Related Party Transactions

12 Months Ended

Dec. 31, 2022

Note 13 — 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, 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 twelve months ended December 31, 2022, the Company recorded $129,334 in mining costs within discontinued operations on the statement of operations. The Company terminated the Hosting Facilities Services Order effective June 30, 2022.

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%. For the twelve months ended December 31, 2022, the Company recorded $143,640 in mining costs within discontinued operations on the statement of operations. The Company terminated the Service agreement effective June 30, 2022.

Master Services Agreement

On April 29, 2021, the Company entered into a Master Services Agreement with CoreWeave to provide support to management relating to cryptocurrency expertise, marketing, and other operational matters for a three-month term. The compensation for these services is a fixed fee of $35,000 per 30-day period, which includes 175 hours per period. The Company recorded $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.

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.

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 1, 2021, the Company entered into a consulting agreement with Bespoke. Bespoke’s owner is a shareholder in the Company. In connection with the consulting agreement, the Company agreed to issue 5,589,820 shares of common stock, of which 5,250,000 were later exercised for pre-funded warrants, of which 5,250,000 were unexercised as of December 31, 2021. The pre-funded warrants were subsequently exercised on January 21, 2022. The Company recognized an expense associated with the share issuance totaling approximately $1,884,888.

Effective as of April 15, 2021, the Company entered into a consulting agreement with Bespoke. Under the terms of the consulting agreement, the Company agreed to total compensation for services of $975,000 which of which $775,000 was paid during the year ended December 31, 2021. The Company made an additional payment in accordance with the agreement of $200,000 in January 2022. The Company expensed this advisory fee during the twelve months ended December 31, 2022, which is recorded as consultant fees in general and administrative operating costs in the consolidated statement of operations. As of June 30, 2022, the Bespoke consulting agreement has expired.

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 for identifying the Ostendo acquisition and services related to the Company. On March 23, 2022, the Company paid off the balance owed for this service. The Company expensed the advisory fee during the twelve months ended December 31, 2022, which is recorded as consultant fees in general and administrative in the consolidated statement of operations.

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 $25,000 through January 31, 2022, as consultant fees in 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.

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. As of December 31, 2022, the Company recorded an impairment charge of $0.5 million, which is recorded as an impairment of investments in the statement of operations as disclosed in Note 5 Discontinued Operations.

Omniverse, 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.

Sysorex, Inc. 10-K