UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934
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Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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If
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Explanatory Note
This Current Report on Form 8-K/A is being filed to amend the Original Report to provide the financial statements and pro forma financial
information described below, in accordance with the requirements of Item 9.01 of Form 8-K, which require the filing of such financial
statements and financial information not later than 71 days after the date on which the Original Report was required to be filed pursuant
to Item 2.01.
Except as provided herein, the disclosures made in the Original Report remain unchanged.
1
Item 2.01 Completion of Acquisition or Disposition of Assets.
The disclosure set forth in the “Explanatory Note” above is incorporated by reference into this Item 2.01. All disclosure under Item 1.01 in the Original Report is hereby incorporated by reference into this Item 2.01.
Item 9.01 Financial Statements and Exhibits.
(a) Financial statements of businesses or funds acquired.
The audited financial statements of UNH as of and for the year ended December 31, 2020, with the accompanying notes, are attached hereto as Exhibit 99.1 and incorporated herein by reference.
The unaudited condensed financial statements of UNH for the nine months ended September 30, 2021 and 2020, with the accompanying notes, are attached hereto as Exhibit 99.2 and incorporated herein by reference.
(b) Pro forma financial information.
The unaudited pro forma condensed combined financial information of UNH for the year ended December 31, 2020 and as of and for the nine months ended September 30, 2021, with the accompanying notes, is attached hereto as Exhibit 99.3 and incorporated herein by reference.
(d) Exhibits.
Exhibit No. | Description | |
23.1 | Consent of Friedman LLP | |
99.1 | Audited Financial Statements of Up North Hosting LLC as of and for the year ended December 31, 2020. | |
99.2 | Unaudited Condensed Financial Statements of Up North Hosting LLC for the nine months ended September 30, 2021 and 2020. | |
99.3 | Unaudited pro forma combined financial information for the year ended December 31, 2020 and as of and for the nine months ended September 30, 2021. | |
104 | Cover Page Interactive Data File (the cover page XBRL tags are embedded within the inline XBRL document) |
2
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: January 18, 2022 | SYSOREX, INC. | |
By: | /s/ Wayne Wasserberg | |
Name: | Wayne Wasserberg | |
Title: | Chief Executive Officer |
3
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
We hereby consent to the incorporation by reference in Registration Statements on Form S-8 (Nos. 333-230904, and 333-227639) of our report dated January 18, 2022, which includes an explanatory paragraph as to the Company’s ability to continue as a going concern, with respect to our audit of the financial statements of Up North Hosting, LLC as of and for the year ended December 31, 2020, included in this Amendment No.1 to Current Report on Form 8-K.
/s/ Friedman LLP |
New York, New York |
January 18, 2022 |
Exhibit 99.1
Up North Hosting, LLC
Financial Statements
as of December 31, 2020
1
Up North Hosting, LLC
December 31, 2020
Contents
2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Opinion on the Financial Statements We have
audited the accompanying balance sheet of Up North Hosting, LLC (the “Company”) as of December 31, 2020, and the related
statements of operations, members’ equity, and cash flows for the year ended December 31, 2020, and the related notes (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, 2020, and the results of its operations and its cash flows for the year ended
December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. 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 described in Note 1, the Company has incurred losses, had an accumulated deficit as of December 31, 2020 and has
relied on contributions from members to support 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 1. 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
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 provide a reasonable basis for our opinion. We have served as the Company’s auditor since 2021. New York, New York 3 Up
North Hosting, LLC December
31, 2020 Financial
Statements The
accompanying notes are an integral part of these audited financial statements 4 Up
North Hosting, LLC December
31, 2020 The
accompanying notes are an integral part of these audited financial statements 5 Up
North Hosting, LLC December
31, 2020 Members’ Equity Retained Earnings (Deficit) The
accompanying notes are an integral part of these audited financial statements 6 Up
North Hosting, LLC December
31, 2020 (1,057 The
accompanying notes are an integral part of these audited financial statements 7 Up
North Hosting, LLC December
31, 2020 NOTE
1 – NATURE OF THE BUSINESS Organization
and Nature of Business Up North Hosting (“Up North”,
“the Company”) is a Limited Liability Company (“LLC”) formed in the State of New York on April 3, 2018. Up North
is 50% owned by TTM Digital Assets & Technologies Inc. (“TTM”) and BWP Holdings, LLC (“Bitworks”), collectively
referred to as the “members”. Each member’s liability is limited to their respective capital contribution. The Company
is a computer hosting company specializing in data center development and management. Up North specializes in Graphics Processing Unit
(“GPU”) and Application Specific Integrated Circuit (“ASIC”) hosting services, providing GPU-based cloud hosting
at scale. Up North owns and operates a data center in the Niagara Falls region of New York, providing over 2-Mega Watts, of cost-competitive,
Green Power to customers. The Company supports clients with the primary focus on digital asset mining and machine learning. Up North has full automation of building-wide
HVAC systems, providing advanced thermal management for all managed compute. The Company also manages the software loads for all hosted
compute, and does not hold custody of any digital assets mined. Our customers maintain control of their revenue with Up North providing
end-to-end management. The Company accounts for revenue with
its member’s under a Property Use Agreement (“the agreement”). Effective June 1, 2018, the Company and its members
entered into an agreement which grants to each of the members an exclusive right and license to occupy and use one-half of the licensed
premises. In exchange for the right to license, the members agreed to pay for all costs associated with the ownership and operation of
the premises as outlined in the Property Use Agreement, which includes, without limitation (i) the amount of all property taxes; (ii)
all utility costs (iii) all water costs (iv) all costs associated with maintenance and repairs of the property and/or datacenter, (v)
all security costs, (vi) all landscaping, and groundskeeping and (vii) all costs associated with personnel hired to run and operate the
licensed premises. Each member will be responsible for their pro-rata portion of electricity utilized during each cycle. All payments
in connection with the property use agreement were recorded as hosting services revenue in the statement of operations for the year ended
December 31, 2020. In addition, the Company earns revenue with third parties and accounts for fees earned in connection with the respective
contracts with the customers, and the pro-rata portion of electricity utilized. Liquidity, Financial Position, and Going Concern The accompanying 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 Company incurred a loss of $173,374 during the year ended December 31, 2020, and had an accumulated deficit
of $6,543 as of December 31, 2020. The Company has historically relied on contributions from its’ members to meet obligations.
In addition, the Company has relied upon its members to substantially cover all operating expenses of the Company per the Property Use
Agreement as mentioned above. As such, the Company places significant reliance on its members to fund the operations of the Company.
These matters raise substantial doubt about the Company’s ability to continue as a going concern. The 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 financial statements are issued. 8 Up
North Hosting, LLC December
31, 2020 On November 2, 2021, the 50% owned
by Bitworks was acquired by Down South Hosting, LLC, a wholly-owned subsidiary of TTM Digital Assets & Technologies, Inc, (“TTM”)
and an indirect wholly-owned subsidiary of Sysorex, Inc. a public company. Funding the Company’s operations
on a go-forward basis will rely significantly on the Company’s ability to continue to receive funding from TTM its parent company
that mines cryptocurrency. TTM expects to generate ongoing revenues from the mining of cryptocurrencies, primarily Ethereum currency rewards,
in its mining facilities. The Company’s ability, through TTM to liquidate Ethereum currency rewards if needed at future values will
be evaluated from time to time to generate cash for operations. To the extent that the Company is unable to execute their plan, the Company
may require additional funding and contributions. NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis
of Presentation The
accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States
of America (“GAAP.”) Use
of Estimates Management
uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ
from those estimates. Changes in such estimates could affect amounts reported in future periods. Cash Cash balances at the banks are insured
by the Federal Deposit Insurance Corporation subject to certain limitations. At times cash balances may exceed federally insurable amounts.
For purposes of the statement of cash flows, the Company considers all highly liquid investments with a maturity of three months or less
when purchased to be considered cash equivalents. The Company had no cash equivalent’s as of December 31, 2020. 9 Up
North Hosting, LLC December
31, 2020 Impairment
of Long-Lived Assets Long-lived
assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the
undiscounted future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future
undiscounted cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair
value of the asset. Based on management’s evaluations no impairment charge was deemed necessary for the year ended December 31,
2020. Property
and Equipment, net Property and equipment are recorded
at cost less accumulated depreciation and amortization. The Company depreciates its property and equipment for financial reporting purposes
using the straight-line method over the estimated useful lives of the related assets, which range from three to fifty years. The costs
of additions and betterments are capitalized, while repair and maintenance costs are charged to operations in the periods incurred. Income
Taxes The
Company is a limited liability Company treated as a partnership for federal and state income tax purposes, with all income taxes and/or
credits being passed through to the members. 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: The Company’s primary revenue source is
the hosting services provided to cryptocurrency miners and other customers looking to host their servers within the data center. When
a party engages The Company to provide hosting services for their equipment, the Company acts as the principal in these arrangements.
They are the responsible party to provide services to the customer. This includes all GPU-related customers and other third-party hosting
customers. The Company receives discounted power rates through their agreement with the utility providers and sets the pricing charged
to the customer based on then individual arrangement. 10 Up
North Hosting, LLC December
31, 2020 The Company recognizes the revenues
each month, with the variability, created by the allocation of the utility usage. Judgement is required in determining
whether the Company is the principal or the agent in such arrangements with customers in accordance with ASC 606. The Company has assessed
that it controls the price of each arrangement and bears the risk of loss in non-payment on services and electricity costs. As a result,
The Company accounts for these arrangements as the principal under ASC 606. Accounts
Receivable and Contract Balances Accounts
receivable are stated at the amount management expects to collect. An allowance for doubtful accounts is recorded based on a combination
of historical experience, aging analysis, and information on specific accounts. Account balances are written off against the allowance
after all means of collection have been exhausted, and the potential for recovery is considered remote. As of December 31, 2020, there
was no allowance for doubtful accounts. Contract assets primarily relate to
the Company’s rights to consideration for services provided to customers. A contract asset is created when there is a difference
between the amount of revenue recognized and the amount of consideration received from the customer. Contract assets are reclassified
as accounts receivable as services are provided and billed and collected within the year. As of December 31, 2020 contract assets consisted
of unbilled receivables in the amount of $50,906. NOTE
3- Property & Equipment, net Property
and equipment, net consisted of the following as of December 31, 2020: NOTE
4- Members’ Equity During the year ended December 31, 2020, the Company
distributed $17,405 to its members. NOTE
5- Concentration of Risk The following table sets forth the
percentages of sales derived by the Company from those customers that accounted for at least 10% of sales): 11 Up
North Hosting, LLC December
31, 2020 As
of December 31, 2020, Customers B represents 100% of total accounts receivable. As of December 31,2020, Customer A represents 100% of
Due from Related Parties. The
Company has a geographic concentration risk with all GPU based cloud hosting conducted within New York. Any legislation that restricts
or banks the mining of proof-of-work digital asset mining in New York State would have a negative impact on the Company’s ability
to operate and generate revenues from its existing customer base. Up
North uses only one electrical supplier. A loss of electricity would materially and adversely affect Up North’s operations. 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 backup power generators in the event of a power outage. NOTE 6- Paycheck Protection Program Loan In April 2020 the Company obtained
a loan from City National Bank (the “Loan”) in the amount of $23,700 pursuant to the Paycheck Protection Program (“PPP”)
under Division A, Title 1 of the Coronavirus, Aid, Relief, and Economic Security Act enacted March 27, 2020 (“CARES Act”)
as implemented by the U.S Small Business Administration (“SBA”). The loan accrues interest at a rate of one percent (1%) and
matures on April 21, 2022. The Company applied for forgiveness of the Loan in the amount equal to the loan proceeds. The Loan forgiveness
application was approved by City National Bank in March 2021. NOTE
7- Related Party Transactions The Company
earned revenue from its members’ totaling $ 629,879 for the year ended December 31, 2020, as referenced in Note 5, which represents
the members pro-rata share of electricity expenses and portion of operating expenses. As a result, as of December 31, 2020, the Company
had $32,918 in Due from Related Parties; see Concentration of risk. As of December
31, 2020, the Company had approximately $156,282 of Accrued expenses. This includes $113,005 due to members for expense reimbursements. The Company had
unbilled receivables as of December 31, 2020 with related parties in the amount of $38,715. NOTE 8- Subsequent Events On November 2, 2021, Bitworks (“Seller”),
and Down South Hosting, LLC, a Delaware limited liability company (“Purchaser”), an indirect wholly-owned subsidiary of Sysorex,
Inc., a Nevada corporation, entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) pursuant to which
Purchaser agreed to purchase from Seller a fifty percent (50%) membership interest in Up North Hosting LLC As a result of the Transaction,
The Company became an indirect wholly-owned subsidiary of Sysorex, Inc. 12
Members of Up North Hosting, LLC
/s/ Friedman LLP
January 18, 2022
December 31,
2020
Assets
CURRENT ASSETS
Cash
$ 9,093
Accounts Receivables
16,267
Due From Related Parties
32,298
Unbilled Receivables
50,906
Prepaid and Other
12,640
Total Current Assets
121,204
Fixed Assets, Net
1,212,485
Security Deposit
34,435
Total Assets
$ 1,368,124
LIABILITIES AND MEMBERS’ EQUITY
CURRENT LIABILITIES
Accounts payable
$ 17,420
Accrued liabilities
156,282
Paycheck Protection Program Loan
23,700
Total Liabilities
197,402
MEMBERS’ EQUITY
Members’ Equity
$ 1,177,265
Accumulated Deficit
(6,543 )
Total Members’ Equity
1,170,722
Total Liabilities and Members’ Equity
$ 1,368,124
December 31,
2020
Revenues
Hosting Services
$ 226,580
Hosting Services – Related Parties
629,879
Other Service Arrangements – Related Parties
26,093
Other Service Arrangements
15,011
Total Revenue
897,563
COSTS AND EXPENSES
Cost of revenues
724,618
Depreciation expense
80,911
Selling, general, and administrative
270,728
Total Costs and Expenses
1,076,257
OPERATING LOSS
(178,694 )
OTHER INCOME
Miscellaneous income
5,320
Total Other Income
5,320
NET LOSS
$ (173,374 )
Total Members’ Equity
BALANCE, December 31, 2019
$ 1,194,670
$ 166,831
$ 1,361,501
Members’ Distributions
(17,405 )
-
(17,405 )
Net Loss
-
(173,374 )
(173,374 )
BALANCE, December 31, 2020
$ 1,177,265
$ (6,543 )
$ 1,170,722
December 31,
2020
CASH FLOW FROM OPERATING ACTIVITIES
Net loss
$ (173,374 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation
80,911
Change in assets and liabilities:
Due from Related Parties
)
Accounts receivable
(11,392 )
Unbilled accounts receivable
85,239
Prepaid and other assets
(36,032 )
Accounts payable
(61,163 )
Accrued expenses
116,633
Net cash used in operating activities
(235 )
Cash Flows from Investing Activities
Purchase of property and equipment
(16,800 )
Net cash used in investing activities
(16,800 )
Cash Flows from Financing Activities
Proceeds from paycheck protection program loan
23,700
Member Distributions
(17,405 )
Net cash provided by financing activities
6,295
Net decrease in cash
(10,740 )
Cash, beginning of the year
19,833
Cash, end of year
$ 9,093
● 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.
Building
$ 513,388
Electrical Infrastructure Assets
525,097
Machinery & Equipment Assets
29,584
Mechanical (HVAC) Assets
270,670
Server and network assets
50,246
1,388,985
Less: accumulated depreciation and amortization
(176,500 )
$ 1,212,485
December
31, 2020
$
%
Customer A (Related Party)
421,393
47 %
Customer B
226,580
25 %
Customer C (Related Party)
208,486
23 %
Exhibit 99.2
Up North Hosting, LLC
Financial Statements
as of September 30, 2021 and 2020
1
Up North Hosting, LLC
September 30, 2021 and 2020
Contents
2
Up North Hosting, LLC
September 30, 2021 and 2020
Condensed Financial Statements
Condensed Balance Sheets as of September 30, 2021, and December 31, 2020
September 30, | December 31, | |||||||
Assets | 2021 | 2020 | ||||||
CURRENT ASSETS | ||||||||
Cash | $ | 55,256 | $ | 9,093 | ||||
Accounts Receivables | 28,747 | 15,647 | ||||||
Due From Related Parties | 120,422 | 32,918 | ||||||
Unbilled Receivables | 55,868 | 50,906 | ||||||
Prepaid and Other | 2,126 | 12,640 | ||||||
Total Current Assets | 262,419 | 121,204 | ||||||
Fixed Assets, Net | 1,156,280 | 1,212,485 | ||||||
Security Deposit | 34,435 | 34,435 | ||||||
Total Assets | $ | 1,453,134 | $ | 1,368,124 | ||||
LIABILITIES AND MEMBERS’ EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 95,730 | $ | 17,420 | ||||
Accrued liabilities | 57,772 | 156,283 | ||||||
Paycheck Protection Program Loan | - | 23,700 | ||||||
Total Liabilities | 153,502 | 197,402 | ||||||
MEMBERS’ EQUITY | ||||||||
Members’ Equity | $ | 1,377,265 | $ | 1,177,265 | ||||
Accumulated Deficit | (77,633 | ) | (6,543 | ) | ||||
Members’ Equity | 1,299,632 | 1,170,722 | ||||||
Total Liabilities and Members’ Equity | $ | 1,453,134 | $ | 1,368,124 |
The accompanying notes are an integral part of the unaudited condensed financial statements
3
Up North Hosting, LLC
September 30, 2021 and 2020
Condensed Statements of Operations for the nine months ended September 30, 2021 and 2020
September 30, | September 30, | |||||||
2021 | 2020 | |||||||
Revenues | ||||||||
Hosting Services | $ | 140,957 | $ | 174,570 | ||||
Hosting Services – Related Parties | 670,327 | 473,000 | ||||||
Other Service Arrangements | - | 15,012 | ||||||
Other Service Arrangements – Related Parties | 7,247 | 21,246 | ||||||
Total Revenue | 818,531 | 683,828 | ||||||
COSTS AND EXPENSES | ||||||||
Cost of revenues | 684,221 | 549,782 | ||||||
Depreciation expense | 60,933 | 60,666 | ||||||
Selling, general, and administrative | 204,412 | 196,521 | ||||||
Total Costs and Expenses | 949,566 | 806,969 | ||||||
OPERATING LOSS | (131,035 | ) | (123,141 | ) | ||||
OTHER INCOME | ||||||||
Miscellaneous income | 59,945 | 5,320 | ||||||
Total Other Income | 59,945 | 5,320 | ||||||
NET LOSS | $ | (71,090 | ) | $ | (117,821 | ) |
The accompanying notes are an integral part of the unaudited condensed financial statements
4
Up North Hosting, LLC
September 30, 2021 and 2020
Condensed Statements of Changes in Members’ Equity for the nine months ended September 30, 2021, and 2020
Members’ | Retained | Total Members’ Equity | ||||||||||
BALANCE, December 31, 2019 | $ | 1,194,669 | $ | 166,831 | $ | 1,361,500 | ||||||
Members’ Distributions | (17,405 | ) | - | (17,405 | ) | |||||||
Net Loss | - | (117,821 | ) | (117,821 | ) | |||||||
BALANCE, September 30, 2020 | $ | 1,177,264 | $ | 49,010 | $ | 1,226,274 |
Members’
| Retained | Total Members’ Equity | ||||||||||
BALANCE, December 31, 2020 | $ | 1,177,265 | $ | (6,543 | ) | $ | 1,170,722 | |||||
Members’ Contributions | 200,000 | - | 200,000 | |||||||||
Net Loss | - | (71,090 | ) | (71,090 | ) | |||||||
BALANCE, September 30, 2021 | $ | 1,377,265 | $ | (77,633 | ) | $ | 1,299,632 |
The accompanying notes are an integral part of the unaudited condensed financial statements
5
Up North Hosting, LLC
September 30, 2021 and 2020
Condensed Statements of Cash Flows for the nine months ended September 30,2021 and 2020
September 30, 2021 | September 30, 2020 | |||||||
CASH FLOW FROM OPERATING ACTIVITIES | ||||||||
Net loss | $ | (71,090 | ) | $ | (117,821 | ) | ||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||
Depreciation | 60,933 | 60,666 | ||||||
Gain on extinguishment of Debt | (23,700 | ) | - | |||||
Change in assets and liabilities: | ||||||||
Accounts receivable | (13,100 | ) | (13,882 | ) | ||||
Due from Related Parties | (87,504 | ) | 23,725 | |||||
Unbilled accounts receivable | (4,962 | ) | 31,710 | |||||
Other assets | 10,514 | (23,786 | ) | |||||
Accounts payable | 78,310 | (5,510 | ) | |||||
Accrued expenses | (98,511 | ) | 78,572 | |||||
Net cash (used in) provided by operating activities | (149,110 | ) | 33,674 | |||||
Cash Flows from Investing Activities | ||||||||
Purchase of property and equipment | (4,727 | ) | (16,800 | ) | ||||
Net cash used in investing activities | (4,727 | ) | (16,800 | ) | ||||
Cash Flows from Financing Activities | ||||||||
Proceeds from Paycheck Protection Program Loan | - | 23,700 | ||||||
Members’ Contributions | 200,000 | - | ||||||
Members’ Distributions | - | (17,405 | ) | |||||
Net cash provided by financing activities | 200,000 | 6,295 | ||||||
Net decrease in cash | 46,163 | 23,169 | ||||||
Cash, beginning of the year | 9,093 | 19,833 | ||||||
Cash, end of period | $ | 55,256 | $ | 43,002 |
The accompanying notes are an integral part of the unaudited condensed financial statements
6
Up North Hosting, LLC
September 30, 2021 and 2020
Notes to Condensed Financial Statements
NOTE 1 – NATURE OF THE BUSINESS
Organization and Nature of Business
Up North Hosting (“the Company”) is a Limited Liability Company (“LLC”) formed in the State of New York on April 3, 2018. The Company is 50% owned by TTM Digital Assets & Technologies Inc. (“TTM”) and BWP Holdings, LLC (“Bitworks”), collectively referred to as the “members”. Each members’ liability is limited to their respective capital contribution. The Company is a computer hosting company specializing in data center development and management. The Company specializes in Graphics Processing Unit (“GPU”) and Application Specific Integrated Circuit (“ASIC”) hosting services, providing GPU-based cloud hosting at scale. The Company owns and operates a data center in the Niagara Falls region of New York, providing over 2-Mega Watts, of cost-competitive, Green Power to customers. The Company supports clients with the primary focus on digital asset mining and machine learning.
The Company has full automation of building-wide HVAC systems, providing advanced thermal management for all managed compute. The Company also manages the software loads for all hosted compute and did not hold custody of any digital assets mined. Our customers maintain control of their revenue with the Company providing end-to-end management.
The Company accounts for revenue with its member’s under a Property Use Agreement (“the agreement”). Effective June 1, 2018, the Company and its members entered into an agreement which grants to each of the members an exclusive right and license to occupy and use one-half of the licensed premises. In exchange for the right to license, the members agreed to pay for all costs associated with the ownership and operation of the premises as outlined in the Property Use Agreement, which includes, without limitation (i) the amount of all property taxes; (ii) all utility costs (iii) all water costs (iv) all costs associated with maintenance and repairs of the property and/or datacenter, (v) all security costs, (vi) all landscaping, and groundskeeping and (vii) all costs associated with personnel hired to run and operate the licensed premises. Each member will be responsible for their pro-rata portion of electricity utilized during each cycle. All payments in connection with the property use agreement were recorded as hosting services revenue in the statement of operations for the nine months ended September 30, 2021. In addition, the Company earns revenue with third parties and accounts for fees earned in connection with the respective contracts with the customers, and the pro-rata portion of electricity utilized.
Liquidity, Financial Position, and Going Concern
The accompanying 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 Company incurred a loss of $71,090 during the nine months ended September 30, 2021, and had an accumulated deficit of $77,633 as of September 30, 2021. The Company has historically relied on contributions from its’ members to meet obligations. In addition, the Company has relied upon its members to substantially cover all operating expenses of the Company per the Property Use Agreement as mentioned above. As such, the Company places significant reliance on its members to fund the operations of the Company. These matters raise substantial doubt about the Company’s ability to continue as a going concern.
The 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 financial statements are issued.
7
Up North Hosting, LLC
September 30, 2021 and 2020
On November 2, 2021, the 50% owned by Bitworks was acquired by Down South Hosting, LLC, a wholly-owned subsidiary of TTM Digital Assets & Technologies, Inc, (“TTM”) and an indirect wholly-owned subsidiary of Sysorex, Inc. a public company.
Funding the Company’s operations on a go-forward basis will rely significantly on the Company’s ability to continue to receive funding from TTM its parent company that mines cryptocurrency. TTM expects to generate ongoing revenues from the mining of cryptocurrencies, primarily Ethereum currency rewards, in its mining facilities. The Company’s ability, through TTM to liquidate Ethereum currency rewards if needed at future values will be evaluated from time to time to generate cash for operations. To the extent that the Company is unable to execute their plan, the Company may require additional funding and contributions.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements of the Company have been prepared in accordance with GAAP for interim financial information, which are the accounting principles that are generally accepted in the United States of America. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of the Company’s operations for the nine-month periods ended September 30, 2021, is not necessarily indicative of the results to be expected for the year ending December 31, 2021. These interim unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements December 31, 2020.
Use of Estimates
Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates. Changes in such estimates could affect amounts reported in future periods.
Cash
Cash balances at the banks are insured by the Federal Deposit Insurance Corporation subject to certain limitations. At times cash balances may exceed federally insurable amounts. For purposes of the statement of cash flows, the Company considers all highly liquid investments with a maturity of three months or less when purchased to be considered cash equivalents. The Company had no cash equivalents as of September 30, 2021.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the undiscounted future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Based on management’s evaluations no impairment charge was deemed necessary for the periods ended September 30, 2021, or September 30, 2020.
8
Up North Hosting, LLC
September 30, 2021 and 2020
Property and Equipment, net
Property and equipment are recorded at cost less accumulated depreciation and amortization. The Company depreciates its property and equipment for financial reporting purposes using the straight-line method over the estimated useful lives of the related assets, which range from three to fifty years. The costs of additions and betterments are capitalized, while repair and maintenance costs are charged to operations in the periods incurred.
Income Taxes
The Company is a limited liability Company treated as a partnership for federal and state income tax purposes, with all income taxes and/or credits being passed through to the members.
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. |
9
Up North Hosting, LLC
September 30, 2021 and 2020
The Company’s primary revenue source is the hosting services provided to cryptocurrency miners and other customers looking to host their servers within the data center. When a party engages The Company to provide hosting services for their equipment, the Company acts as the principal in these arrangements. They are the responsible party to provide services to the customer. This includes all GPU-related customers and other third-party hosting customers. The Company receives discounted power rates through their agreement with the utility providers and sets the pricing charged to the customer based on then individual arrangement.
The Company recognizes the revenues each month, with the variability, created by the allocation of the utility usage. Judgement is required in determining whether the Company is the principal or the agent in such arrangements with customers in accordance with ASC 606. The Company has assessed that it controls the price of each arrangement and bears the risk of loss in non-payment on services and electricity costs. As a result, The Company accounts for these arrangements as the principal under ASC 606.
Accounts Receivable and Contract Balances
Accounts receivables are stated at the amount management expects to collect. An allowance for doubtful accounts is recorded based on a combination of historical experience, aging analysis, and information on specific accounts. Account balances are written off against the allowance after all means of collection have been exhausted, and the potential for recovery is considered remote. As of September 30, 2021, there was no allowance for doubtful accounts.
Contract assets primarily relate to the Company’s rights to consideration for services provided to customers. A contract asset is created when there is a difference between the amount of revenue recognized and the amount of consideration received from the customer. Contract assets are reclassified as accounts receivable as services are provided and billed and collected within the year.
Note 3 – Property & Equipment, net
Property and equipment, net consisted of the following as of September 30, 2021:
Building | $ | 513,388 | ||
Electrical Infrastructure Assets | 525,097 | |||
Machinery & Equipment Assets | 34,311 | |||
Mechanical (HVAC) Assets | 270,670 | |||
Server and network assets | 50,247 | |||
1,393,713 | ||||
Less: accumulated depreciation and amortization | (237,433 | ) | ||
$ | 1,156,280 |
10
Up North Hosting, LLC
September 30, 2021 and 2020
Note 4 – Members’ Equity
During the nine months ended September 30, 2021, the Company received $200,000 in Members’ Contributions.
During the nine months ended September 30, 2020, the Company distributed $17,405 to its members’.
Note 5 – Concentration of Risk
The following table sets forth the percentages of sale derived by the Company from those customers that accounted for at least 10% of sales:
For the nine months ended | ||||||||||||||||
September 30, 2021 | September 30, 2020 | |||||||||||||||
$ | % | $ | % | |||||||||||||
Customer A (Related Party) | 482,758 | 59.0 | % | 316,340 | 46.0 | % | ||||||||||
Customer B (Related Party) | 187,569 | 23.0 | % | 156,661 | 22.9 | % | ||||||||||
Customer C | 129,716 | 15.8 | % | 174,570 | 25.5 | % |
As of September 30, 2021, Company C is 100% of the Accounts Receivable and Customers A and B represented approximately 59% and 41% of total Due from Related Parties. As of December 31, 2020, Company C is 100% of Accounts Receivable and Customer A is 100% total Due from Related Parties.
The Company has a geographic concentration risk with all GPU based cloud hosting conducted within New York. Any legislation that restricts or banks the mining of proof-of-work digital asset mining in New York State would have a negative impact on the Company’s ability to operate and generate revenues from its existing customer base.
The Company is dependent on the local utility for connection to the power grid. A loss of electricity would materially and adversely affect the Company’s operations. 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 backup power generators in the event of a power outage.
Note 6 – Paycheck Protection Program Loan
In April 2020 the Company obtained a loan from City National Bank (the “Loan”) in the amount of $23,700 pursuant to the Paycheck Protection Program (“PPP”) under Division A, Title 1 of the Coronavirus, Aid, Relief, and Economic Security Act enacted March 27, 2020 (“CARES Act”) as implemented by the U.S Small Business Administration (“SBA”). The loan accrues interest at a rate of one percent (1%) and matures on April 21, 2022. The Company applied for forgiveness of the Loan in the amount equal to the loan proceeds. The Loan forgiveness application was approved by City National Bank in March 2021, and as a result, the Company recognized income of $23,700 during the nine months ended September 30, 2021, which is included in miscellaneous income in the condensed statement of operations.
Note 7 – Related Party Transactions
The Company earned revenue from its members’ totaling $ 670,327 for the nine months ended September 30, 2021, as referenced in Note 5, which represents the members pro-rata share of electricity expenses and portion of operating expenses. As a result, as of September 30, 2021, and December 31, 2020, the Company had $120,422 and $32,918, respectively in Due from Related Parties which are included in the condensed balance sheets. See Note 5 - Concentration of risk for due from related parties. As of September 30, 2021, the Company had unbilled receivables with related parties of $48,234.
Note 8 – Subsequent Events
On November 2, 2021, Bitworks (“Seller”), and Down South Hosting, LLC, a Delaware limited liability company (“Purchaser”), an indirect wholly-owned subsidiary of Sysorex, Inc., a Nevada corporation, entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) pursuant to which Purchaser agreed to purchase from Seller a fifty percent (50%) membership interest in Up North Hosting LLC As a result of the Transaction, The Company became an indirect wholly-owned subsidiary of Sysorex, Inc.
11
Exhibit 99.3
Sysorex, Inc. and Subsidiaries
UNAUDITED COMBINED CONDENSED PRO FORMA FINANCIAL INFORMATION
On November 2, 2021, Down South Hosting, LLC (“Purchaser”), an indirect wholly-owned subsidiary of Sysorex, Inc. (“Sysorex” or the “Company”), and BWP Holdings LLC, a New York limited liability company (“Seller” or “BWP”), entered into an Membership Interest Purchase Agreement (the “Purchase Agreement”). Under the terms of the Purchase Agreement, the Purchaser agreed to purchase from Seller the fifty percent (50.0%) membership interest in Up North Hosting LLC, a New York limited liability company (“UNH”) (such sale, the “Transaction” or the “Transferred Membership Interest”). Prior to the Transaction Purchaser owned the other fifty percent of UNH which was reported as an equity method investment (the “UNH Equity Method Interest”) in the consolidated results of Sysorex. As a result of the Transaction, UNH became an indirect wholly-owned subsidiary of Sysorex (together the “Combined Company”).
Under the terms and conditions of the Purchase Agreement, the aggregate consideration to be paid to Seller in the Transaction consisted of the payment of one million dollars ($1,000,000.00) and issuance of one million (1,000,000) shares of restricted common stock, $0.00001 par value, of the Company. Seller and Purchaser each made customary representation and warranties in the Purchase Agreement. Additionally, each Seller and Purchaser is obligated, subject to certain limitations, to indemnify the other for certain liabilities, including liabilities arising from breaches of representation and warranties, and nonfulfillment or breaches of covenants in the Purchase.
In addition to the Transferred Membership Interest (the “UNH Acquisition”), the Purchase Agreement transferred the ownership of certain Cryptocurrency Mining Equipment consisting of approximately 2,000 GPUs owned by BWP and Bitworks, LLC, the BWP member, resident in the UNH facility (the “Bitworks Data Mining Equipment”). Both the Transferred Membership Interest and the Bitworks Data Mining Equipment were exchanged for the aggregate consideration of the Transaction.
On April 14, 2021, Sysorex completed a reverse merger with TTM Digital Assets & Technologies, Inc. (“TTM Digital”, the “Reverse Merger”) whereby TTM Digital was declared the accounting acquirer and became the registrant. The presentation of historical financial statements for the Company represent the financial statements of the registrant TTM Digital as a result of the Reverse Merger. After the completion of the Reverse Merger, the Company maintained the corporate name of the accounting acquiree Sysorex. In the presentation of historical financial statements the presentation of the registrant, TTM Digital, are labeled Sysorex Inc. Registrant and those of the pre–Reverse Merger Sysorex are labeled Sysorex Inc. Predecessor.
The following tables set forth selected unaudited pro forma historical financial information and unaudited pro forma per share information in connection with the Combined Company. The pro forma amounts included in the tables below are presented as if the Purchase Agreement had been consummated for all periods presented, have been prepared in accordance with GAAP, but have not been audited. The pro forma amounts in the tables below are presented for informational purposes. You should not rely on the pro forma amounts as being indicative of the financial position or the results of operations of the Combined Company that would have actually occurred had the Purchase Agreement been consummated during the periods presented or of the future financial position or future results of operations of the Combined Company.
The accompanying unaudited combined condensed pro forma financial statements of the Company are presented to illustrate the estimated effects of the Purchase Agreement.
The unaudited combined condensed pro forma financial statements have been derived from the historical consolidated financial statements of TTM Digital (Sysorex Inc. Registrant), Sysorex Inc. Predecessor and UNH. The unaudited combined condensed pro forma statements of operations for the nine months ended September 30, 2021, and for the year ended December 31, 2020 combine the historical consolidated statements of operations of Sysorex and the historical statements of operations of UNH, giving effect to the Merger Agreement as if it had been consummated on January 1, 2020, for the year ended December 31, 2020 and January 1, 2021 for the nine months ended September 30, 2021. The unaudited combined condensed pro forma balance sheet combines the historical consolidated balance sheet of Sysorex and the historical balance sheet of UNH as of September 30, 2021, giving effect to the Purchase Agreement as if it had been consummated on September 30, 2021. The historical consolidated financial statements have been adjusted in the unaudited combined condensed pro forma financial statements to give pro forma effect to events that are: (a) directly attributable to the Purchase Agreement; (b) factually supportable; and (c) with respect to the statements of operations, expected to have a continuing impact on the Company’s results following the completion of the Purchase Agreement.
The assumptions and estimates underlying the unaudited adjustments to the pro forma combined financial statements are described in the accompanying notes, which should be read together with the pro forma combined financial statements. The unaudited combined condensed pro forma financial statements should be read together with Sysorex’s historical consolidated financial statements, which are included in Sysorex’s latest annual report on Form 10-K as of December 31, 2020 and subsequent quarterly reports on Form 10-Q, and the historical consolidated financial statements of TTM Digital as of March 31, 2021, and December 31, 2020 filed on Form 8-K/A on June 24, 2021. The unaudited combined condensed pro forma financial information included herein has been prepared pursuant to the rules and regulations of the SEC. Certain information and certain footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to these rules and regulations; however, management believes that the disclosures are adequate to make the information presented not misleading.
The unaudited combined condensed pro forma financial statements are presented for illustrative purposes only, in accordance with Article 11 of Regulation S-X. The pro forma financial information presented gives effect to pro forma events that are (a) directly attributable to the Arrangement, (b) factually supportable and (c) with respect to the pro forma statement of operations, expected to have a continuing impact. The Merger Agreement is being accounted for as a business combination using the acquisition method in accordance with accounting standards codification 805, Business Combinations. Under this method of accounting the purchase price will be allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of consummation of the Merger Agreement.
The unaudited pro forma condensed combined financial information included herein does not give effect to any potential cost reductions or other operating efficiencies that could result from the mergers, including but not limited to, those associated with potential (i) reductions of corporate overhead, (ii) eliminations of duplicate functions and (iii) increased operational efficiencies through the adoption of best practices and capabilities from each company.
2
Unaudited Combined Condensed Pro Forma Balance Sheet
September 30, 2021
Sysorex Inc Registrant | Up North LLC | Pro Forma Merger Adjustment | Notes | Pro Forma Combined | ||||||||||||||
ASSETS | ||||||||||||||||||
CURRENT ASSETS | ||||||||||||||||||
Cash and cash equivalents | $ | 4,268 | $ | 55 | $ | (1,000 | ) | A | $ | 3,323 | ||||||||
Digital assets | 2,334 | - | - | 2,334 | ||||||||||||||
Accounts receivable, net | 663 | 29 | - | 692 | ||||||||||||||
Due from related parties | - | 120 | (120 | ) | C | - | ||||||||||||
Unbilled receivables | - | 56 | - | 56 | ||||||||||||||
Prepaid expenses and other current assets | 1,334 | 2 | - | 1,336 | ||||||||||||||
Total current assets | 8,599 | 262 | (1,120 | ) | 7,741 | |||||||||||||
Mining equipment, net | 12,368 | - | 600 | B | 12,968 | |||||||||||||
Property and equipment, net | - | 1,156 | 322 | D | 1,478 | |||||||||||||
Intangible assets | 2,696 | - | 100 | E | 2,796 | |||||||||||||
Goodwill | 1,634 | - | - | 1,634 | ||||||||||||||
Investment in Style Hunter | 500 | - | - | 500 | ||||||||||||||
Investment in Up North LLC | 664 | - | (664 | ) | F | - | ||||||||||||
Other assets | 36 | 34 | - | 70 | ||||||||||||||
Total assets | $ | 26,497 | $ | 1,452 | $ | (762 | ) | $ | 27,187 | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||
CURRENT LIABILITIES | ||||||||||||||||||
Accounts payable | $ | 5,979 | $ | 96 | $ | - | C | $ | 6,075 | |||||||||
Accrued liabilities | 1,313 | 58 | - | 1,371 | ||||||||||||||
Convertible Debt, net | 11,208 | - | - | 11,208 | ||||||||||||||
Deferred revenue | 691 | - | - | 691 | ||||||||||||||
Total current liabilities | 19,191 | 154 | - | 19,345 | ||||||||||||||
STOCKHOLDERS’ EQUITY | ||||||||||||||||||
Common stock - par value | 1 | - | - | 1 | ||||||||||||||
Treasury Stock | - | - | - | - | ||||||||||||||
Additional paid-in-capital | 35,435 | 1,377 | (977 | ) | A,G | 35,835 | ||||||||||||
Accumulated deficit | (28,130 | ) | (79 | ) | 215 | C,F,G | (27,994 | ) | ||||||||||
Total Stockholders’ Equity | 7,306 | 1,298 | (762 | ) | 7,842 | |||||||||||||
Total Liabilities and Stockholders’ Equity | $ | 26,497 | $ | 1,452 | $ | (762 | ) | $ | 27,187 |
3
Unaudited Combined Condensed Pro Forma Statement of Operations
Nine months ended September 30, 2021
Nine Months
Ended September 30, 2021 | Three
Months Ended March 31, 2021 | 14 Days
Ended April 14, 2021 | Nine Months
Ended September 30, 2021 | |||||||||||||||||||||||||||||||
Sysorex Inc Registrant (TTM Digital) | Sysorex Inc Predecessor | Sysorex Inc Predecessor | Up North LLC | TTM / Sysorex Pro Forma Reverse Merger Adjustments | Up North Pro Forma Business Combination Adjustments | Pro Forma Combined | ||||||||||||||||||||||||||||
REVENUES | ||||||||||||||||||||||||||||||||||
Mining income | $ | 9,244 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 9,244 | ||||||||||||||||||||
Products revenue | 2,831 | 928 | 4,207 | - | - | - | 7,966 | |||||||||||||||||||||||||||
Services revenue | 1,047 | 479 | 60 | 819 | - | (483 | ) | C | 1,922 | |||||||||||||||||||||||||
Total revenues | 13,122 | 1,407 | 4,267 | 819 | - | (483 | ) | 19,132 | ||||||||||||||||||||||||||
COSTS AND EXPENSES | ||||||||||||||||||||||||||||||||||
Mining cost | 852 | - | - | - | - | (483 | ) | C | 369 | |||||||||||||||||||||||||
Product cost | 2,532 | 829 | 3,841 | - | - | - | 7,202 | |||||||||||||||||||||||||||
Services cost | 606 | 329 | 36 | 684 | - | - | 1,655 | |||||||||||||||||||||||||||
Sales and marketing | 619 | 249 | 75 | - | - | - | 943 | |||||||||||||||||||||||||||
General and administrative | 7,727 | 751 | 1,276 | 205 | (3,093 | ) | H | - | 6,866 | |||||||||||||||||||||||||
Management fees | 321 | - | - | - | - | - | 321 | |||||||||||||||||||||||||||
Impairment of digital assets | 325 | - | - | - | - | - | 325 | |||||||||||||||||||||||||||
Depreciation | 2,824 | - | - | 61 | - | 145 | L | 3,030 | ||||||||||||||||||||||||||
Amortization of intangibles | 264 | 78 | 12 | - | 82 | I | 8 | M | 444 | |||||||||||||||||||||||||
Total costs and expenses | 16,070 | 2,236 | 5,240 | 950 | (3,011 | ) | (330 | ) | 21,155 | |||||||||||||||||||||||||
OPERATING INCOME (LOSS) | (2,948 | ) | (829 | ) | (973 | ) | (131 | ) | 3,011 | (153 | ) | (2,023 | ) | |||||||||||||||||||||
OTHER (INCOME) EXPENSE | ||||||||||||||||||||||||||||||||||
Merger charges | (22,004 | ) | - | - | - | 22,004 | J | - | - | |||||||||||||||||||||||||
Debt restructuring fee | (2,000 | ) | - | - | - | 2,000 | J | - | - | |||||||||||||||||||||||||
Interest expense | (926 | ) | (546 | ) | (11 | ) | - | 485 | K | - | (998 | ) | ||||||||||||||||||||||
Realized gain on sale of digital assets | 91 | - | - | - | - | - | 91 | |||||||||||||||||||||||||||
Gain / (loss) on disposal of assets | (138 | ) | - | - | - | - | - | (138 | ) | |||||||||||||||||||||||||
Other expense, net | 11 | 1 | - | 60 | - | - | 72 | |||||||||||||||||||||||||||
Total other (income) expense | (24,966 | ) | (545 | ) | (11 | ) | 60 | 24,489 | - | (973 | ) | |||||||||||||||||||||||
LOSS BEFORE INCOME TAX | (27,914 | ) | (1,374 | ) | (984 | ) | (71 | ) | 27,500 | (153 | ) | (2,996 | ) | |||||||||||||||||||||
INCOME TAX EXPENSE | ||||||||||||||||||||||||||||||||||
Income tax expense | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
INCOME (LOSS) BEFORE INCOME IN EQUITY METHOD INVESTEE | (27,914 | ) | (1,374 | ) | (984 | ) | (71 | ) | 27,500 | (153 | ) | (2,996 | ) | |||||||||||||||||||||
Share of net loss of equity method investee | (80 | ) | - | - | - | - | 80 | N | - | |||||||||||||||||||||||||
NET LOSS | $ | (27,994 | ) | $ | (1,374 | ) | $ | (984 | ) | $ | (71 | ) | $ | 27,500 | $ | (73 | ) | $ | (2,996 | ) | ||||||||||||||
Net Income (Loss) per share - basic and diluted | $ | (0.21 | ) | N/A | N/A | N/A | N/A | N/A | $ | (0.02 | ) | |||||||||||||||||||||||
Weighted Average Shares Outstanding - basic and diluted | 131,863,780 | N/A | N/A | N/A | N/A | 1,000,000 | 132,863,780 |
4
Unaudited Combined Condensed Pro Forma Statement of Operations
Twelve months ended December 31, 2020
Sysorex Inc Registrant(TTM Digital) | Sysorex Inc Predecessor | Up North Hosting LLC | TTM / Sysorex Pro Forma Reverse Merger Adjustments | Up North Pro Forma Business Combination Adjustments | Pro Forma Combined | |||||||||||||||||||||||
REVENUES | ||||||||||||||||||||||||||||
Mining income | $ | 1,868 | $ | - | $ | - | $ | - | $ | - | $ | 1,868 | ||||||||||||||||
Products revenue | - | 7,934 | - | - | - | 7,934 | ||||||||||||||||||||||
Services revenue | - | 3,592 | 898 | - | (421 | ) | C | 4,069 | ||||||||||||||||||||
Total revenues | 1,868 | 11,526 | 898 | - | (421 | ) | 13,871 | |||||||||||||||||||||
COSTS AND EXPENSES | ||||||||||||||||||||||||||||
Mining cost | 433 | - | - | - | (421 | ) | C | 12 | ||||||||||||||||||||
Product cost | - | 6,720 | - | - | - | 6,720 | ||||||||||||||||||||||
Services cost | - | 2,458 | 725 | - | - | 3,183 | ||||||||||||||||||||||
Sales and marketing | - | 1,166 | - | - | - | 1,166 | ||||||||||||||||||||||
General and administrative | 4 | 2,631 | 271 | - | - | 2,906 | ||||||||||||||||||||||
Management fees | 145 | - | - | - | - | 145 | ||||||||||||||||||||||
Depreciation | 827 | - | 81 | - | 193 | L | 1,101 | |||||||||||||||||||||
Amortization of intangibles | - | 313 | - | 268 | I | 10 | M | 591 | ||||||||||||||||||||
Total costs and expenses | 1,409 | 13,288 | 1,077 | 268 | (218 | ) | 15,824 | |||||||||||||||||||||
OPERATING INCOME (LOSS) | 459 | (1,762 | ) | (179 | ) | (268 | ) | (203 | ) | (1,953 | ) | |||||||||||||||||
OTHER (INCOME) EXPENSE | ||||||||||||||||||||||||||||
Merger charges | - | - | - | - | - | - | ||||||||||||||||||||||
Debt restructuring fee | - | - | - | - | - | - | ||||||||||||||||||||||
Interest expense | - | (1,721 | ) | - | 1,248 | K | - | (473 | ) | |||||||||||||||||||
Realized gain on sale of digital assets | 44 | - | - | - | - | 44 | ||||||||||||||||||||||
Gain / (loss) on disposal of assets | 17 | - | - | - | - | 17 | ||||||||||||||||||||||
Other expense, net | (29 | ) | 19 | 5 | - | - | (5 | ) | ||||||||||||||||||||
Total other (income) expense | 32 | (1,702 | ) | 5 | 1,248 | - | (417 | ) | ||||||||||||||||||||
LOSS BEFORE INCOME TAX | 491 | (3,464 | ) | (174 | ) | 980 | (203 | ) | (2,370 | ) | ||||||||||||||||||
INCOME TAX EXPENSE | ||||||||||||||||||||||||||||
Income tax expense | - | - | - | - | - | - | ||||||||||||||||||||||
INCOME (LOSS) BEFORE INCOME IN EQUITY METHOD INVESTEE | 491 | (3,464 | ) | (174 | ) | 980 | (203 | ) | (2,370 | ) | ||||||||||||||||||
Share of net loss of equity method investee | (39 | ) | - | - | - | 39 | N | - | ||||||||||||||||||||
NET LOSS | $ | 452 | $ | (3,464 | ) | $ | (174 | ) | $ | 980 | $ | (164 | ) | $ | (2,370 | ) | ||||||||||||
Net Income (Loss) per share -basic and diluted | $ | 0.01 | $ | (8.46 | ) | N/A | N/A | N/A | $ | (0.03 | ) | |||||||||||||||||
Weighted Average Shares Outstanding - basic and diluted | 75,540,013 | 409,667 | N/A | N/A | 1,000,000 | 76,949,680 |
See accompanying notes to unaudited combined condensed pro forma financial information
5
NOTES TO THE UNAUDITED COMBINED CONDENSED PRO FORMA FINANCIAL INFORMATION
(in thousands)
(1) Basis of Presentation
The unaudited combined condensed pro forma financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of SEC Regulation S-X and present the pro forma financial position and results of operations of the Combined Company after giving effect to the Merger and Purchase Agreements (the “Acquisitions”). The historical financial information of Sysorex, TTM Digital and UNH has been adjusted to give pro forma effect to events that are: (a) directly attributable to the Acquisitions, (b) factually supportable, and (c) with respect to the unaudited combined condensed pro forma statements of operations, expected to have a continuing impact on the combined results. The Acquisition Adjustments included in the unaudited combined condensed pro forma financial information (“Pro Forma Financial Information”) are based on currently available data and assumptions that the Company believes are reasonable. However, the Unaudited Combined Condensed Pro Forma Statements of Operations do not include any expected revenue synergies or cost savings or restructuring actions that may be achievable or that may occur subsequent to the Acquisition. Accordingly, the actual financial position and results of operations may differ from these pro forma amounts as additional information becomes available and as additional analyses are performed.
The Acquisition Adjustments are preliminary and based on estimates of the fair value and useful lives of the assets acquired and liabilities assumed and have been prepared to illustrate the estimated effect of the Acquisitions. The final determination of the purchase price allocation will be based on the final valuation of the fair values of assets acquired and liabilities assumed.
(2) Preliminary Purchase Consideration and Purchase Price Allocation
The UNH Acquisition is being accounted for as a business combination using the acquisition method in accordance with Accounting Standards Codification 805, Business Combinations. Under this method of accounting the purchase price will be allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of consummation of the Acquisition.
As the aggregate consideration for Transaction was exchanged for both the Transferred Membership Interest and the acquired Bitworks Data Mining Equipment the Transaction consideration requires allocation between these two transaction components based upon the fair values of these transaction components. In the valuation of the aggregate consideration the Company determined that the one million shares of restricted common stock exchanged are valued at $0.4 million for total aggregate consideration in the Transaction of $1.4 million. The Company determined the allocation of the Transaction consideration to be $0.8 million for the UNH Acquisition and $0.6 million for the Bitworks Data Mining Equipment. The UNH Acquisition business combination included both the Transferred Membership Interest and the exchange of the UNH Equity Method Interest. The UNH Equity Method Interest is valued equally with the Transferred Membership Interest at $0.8 million resulting in an aggregate valuation for the UNH Acquisition business combination of $1.6 million.
6
The following table presents the preliminary allocation of the $1,600,000 consideration for the UNH Acquisition business combination as of the acquisition date. The carrying value of the UNH Equity Method Interest exchanged was $664,000 resulting in a gain on the exchange of the UNH Equity Method Interest of $136,000 in comparison to the fair value of $800,000.
Allocation of transaction consideration: | ||||
Cash Consideration | 1,000 | |||
Equity Consideration | 400 | |||
Total transaction consideration | 1,400 | |||
Less:Transaction consideration allocated to Bitworks Data Mining Equipment | 600 | |||
Transaction consideration allocated to UNH Acquisition | 800 | |||
UNH Equity Method Interest exchanged | 800 | |||
Fair value of UNH Business | 1,600 | |||
UNH Equity Method Interest fair value | 800 | |||
Less:Carrying value of UNH Equity Method Interest | 664 | |||
Realized gain on exchange of UNH Equity Method Interest | 136 |
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date. As described above, fair values assigned to certain assets acquired and liabilities assumed are preliminary and thus subject to change:
Cash and cash equivalents | $ | 55 | ||
Accounts receivable | 29 | |||
Unbilled receivables | 56 | |||
Prepaid expenses | 2 | |||
Property and equipment | 1,478 | |||
Intangible assets | 100 | |||
Other assets | 34 | |||
Total fair value of assets acquired | 1,754 | |||
Accounts payable | 96 | |||
Accrued expenses | 58 | |||
Total fair value of liabilities assumed | 154 | |||
Total fair value of net assets acquired | $ | 1,600 |
Other considerations in the preliminary allocation of the estimated UNH Acquisition purchase price include the following:
1) | Our preliminary valuation used to allocate the purchase price uses a third-party market participant view and assumes there are no synergies unique in the UNH Acquisition. If there were any synergies unique in the UNH Acquisition, then the fair value of the identifiable assets for the UNH Acquisition may be lower potentially resulting in a higher allocation of transaction consideration to the Bitworks Data Mining Equipment acquired in the transaction accounted for separately from the business combination. The Company does not expect to record any goodwill in the business combination. |
2) | Accounts receivable and other current asset and liability carrying values approximate fair value; |
7
(3) Acquisition Adjustments
The following is a summary of the Acquisition Adjustments reflected in the Pro Forma Financial Information based on preliminary estimates, which may change as additional information is obtained.
Balance Sheet Adjustments
The pro forma balance sheet adjustments include:
A. | Reflects the cash and equity consideration exchanged for the Transaction. |
B. | Reflects the allocation of fair value of $600,000 to the Bitworks Data Mining Equipment acquired as a part of the Transaction that is accounted for as a separate transaction from the UNH Acquisition business combination. |
C. | Eliminates the UNH and TTM Digital intercompany transactions for the balance sheet and the statement of operations. |
D. | Reflects the fair value adjustment for property and equipment as of the acquisition date. |
E. | Reflects the provisional intangible assets recognized in the UNH Acquisition. |
F. | Reflects the exchange of the UNH Equity Method Interest in the UNH Acquisition business combination and reflects the gain on this exchange for the excess of fair value for the equity interest over the carrying value for the interest. |
G. | Eliminates the historical equity of UNH. |
Statement of Operations Adjustments:
H. | Removes the transaction costs recorded in the TTM Digital / Sysorex Reverse Merger transaction. |
I. | Reflects the adjustment to amortization expense to remove the intangible amortization recorded in the historical financial statements of Sysorex and adds the estimated amortization expense on the intangible assets recognized in the Reverse Acquisition. |
J. | This adjustment removes the merger charges and the debt restructuring fee incurred in the Reverse Merger that were one-time charges and do not have an ongoing impact to operations. |
K. | This adjustment records interest expense savings on the debt converted to equity by Sysorex in the Sysorex Recapitalization that occurred in conjunction with the Reverse Merger. In addition, the adjustment reflects the additional estimated interest expense associated with the financing on the acquisition of additional data mining capacity on April 1, 2021, by TTM Digital for the year ended December 31, 2020. |
L. | Reflects the additional depreciation expense on the UNH property and equipment fair value difference in addition to the depreciation expense on the Bitworks Data Mining Equipment acquired on November 2, 2021. |
M. | Reflects the amortization expense on the intangible assets acquired in the UNH Acquisition. |
N. | Eliminates the equity method investee income of Sysorex for the investment UNH. |
8
Cover |
Nov. 08, 2021 |
---|---|
Cover [Abstract] | |
Document Type | 8-K/A |
Amendment Flag | true |
Amendment Description | On November 8, 2021, Sysorex, Inc., a Nevada corporation (the “Company”), filed a Current Report on Form 8-K (the “Original Report”) with the Securities and Exchange Commission in connection with the execution of that certain Membership Interest Purchase Agreement pursuant to which Down South Hosting, LLC, a Delaware limited liability company and an indirect wholly-owned subsidiary of the Company, agreed to purchase from BWP Holdings LLC, a New York limited liability company, a fifty percent (50%) membership interest in Up North Hosting LLC, a New York limited liability company (“UNH”) (such sale, the “Transaction”). As a result of the Transaction, UNH became an indirect wholly-owned subsidiary of the Company. This Current Report on Form 8-K/A is being filed to amend the Original Report to provide the financial statements and pro forma financial information described below, in accordance with the requirements of Item 9.01 of Form 8-K, which require the filing of such financial statements and financial information not later than 71 days after the date on which the Original Report was required to be filed pursuant to Item 2.01. Except as provided herein, the disclosures made in the Original Report remain unchanged. |
Document Period End Date | Nov. 08, 2021 |
Entity File Number | 000-55924 |
Entity Registrant Name | SYSOREX, INC. |
Entity Central Index Key | 0001737372 |
Entity Tax Identification Number | 68-0319458 |
Entity Incorporation, State or Country Code | NV |
Entity Address, Address Line One | 13880 Dulles Corner Lane |
Entity Address, Address Line Two | Suite 175 |
Entity Address, City or Town | Herndon |
Entity Address, State or Province | VA |
Entity Address, Postal Zip Code | 20171 |
City Area Code | 800 |
Local Phone Number | 929-3871 |
Written Communications | false |
Soliciting Material | false |
Pre-commencement Tender Offer | false |
Pre-commencement Issuer Tender Offer | false |
Entity Emerging Growth Company | true |
Elected Not To Use the Extended Transition Period | false |
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