TTM~~warrant ~~Digital~~2s ~~with~~to ~~TTM~~acquire ~~Digital~~500,000,000 ~~being~~shares ~~the~~of ~~accounting~~common ~~acquirer~~stock, ~~and~~for ~~reporting~~total consideration ~~entity.~~paid ~~In a~~to ~~reverse~~the ~~merger~~Company of $500,000. ~~the~~Pursuant ~~capital~~to ~~accounts~~the terms of the ~~reporting~~SPA, ~~entity~~the ~~(TTM~~Company ~~Digital)~~agreed ~~are~~to ~~restated~~sell to ~~reflect~~each ~~the~~Investor ~~legal~~a ~~capital~~number of ~~structure~~Units of securities of the ~~legal~~ ~~acquirer~~Company (~~Sysorex~~each, a “Unit”)., Asat a ~~result~~purchase price of $0.001 per Unit, ~~the~~with ~~share~~each ~~data~~Unit being comprised of: ~~the~~(i) ~~reporting~~one ~~entity~~share ~~has~~of ~~been~~common ~~retroactively~~stock ~~restated~~(each, ~~for~~a ~~all~~“Purchased ~~periods~~Share” ~~presented~~and collectively, the “Purchased Shares”); (ii) a warrant to ~~the~~acquire ~~equivalent~~one share ~~values~~ of ~~Sysorex~~common ~~for~~stock ~~the~~at ~~capital~~an ~~transaction~~exercise ~~activity~~price of ~~TTM~~$0.001 ~~Digital~~per share, aswhich ifexercise ~~the~~price ~~reverse~~will ~~merger~~not ~~occurred~~be onsubject ~~January~~to 1,adjustment ~~2020.~~as ~~The~~a ~~share~~result ~~data~~of any forward or reverse split of the ~~reporting~~common ~~entity~~stock ~~has~~(each, ~~been~~a ~~retroactively~~“Warrant ~~stated~~1”); ~~for~~and ~~all~~(iii) ~~periods~~a ~~presented~~warrant to acquire ~~the~~one ~~equivalent~~ share ~~values~~ of ~~Sysorex.~~common ~~The~~stock ~~Company~~at isan ~~authorized~~exercise toprice ~~issue~~of ~~500~~$0.001 per share,~~000,000~~ ~~shares~~which ofexercise ~~common~~price ~~stock,~~will ~~$0.00001~~not ~~par~~be ~~value,~~subject ~~and~~to ~~10,000,000~~adjustment ~~shares~~as a result of ~~preferred~~ any forward or reverse split of the common stock (each, ~~$0.00001~~a ~~par~~“Warrant ~~value~~2”). Pursuant ~~The~~to ~~holders~~the terms of the SPA, the Company’s ~~common~~agreed ~~stock~~to ~~are~~use ~~entitled~~all commercially reasonable efforts to ~~one~~have ~~vote~~the ~~per~~registration ~~share.~~statement Asdeclared effective by the SEC within 90 days of ~~December~~October 3118, ~~2021,~~2022 (the “Registration Deadline”). If such registration statement has not become effective by the ~~500~~Registration Deadline,~~000,000~~ ~~common~~and ~~stock~~provided ~~shares~~that ~~were~~the ~~authorized;~~Registrable ~~145,713,591~~Securities ~~shares~~cannot ~~were~~otherwise ~~issued~~be sold pursuant to Rule 144 pursuant to the Securities Exchange Act of 1934, ~~and~~as ~~145~~amended (the “Exchange Act”) as of the Registration Deadline,~~638~~ then,~~212~~ ~~shares~~subject ~~were~~to ~~outstanding.~~the Noprovisions ~~preferred~~of ~~stock~~the ~~has~~SPA ~~been~~and ~~designated~~the orInitial ~~issued.~~Registration Rights Agreement, the Company agreed to issue to each Investor:

As(i) A number of ~~December~~additional ~~31,~~shares ~~2020,~~of common stock equal to 10% of the ~~Company had~~Purchased 66Shares acquired by such Investor on the closing date,~~431,920~~ ~~shares~~with ~~outstanding.~~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

~~During~~(ii) ~~the~~A ~~quarter~~new ~~ended~~warrant ~~March 31~~(each, ~~2021,~~a ~~the~~“Warrant ~~Company issued~~3”) equal to ~~Moon~~the ~~Manager~~number ~~LLC,~~of ~~14,607,980~~Additional ~~shares~~Shares ~~and~~in ~~issued~~ the ~~rights~~applicable ~~to an additional 2,000,000 shares which were subsequently issued on March 24, 2022~~issuance.

~~Effective~~The Additional onShares ~~April~~and 1the Warrant 3 will, ~~2021~~if applicable, ~~TTM~~be ~~Digital entered~~issuable ~~into~~to anthe ~~Asset~~Investors ~~Contribution~~for ~~and~~each ~~Exchange~~30-day ~~Agreement~~period, ~~(Mining~~or ~~Equipment)~~portion tothereof, ~~acquire~~that the ~~approximately~~registration ~~4,500~~statement ~~GPUs~~registering ~~with~~the ~~CoreWeave~~Registrable Securities has not become effective by the Registration Deadline. InThe ~~connection~~Company’s ~~with~~obligation to issue the ~~Contribution~~Additional Shares and ~~Exchange~~the ~~Agreement~~Warrant 3, ~~TTM~~if ~~Digital~~applicable, ~~issued~~will ~~equity~~not ~~representing~~arise ~~28.65%~~until of the ~~pre-merger~~Company ~~equity~~has ~~outstanding~~amended ~~for~~its articles ~~TTM~~of ~~Digital.~~incorporation, Invia ~~settlement~~a reverse split of the ~~Contribution~~common ~~and~~stock, ~~Exchange~~an ~~Agreement~~increase of the ~~Company~~number ~~issued~~of 35authorized shares of common stock,~~588~~ or some combination thereof,~~548~~ such that the Company has a number of authorized but unissued shares ~~valued~~of atequal ~~$12~~to ~~million~~(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.

~~On April 14, 2021, the reverse merger~~The ofadditional ~~Sysorex~~shares and ~~TTM~~Warrant ~~Digital~~3 ~~closed.~~will Asbe aissuable ~~result~~for ofeach ~~the~~30-day ~~reverse merger~~period, ~~the~~or ~~Company~~portion ~~recognized the 494~~thereof,~~311~~ ~~shares~~that ~~outstanding of~~ the ~~existing Sysorex~~registrable ~~Shareholders~~securities ~~and~~have ~~the~~not become ~~75,379~~effective. ~~shares~~As of ~~Treasury~~May ~~stock~~31, of2023, ~~Sysorex~~the ~~that~~Company ~~are~~is ~~part~~obligated ofto ~~the~~issue ~~legal~~an ~~capital~~additional ~~structure.~~271 ~~The Company recorded $0.03~~ million asshares ~~purchase~~of ~~consideration~~common onstock ~~the~~and ~~recognition~~warrant of3 to ~~the~~purchase ~~existing~~an ~~Sysorex~~additional ~~Shareholders~~271 ~~share~~million byshares ~~the~~of ~~reporting~~common ~~entity~~stock.

AsShare discussed in Note 3, 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 which were subsequently issued on March 24, 2022, 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. Issuance

~~During~~On February 8, 2022, the ~~year~~Company entered ~~ended~~into ~~December~~an ~~31,~~Advisory ~~2021~~Services Agreement (the “Agreement”) with ViewTrade Securities, Inc. (“Advisor”) whereby the Advisor will assist the Company and provide services that will contribute to the overall growth of the Company. ViewTrade’s ~~issued~~owner anis ~~aggregate~~a shareholder in the Company. The term of 1the engagement is six months and may be extended by mutual agreement of the parties. In consideration of the services,~~529~~ the Company paid an Advisory Fee in an amount equal to 6,~~820~~000,000 restricted common shares ~~for~~(the ~~corporate~~“Fees) and ~~advisory~~the ~~expertise~~Fees ~~and~~shall ~~consulting~~be ~~services~~deemed ~~for~~fully aearned ~~total~~upon execution of the Agreement. As of December 31, 2022, the Company recorded a value of ~~approximately~~the stock of $2240,~~577,~~000, which included $239,940 of additional paid in capital and $60 par value.

~~On November 2, 2021, the Company entered into a Membership Interest~~Stock Purchase Agreement with BWP Holdings LLC to purchase the remaining 50% interest in Up North Hosting LLC and asset acquisition of certain mining equipment of BWP Holdings LLC. The aggregate purchase price for the membership interest is $1.0 million in cash and 1 million shares of restricted common stock, $0.00001 par value of the Company at a value of $0.4 million. The restricted common stock was issued to an executive of BWP Holdings LLC who was hired by the Company on October 1, 2021, as the Company’s Chief Technology Officer (“CTO”). The Company issued the CTO a one-time sign-on bonus of One Hundred Thousand shares of restricted common stock of the Company at a value of $0.04 million.Options

F-30

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Equity Incentive Plan

On July 30, 2018, the board of directors of the Company’s 2018 Equity Incentive Plan (the “2018 Plan”), which enables the Company to grant stock options, share appreciation rights, restricted stock, restricted stock units, share awards, performance unit awards, and cash awards to associates, directors, consultants, and advisors of the Company and its affiliates, and to improve the ability of the Company to attract, retain, and motivate individuals upon whom the Company’s sustained growth and financial success depend, by providing such persons with an opportunity to acquire or increase their proprietary interest in the Company. The 2018 Plan is to be administered by the Board, which shall have discretion over the awards and grants there under. The aggregate maximum number of shares of common stock for which stock options or awards may be granted pursuant to the 2018 Plan is 80,000, which number will be automatically increased on the first day of each quarter, beginning on January 1, 2019 and for each quarter thereafter, by a number of shares of common stock equal to the least of (i) 10,000 shares,(ii) 10% of the shares of common stock issued and outstanding on that date, or (iii) a lesser number of shares that may be determined by the board. No awards may be issued after July 30, 2028.

Stock options granted under the 2018 Plan may be non-qualified stock options or incentive stock options, within the meaning of Section 422(b) of the Internal Revenue Code of 1986. Each option, or portion thereof, that is not an incentive stock option, shall be considered a non-qualified option. The option price must be at least 100% of the fair market value on the date of the grant and if an Incentive Stock Option is issued to a 10% or greater shareholder the grant must be 110% of the fair market value on the date of the grant.

On July 20, 2021, the Board of Directors of the Company approved an amendment (the “Plan Amendment”) of the Company’s 2018 Equity Incentive Plan (as so amended, the “Plan”) to increase the number of shares of the Company’s common stock reserved for issuance thereunder by 8,000,000 shares. The Plan Amendment became effective immediately.

As of December 31, ~~2021~~2022, the awards outstanding under the equity incentive plan consisted of the employee stock options granted on July 20, 2021, to purchase up to 1,656,000 shares of common stock.

~~Stock Options~~ F-27

A summary of stock option activity for the year-end period ended December 31, 2021, is as follows:

	Number of		Weighted Average
	Options (in Shares)		Exercise Price
Outstanding, January 1, 2021		-		-
Granted		1,656,000	$	2.00
Exercised		-		-
Forfeited or cancelled		-		-
Outstanding, December 31, 2021		1,656,000	$	2.00
Exercisable, December 31, 2021		1,656,000	$	2.00

The Company’s valued 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 $0.06 million of stock-based compensation for the year ended December 31, 2021. The unrecognized stock-based compensation of $0.34 million will be recorded over the derived service period ending in the second quarter 2024.

F-31

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

A summary of stock option activity for the year ended December 31, 2022, is as follows:

	Number of Options (in Shares)			Weighted Average Exercise Price
Outstanding, January 1, 2022		1,656,000		$	2.00
Granted		-		$	-
Exercised		-			-
Forfeited or cancelled		(48,500	)		-
Outstanding, December 31, 2022		1,607,500		$	2.00

Exercisable, December 31, 2022		1,607,500		$	2.00

The Company recognized approximately $0.01 million of stock-based compensation for the year ended December 31, 2022.

Warrants

The following table represents the activity related to the Company’s ~~convertible~~ ~~debentures and~~ warrants, ~~see Note 12, issued~~ during the year ended December 31, ~~2021~~2022:

	Number of Warrants (in Shares)			Weighted Average Exercise Price
Outstanding, January 1, 2021		-			-
Outstanding, January 1, 2022		5,926,763		$	*
Granted		51,~~926~~004,~~763~~576,431		$	.001	*
Exercised		-(418,931	)		-
Outstanding, December 31, 2021		5,926,763		$	-
Outstanding, December 31, 2022		1,010,084,263		$	-

* The ~~weighted~~exercise ~~average~~price ~~contractual~~will ~~term~~be atdetermined ~~December~~by ~~31,~~a ~~2021~~5-day isVWAP 4price calculation on the exercise date.61

* The ~~exercise~~weighted ~~price~~average contractual ~~will~~term beas ~~determined by a 5-day VWAP price calculation on the exercise date. As~~ of ~~the~~December ~~date of this report~~31, ~~approximately 418~~2022,~~931~~ ~~warrants have been exercised into 220,754 shares of the Company’s common stock~~is 3.6 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 4,576,731 warrants through December 31, 2022. The Company has recorded on the consolidated balance sheets, accrued liabilities, approximately $0.25 million of accrued registration rights penalties and interest.

In connection with the sale of 500,000,000 shares of common stock to Investors on October 18, 2022, the Company granted an aggregate of 1,000,000,000 warrants to purchase common stock. The warrants issued consisted of warrant 1 to acquire 500,000,000 shares of common stock and warrant 2 to acquire 500,000,000 shares of common stock. The terms of Warrant 1 and Warrant 2 permit the holder 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. As discussed above in Private Placement Agreement, if the Company does not file a registration statement declared effective by the SEC by the Registration Deadline, Warrant 3 will be issued to each Investor for the right to acquire the number of Additional Shares issued to the Investor for failure to meet the Registration Deadline.

The additional shares and Warrant 3 will be issuable for each 30-day period, or portion thereof, that the registrable securities have not become effective. As of May 31, 2023, the Company is obligated to issue an additional 271 million shares of common stock and warrant 3 to purchase an additional 271 million shares of common stock.

F-28

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Prefunded Warrants

In connection with the Company’s merger with TTM Digital in April 2021 three TTM Digital shareholders accepted prefunded warrants aggregating the right to receive 12,361,622 shares of Company stock. The prefunded warrants were converted to common stock of the Company during the quarter ended March 31, 2022. In addition, a Company debt holder agreed to convert certain of the Company obligations to a fully paid right to receive 3,000,000 shares of Company stock. As the rights to receive shares have been fully paid by the holders, the rights to receive the shares are considered to be issued for the purpose of determining Company Basic shares outstanding. The activity for the Prefunded warrants during the twelve months ended December 31, 2022 is shown in the table below:

	Prefunded Warrants
Outstanding, January 1, 2022		15,361,622
New issuances		-
Exercised		12,361,622
Outstanding, December 31, 2022		3,000,000

Restricted Stock Units

The following table represents the activity related to the Company’s restricted stock awards granted to employees and directors during the ~~year~~twelve ~~ended~~months ended December 31, ~~2021~~2022:

	Number of Restricted Stock Shares		Weighted Average ~~Exercise~~Grant ~~Price~~Date Fair Value
Outstanding, January 1, 2021		-		-
Outstanding, January 1, 2022		1,100,000	$	0.48
Granted		~~1,650,000~~-	$	~~0.40~~-
Vested		~~650~~1,100,000		-0.40
Unvested, December 31, 2021		1,000,000	$	0.40
Unvested, December 31, 2022		-	$	-

The ~~unrecognized~~Company recognized approximately $0.1 million of stock-based compensation atfor the year ended December 31,~~2021~~ ~~is $0~~2022.~~2 million.~~

~~F-32~~Share Derivative Liabilities

As the amount of common stock on an as converted basis as of December 31, 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 December 31, 2022 (dollars in thousands):

	December 31, 2022
Warrants	$	272
Stock options		1
Total share derivative liability	$	273

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.

F-29

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

~~Note~~The Company 16has —included ~~Commitments~~below certain data points that are reported in the financial statements (“as stated”) and ~~Contingencies~~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:
12/31/2022		2,484,501,880		2,484,502
12/31/2021		145,713,591		145,714
Shares Outstanding:
12/31/2022		2,484,426,501		2,484,427
12/31/2021		145,638,212		145,638

Treasury Stock:		75,379		75

		Year Ended December 31,
EPS		2022			2021
Weighted Average Shares
Outstanding – basic and diluted	As stated		843,858,474			139,061,084
	Proforma		843,858			139,061

Net income (loss) per share:
Continuing operations	As stated		(0.010	)		(0.38	)
	Proforma		(10.00	)		(38.00	)

Discontinued Operations	As stated		(0.004	)		0.02
	Proforma		(4.00	)		20.00

Note 12 — Commitments and Contingencies

Contractual Commitments

~~On September~~Settlement 5,Agreements 2017, prior to the merger and as a result of a spinoff from Sysorex’s previous parent, a computer hardware supplier threatened legal action against the Company and demanded approximately $1.8 million for payment of unpaid invoices. On or about January 29, 2018, the parties executed a settlement agreement resolving the matter. No court action was filed. Subsequently thereafter, the Company defaulted under the terms of the agreement. The liability of approximately $0.6 million has been accrued and includes interest $0.007 million calculated based on a default rate of 8%, which is included as a component of accounts payable and accrued liabilities as of December 31, 2021, in the Consolidated Balance Sheets.

On ~~January~~ 22September 5, ~~2018~~2017, aprior to ~~software~~the ~~vendor~~merger ~~filed~~and as a ~~motion~~result ~~for entry~~ of ~~default~~a ~~judgment~~spinoff ~~(the~~from ~~“Motion”)~~Sysorex’s ~~against~~previous ~~SGS in the Circuit Court of Fairfax County~~parent, ~~Virginia. The Motion alleges that SGS failed to respond to~~ a ~~complaint~~computer ~~served~~hardware onsupplier ~~November~~threatened ~~22,~~legal ~~2017. The Motion~~action ~~requests~~against athe ~~default~~Company ~~judgment~~and indemanded ~~the~~approximately ~~amount of~~ $~~336,000~~1.8 ~~plus~~million ~~$20,000~~for inpayment ~~legal~~of ~~fees~~unpaid invoices. On ~~August~~or 10about January 29, 2018, the ~~Company and vendor entered into~~parties executed a settlement agreement ~~and~~resolving the ~~Company~~matter. isNo ~~repaying~~court ~~the~~action ~~debt~~was ~~in monthly installments~~filed. Subsequently thereafter, the Company defaulted ~~under~~ under the terms of the agreement. The liability of approximately $0.17 million has been accrued and includes interest $0.~~001~~2 million calculated based on a default rate of 68%, ~~and~~which is included as a component of accounts payable and accrued liabilities as of December 31, ~~2021~~2022, in the Consolidated Balance Sheets.

~~The~~On ~~Company~~January ~~entered~~22, ~~into~~2018, a ~~Registration Rights Agreement (the “RRA”)~~software ~~dated~~vendor ~~April~~filed ~~13,~~a ~~2021.~~motion ~~The~~for ~~Company~~entry ~~had~~of ~~ninety~~default judgment (90the “Motion”) ~~calendar~~against ~~days~~SGS ~~following~~in the ~~closing~~Circuit ~~date~~Court of ~~its~~Fairfax ~~Merger with TTM Digital Assets & Technologies~~County, ~~Inc~~Virginia. The onMotion ~~April~~alleges ~~14,~~that ~~2021,~~SGS failed to ~~file~~respond anto ~~initial~~a ~~registration~~complaint ~~statement~~served ~~covering~~on ~~the~~November ~~Shares~~22, 2017. The ~~ninety~~Motion ~~(90)~~requests ~~calendar~~a ~~day~~default ~~filing~~judgment in the ~~date~~amount ~~was~~of ~~July~~$336,000 13plus $20,000 ~~2021~~in ~~(“Filing~~legal ~~Deadline”)~~fees. ~~The~~On ~~Company~~August ~~did~~10, ~~not~~2018, ~~fulfil~~the ~~its~~Company ~~obligation~~and tovendor ~~file~~entered into a ~~registration~~settlement ~~statement~~agreement ~~covering~~ and the Company ~~Shares~~is byrepaying ~~July~~the ~~13,~~debt ~~2021,~~in ~~nor~~monthly ~~any~~installments. ~~date~~Subsequently thereafter, upthe toCompany ~~and~~defaulted ~~including~~under the ~~filing~~terms of ~~this~~the ~~Annual~~agreement. The ~~Report~~liability onof ~~Form~~approximately ~~10-K~~$0.2 ~~and~~million ~~therefore~~ has ~~accounted~~ ~~for~~been an accrued ~~liability~~and inincludes ~~the~~interest ~~amount of~~ $0.21 million ~~recorded~~calculated inbased ~~the~~on ~~Consolidated~~a ~~Balance~~default ~~Sheets~~rate –of 6% ~~Accrued~~and ~~Liabilities for~~is ~~the~~included ~~year~~as ~~ended~~a ~~December~~component ~~31,~~of ~~2021.~~accounts ~~The~~payable ~~RRA~~and ~~terminated~~accrued liabilities as of ~~October~~December 1431, ~~2021~~2022, byin ~~its~~the ~~own~~Consolidated ~~terms~~Balance Sheets.

~~The~~Registration ~~Company,~~Rights 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.Agreement

OnThe ~~December 14, 2021, the~~ Company ~~became~~entered ~~aware that~~into a ~~Confession~~Registration ofRights ~~Judgment~~Agreement (the “~~Confession of Judgment~~RRA”) dated ~~had~~April ~~been~~13, ~~entered~~2021. ~~against~~The ~~the~~ Company inhad ninety (90) calendar days following the ~~Superior~~closing ~~Court~~date of its Merger with TTM Digital Assets & ~~the~~Technologies, ~~State~~Inc. ofon ~~California~~April 14, ~~County~~2021, ofto ~~Santa~~file ~~Clara~~an byinitial ~~Tech~~registration ~~Data~~statement oncovering ~~September~~the 24Shares. The ninety (90) calendar day filing date was July 13, 2021 (“Filing Deadline”). The ~~Confession~~Company ofdid ~~Judgement~~not isfulfil ~~entered~~its ~~for~~obligation to file a ~~total~~registration statement covering ~~sum~~the ofShares $5by July 13,~~942~~ 2021,~~559.05,~~ ~~which~~nor isany ~~comprised~~date ofthereafter ~~the~~up ~~principal~~to ~~sum~~and including the filing of ~~$3,341,801.80~~this Annual Report on Form 10-K and ~~prejudgment~~therefore ~~interest~~has accounted for an accrued liability in the ~~sum~~amount of $0.2 million recorded in the Consolidated Balance Sheets – Accrued Liabilities for the year ended December 31,~~600~~ 2022. The RRA terminated as of October 14,~~757~~ 2021, by its own terms.~~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 was paid $1,375,000.00 (the “Settlement Amount”) on January 14, 2022. 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. The vendor liability of $2,908,133 is recorded in the Consolidated Balance Sheets – Accounts Payable as of December 31, 2021. As a result of the January 14, 2022, settlement of $1,375,000 noted above, the Company will recognize a gain on the settlement of $1,533,133, which will be reported in the first quarter 2022.F-30

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Promissory Judgement

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 $6.8 million 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 $3.3 million as of December 31, 2021, as set forth in the Note and has defaulted under the Note.

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 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.

Convertible Debenture Litigation

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 approximately $0.2 million is recorded in the consolidated balance sheets – accrued liabilities for the period ended December 31, 2022. The notice of conversion to convert its convertible debt to shares of the Company’s stock will be honored.

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.

The following is a summary of the activity in the Company’s current and long-term operating lease liabilities for the years ended December 31, ~~2021~~2022, and ~~2020~~2021:

	Year Ended December 31,
	2021			2020
	2022			2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	-		$	-
Leased assets obtained in exchange for new and modified operating lease liabilities	$	(~~558~~487	)	$	-(558	)
Leased assets surrendered in exchange for termination of operating lease liabilities	$	-		$	-

F-3331

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, ~~2021~~2022, future minimum operating leases commitments are as follows:

Calendar Years ending December 31,	Amount
2022	$	123
2023	$	216
2023		214
2024		222
2024		219
2025		95
2025		92
Total future lease payments		533
Total future lease payments		648
Less: interest expense at incremental borrowing rate		(45	)
Less: interest expense at incremental borrowing rate		(90	)
Net present value of lease liabilities	$	487
Net present value of lease liabilities	$	558

Other assumptions and pertinent information related to the Company’s accounting for operating leases are:

Weighted average remaining lease term:			34.418 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. See Contractual Commitments above, for disclosure of the settlement agreement. ~~There are no pending legal proceedings to which the Company is a party to.~~

~~F-34~~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 consolidated balance sheets – accrued liabilities for the year ended December 31, 2022. The notice of conversion to convert its convertible debt to shares of the Company’s stock will be honored.

F-32

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 13 17 — Related Party Transactions

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

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 of such interest expenses for the year ended December 31, 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). For ~~The~~the twelve months ended December 31, 2022, the Company recorded $~~194~~129,~~000~~ 334 in ~~hosting~~mining costs ~~for~~within discontinued operations on the ~~year~~statement ~~ended~~of ~~December~~operations. 31The Company terminated the Hosting Facilities Services Order effective June 30, ~~2021~~2022.

Services Agreement

The initial term of the Services Agreement runs from April 1, 2021, through December 31, 2022, and automatically renews thereafter for successive one (1)-year terms unless either party provides written notice to the other of nonrenewal within sixty (60) days of the expiration of the then current Term. The initiation of the Services Agreement required a one-time payment of $100,000. The monthly base management fee was set to $20.00 per GPU-based Mining System (approximately $20,000 per month), and $6.50 per ASIC-based Mining System. Base management fees are paid in arrears and due within fifteen (15) days of invoice receipt. If, during any calendar month of the Term, CoreWeave operates on average, more than 1,500 Mining Systems on behalf of the Company, the Base Management Fee with respect to the excess Mining Systems above 1,500 is discounted by 40%. ~~The~~ For the twelve months ended December 31, 2022, the Company recorded $~~215~~143,~~460~~640 in mining costs ~~for~~within discontinued operations on the ~~year~~statement ~~ended~~of ~~December~~operations. The 31Company terminated the Service agreement effective June 30, ~~2021~~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 $105,000 and in service costs for the year ended December 31, 2021. Effective February 24, 2022, the master services agreement has been terminated.

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. First Choice’s owner is a shareholder in 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.

~~F-35~~BK Consulting Group, LLC

On September 24, 2021, the Company entered into a Business Advisory Consulting Agreement (the “Consulting Agreement”) with BK Consulting Group, LLC ("BK Consulting"). The President of BK Consulting, Brian Kantor, is a beneficial owner in the Company as disclosed in the beneficial owner table. The Company paid BK Consulting an upfront flat fee of $300,000 with a service period term from September 24, 2021 through March 23, 2022 for consulting services. In connection with this fee, the Company expensed $160,000 through December 31, 2021 and $140,000 in 2022. In November 2021, the Company entered into the First Amendment to Consulting Agreement (“Amendment 1”) in which the Company agreed to pay BK Consulting an additional $300,000 for consulting services, extending the service period term and additional 3 months to June 23, 2022. The Company recorded $75,000 of this additional fee in 2021, and $225,000 in 2022 over the extended service period. In May 2022, the Company entered into an additional term extension on the initial services provided in the Consulting Agreement (“Amendment 2") through June 3, 2022, for which an additional $50,000 was paid and expensed for services provided in May 2022. During 2021, the Company expensed in total $235,000 relating to the Consulting Agreement and Amendment 1. During 2022, the Company expensed in total $415,000 relating to the Consulting Agreement, Amendment 1 and Amendment 2.

F-33

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ViewTrade Securities, Inc.

On February 8, 2022, the Company entered into an Advisory Services Agreement (the “Agreement”) with ViewTrade Securities, Inc. (“Advisor”) whereby the Advisor will assist the Company and provide services that will contribute to the overall growth of the Company. ViewTrade and its owner Brian Herman are shareholders in the Company. The term of the engagement is six months and may be extended by mutual agreement of the parties. In consideration of the services, the Company paid an Advisory Fee in an amount equal to 6,000,000 restricted common shares (the “Fees) and the Fees shall be deemed fully earned upon execution of the Agreement. As of December 31, 2022, the Company recorded a value of the stock of $240,000, which included $239,940 of additional paid in capital and $60 par value.

Bespoke Growth Partners, Inc. (“Bespoke”)

Effective April ~~July 13~~1, ~~2020~~2021, the Company entered into a consulting agreement with Bespoke. ~~Subsequently, on January 13, 2021, the Company and~~ Bespoke’s ~~agreed~~owner tois ~~enter~~a ~~into~~shareholder anin ~~Expansion~~the ~~Agreement~~Company. In ~~Pursuant~~connection towith the ~~expansion~~consulting agreement, the Company ~~issued~~agreed to ~~Bespoke 250~~issue 5,~~000~~ 589,820 shares of ~~restricted~~ common stock, of which 20 5,250,000 were ~~earned~~ aslater ofexercised ~~the~~for ~~effective~~pre-funded ~~date~~warrants, of ~~the original agreement and 230~~which 5,250,000 ~~which~~ were ~~earned~~unexercised as ~~a result~~ of ~~the~~December ~~expansion~~31, ~~agreement~~2021. The ~~issuance~~pre-funded warrants ofwere ~~the~~subsequently ~~shares~~exercised ~~was~~on ~~included~~January ~~within~~21, ~~the~~2022. ~~Sysorex~~The ~~Recapitalization~~Company ~~shares~~recognized an expense associated with the ~~Merger~~share onissuance ~~April~~totaling 14approximately $1, ~~2021~~884,888.

Effective as of April 115, 2021, the Company entered into a consulting agreement with Bespoke. Under Inthe ~~connection~~terms ~~with~~of the consulting agreement, the Company agreed to ~~issue~~total ~~5,589,820~~compensation ~~shares~~for services of ~~common stock~~$975,000 which of which 5$775,~~250,~~000 ~~were~~was ~~later~~paid ~~exercised~~during ~~for~~the ~~pre-funded~~year ~~warrants~~ended December 31, 2021. The ofCompany ~~which~~made ~~5,250,000~~an ~~were~~additional ~~unexercised~~payment asin ofaccordance ~~December~~with 31the agreement of $200,000 in ~~2021~~January 2022. The Company expensed ~~pre-funded~~this ~~warrants~~advisory ~~were~~fee ~~subsequently~~during ~~exercised~~the ontwelve ~~January~~months 21ended December 31, 2022., ~~The~~which ~~Company~~is ~~recognized~~recorded anas ~~expense~~consultant ~~associated~~fees ~~with~~in ~~the~~general ~~share~~and ~~issuance~~administrative ~~totaling~~operating ~~approximately~~costs $1in the consolidated statement of operations. As of June 30,~~884~~ 2022,~~888~~ the Bespoke consulting agreement has expired.

Effective as of ~~April~~January 1513, ~~2021~~2022, the Company entered into a consulting agreement with Bespoke. Under the terms of the consulting agreement, the Company ~~incurred~~is anto ~~expense~~pay ofBespoke ~~approximately $738,221 and paid~~ a ~~total~~gross ~~amount~~advisory fee of $975,000 for ~~during~~identifying the ~~year~~Ostendo ~~ended~~acquisition ~~December~~and ~~31,~~services ~~2021.~~related Into ~~addition, in accordance with~~ the ~~terms~~Company. On ofMarch ~~the~~23, ~~consulting agreement~~2022, the Company ~~made~~paid anoff ~~additional~~the ~~payment~~balance ofowed ~~$200,000~~for inthis ~~January~~service. ~~2022~~The ~~for~~Company ~~consulting~~expensed ~~services~~the ~~for~~advisory fee during the ~~period~~twelve ofmonths ended ~~January~~December 1531, 2022, ~~through April~~which ~~14,~~is ~~2022.~~recorded ~~Lastly,~~as ~~the~~consultant ~~Company~~fees ~~may~~in ~~request~~general ~~Bespoke~~and toadministrative ~~expand~~in ~~its~~the ~~services~~consolidated statement of operations.

Effective as of January 13, 2022, the Company entered into a consulting agreement with Bespoke. Under the terms of the consulting agreement, the Company is to pay Bespoke a gross advisory fee of $975,000. On March 23, 2022, the Company paid off the balance owed for this service.

Ressense LLC

On August 4, 2021, the Company executed a six (6) month business advisory services agreement with Ressense LLC. Ressense’s owner is a shareholder in the Company. The services to be provided include potential business activities including acquisition, merger and reverse merger opportunities. As compensation for the performance of services, the Company paid and recorded $~~125~~25,000 through ~~for~~January ~~the~~31, 2022, ~~year~~as ~~ended~~consultant ~~December~~fees ~~31,~~in ~~2021~~general and administrative in the consolidated statement of operations. The business advisory services agreement expired January 31, 2022.

One Percent Investments, Inc.

On June 21, 2022, the Company executed a four (4) month business advisory services agreement with One Percent Investments, Inc. The owner of One Percent is a shareholder in the Company. 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 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 $125,000 of expense during the year ended December 31, 2022, which is recorded as consultant fees in general and administrative operating costs in the consolidated statement of operations.

F-34

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Employment Agreements

On August 10, 2022, the Company entered into Amendment No. 2 (“Amendment No. 2”) to Employment Agreement, by and between the Company and Vincent Loiacono, the Company’s Chief Financial Officer. Pursuant to the terms of Amendment No. 2, the parties amended the termination provisions of the original employment agreement, as amended. Amendment No. 2 provides that the Company, in its sole discretion, may terminate Mr. Loiacono’s employment for any reason without Just Cause (as defined in the employment agreement, as amended) at any time. If (a) the Company terminates Mr. Loiacono’s employment without Just Cause, or (b) within 24 months following a change of control, Mr. Loiacono resigns as a result of and upon a material diminution of his duties, responsibilities, authority, and position, or a material reduction of his compensation and benefits, or if he ceases to hold the position of Chief Financial Officer after a change of control, the Company will, among other things: (l) continue to pay Mr. Loiacono’s base salary for one month for every two months of employment after the effective date up to a maximum of 12 months (as opposed to six months under the original agreement, as amended); and(2) within 45 days of termination or resignation, pay to Mr. Loiacono 100% of the value of any accrued but unpaid bonus. Except as set forth in Amendment No. 2, the original employment agreement, as amended, remains in full force and effect.

On September 9, 2022, the Company entered into Second Amendment to the Employment Agreement for Wayne Wasserberg, the Company’s Chief Executive Officer. The Second Amendment provides a minimum bonus of $100,000 for achievement of the bonus milestone. The bonus milestone is based upon the following:

The sale of all or substantially all of the stock or assets of: (i) TTM Digital, or (ii) Sysorex Government Services.

The raising of five million dollars in financing by or before December 31, 2022, in one transaction or a series of related transactions.

Accrued Salaries and Bonuses

As of December 31, 2022, officers of the Company, Zaman Khan and Vincent Loiacono deferred bonuses of $90,000 and $75,000 respectively. As of December 31, 2022, the Company recorded $318,000 of severance and bonus as part of the CTO’s termination package.

Style Hunter, Inc.

On September 26, 2021, the Company acquired a 5% minority interest in Style Hunter, Inc. (“Hunt”). The owner of Style Hunter is a shareholder in the Company. 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”)~~As ~~on or before the 360-day anniversary~~ of ~~Closing~~December ~~Date~~31, as2022, ~~follows: (i) if~~ the ~~Buyer~~Company ~~exercises~~recorded ~~its~~an ~~Option~~impairment ~~prior~~charge ~~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~~5 ~~(a $10~~million,~~000,000~~ ~~Company~~which ~~valuation),~~is ~~(ii)~~recorded ifas ~~the~~an ~~Buyer~~impairment ~~exercises its Option after the 90-day anniversary~~ of ~~Closing~~investments ~~Date,~~in ~~but prior to~~ the ~~180-day~~statement ~~anniversary~~ of ~~Closing~~operations ~~Date,~~as ~~the Option Price will be $1.22200 (a $15,000,000~~disclosed ~~Company~~in ~~valuation),~~Note or5 ~~(iii)~~Discontinued ~~if the Buyer exercises its option after the 180-day anniversary of Closing the Option Price will be $2~~Operations.~~03670 (a $25,000,000 Company valuation).~~

~~Note~~Omniverse, ~~18 — Subsequent Events~~LLC

On April 3, 2023, the Company entered into a Stock Purchase Agreement (the “Agreement”) with Omniverse LLC (“Omniverse”), whereby the Company agreed to sell to Omniverse 136,667 shares of Series C-7b Preferred Stock of Ostendo Technologies, Inc. The owner of Omniverse is a shareholder in the Company. The Agreement requires Omniverse to pay the Company a purchase price consisting of $182,000 and other valuable consideration in the form of consulting services of approximately $1.0 million. The Company retained 30,000 shares of the investment in Ostendo. As of December 31, 2022, the Company has recorded $1.4 million in the Consolidated Balance sheets as equity investment in Ostendo.

F-35

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 14 — Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following as of December 31, 2022, and 2021:

	December 31, 2022		December 31, 2021
Consultants	$	-	$	565
Rent		-		17
Vendor Payments		16		-
Insurance		-		162
License and Maintenance Contracts		622		658
	$	638	$	1,402

Note 15 — Income Taxes

The income tax provision (benefit) for the year ended December 31, 2022, consists of the following (in thousands of dollars):

Net loss before income tax is as follows (in thousands):

	Year ended December 31, 2022

Net loss before income tax	$	(8,609	)

Income tax expense (benefit) consists of the following:

	Year ended December 31, 2022
U.S. Federal
Current	$	39
Deferred		(2,062	)
State and Local
Current		9
Deferred		92
		(1,922	)
Change in Valuation Allowance		1,969
Total income tax provision (benefit)	$	47

F-36

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

~~Proposed~~The reconciliation ~~TTM~~between ~~Asset~~the U.S. statutory federal income tax rate and the Company’s effective rate for the year ended December ~~Sale~~31, 2022, is as follows:

On March 24, 2022, the Company executed Heads of Terms (“Heads of Terms”) with Ostendo Technologies, Inc. (“Ostendo”) which includes 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 approximately 75% of its Ethereum mining assets and certain associated real property (“TTM Assets”) to Ostendo for $68,400,000 of Ostendo preferred stock (“Purchase Price”). The TTM Assets to be sold will not include the Company’s Ether funds generated prior to and held at Closing (as hereinafter defined) and any graphics processing units or associated assets maintained and operated by the Company at a co-located facility in North Carolina. The definitive terms of the sale of TTM Assets will be set forth in definitive transaction agreements (the “Definitive Documentation”) to be executed by the parties.

	Year ended December 31, 2022

Pretax Income		14.9	%
State taxes, net of federal benefit		2.2	%
Federal and state rate change and other		-5.4	%
Transaction costs		-1.3	%
Extinguishment of debt		-0.4	%
Other permanent items		2.4	%
Embedded Derivative		3.4	%
Change in valuation allowance		-16.2	%

Effective income tax rate		-0.4	%

~~The~~As ~~Purchase Price shall be comprised~~ of ~~the~~December ~~issuance to the Company of 7~~31,~~125,000~~ ~~fully paid~~2022, ~~non-assessable shares of Ostendo preferred stock valued at $68,400,000 (“Shares”). The Shares shall be of a newly created series of preferred stock. The Shares shall not be transferable by~~ the Company and may not be distributed by dividend or otherwise by the Company until such time as the earlier of the following shall occur: (i) Ostendo completes an underwritten initial public offering of its common stock pursuant to a registration statement under the Securities Act of 1933, as amended, or similar law of a foreign jurisdiction, (ii) Ostendo’s ~~outstanding~~deferred ~~shares of~~tax ~~capital~~assets ~~stock~~consisted are exchanged for or otherwise converted into securities that are publicly listed, pursuant to a transaction governing such exchange or conversion, on a national securities exchange, including through a merger (including a reverse merger), acquisition, business combination or similar transaction, in one transaction or series of ~~related~~the ~~transactions,~~effects ~~and including a transaction or series~~ of ~~related~~temporary ~~transactions~~differences ~~involving~~attributable a vehicle commonly known as a special purpose acquisition company (SPAC) (“Public Listing”), (iii) a “change in control” event with at least 50% plus 1 share of Ostendo’s issued and outstanding capital stock being sold to ~~an unaffiliated third-party, or (iv) Ostendo undergoing a liquidity or other event that necessitates~~ the ~~transfer of the Shares~~following (~~each,~~in athousands ~~“Transfer Event”). Upon the occurrence~~ of ~~a Transfer Event, the Company shall have the right to transfer the Shares.~~dollars):

Additionally, pursuant to the Heads of Terms, the Company paid on March 23, 2022, 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, which will be of the same series as the Shares and will have the same terms (“Purchased Shares”). The Purchased Shares will be issued to the Company at closing and at the same time the other Shares are issued in accordance with a standard securities purchase agreement. In the event the sale of the Assets does not occur, Ostendo has agreed to issue the Purchased Shares within five (5) business days of the parties’ mutual agreement that the Closing will not occur. Failure to issue the Purchased Shares in the subject time frame will result in a “share delivery failure” and the obligation of Ostendo to immediately refund the full Deposit amount. The Deposit will not be held in escrow and may be used by Ostendo for working capital.

	December 31, 2022			December 31, 2021 (As Restated)
Deferred tax assets:
Net operating loss carry forwards	$	7,888			$            3,501
Fixed assets		965			1,126
Accrued compensation		143			40
Reserves		621			504
Intangible assets		2,969			3,053
Business interest limitation		662			727
Lease Liabilities		113			142
Tax Credits		-			211
Loss Contingency		32			1,937
Other		669			181
Total deferred tax assets before valuation allowance		14,062			11,422

Valuation allowance		(13,967	)		(11,280	)
Total deferred tax assets after valuation allowance		95			142

Deferred tax liabilities:
Operating lease right of use assets		(95	)		(142	)
Total deferred tax liabilities		(95	)		(142	)

Net deferred tax assets and liabilities	$	-		$	-

~~The Closing of the Asset~~Prior ~~sale transaction (the “Closing”) shall occur, subject~~ to the ~~satisfaction~~merger or(as ~~waiver~~discussed ~~of the Closing conditions set forth~~ in ~~Definitive~~Note ~~Documentation no later than May 24~~1), ~~2022, unless mutually extended in writing by~~ the ~~parties,~~Company ~~subject~~was toa ~~the~~Partnership ~~parties’ meeting~~for ~~certain~~US ~~Closing~~Income ~~conditions~~Tax topurposes beand ~~agreed~~therefore ~~upon~~had inno ~~the~~provision ~~Definitive~~for ~~Documentation. Notwithstanding the foregoing, the Definitive Documentation~~income ~~shall~~tax ~~also~~as ~~include an outside date that is not more than three (3) months after the date~~ of ~~the~~December ~~execution~~31, ~~thereof~~2020. ~~unless~~Subsequent ~~mutually~~to ~~extended in writing by~~ the ~~parties~~merger ~~to allow~~ the ~~parties~~entity tobecame ~~obtain~~a ~~regulatory~~taxable ~~approvals, required consents, and shareholders approvals~~entity.

The ~~Definitive~~Company ~~Documentation~~had approximately ~~will~~$32.1 ~~include~~million ~~certain~~and ~~other~~$15.2 ~~terms~~million of U.S. federal net operating loss (“NOL”) carryovers available to offset future taxable income at December 31, 2022 and ~~conditions~~December ~~which~~31, ~~are~~2021, ~~customary~~respectively. The Company had approximately $19.3 million and $13.2 million of state NOL carryovers available to offset future taxable income at December 31, 2022 and December 31, 2021, respectively. The U.S. federal NOL’s generated in ~~asset~~2022 ~~sale~~do not expire and ~~real~~have ~~property~~an ~~sale~~indefinite ~~agreements~~life. State NOLs begin to expire at various dates beginning in 2038.

~~Convertible~~The future ~~Debenture~~utilization of federal net operating loss carryforwards generated after 2017 is limited to 80% of taxable income. An additional ~~Conversion~~limitation applies to the use of federal net operating loss and credit carryforwards, under Section 382 of the Internal Revenue Code of 1986, as amended, that is applicable if the Company experiences an “ownership change.” The Company completed a 382 study and determined that there was a change in ownership on April 14, 2021, which limits their NOL and Section 163(j) carryforwards. The resulting Section 382 limitations are not expected to materially impact the Company’s ability to utilize carryforwards as NOLs and 163(j) should be available for utilization before expiration assuming sufficient future taxable income. Future changes in the ownership of the Company could further limit the Company’s ability to utilize its NOLs and credits.

Through April 12, 2022, convertible debenture holders have converted approximately $2.3 million of debt owed to them into approximately 125.6 million shares of the Company’s common stock.

F-37

SYSOREX, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing the realization of deferred tax assets, management considers whether it is “more likely than not”, that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible.

ASC 740, “Income Taxes” requires that a valuation allowance be established when it is “more likely than not” that all, or a portion of, deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. After consideration of all the information available, management believes that uncertainty exists with respect to future realization of its deferred tax assets and has, therefore, established a full valuation allowance as of December 31, 2022. As of December 31, 2022, the net change in valuation allowance was $2.6 million.

The Company’s policy for recording interest and penalties associated with unrecognized tax benefits is to record such interest and penalties as interest expense and as a component of general and administrative expense, respectively. There were no amounts accrued for interest or penalties for the year ended December 31, 2022. Management does not expect any material changes in its unrecognized tax benefits in the next year.

Note 16 — OTC Status

The Company announced, effective November 25, 2022, its common shares are quoted on OTC Market’s Pink current information tier, in lieu of the OTCQB, due to the minimum bid price requirement for the OTCQB. The Company continues to trade its shares in the OTC Market, Pink Tier.

Note 17 — Subsequent Events

Equity, Private Placement Agreement

As discussed in Note 11 – Equity, Private Placement Agreement, on October 18, 2022, the Company sold to investors an aggregate of 500 million shares of common stock along with warrants 1 and 2 to each acquire an additional 500 million shares of common stock. Pursuant to the terms of the agreement, 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, the Company agreed to issue each investor a number of additional shares of common stock equal to 10% of the purchased shares acquired by each investor and a third warrant equal to the number of additional shares. The Company was unable to have the registration statement become effective by January 16, 2023, 90 days past October 18, 2022. As a result, the additional shares and warrant 3 will be issuable for each 30-day period, or portion thereof, that the registrable securities have not become effective. As of May 31, 2023, the Company is obligated to issue an additional 271 million shares of common stock and warrant 3 to purchase an additional 271 million shares of common stock.

Stock Purchase Agreement

On April 3, 2023, the Company entered into a Stock Purchase Agreement (the “Agreement”) with Omniverse LLC (“Omniverse”), whereby the Company agreed to sell to Omniverse 136,667 shares of Series C-7b Preferred Stock of Ostendo Technologies, Inc. The Agreement requires Omniverse to pay the Company a purchase price consisting of $182,000 and other valuable consideration in the form of consulting services of approximately $1.0 million. The Company retained 30,000 shares of the investment in Ostendo. As of December 31, 2022, the Company has recorded $1.4 million in the Consolidated Balance sheets as equity investment in Ostendo.

Furnishing of Information: Public Information

As required under the Securities Purchase Agreement, disclosed in Note 8 Short Term debt, with the convertible debenture holders thereunder, the Company is required to timely file its Annual Report, Form 10K and Quarterly Report Form 10Q under the Securities and Exchange Act and in order to satisfy the provisions of Rule 144(c). As of March 31, 2023, the Company was unable to meet its filing requirements deadlines, therefore, the Company has incurred partial liquidated damages of approximately $ 0.6 million. Damages will continue to accrue until the date on which the public information requirements of Rule 144(c) have been satisfied.

F-38

ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A: CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed with the objective of providing reasonable assurance that information required to be disclosed in our reports filed under the Exchange Act, ~~such as this Annual Report on Form 10-K~~ is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including ~~our~~ our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In ~~designing~~ designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of December 31, ~~2021~~2022, the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-~~15(e)~~15e and 15d-15(e). This type of evaluation is performed on a quarterly basis so that conclusions of management, including our Chief Executive Officer and Chief Financial Officer, concerning the effectiveness of the disclosure controls can be reported in our periodic reports on Form 10-Q and Form 10-K. The overall goals of these evaluation activities are to monitor our disclosure controls and to modify them as necessary. We intend to maintain the disclosure controls as dynamic systems that we adjust as circumstances merit. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, ~~2021~~2022, due to the material weaknesses described below.

On May 17, 2022, subsequent to the evaluation as of December 31, 2021, management, in agreement with the audit committee of the Company’s Board of Directors, determined that the previously issued financial statements for the Affected Periods should no longer be relied upon and required restatement. As previously disclosed in the Company’s Current Report on Form 8-K filed on May 17, 2022, with the SEC, on May 17, 2022, the Company’s management determined that its prior conclusion that the “conversion feature” of the Debentures qualified for equity classification and, therefore, qualified for the application of the guidance in ASU 2020-06 was incorrect. Management determined that the conversion feature was a liability classified derivative under ASC 815-40, Derivatives and Hedging – Contracts in Entity’s Own Equity from the inception requiring recognition at fair value for each reporting period. See “Item 1A, Risk Factors—Risks Relating to Our Business - “We have material weaknesses in our internal control over financial reporting.”

Management’s Report on Internal Control over Financial Reporting

Our principal executive officer and principal financial officer are responsible for establishing and maintaining internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

	●	pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

	●	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of management and our directors; and

	●	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Management has used the 2013 framework set forth in the report entitled “Internal Control—Integrated Framework” published by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021. Based on this evaluation, management has concluded controls were not effective as of December 31, 2021, due to identified material weaknesses in internal control over financial reporting. A material weakness is a control deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses identified is disclosed below:32

1)Management ~~The~~has ~~Company~~used ~~does~~the ~~not~~2013 framework ~~have~~set aforth ~~formal~~in ~~top-down~~the ~~risk~~report ~~assessment~~entitled ~~process~~“Internal Control—Integrated Framework” published by the Committee of Sponsoring Organizations of the Treadway Commission to ~~identify~~evaluate ~~significant~~the ~~process~~effectiveness ~~areas~~of the Company’s internal control over financial reporting as of December 31, ~~underlying~~2022. ~~key~~Based on this evaluation, management has concluded controls were not effective as of December 31, ~~and~~2022, ~~nor~~due ~~does~~to identified ~~the~~material ~~Company~~weaknesses ~~have~~in internal control over financial reporting. A material weakness is a ~~monitoring~~control ~~process~~deficiency, inor ~~place~~a tocombination of ~~monitor~~deficiencies, in internal ~~controls~~control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses identified is disclosed below:

2)1. The Company ~~did~~does not ~~properly~~have ~~design~~a orformal ~~maintain~~top-down ~~effective~~risk ~~entity~~assessment ~~level~~process ~~monitoring~~or ~~controls~~cyber ~~over~~risk ~~the~~assessment ~~financial~~to ~~close~~identify ~~and~~significant ~~reporting~~ process. ~~The Company’s controls surrounding the review of financial statements~~areas, ~~vendor~~underlying ~~agreements, and~~ key ~~reconciliations~~controls, ~~were not designed~~ and ~~did~~nor ~~not~~does ~~operate~~the atCompany have a ~~level~~monitoring ofprocess ~~precision~~in ~~that~~place ~~would~~to ~~prevent~~monitor orinternal ~~detect~~controls aover ~~material~~financial ~~misstatement~~reporting.

3)2. The Company did not properly design ~~and~~or ~~implement~~maintain ~~appropriate~~effective ~~user~~entity ~~access~~level monitoring controls toover ~~ensure~~the ~~segregation~~financial ofclose ~~duties~~and ~~that~~reporting ~~would~~process. ~~adequately~~The ~~restrict~~Company’s ~~user~~controls ~~access~~surrounding tothe ~~financially~~review ~~significant~~of ~~information~~financial ~~systems~~statements, ~~and~~vendor ~~schedules~~agreements, ~~specifically~~key ~~surrounding~~reconciliations ~~mining~~and ~~revenue~~accounting for complex transactions were not designed and ~~mining~~did ~~equipment~~not operate at a level of precision that would prevent or detect a material misstatement.

4)3. The Company did not ~~properly~~ design ~~or maintain effective controls over its service organizations~~ and ITimplement ~~vendors.~~appropriate ~~More~~user ~~specifically,~~access ~~the Company did not properly design or implement~~ controls to ensure ~~that~~segregation ~~data~~of ~~received~~duties ~~from~~that ~~third~~would ~~parties~~adequately isrestrict ~~complete~~user ~~and~~access ~~accurate or have controls in place~~ to ~~review~~financially ~~the~~significant ~~applicable~~information ~~complementary~~systems, ~~user~~and ~~entity~~schedules, ~~controls~~specifically ~~described~~surrounding inmining ~~service~~revenue ~~organizations’~~and ~~reports~~mining ~~for their potential impact on the Company’s financial reporting~~equipment.

234. The Company has not implemented formalized and documented detective compensating controls over significant process areas integral to financial reporting that mitigate insufficient segregation of duties.

Remediation Plan for Existing Material Weaknesses

Management is committed to the remediation of the material weaknesses described above, as well as the continued improvement of the Company’s internal control over financial reporting. Management has implemented, and continues to implement, the actions described below to remediate the underlying causes of the control deficiencies that gave rise to the material weaknesses. Until the remediation efforts described below, including any additional measures management identifies as necessary, are completed, the material weaknesses described above will continue to exist. We cannot provide any assurance that the below remediation efforts will be successful or that our internal control over financial reporting will be effective as a result of these efforts. Management has commenced the following actions and will continue to assess additional opportunities for remediation on an ongoing basis:

1. Complete a formal top-down and cyber risk assessment to determine and confirm the material financial and information technology related processes in scope and determine the necessary key controls to be formally monitored to ensure the mitigation of material financial reporting risks.

To formally document the existence of a set of key controls over the financial reporting process, assigned to the most appropriate owner, and monitored periodically to ensure their effectiveness in operating at the desired level of precision to mitigate the risks identified during the risk assessment.

As part of the formal risk assessment, formally identify (and periodically update) the list of systems in scope and determine the proper set of controls to ensure a timely, accurate, and formal review of each user access to mitigate the risk of unauthorized, and nonsegregated activities.

4. AsThe ~~part~~Company ofwill ~~the formal risk assessment~~develop, ~~formally~~formalize ~~identify (~~and ~~periodically~~document ~~update)~~detective ~~the~~compensating ~~list of external service providers in scope and assess whether~~ controls ~~are~~over insignificant ~~place~~process ~~(performed~~areas byintegral ~~the service provider or by the company)~~ to ~~address~~financial ~~the~~reporting ~~completeness~~that ~~and~~will ~~accuracy~~allow of the ~~relevant~~Company ~~information needed~~ to ~~complete~~mitigate ~~the~~insufficient ~~company’s~~segregation ~~financial~~of ~~statement~~duties.

As part of the formal risk assessment, formally identify (and periodically update) the list of external service providers in scope and assess whether controls are in place (performed by the service provider or by the company) to address the completeness and accuracy of the relevant information needed to complete the company’s financial statement

Changes in Internal Control over Financial Reporting

~~Following the completion of the~~There ~~Merger,~~have 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~~changes 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~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B: Other Information

None

ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

2434

PART III

ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The following table sets forth the names and ages of all of our current directors and executive officers. Our officers are appointed by, and serve at the pleasure of, the Company’s Board of ~~the~~ Directors (the “Board”). On, September 22, 2022, at the Company’s Annual Meeting of its stockholders, Wayne Wasserberg, Zaman Kahn and~~/or~~ ~~our~~William ~~Chief~~Stilley ~~Executive~~were ~~Officer~~elected to the Company’s Board of Directors, to serve for a term of one year, until the next annual meeting of stockholders and until their successors have been duly elected. Mr. Stilley resigned from his position as a member of the Board on October 31, 2022.

Name	Age	Position
Wayne Wasserberg	4041	Director, Chief Executive Officer
Zaman Khan	5354	Director, President
William Stilley	53	Director
Vincent Loiacono	63	Chief Financial Officer
Vincent Loiacono	62	Chief Financial Officer

Wayne Wasserberg

Mr. Wasserberg is the Chief Executive Officer of Sysorex, Inc. and the President of TTM Digital Assets & Technologies, Inc., and a member of Sysorex’s Board of Directors. Mr. Wasserberg is an executive with more than 15 years of experience working with clients internationally across industries including structured finance, currency trading and arbitrage, alternative assets investments, and infrastructure and real estate development. Prior to joining the Company on April 14, 2021, Mr. Wasserberg was the President of Quantum Lexicon, a company focused on advisory services to technology innovation companies. Before he joined Quantum Lexicon in 2020, Mr. Wasserberg founded and served as CEO of an international real estate brokerage and property management company, where he was directly involved in more than $200 million in closed transactions. In this role, he also provided consulting to large multinational companies regarding their geographic expansions. Mr. Wasserberg began his career at International Sales Group and was responsible for more than $500 million in international sales within a flagship Trump property. Mr. Wasserberg holds a Bachelor of Science from State University of New York, Oneonta.

Zaman Khan

Mr. Khan has served as our President since August 2018. Mr. Khan has served as a member of our Board since July 2018. Mr. Khan has also served as the President of SGS since January 2017. From 1997 until January 2017, Mr. Khan served as the Executive Vice President at Intelligent Decisions, Inc., an information technology firm specialized in government contracting with an emphasis in intelligence space. From 1991 to 1996, Mr. Khan served as the Director of Business Development of WIN Laboratories, LTD, a manufacturer of WIN Labs computers and reseller specialized in government and commercial contracting. Mr. Khan’s strong background in technology startups, international business development, strategic operations, contract administration, and organizational leadership led us to the conclusion that he should serve as a member of our Board.

~~William Stilley~~Vincent Loiacono

Mr. Loiacono ~~Stilley~~ has served as ~~Board~~ ofour ~~Director~~Chief ~~and~~Financial ~~Chairman~~Officer ~~of the audit committee~~ since ~~joining~~August ~~the Company in July 2021~~2018. ~~Mr.~~He ~~Stilley~~has ~~currently~~also ~~serves~~served as the Chief ~~Executive~~ Financial Officer ~~and co-founder~~ of ~~the~~SGS ~~Adial~~since March ~~Pharmaceuticals in December 2010~~2018. ~~Prior~~From toOctober ~~joining~~2015 ~~Adial~~through ~~Pharmaceuticals~~February 2018, heMr. ~~was~~Loiacono ~~the~~provided ~~Vice~~consulting ~~President, Business~~and ~~Development~~performed &tax ~~Strategic~~service ~~Projects~~projects, atprimarily ~~Clinical~~in residential ~~Data,~~real ~~Inc.~~estate, ~~where~~commercial hebanking ~~worked on licensing~~ and ~~M&A~~SEC ~~transactions~~reporting. ~~and~~From ~~was~~October ~~involved in~~2014 ~~management~~to ofSeptember ~~Phase 3 clinical trials~~2015, ~~production~~Mr. ofLoiacono ~~Viibryd® for~~served ~~initial~~as ~~commercial~~VP ~~launch of the product~~Finance, Operations and ~~sourcing~~ ~~drug~~Analytic ~~product~~at ~~and~~Intelligent ~~drug~~Decisions, ~~substance~~Inc. ~~for~~From ~~the~~2008 ~~Phase~~to 32012, ~~clinical~~Mr. ~~trials~~Loiacono ofserved ~~the~~as ~~Company’s~~Chief ~~vasodilator~~Financial ~~drug~~Officer ~~for~~of ~~myocardial stress~~TerreStar ~~imaging.~~Networks Hewhere ~~has~~he ~~advised~~was ~~both~~responsible ~~public~~for ~~and~~scaling ~~private~~its ~~companies~~business, onproviding ~~financing~~strategic ~~and~~oversight ~~M&A~~of ~~transactions~~the ~~and~~development ~~has~~of ~~been~~its ~~the~~satellite ~~COO~~phone and the ~~CFO~~launch of aits ~~number of~~commercial ~~private companies~~satellite. ~~Before~~From ~~entering~~2005 ~~the~~through ~~business community~~2008, Mr. ~~Stilley~~Loiacono served as ~~Captain in~~ the ~~U.S.~~Senior ~~Marine~~Vice ~~Corps.~~President ~~Mr.~~and ~~Stilley~~Principal ~~has~~Financial anOfficer ~~MBA~~at ~~with~~WorldSpace ~~honor’s~~Radio ~~from~~Satellite ~~the~~Radio ~~Darden~~where ~~School~~he ofled ~~Business~~the ~~and~~effort ato ~~B.S.~~raise in$220 ~~Commerce/Marketing~~million ~~from~~in ~~the~~its ~~McIntire~~initial ~~School~~public ofoffering ~~Commerce~~and at the ~~University~~ buildout of ~~Virginia.~~its Heinternational ~~has~~markets. ~~guest~~Mr. ~~lectured~~Loiacono atreceived ~~the~~a ~~Darden~~Bachelor ~~School~~ of Business inAdministration ~~two~~degree ~~courses~~in onAccounting ~~the~~from ~~management~~CUNY-Bernard ofM. ~~life~~Baruch College ~~science~~in ~~companies, and~~1983. ~~serves~~Mr. onLoiacono ~~the~~is ~~Advisory~~a ~~Board~~member of ~~Virginia~~the ~~BIO,~~American ~~the~~Institute ~~state-wide~~of ~~biotechnology~~Certified ~~organization,~~Public Accountants and ~~previously~~is ~~served~~licensed onas ~~Virginia~~a ~~BIO’s~~Certified Public ~~board~~Accountant ofin ~~directors~~New York.

~~Vincent Loiacono~~35

~~Mr. Loiacono has served as our Chief Financial~~Involvement Officer since August 2018. He has also served as the Chief Financial Officer of SGS since March 2018. From October 2015 through February 2018, Mr. Loiacono provided consulting and performed tax service projects, primarily in ~~residential~~Certain ~~real~~Legal estate, commercial banking and SEC reporting. From October 2014 to September 2015, Mr. Loiacono served as VP Finance, Operations and Analytic at Intelligent Decisions, Inc. From 2008 to 2012, Mr. Loiacono served as Chief Financial Officer of TerreStar Networks where he was responsible for scaling its business, providing strategic oversight of the development of its satellite phone and the launch of its commercial satellite. From 2005 through 2008, Mr. Loiacono served as the Senior Vice President and Principal Financial Officer at WorldSpace Radio Satellite Radio where he led the effort to raise $220 million in its initial public offering and the buildout of its international markets. Mr. Loiacono received a Bachelor of Business Administration degree in Accounting from CUNY-Bernard M. Baruch College in 1983. Mr. Loiacono is a member of the American Institute of Certified Public Accountants and is licensed as a Certified Public Accountant in New York.Proceedings

25To the best of our knowledge, there is no involvement in legal proceedings during the past ten years that is required to be disclosed pursuant to Regulation S-K 401(f).

~~Involvement~~Board of ~~in Certain Legal Proceedings~~Directors

ToOur Board may establish the ~~best~~authorized number of ~~our~~directors ~~knowledge,~~from ~~there~~time to time by resolution. The current authorized number of directors is no ~~involvement~~three inand ~~legal~~we ~~proceedings~~have ~~during~~one vacancy on the ~~past~~Board. ~~ten~~Our ~~years~~current ~~that~~directors, if iselected, ~~required~~will continue to beserve ~~disclosed~~as ~~pursuant~~directors tountil ~~Regulation~~the ~~S-K~~next ~~401(f)~~

Filing Compare · Sysorex, Inc.