UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

FORM 10-K

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


For the fiscal year ended December 31, 2021 
2023

 

OR

 

☐TRANSITION REPORT PURSUANTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

 

Commission file number 001-39096

 

AKERNA CORP.

GRYPHON DIGITAL MINING, INC.

(Exact name of registrant as specified in its charter)

Delaware

 

83-2242651

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

5953 Mabel Road, Unit 138 Las Vegas, NV89110

1550 Larimer Street #246 Denver, Colorado

80202

(Address of principal executive offices)

 

(Zip Code)


Registrant’s telephone number, including area code: (888) 932-6537(877) 646-3374

 

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

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered
registered

Common Stock, $0.0001 par value $0.0001 per share

 

KERNGRYP

 

Nasdaq Stock Market LLC
(Nasdaq Capital Market)

Warrants to purchase one share of common stock

KERNW

The Nasdaq Stock Market LLC
(Nasdaq Capital Market)

 

Securities registered under Section 12(g) of the Act: None


1


Indicate by check mark if the registrant is a well-known seasonedseasoned 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 Section15(d) of the Act. Yes ☐ No ☒

 

Indicate by check mark whether the registrantregistrant (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 (§ 232.405 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 byby check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See 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 by check mark 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 registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ☐  No ☒

 Yes☐  No ☒



The aggregate market value of the voting and non-voting common stock of Akerna CorpGryphon Digital Mining, Inc. held by non-affiliates of Akerna Corp was approximately $94.6 millionapproximately $4.1 million based upon the closing price per share of $4.03$0.605 on June 30, 2021.2023.


As of March 16, 2022, 32,054,46329, 2024, there were 38,800,340 shares of the registrant’s common stock, $0.0001 par value $0.0001 per share wereof the registrant issued and outstanding.

 

 

Documents Incorporated by Reference


To the extent herein specifically referenced, portions of Akerna Corp’s Definitive Proxy Statement on Schedule 14A for the 2022 Annual General Meeting of Shareholders are incorporated herein by reference into Part III of this Form 10-K.


 

INDEX

2

INDEX​

​

PART I51
Item 1.
Business51
Item 1A.Risk Factors1412
Item 1B.Unresolved Staff Comments2938
Item 1C.Cybersecurity38
Item 2.Properties2939
Item 3.Legal Proceedings2940
Item 4.Mine Safety Disclosures2941




PART II3042
Item 5.Market for Registrant'sRegistrant’s Common Equity, Related Stockholder Matters and Issuers Purchases of Equity Securities3042
Item 6.Selected Financial Data[Reserved]3242
Item 7.Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operation3242
Item 7A.Quantitative and Qualitative Disclosure about Market Risk4753
Item 8.Financial Statements and Supplementary Data4753
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure4854
Item 9A.Controls and Procedures4854
Item 9B.Other Information4955

Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
55

PART III5056
Item 10.Directors, Executive Officers and Corporate Governance5056
Item 11.Executive Compensation5062
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters5075
Item 13.Certain Relationships and Related Transactions and Director Independence5076
Item 14.Principal Accounting Fees and Services5078




PART IV5179
Item 15.Exhibits, Financial Statement Schedules5179
Item 16.Form 10-K SummaryForm 10-k Summary8153

Signatures5482


3

i

SPECIAL

EXPLANATORY NOTE

On February 9, 2024 (the “Closing Date”), Gryphon Digital Mining, Inc., a Delaware corporation f/k/a Akerna Corp. (“Gryphon,” the “Company,” “we,” “us” or “our”), consummated the previously announced business combination pursuant to that certain Agreement and Plan of Merger by and between the Company, Akerna Merger Co., a wholly-owned subsidiary of the Company (“Merger Sub”), and Ivy Crypto, Inc. (formerly known as Gryphon Digital Mining, Inc.) (“Legacy Gryphon”), dated January 27, 2023, as amended (the “Merger Agreement”), following approval thereof at a special meeting of the Company’s stockholders held on January 29, 2024 (the “Special Meeting”).

Pursuant to the terms of the Merger Agreement, a business combination between the Company and Legacy Gryphon was effected through the merger of Merger Sub with and into Legacy Gryphon, with Legacy Gryphon as the surviving company in the Merger, and after giving effect to such merger, continuing as a wholly owned subsidiary of the Company (the “Merger” and, together with the other transactions contemplated by the Merger Agreement, the “Business Combination”). On the date of the closing (the “Closing”) of the Business Combination (the “Closing Date”), the registrant changed its name from Akerna Corp. to Gryphon Digital Mining, Inc. Additionally, on the Closing Date, immediately following the Closing, the Company sold its legacy business to MJ Acquisition Corp. pursuant to that certain securities purchase agreement dated April 28, 2023, as amended (the “SPA”) by and among the Company, Akerna Canada Ample Exchange Inc. and MJ Acquisition Corp.

Unless the context requires otherwise, references to “Akerna” are to the Company prior to the Business Combination.

The Company’s common stock, par value $0.0001 per share (the “Common Stock”), is listed on the Nasdaq Capital Market (“Nasdaq”) under the symbol “GRYP”. The audited financial statements included herein are those of the Company prior to the consummation of the Business Combination and the name change. Prior to the Business Combination, the Company’s business was enterprise software solutions within the cannabis industry.

The audited consolidated financial statements of Legacy Gryphon and its consolidated subsidiaries, which is considered the Company’s accounting predecessor, prior to the close of the Business Combination for the years ended December 31, 2023 and 2022 are included in the Form 8-K/A that is anticipated to be filed with the SEC on or about April 1, 2024.

ii

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This annual report on Form 10-KReport (as defined below), including, all exhibits heretowithout limitation, statements under “Item 7. Management’s Discussion and any documents that are incorporated by reference as set forth on the face page under “Documents incorporated by reference,Analysis of Financial Condition and Results of Operations,” contains “forward-looking statements” includes forward-looking statements within the meaning of Section 27A of the Private Securities Litigation Reform Act (as defined below) and Section 21E of 1995, including statements regarding future events or our future results of operations, financial condition, business, strategies, financial needs, and the plans and objectives of management. In some cases,Exchange Act (as defined below). These forward-looking statements can be identified because they containby the use of forward-looking terminology, including the words such as “anticipate,“believes,” “believe,“estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “will,” “potential,” “projects,” “predicts,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “likely,” “plan,” “potential,” “predict,” “project,” “seek,”or “should,” “target,” “will,” “would,” or, similar expressions and the negatives of those terms. Forward-lookingin each case, their negative or other variations or comparable terminology. There can be no assurance that actual results will not materially differ from expectations. Such statements are based on information available to our management as of the date of this Annual Report and our management’s good faith belief as of such date with respect to future events and are subject to a number of risks, uncertainties, and assumptions that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements, in particular the substantial risks and uncertainties related to the ongoing COVID-19 pandemic. Important factors that could cause such differences to include, but are not limited to, any statements relating to our ability to consummate any acquisition or other Business Combination (as defined below) and any other statements that are not statements of current or historical facts. These statements are based on management’s current expectations, but actual results may differ materially due to various factors, including, but not limited to:  



●our abilityneed to, continue as a going-concern;and difficulty in, raising additional capital;

●downturns in the Cryptocurrency industry;

●inflation;

●increased interest rates;

●the inability to procure needed hardware;

●the failure or breakdown of mining equipment, or internet connection failure;

●access to reliable and reasonably priced electricity sources;

●cyber-security threats;

●
our ability to sustain our revenue growth rate, to achieve or maintain profitability, and to effectively manage our anticipated growth

●our short operating history makes it difficult to evaluate our business and future prospects;

●our dependence on the commercial success of our clients, the continued growth of the cannabis industry and the regulatory environment in which the cannabis industry operates;

●
our ability to attract new clients on a cost-effective basis and the extent to which existing clients renew and upgrade their subscriptions;

●
the timing of our introduction of new solutions or updates to existing solutions;

●
our ability to successfully diversify our solutions by developing or introducing new solutions or acquiring and integrating additional businesses, products, services, or content;

●our ability to respond to changes within the cannabis industry;

●
the effects of adverse changes in, or the enforcement of, federal laws regarding our clients’ cannabis operations or our receipt of proceeds from such operations;

●
our ability to manage unique risks and uncertainties related to government contracts;

●
our ability to manage and protect our information technology systems;

●
our ability to maintain and expand our strategic relationships with third parties;

●
our ability to deliver our solutions to clients without disruption or delay;

●our exposure to liability from errors, delays, fraud, or system failures, which may not be covered by insurance;

●our ability to expand our international reach;

●our ability to retain or recruit officers, key employees, and directors;

●our ability to manage potential conflicts of interest involving our Chief Financial Officer moving to part-time;obtain proper insurance;


●
our ability to raise additional capital or obtain financing in the future;

●
our ability to successfully integrate acquired businesses with Akerna’s business within anticipated timelines and at their expected costs;

●our ability to complete planned acquisitions on time or at all due to failure to obtain stockholder approval or governmental or regulatory clearances, or the failure to satisfy other conditions to completion, or the failure of completion for any other reason;
●our response to adverse developments in the general market, business, economic, labor, regulatory, and political conditions, including worldwide demand for cannabis and the spot price and long-term contract price of cannabis;

●
our response to competitive risks;

●our ability to protect our intellectual property;

●the market reaction to negative publicity regarding cannabis;

●our ability to manage the requirements of being a public company;

●
our ability to service our convertible debt;

●our accounting treatment of certain of our private warrants;construction risks;

●

our abilitybanks and other financial institutions ceasing to effectively manage any disruptionsprovide services to our business and/industry;

●changes to the Bitcoin network’s protocols and software;

●the decrease in the incentive to mine Bitcoin;

●the increase of transaction fees related to digital assets; or

●the fraud or any negative impact to our financial performance caused by security failures of large digital asset exchanges;

●future digital asset, technological and digital currency development;

●the economicregulation and social effectstaxation of digital assets like Bitcoin; and

●the COVID-19 pandemicother risks and measures taken in response; and



●

other factorsuncertainties discussed in other sections of this Annual Report on Form 10-K, including the sections of this report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II, Item 7 and "Risk Factors" Part I, Item“Item 1A. Risk Factors” below.
4

The forward-looking statements contained in this Report are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Should one or more of these risks or uncertainties materialize, or should underlyingany of our assumptions prove incorrect, actual results may vary materiallyin material respects from those anticipated, believed, estimated, or expected.projected in these forward-looking statements. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. We disclaim anyundertake no obligation to update or revise subsequently any forward-looking statements, to reflectwhether as a result of new information, future events or circumstances afterotherwise, except as may be required under applicable securities laws. 

iii

SUMMARY OF RISK FACTORS

The following is a summary of the dateprincipal risks described below in Part I, Item 1A “Risk Factors” in this Annual Report on Form 10-K. We believe that the risks described in the “Risk Factors” section are material to investors, but other factors not presently known to us or that we currently believe are immaterial may also adversely affect us. The following summary should not be considered an exhaustive summary of such statements or to reflect the occurrence of anticipated or unanticipated events. We qualify allmaterial risks facing us, and it should be read in conjunction with the forward-looking statements“Risk Factors” section and the other information contained in this Annual Report byon Form 10-K.

Risks Related to the foregoing cautionary statements.


Price of Bitcoin

PART I

●Gryphon’s future success will depend upon the value of Bitcoin; the value of Bitcoin may be subject to pricing risk and has historically been subject to wide swings.
●Gryphon may face several risks due to disruptions in the crypto asset markets, including but not limited to the risk from depreciation in Gryphon’s stock price, financing risk, risk of increased losses or impairments in its investments or other assets, risks of legal proceedings and government investigations, and risks from price declines or price volatility of crypto assets.
●Gryphon may face several risks due to disruptions in the crypto asset markets, including but not limited to the risk from depreciation in Gryphon’s stock price, financing risk, risk of increased losses or impairments in its investments or other assets, risks of legal proceedings and government investigations, and risks from price declines or price volatility of crypto assets.
●The lack of regulation of digital asset exchanges which Bitcoin, and other cryptocurrencies, are traded on, may expose Gryphon to the effects of negative publicity resulting from fraudulent actors in the cryptocurrency space, and can adversely affect an investment in Gryphon.
●The Bitcoin market is exposed to financially troubled cryptocurrency-based companies
●There is a lack of liquid markets for, and possible manipulation of, blockchain/cryptocurrency-based assets.
●Acceptance and/or widespread use of Bitcoin are uncertain.
●Cryptocurrencies, including Bitcoin, face significant scaling obstacles that can lead to high fees or slow transaction settlement times.
●The development of other cryptocurrencies and/or digital currencies may adversely affect the value of Bitcoin.
●Gryphon faces risks of Internet disruptions, which could have an adverse effect on the price of Bitcoin.

 

iv

Risks Related to Operations

●Gryphon is an early-stage company and has a limited history of generating profits.
●Gryphon has a substantial amount of debt and significant debt service obligations.
●Gryphon’s independent registered public accounting firm’s report contains an explanatory paragraph that expresses substantial doubt about Gryphon’s ability continue as a “going concern.”
●Gryphon’s bitcoin may be subject to loss, theft or restriction on access.
●Our ability to adopt technology in response to changing security needs or trends and reliance on third party, Bitgo Prime, for custody poses a challenge to the safekeeping of our digital assets.
●Gryphon may be affected by price fluctuations in the wholesale and retail power markets.
●If Gryphon is unable to secure power supply at prices or on terms acceptable to it, a material adverse effect on Gryphon’s business, prospects, financial condition, and operating results would occur.
●Gryphon’s business is dependent on a small number of digital asset mining equipment suppliers.
●Mining machines rely on components and raw materials that may be subject to price fluctuations or shortages, including ASIC chips that have been subject to an ongoing significant shortage.
●Gryphon’s reliance primarily on a single model of miner may subject its operations to increased risk of design flaws.
●Gryphon relies on hosting arrangements to conduct its business, and the availability of such hosting arrangements is uncertain and competitive and may be affected by changes in regulation in one or more countries.
●Gryphon’s operations, investment strategies and profitability may be adversely affected by competition from other methods of investing in Bitcoin.
●The development and acceptance of competing blockchain platforms or technologies may cause consumers to use alternative distributed ledgers or other alternatives.
●Gryphon may not adequately respond to price fluctuations and rapidly changing technology, which may negatively affect Gryphon’s business.

Risks Relating Governmental Regulation and Enforcement

●As cryptocurrencies may be determined to be investment securities, Gryphon may inadvertently violate the Investment Company Act of 1940 and incur large losses as a result and potentially be required to register as an investment company or terminate operations and Gryphon may incur third-party liabilities.
●If regulatory changes or interpretations of Gryphon’s activities require its registration as a money services business under the regulations promulgated by The Financial Crimes Enforcement Network under the authority of the U.S. Bank Secrecy Act, Gryphon may be required to register and comply with such regulations. If regulatory changes or interpretations of Gryphon’s activities require the licensing or other registration of Gryphon as a money transmitter (or equivalent designation) under state law in any state in which Gryphon operates, Gryphon may be required to seek licensure or otherwise register and comply with such state law. In the event of any such requirement, to the extent Gryphon decides to continue, the required registrations, licensure and regulatory compliance steps may result in extraordinary, non-recurring expenses to Gryphon. Gryphon may also decide to cease its operations. Any termination of certain operations in response to the changed regulatory circumstances may be at a time that is disadvantageous to investors.
●There is no one unifying principle governing the regulatory status of cryptocurrency nor whether cryptocurrency is a security in each context in which it is viewed. Regulatory changes or actions in one or more countries may alter the nature of an investment in Gryphon or restrict the use of digital assets, such as cryptocurrencies, in a manner that adversely affects Gryphon’s business, prospects or operations.
●Banks and financial institutions may not provide banking services, or may cut off services, to businesses that engage in Bitcoin-related activities or that accept bitcoin as payment, including financial institutions of investors in Gryphon’s common stock.
●Gryphon’s interactions with a blockchain may expose Gryphon to specially designated nationals or blocked persons or cause Gryphon to violate provisions of law that did not contemplate distributed ledger technology.
●Gryphon’s management and compliance personnel have limited experience handling a listed cryptocurrency mining-related services company.

Risks Related to Gryphon’ s Common Stock

v

PART I

Item 1. Business.


Unless the context requires otherwise, references to “Gryphon,” “we,” “us” or “our” in this section are to the business and operations of Legacy Gryphon prior to the Business Overview Combination and to the Company and its subsidiaries following the Business Combination.

Corporate History and Background

 

We were originally incorporated in Delaware on October 3, 2018 under the name “MTech Acquisition Holdings Inc.” for the purpose of effecting a business combination with one or more target businesses. On June 17, 2019, we consummated a business combination pursuant to a Merger Agreement among several companies, including MTech Acquisition Corp., which was special purpose acquisition company established for the purpose of entering into a business combination. In connection with such business combination, MTech Acquisition Holdings Inc. changed its name to Akerna isCorp., which was the Company immediately prior to the Business Combination (“Akerna”). Akerna was a leading provider of enterprise software solutions within the cannabis industry. Cannabis businesses faceThe Business Combination with Legacy Gryphon was closed on February 9, 2024. In light of the fact that the Business Combination has closed and our ongoing business will be the business formerly operated by Legacy Gryphon, this business section primarily includes information regarding Legacy Gryphon’s business.

Overview

Founded in October 2020, Gryphon is a bitcoin mining company based in Las Vegas, Nevada. Gryphon commenced its digital assets mining operations in September 2021. Gryphon’s mission is to create a net carbon neutral bitcoin miner. Gryphon’s revenue model is to mine and hold bitcoin, and then sell only the bitcoin that is necessary to pay its operating expenses and to reinvest in operational expansion.

Gryphon’s operations encompass the following:

●Self-Mining: Gryphon operates approximately 7,400 bitcoin ASIC mining computers, referred to as “miners,” from Bitmain Technologies Limited (“Bitmain”) that Gryphon has installed at third-party hosted mining data centers located in New York. Revenue generated by the mining of bitcoin is measured on a dollar per megawatt-hour (“MWh”) basis and is variable based on the price of Bitcoin, the measure of difficulty, transaction volume and global hash rates.
●ESG-Led Mining: Gryphon is an ESG-committed bitcoin miner with the mission to create the world’s largest bitcoin miner with a neutral carbon footprint. Gryphon currently uses net carbon neutral energy in its power mix.

Gryphon launched its mining operations in September 2021 upon the receipt of the first of 12 batches of 600 Bitmain S19j Pro Antminers. Gryphon has deployed a total of approximately 9,000 S19 series Antminers from Bitmain pursuant to the Bitmain Agreement (as defined below) and subsequent market purchases.

Given the significant amount of power that ASIC miners require to operate, Gryphon believes most mining companies focus completely on low-cost electricity without considering the impact of the power’s production on the climate. Gryphon’s strategy is to focus on working with power hosting partners that are committed to climate science and also can produce reliable, low-cost power. Gryphon uses 28 megawatts of space at its primary hosting facility in New York, which relies on renewable hydro energy. As it deploys additional miners, Gryphon will work with hosting partners that have committed to providing carbon neutral power.

Bitcoin Mining Overview

Bitcoin miners use ASIC computers to validate Bitcoin transactions and add “blocks” of validated transactions to Bitcoin’s peer-to-peer blockchain network. Miners earn bitcoin rewards for every block they add to the network as well as the corresponding transaction fees associated with the transactions in the “mined” block. Only one miner or group of miners operating together can receive the block rewards and may also receive the corresponding transaction fees per block added to the Bitcoin blockchain. The amount of bitcoin rewards per block (not including transaction fees) is fixed, and the number of blocks that can be added over time is able to be projected with reliable accuracy; therefore, the expected amount of bitcoin rewarded per miner is based on the number of miners actively participating in the Bitcoin network. Miners will typically only participate if the value of the expected bitcoin rewards is higher than their cost of production.


Miners consume electricity in order to compete for rewards. This means that the economics of bitcoin mining largely depend on:

●the cost of electricity to competing miners;
●the efficiency of mining equipment operated by competing miners; and
●fluctuations in the price of Bitcoin, Bitcoin difficulty (the relative measure of the amount of resources required to confirm a block of bitcoin transactions and receive bitcoin rewards), and global hash rates (the overall amount of computing power consumed by the network).

To achieve scale, mining requires access to large amounts of low-cost electricity.

Introduction to Bitcoin, the Bitcoin Network and Bitcoin Mining

Bitcoin is a digital asset that is created and transmitted through the operations of a peer-to-peer decentralized network of computers, known as the Bitcoin network, which operates on cryptographic protocols. No single entity owns or operates the Bitcoin network, the infrastructure of which is collectively maintained by a decentralized user base. The Bitcoin network allows people to exchange digital tokens of value, called bitcoins, which are recorded on a publicly distributed transaction ledger known as a blockchain. The Bitcoin blockchain is a digital, publicly distributed bookkeeping ledger that holds the record of every Bitcoin transaction.

The Bitcoin network is decentralized and does not require governmental authorities or financial institution intermediaries to create, transmit or determine the value of Bitcoin. Rather, bitcoin is created and allocated by the Bitcoin network protocol through a process referred to as “mining” and the persons or machines that provide transaction verification services to the Bitcoin network and are rewarded with new bitcoin are called “miners.”

The Bitcoin blockchain is a digital chain of blocks with each block containing information relating to a group of Bitcoin transactions. Miners validate Bitcoin transactions, securing the blocks and adding the blocks of transactions to the blockchain record by using computer processing power to solve complex mathematical problems. Solving the problems will result in the block being successfully added to the chain. This means that the Bitcoin transaction information in the block is verified and locked into the blockchain where it remains as a permanent record on the blockchain network. The record set maintained by the Bitcoin network is publicly viewable and accessible to all. As an incentive to those who incur the computational cost of securing the Bitcoin network by validating transactions, the miner who correctly solves the problem resulting in a block being added to the Bitcoin blockchain is awarded bitcoin.

To begin bitcoin mining, a user can download and run Bitcoin network mining software, which turns the user’s computer into a “node” on the Bitcoin network that validates blocks. Each block contains the details of some or all of the most recent transactions of Bitcoin submitted by users of the Bitcoin network that are not already included in prior blocks, and a transaction awarding an amount of bitcoin to the miner who will add the new block. Each unique block can be solved and added to the blockchain by only one miner. Therefore, individual miners and mining pools (i.e., groups of miners acting together) on the Bitcoin network are engaged in a competitive process of increasing their computing power to improve their likelihood of solving for new blocks and receiving bitcoin rewards. As more miners join the Bitcoin network and its collective processing power increases, the Bitcoin network adjusts the complexity of the block-solving equation to maintain a predetermined pace of adding a new block to the blockchain approximately every ten minutes. A miner’s proposed block is added to the blockchain once a majority of the nodes on the Bitcoin network confirms the miner’s work. Miners that are successful in adding a block to the blockchain are awarded bitcoin for their effort and may also receive transaction fees paid by transferors whose transactions are recorded in the block. This reward system is the method by which new bitcoin enter into circulation.


The Bitcoin network is designed in such a way that the reward for adding new blocks to the blockchain decreases over time. The number of bitcoin awarded for solving a new block is automatically halved after every 210,000 blocks are added to the blockchain record. Each block takes approximately 10 minutes to be solved and as a result, rewards are halved approximately every four years. Currently, the fixed reward for solving a new block is 6.25 bitcoin per block and this number is expected to decrease by half to become 3.125 bitcoin sometime in mid-2024. While Bitcoin prices have historically increased around these halving events, which increases in price have correspondingly mitigated the decrease in mining reward, there is no guarantee that the price change would be favorable or would compensate for the reduction in mining reward. Gryphon aims to mitigate the impacts of halving by maintaining a breakeven profitability floor far below the network average. To do so, Gryphon has developed and implemented a curtailment agreement with its hosting partners to maximize the marginal profitability of its machines. Under this arrangement, on a daily basis, Gryphon’s hosting partner calculates the expected profitability of Gryphon’s machines based on announced day-ahead electricity rates provided by the local utility and using current bitcoin prices. On days when it is forecast that the cost of electricity exceeds Gryphon’s revenue, whether for the entire day or part of the day, the machines are curtailed for the corresponding time period. This program was developed by Gryphon’s hosting partner in collaboration with Gryphon and is in use for several of Gryphon’s hosting partner’s clients. This program improves Gryphon’s profitability as it avoids operating the machines in periods when electricity costs exceed the expected revenue generated without impacting efficiency. The impact of the program on Gryphon’s hashpower is relatively minor as Gryphon’s machines are hosted in upstate New York with a strong power grid that does not often require curtailments (unlike Texas). The program has implemented occasional curtailments that often coincide with high temperature periods or extreme cold weather in the region that would cause the demand for local electricity to spike. Gryphon’s partners have also implemented standard operating procedures to maximize the operational efficiency of its sites, such as preventative maintenance and cleaning of equipment. Gryphon believes that these steps can enable it to maintain survivability above its competitors and mitigate the downside risk of decreased rewards.

Performance Metrics — Network Hash Rate and Difficulty

In bitcoin mining, “hash rate” or “hashes per second” are the measuring units of the processing speed of a mining computer mining bitcoin. “Hash rate” is defined as the speed at which a computer can take any set of information and use an algorithm to reduce that information into a string of letters and numbers of a certain length, known as a “hash.” A “hash” is the computation run by mining hardware in support of the blockchain; therefore, a miner’s “hash rate” refers to the rate at which it is capable of solving such computations.

An individual miner has a hash rate measured as the total hash rate of all of the miners it deploys in its bitcoin mining operations, and network-wide there is a total hash rate of all miners seeking to mine bitcoin. The higher total hash rate of a specific miner, as a percentage of the network wide total hash rate, generally results over time in a corresponding higher success rate in bitcoin rewards as compared to miners with lower hash rates. Today, hash rates are measured in peta hashes per second, or one quadrillion (1,000,000,000,000,000) hashes per second, and exa hashes per second, or one quintillion (1,000,000,000,000,000,000) hashes per second.

“Difficulty” is a relative measure of how complex the process is made to successfully solve the algorithm and obtain a bitcoin award. The difficulty is adjusted by the Bitcoin network mining software periodically generally as a function of how much hashing power is deployed by the network of miners and designed to maintain certain mining results so that, on average, 10 minutes is required to produce a Bitcoin block. If the time to produce a block is generally exceeding the 10-minute expectation, which suggests that the target difficulty is set too high, the network reduces the degree of difficulty and vice versa, with this protocol called difficulty retargeting. At each interval of 2,016 blocks being mined (which takes roughly two weeks), the network re-analyzes the interval and revises the difficulty index, if needed.

Bitcoin Mining Power Requirements

At the beginning stages of the Bitcoin network in the early 2010s, individuals interested in bitcoin mining were able to do so using the CPUs of their personal computers. As popularity increased, so did the “difficulty” of mining, as adjusted automatically by the Bitcoin network. To accommodate the growing level of difficulty, more computer processing power was required. Soon, miners used GPUs generally used to power graphic intensive gaming computers to mine bitcoin. The process repeated, and the mining difficulty and amount of computing power required increased.

Eventually, computers and chips were created for the sole purpose of mining bitcoin. Today, bitcoin mining requires efficient hardware, i.e., ASIC-based mining computers, with strong computing abilities and energy efficiency. These ASIC-based mining computers require a significant amount of electricity to run their mining operations. Keeping electricity costs low is key to making bitcoin mining profitable and sustainable.

The amount of MW electricity required to mine bitcoin depends on the number and types of miners and the energy demand for each type of miner. Each type of miner has a specific electricity demand and hash rate output. According to the Digiconomist.net, as of May 3, 2023, an estimated 96TW of power per year is being consumed by bitcoin mining globally.


Mining Pools

As more and more miners entered the market competing for the limited number of blocks that are regularly added to the Bitcoin blockchain, and as the related increase in the amount of available hashing power resulted in increasing levels of difficulty being implemented by the Bitcoin network, individual miners found that they were in some cases working for months without finding a block and receiving any reward. To address this problem, bitcoin mining operators began to combine their mining resources into mining pools to better compete and generate mining revenue. A “mining pool” is the pooling of resources by miners to earn bitcoin together. The mining pool shares their processing power over a network and splits rewards according to the amount of hashing capacity they contribute.

The mining pool operator provides a service that coordinates the computing power of the independent mining enterprises. Fees are paid to the mining pool operator by the participating miners to cover the costs of maintaining the pool. The pool uses software that coordinates the pool members’ hashing power, identifies new block rewards, records how much work all of the pool participants are contributing, and assigns block rewards earned by the mining pool in proportion to the individual hash rate contributed by a given participant. As discussed below, Gryphon participates in mining pools as an integral part of its business.

Bitcoin Mining Economics

The current 6.25 bitcoin reward for each block, and one Bitcoin block expected to be validated and attached to the Bitcoin blockchain approximately every 10 minutes, equates to approximately 37.50 bitcoin rewards generated by the Bitcoin network every hour, approximately 900 bitcoin generated every day and approximately 328,500 bitcoins generated each year, at least for the next one to two years at which time the bitcoin reward for solving a block will again be halved. Because mining computers generate hashes randomly, the ability to solve a particular Bitcoin block is a probability, with the odds of success typically measured by a ratio equal to the speed at which a particular mining operation is able to calculate hashes (i.e., that miner’s hash rate) compared against the total aggregate hash rate of the Bitcoin network. Profitability is then measured by that ratio multiplied by the number of bitcoins mined in a year multiplied by the then current market price of Bitcoin, then subtracting the costs of purchasing mining equipment, the cost of electricity, and various corporate and administrative costs. For a mining operation that participates in a mining pool, revenues, which are measured as the percentage of a pool’s revenues equal the participating miner’s hash rate compared to the pool’s aggregate hash rate, and typically result in a fraction of a given block reward being paid to a miner, are further reduced by the costs paid to the pool operator.

As of March 26, 2024, Bitcoin was priced at approximately $68,913. Gryphon believes that the price of Bitcoin is likely to continue to fluctuate based on market conditions. Well-known companies have already invested in Bitcoin. Increasing regulatory barriers in Bitcoin epicenters such as China, as well ongoing fiat monetary inflation, have been suggested to support market valuations of Bitcoin. In addition, the block reward for Bitcoin is expected to halve in mid-2024, resulting in even greater Bitcoin scarcity. However, in 2022, FTX Trading LTD. and several other major cryptocurrency exchanges collapsed due to financial issues caused by the stringent regulationsfalling prices of Bitcoin and restrictionsother cryptocurrencies, which began in the fourth quarter of 2021. The collapses of these exchanges spurred a loss of confidence in participants in the digital asset ecosystem, negative publicity surrounding digital assets more broadly and market-wide declines in digital asset trading prices and liquidity. The prices of Bitcoin and other cryptocurrencies have rebounded from their lows around the time of the FTX collapse, but volatility due to these market conditions may continue in the near future.


China has previously limited the shipment of products in and out of its borders, which could negatively impact Gryphon’s ability to receive bitcoin mining equipment from Gryphon’s suppliers. Depending on the magnitude of such effects on Gryphon’s supply chain, shipments of parts for Gryphon’s existing miners, as well as any new miners Gryphon purchases, may be delayed. As Gryphon’s miners require repair or become obsolete and require replacement, Gryphon’s ability to obtain adequate replacements or repair parts from their manufacturer may therefore be hampered. Supply chain disruptions could therefore negatively impact Gryphon’s operations. If not resolved quickly, the impact of COVID-19 could have a material adverse effect on Gryphon’s business.

Governments could take additional restrictive measures to combat the pandemic that shiftcould further impact Gryphon’s business or the economy in the geographies in which Gryphon operates. It is also possible that the impact of the pandemic and response on Gryphon’s suppliers, customers and markets will persist for some time after governments ease their restrictions. These measures may impact Gryphon’s business and financial condition as the responses to control COVID-19 continue.

The extent to which the pandemic may impact Gryphon’s results will depend on future developments, which are highly uncertain and cannot be predicted as of the date of this prospectus/proxy statement, including new information that may emerge concerning the severity of the pandemic and steps taken to contain the pandemic or treat its impact, among others. Nevertheless, the pandemic and the current financial, economic and capital markets environment, and future developments in the global supply chain and other areas present material uncertainty and risk with respect to Gryphon’s performance, financial condition, results of operations and cash flows. See also “Risk Factors” above.

Material Agreements

BitGo Custodial Services Agreement

Pursuant to the BitGo Custodial Services Agreement between BitGo Trust and Gryphon, dated October 1, 2021, BitGo Trust, through its custodial services enables Gryphon to create one or more custody accounts, controlled and secured by BitGo Trust to store certain supported digital currencies and digital tokens or certain fiat currencies such as dollars or euros. BitGo Trust also provides Gryphon with the option to create non-custodial wallets that support certain digital assets via an API and web interface. Gryphon may also elect to store fiat currency with BitGo Trust.

The BitGo Custodial Services Agreement had an initial term of one year. After the initial term, it automatically renews for successive one-year periods, unless either party notifies the other of its intention not to renew at least 60 days prior to the expiration of the then-current term. Gryphon may terminate the BitGo Custodial Services Agreement at any time for any reason upon 30 days’ prior written notice.

BitGo Trust’s cold wallets are supported by a $250 million policy issued by Lloyd’s of London. Specifically, the policy covers: copying and theft of private keys; insider theft or dishonest acts by BitGo employees or executives; and loss of keys. Any theft of assets directly related to BitGo Trust’s custody of key would be covered by the policy. The policy does not cover cases where the client or a third party holds some of the keys themselves (e.g. hot wallets), since BitGo Trust would not be solely responsible for protecting the keys.

BitGo Trust has established a comprehensive set of controls governing the business processes and technology systems using industry standards and frameworks such as NIST, CCSS,CIS, and FFIEC. In addition, these controls have been independently tested as part of our SOC 1 & SOC 2 (Type 2) reports. Customers will decide upon which specific wallets are required based on regional, state,their use case and national governing bodies. Asthey determine the firstportion of assets held in hot or cold wallets. BitGo Trust holds keys to market more than ten years ago, Akerna’s family of software platforms help to enable regulatory compliancecold wallets in undisclosed locations. BitGo’s cold storage solution is housed at undisclosed secure facilities. Any facilities that are co-located are secured by human guards and inventory management across the entire supply chain. When the legal cannabis market started to grow, we identified a need for organic material trackingvideo surveillance, with 24x7 coverage. All BitGo vaults and regulatory compliance software as a service (SaaS) solution customized specifically for the unique needs of the industry. By providing an integrated ecosystem of applications and services that help our clients enable compliance, regulation, consumer safety and taxation, Akerna is building the technology backbone of the cannabis industry. While designed specifically for the unique needs of the cannabis market, our solutionsmanned facilities are adaptable for other industries requiring government regulatory oversight, or where the tracking of organic materials from seed or plant to end products is desired.

Executing upon our expansion strategy, we acquire complementary cannabis brands to grow the scope of Akerna’s cannabis ecosystem. Since 2019, we have integrated six new brands into the Akerna product and service offering. Our first acquisition, Solo Sciences ("Solo"), was initiated in the fall of 2019, with the full acquisition completed in July 2020. We added Trellis Solutions ("Trellis") to our portfolio on April 10, 2020 and finalized the acquisition of Ample Organics ("Ample") and Last Call Analytics ("Last Call") on July 7, 2020. More recently, on April 1, 2021 we completed our acquisition of Viridian Sciences Inc. ("Viridian"), a cannabis business management software system built on SAP Business One, followed by the acquisition of The NAV People, Inc. d.b.a 365 Cannabis ("365 Cannabis"), a cannabis business management software system built on Microsoft Business Central, on October 1, 2021. Through our growing family of companies, Akerna provides highly versatile platforms that equip our clients with a central data management system for tracking regulated products. Our solutions also provide clients with integrated security, transparency, and scalability capabilities, all while helping maintaining compliance with their governing regulations.

On the commercial side, our products help state-licensed businesses operate in compliance with applicable regional laws. Our integrated ecosystem provides integrations with third-party vendors and add-ons that enhance the capabilities of our commercial software platforms. On the regulatory side, we provide track and trace solutions that allow state governments to monitor compliance of licensed cannabis businesses.  To date, our software has helped monitor the compliance of more than $30 billion in legal cannabis. While our software facilitates the success of legal cannabis businesses, we do not handle any cannabis-related material, do not process cannabis sales transactionslocated within the United States ("U.S."), and our revenue is generated from a fixed-fee based subscription and professional services model and is not related to the type or amount of sales made by our clients. States.

 

We drive revenue growth throughBitGo vaults are restricted from public access. BitGo follows role-based access controls and the developmentprinciple of least privilege. Only individuals who have a specific business need to complete their job function are granted access to client information. Insurance providers rely on our product line, our acquisitions and from continued expansion of the cannabis, hemp, and CBD industry. Businesses across the regulated cannabis industry use our solutions. The brand recognition of our existing products, our abilityBitGo’s external auditors to provide services in all areas of the seed-to-sale life cycle, and our wealth of relevant experience attracts cultivation, manufacturing, and dispensary clients who are seeking comprehensive business optimization solutions. Our software solutions are designed to be scalable, and while mid-market and smaller customers have historically been our primary target segment, we are focused on extending our customer reach to address the needs of the emerging enterprise level operator. We believe these larger multi-state/multi-vertical operations represent significant long-term future growth opportunities as the cannabis industry continues to consolidate at a rapid rate. The sophistication of our platform accommodates the complexities of both multi-vertical and multi-state business needs, making us critical partners and allowing us to cultivate long-term, successful relationships with our clients.

Our platforms provide licensed businesses with a true enterprise solution for managing their inventory and compliance and allow government regulators to engage in accurate and real-time compliance monitoring. Key capabilities of our technology infrastructure include: 

Seed-to-Sale Tracking allows the tracking of products from cultivation, through harvest and processing and manufacturing, to the monitoring of the final sale to the patient or consumer. Our traceability technology captures every step in an individual plant’s life, providing visibility into the supply chain from any measurement of finished product dispensed to a patient or customer, back to the plant it came from, and all activity, transportation, and transactions that happen in between. While we do not provide payment processing, and never take, own, or handle any product or cash transaction, our platform records all sales as part of state and jurisdictional compliance Track-and-Trace processes. The data gathered throughout all of these processes is captured, and provides the insights and information needed to run an efficient and streamlined cannabis business. Seed-to-Sale software operates in a complementary relationship with state-mandated Track-and-Trace systems, replicating the reporting functionality and eliminating the need for operators to duplicate their compliance data into two disparate systems. Track-and-Trace systems are designed solely for government regulators to maintain compliance and do not have the sophistication or functionality to provide cannabis business owners with the insights and tools for effective business management. Our seed-to-sale platforms integrate with the state Track-and-Trace compliance system, reporting in the mandated data along the supply chain while also providing business owners with the capabilities to make informed business decisions based on the fully overview of their operations.

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Track-and-Trace is the compliance reporting system used by regulatory bodies in most states. In order to adhere to their state-specific compliance regulations, cannabis operators are required to enter specific data points along the supply chain into the state-mandated track-and-trace system. By doing so, regulators can track the movement of cannabis inventory through the full supply chain, even when it moves between facilities or operators. The aggregated view that Track-and-Trace software seeks to ensure that there is sufficient controls in place for accessing the end product being sold has been grown, harvested, processed, transferredvault and sold compliantly,key material. BitGo maintains $250 million of insurance coverage against loss, theft, and provides assurance of safety to consumers.

   Single System Integration allows state-licensed clients to manage inventory, customer records, and staffmisuse in one tracking system. MJ Platform and Leaf Data Systems platforms can be fully integrated with one another to create a streamlined Seed-to-Sale/Track-and-Trace solution. Additionally, our platforms can also be integrated with systems of numerous third-party suppliers. We have certified integrations with world class accounting solutions, including Sage, SAP, Microsoft and Netsuite. 

Anti-Counterfeiting Technology. Solo sciences provides next-generation anti-counterfeiting technology fused with a direct communication system between brands and consumers. The solo sciences mission is to build confidence and establish trust among consumers, while enabling retailers and distributors to close the loop with creators and producers.

Cannabis Market Insights are curated using the anonymized data aggregated through our Seed-to-Sale platform for key industry intelligence. With over $30 billion in cannabis sales tracked over the past twelve years, we have cultivated a substantial legal cannabis dataset across 30+ states and multiple countries. This data provides a detailed overview of key industry trends, giving us the ability to provide banks, investors, researchers, cannabis businesses, and non-cannabis businesses with cannabis market intelligence and comparison data.


Enterprise Resource Planning (ERP) software is a business process management software that manages and integrates a company’s financials, manufacturing, inventory, supply chain, operations, commerce, and reporting activities. ERP systems improve an operator's efficiency and effectiveness by eliminating disparate systems, consolidating business critical information in a single location, reducing double entry data, and streamlining operations. ERP software solutions built for cannabis operators combine traditional accounting, manufacturing, inventory, and supply chain management with cannabis-specific track and trace and compliance functionality.

Using our years of experience, proprietary databases, and resources to identify trends and predict changes in the cannabis industry we evolve our products and better assist our clients in operating in compliance with the applicable laws of their jurisdictions and capitalizing on commercial opportunities within the applicable regulatory framework, with accuracy, efficiency, and geographic specificity. We have worked with clients and governments across the globe to create customized solutions that fit their specific regulatory and commercially compliant needs. While the majority of our clients are in the U.S. and Canada, our solutions allow cannabis businesses to operate efficiently in this fast-changing industry and comply with state, local, and federal (in countries such as Canada, Italy, Macedonia, and Colombia). Akerna and our family of companies is well-positioned to provide compliance solutions for the expanding national and international legal cannabis market.

Industry & Competition

We believe the growing cannabis industry in numerous U.S. states and other countries represents a significant market opportunity for our technology, as legally licensed operating companies need to ensure they operate within applicable laws and carefully track inventory. With democratic leadership and the new legislation passed during the 2020 election improving the outlook of the industry and a congress that is committed to push forward cannabis policy, the industry’s growth potential has large near-term upside. Since state governments require supply chain transparency to ensure compliance and the maintenance of the seed-to-sale life cycle within their jurisdictions, each new regulated jurisdiction offers an expanded market opportunity for Akerna.

The regulated cannabis industry (medicinal and adult-use) is experiencing rapid growth. According to BDSA's 2021 Essential Cannabis Insights, December 2021 Vol 4, Issue 10, legal cannabis sales in the U.S. passed $25 billion in 2021, growth of 40% over 2020’s $18 billion. BDSA's Cannabis Market Forecast update from September 2021 noted sales are forecasted to rise to $46 billion in 2026, a CAGR of 14% from 2021. Global cannabis sales reached nearly $29 billion in 2021, an increase of 45% over 2020 sales of $20 billion. BDSA forecasts global cannabis sales will grow from $29 billion in 2021 to $61 billion in 2026, a compound annual growth rate (CAGR) of more than 16%.

The COVID-19 pandemic has had a positive effect on the growth and acceptance of the cannabis industry. Fitting into a non-cyclical, vice product category has worked to the industry’s advantage overall based on the 2020 sales data. Although many cannabis companies felt extremely adverse circumstances, and some were even forced to close or sell their businesses, this has accelerated a predictable M&A marketplace in which licenses are being acquired for a fraction of what they cost only 1 year ago. The largest Multi-State Operators (MSOs) are growing and financing faster than ever before. For example, Curaleaf, one of the largest MSOs, opened their 100th retail location in February 2021. As a result of the current M&A marketplace, the landscape is beginning to position itself in a similar way that the alcohol industry has, with major companies controlling a vast majority of market share. Akerna is positioned as an enterprise-level offering to address the needs of these large MSOs that continue to grow through consolidation. The addition of the MJ Analytics seed-to-sale reporting engine, built on the architecture of leading business intelligence platform, Domo, further positions Akerna as an enterprise-level solution.


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Further to our current addressable market, the regulatory changes in the 2018 Farm Bill in the U.S. have created an opportunity for hemp-based CBD in general retail and pharmaceutical channels. Additionally, multiple countries across the world have legalized hemp for growth and export including Canada, China, Italy, Australia, and South Korea. In the U.S., hemp-derived CBD is available broadly across retailers (not solely licensed cannabis dispensaries), including online, drug and convenience stores, natural product, beauty, grocery, and pet stores. According to Grand View Research, Industrial Hemp Market Analysis, The global cannabidiol market size was valued at USD 2.8 billion in 2020 and is expected to expand at a compound annual growth rate (CAGR) of 21.2% from 2021 to 2028. 

The unfortunate events of the 2019 vape scare in the U.S. prompted regulatory changes and additional requirements, including anti-counterfeiting tags and codes. With major investment and partnership with Solo, Akerna has provided a solution to address the issue for both regulators and operators. The combined supply chain transparency solution was chosen by the State of Utah, requiringsituations where BitGo holds all medical dispensary products to be validated. Markets and Markets projects that the anti-counterfeit packaging market size will grow from $105.9 billion in 2018 to $182.2 billion by 2023, at a CAGR of 11.5%. The anti-counterfeit packaging market is projected to witness high growth due to the increasing focus of manufacturers on brand protection to reduce counterfeiting. By leveraging this investment, we strengthen our current addressable market with an essential compliance tool.


The cannabis industry is a fast-growing, increasingly complex, and rapidly changing landscape. Arcview Market Research and BDS Analytics note that the range of regulatory schemes is wide, and fines for non-compliance are steep. Proper, safe, and profitable operation of a cannabis business requires a full understanding of applicable laws, the ability to track plants and products to ensure compliance with these laws, and the ability to operate at scale in a competitive environment. 


Competitive Landscape


The competitive set within the cannabis technology and consulting space has traditionally been comprised of several smaller and specialized companies with limited access to capital.keys. As part of our growth strategy, we may seekthis coverage, BitGo’s insurance underwriters have inspection rights associated with the crypto assets held in storage. All of the Company’s digital assets (100%) are held in cold wallets. The Company does not utilize any hot wallets from BitGo.


BitGo has private key procedures as well as the security and procedures in place for securing assets and in withdrawing and transferring assets. The BitGo ecosystem and architecture for private key management includes the BitGo Platform, HSMs and modular services. The BitGo cold custody solution is built on BitGo’s world class security to acquire assets or companies that are synergistic with our business. We have built a scalable infrastructure to support both rapid organic growth and targeted acquisitions. By providing the full seed-to-sale solution, we believe we are well-positioned to be an acquirer of cannabis technology solutions throughout the supply chain. We compete with numerous technology and consulting companies that offer services that are similar to somemanage keys on behalf of our clients. BitGo only signs transactions that have been authorized by its clients and follow the policies set by the account administrators. BitGo engages an external third-party auditor to verify the digital assets it holds on a periodic basis. In addition, in the course of performing its annual audit of Gryphon’s financial statements, Gryphon’s independent registered public accounting firm sends annual confirmation requests to BitGo to confirm Gryphon’s digital assets held by BitGo. While neither Gryphon nor its insurance providers have any independent inspection rights associated with the digital assets held by BitGo, BitGo’s insurer, Lloyd’s of London, does have inspection rights with respect to the digital assets that BitGo holds.

Coinmint Agreement

On July 1, 2021, Gryphon entered into a Coinmint Colocation Mining Services Agreement (the “Coinmint Agreement”), with Coinmint, LLC (“Coinmint”), an established operator of renewable-energy data centers, pursuant to which Coinmint provides hosting services to Gryphon at Coinmint’s hydro powered facility in Massena, New York (the “Coinmint Facility”) for a 15-month period, which renews automatically for successive three-month terms unless either party delivers to the other party 90 days’ written notice of intent not to renew. Pursuant to the terms of the Coinmint Agreement, 7,200 S19j Pro Antminer machines were delivered to and installed at the Coinmint Facility. Under the terms of the Coinmint Agreement, Coinmint directly passes through the cost of electricity and maintenance costs to Gryphon, collects an initial reservation fee and collects a percentage of Gryphon’s bitcoin mining profits.

Master Services Agreement with Sphere 3D

On August 19, 2021, in connection with the pending Sphere 3D Merger, and notwithstanding the fact that the Sphere 3D Merger was not consummated, Gryphon entered into a Master Services Agreement (the “Sphere 3D MSA”) with Sphere 3D. Under the Sphere 3D MSA, Gryphon is Sphere 3D’s exclusive provider of management services for all blockchain and cryptocurrency-related operations, including but not limited to Acumatica, BDS Analytics, BioTrackTHC, Canna Advisors, Cova Cannabis, Dutchie, Flowhub, Headset, Jane, Metrc, New Frontier Data, Nextec, 3C, Treez,services relating to all mining equipment owned, purchased, leased, operated, or otherwise controlled by Sphere 3D and/or its subsidiaries and/or its affiliates at any location. Gryphon in return receives a percentage of the net operating profit of all of Sphere 3D’s blockchain and TILT Holdings.cryptocurrency-related operations. To provide greater certainty as to the term of the Sphere 3D MSA, Sphere 3D and Gryphon agreed to extend the initial term of the Sphere 3D MSA from three to four years, or to five years in the event Sphere 3D did not receive delivery of a specified minimum number of bitcoin mining machines during 2022. Sphere did not meet delivery targets in 2022, which extended the initial term of the Sphere 3D MSA to five years through August 2026. Subject to written notice from Sphere 3D and an opportunity by Gryphon to cure for a period of up to 180 days, Sphere 3D will be entitled to terminate the Sphere 3D MSA in the event of: (i) Gryphon’s failure to perform the services under the Sphere 3D MSA in a professional and workmanlike manner in accordance with generally recognized crypto-mining industry standards for similar services, or (ii) Gryphon’s gross negligence, fraud or willful misconduct in connection with performing the services. Gryphon will be entitled to specific performance or termination for cause in the event of a breach by Sphere 3D, subject to written notice and an opportunity to cure for a period of up to 180 days.

 

We face competitionPursuant to the Sphere 3D MSA, Gryphon holds the crypto assets of Sphere in eacha Bitgo Trust digital wallet. Sphere’s assets are safeguarded by Bitgo Trust in the same manner that Gryphon’s assets are safeguarded by Bitgo Trust, as described elsewhere in this section. Gryphon and Sphere’s assets are not co-mingled, as Sphere’s assets are stored in a separate wallet with its own address. The terms of the revenue segments inSphere 3D MSA govern the management of Sphere’s assets. The terms prevent self-dealing and conflicts of interest. Additionally, all dealings between Sphere 3D and Gryphon involve one or both of (i) independent, arms-length third parties and (ii) transactions publicly available on the blockchain, which weprovide a clear, unambiguous trail of documentation to audit the relationship as needed.

Master Services Agreement with Core

 operate. We believe,

On September 12, 2021, Gryphon and Core Scientific, Inc. (“Core”) entered into a Master Services Agreement (the “Core MSA”). Pursuant to the Core MSA, Core provides services related to the hosting of Gryphon’s cryptocurrency mining equipment and operations in data centers owned by Core under separate orders entered into by Gryphon and Core. The term of the Core MSA is indefinite, but may be terminated if no active orders have been in effect for at least 12 months.

On November 21, 2023, the Company was notified by Core Scientific, Inc. that Core intended to cease hosting operations of 133 ASIC miners that the Company had operating at Core as of September 30, 2023. As of December 31, 2023, the Company had removed its hosted equipment pursuant to the terms of the operative Master Services Agreement between the Company and Core. This hosted capacity represented approximately 1% of the Company’s overall fleet and management does not anticipate this action to result in a material impact to its operations. The Company relocated those miners to its other existing operations.

The Core MSA was terminated as a result of a settlement agreement entered on January 16, 2024. See “Legal Proceedings - Core Complaint and Related Matters” for more information.


Anchorage Loan Agreement

On May 25, 2022, Anchorage Lending CA, LLC (“Anchorage”) entered into an Equipment Loan and Security Agreement (the “Anchorage Loan Agreement”) with Gryphon Opco I LLC (“Gryphon Opco”), a wholly owned subsidiary of Gryphon, pursuant to which Anchorage loaned Gryphon Opco the principal amount of 933.333333 bitcoin. Gryphon Opco’s obligations under the Anchorage Loan Agreement are secured by certain equipment and software rights of Gryphon Opco and are guaranteed by Gryphon. The loan was payable in installments of 42.424242 bitcoin with interest of 5.0% per annum, payable monthly in bitcoin. Gryphon Opco is further required thereunder to maintain a collateral coverage ratio of 110%. The maturity date of the loan was initially May 27, 2024.

On March 27, 2023, Gryphon and Anchorage entered into an amendment to the Anchorage Loan Agreement (the “Anchorage Loan Amendment”). Pursuant to the Anchorage Loan Amendment, the maturity date was extended to March 2026, and the interest rate was increased to 6% per annum. The monthly principal and interest payments have been adjusted to be 100% of net monthly mining revenue, defined as, for each calendar month, the sum of (a) all of Gryphon’s revenue generated from all bitcoin generated by Gryphon with the collateral less (b) the sum of Gryphon Selling, General and Administrative Expenses (“SG&A”) in connection with bitcoin mining operations, but not to exceed the greater of (x) $100,000 and (y) the amount that is previously preapproved by Anchorage in writing for such calendar month; provided, however that, we possess relative strengthsto the extent that SG&A is capped by clause (b) above, any unapplied SG&A may be rolled forward to subsequent months until fully deducted. Notwithstanding the foregoing, unless otherwise approved by Anchorage, the aggregate amount of SG&A during any rolling twelve-month period will not exceed $750,000. Provided that if at the end of a fiscal quarter, commencing with the fiscal quarter ending June 30, 2023, if (x) the aggregate principal amount payment received by the Anchorage for such fiscal quarter exceeds 38.6363638 bitcoin and (y) the average principal amount payment received by Anchorage for each fiscal quarter (commencing fiscal quarter ending June 30, 2023 and through and including the fiscal quarter for which such determination is to be made) exceeds 38.6363638 bitcoin per fiscal quarter, then, Gryphon will pay to Anchorage 75% of net monthly mining revenue for the immediately succeeding fiscal quarter (and thereafter, in each segmentthe following fiscal quarter would shift to 100%). As consideration for the Anchorage Loan Agreement Amendment, Gryphon agreed to make a one-time payment of 173.17 bitcoins, reducing the principal balance of bitcoins from 636.81 to 463.64, and a closing fee of $45,000. Subsequent to the one-time payment of 173.17 bitcoins, the Company has made payments of approximately 128 bitcoins, reducing the principal balance of bitcoins due from 463.64 to 351.58 bitcoins as of December 31, 2023.

The Anchorage Loan Agreement Amendment also added a conversion provision whereby Anchorage has a limited right to convert all or any portion of the outstanding principal on the loan into a number of shares of Gryphon or any public company that is Gryphon’s parent, if Gryphon is not the public company (the “Conversion Right”). The Conversion Right is available at any time during the one month period (the “Conversion Period”) after which the market capitalization of Gryphon, or its public company parent if Gryphon is not the public company, for the first time exceeds $125,000,000 for five consecutive days. The conversion price is equal to $150,000,000 divided by the number of shares of Gryphon, or its public company parent if Gryphon is not the public company, common stock outstanding immediately prior to Anchorage’s exercise of the Conversion Right during the Conversion Period.


Competition

In digital asset mining, companies and individuals use computing power to solve cryptographic algorithms to record and publish transactions to blockchain ledgers or provide ustransaction verification services to the Bitcoin network in exchange for digital asset rewards. The current reward for verifying a block on the Bitcoin blockchain is 6.25 bitcoin. Miners can range from individual enthusiasts to professional mining operations with dedicated data centers. Miners may organize themselves in mining pools. We compete or may in the future compete with other companies that focus all or a portion of their activities on owning or operating digital asset exchanges, developing programming for the blockchain, and mining activities. Currently, the information concerning the activities of these enterprises is not readily available as the vast majority of the participants in this sector do not publish information publicly or the information may be unreliable. While there is limited available information regarding non-public competitors, several public companies (traded in the United States or internationally), such as the following, are considered our competitors:

●Marathon Digital Holdings Inc.;

●Riot Blockchain Inc.,

●Hive Blockchain Technologies Ltd.,

●Hut 8 Mining Corp.,

●BitDigital, and

●Bitfarms Ltd.

The digital asset mining industry is a highly competitive advantages, including:and evolving industry and new competitors and/or emerging technologies could enter the market and affect our competitiveness in the future.

Competitive Advantages

Low operating costs are a key part of Gryphon’s competitive advantage. The low-cost hosting rates from its two host providers combined with its current generation, more efficient bitcoin miners provide Gryphon with a competitive advantage.

Gryphon believes it has strong relationships with equipment manufacturers and third-party mining data centers. It is challenging to acquire the latest equipment and host capacity due to significant market demand and limited supply. Gryphon has relationships with both types of suppliers, which it believes will allow it to access current-generation equipment and sign contracts with providers of hosting solutions.

Operational Strategy

 

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the range of services offered by us;

Gryphon uses a hosting strategy that allows the company to concentrate the deployment of its capital towards bitcoin mining activities as opposed to building its own datacenters. Gryphon has partnered with a host provider that provides net carbon neutral power for its bitcoin mining.

 

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our management personnel and their industry knowledge and experience; and 

Gryphon’s primary host facility is the Coinmint Facility located in upstate New York and is hydro powered. In September 2021, Gryphon began deploying the first batch of its 7,200 S19j Pro Antminers from Bitmain at this facility. While electricity costs at the Coinmint facility have been as low as $0.032/kWh in 2021 and as of December 31, 2023, were $0.073/kWh with a 52-week rolling average of $0.066/kWh, electricity costs at the facility have fluctuated and will continue to fluctuate. The Coinmint Agreement provides for direct cost pass through of electricity costs and other operating costs at this facility plus a profit share. Gryphon uses approximately 25MW of electricity at this site.

 

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our proprietary databases, which are only available to users of our platforms and consulting services.

Range of Services

We believe we possess a unique viewpoint into the industry because we offer solutions to, and work with, both commercial businesses and government regulatory agencies towards the common goal of ensuring regulatory compliance and real-time monitoring of inventory and sales. We offer a complete range of both software and services to meet these needs for both state governments and commercial businesses. While we do not face competition from firms focusing on specific subsets of our markets, there are a very limited number of competitors providing products or services that compete with our complete range of products and services. We compete with software companies offering a product to businesses only in a certain geographic region or of a certain business type. We also compete with consulting firms serving a specific phase of the cannabis plant life cycle.

Industry Knowledge and Experience

Our management personnel have extensive technical and business operations knowledge and experience within the cannabis and technology industries, which has been developed through numerous years of service in key roles with a broad range of both cannabis and technology companies, both in terms of product and service type and size. We leverage this knowledge and experience to guide our product and service development and delivery. Our management team possesses significant compliance expertise, allowing us to continually monitor changes in legislation and regulation within the markets we and our clients operate. We face competition from companies that have teams with technical expertise or cannabis industry experience, but there are a limited number of competitors who have both and who understand the interplay between software and technology development and the application of the same to the evolving cannabis compliance landscape.

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Proprietary Databases


Twelve years of operations have provided us with a statistically significant dataset of cannabis transaction information that we believe cannot be readily duplicated by new entrants into the marketplace. This growing database includes proprietary sales, market trends, customer preferences, pricing, and regulatory data. We use this dataset to predict trends more accurately in the marketplace and make this dataset available to users of our platforms, providing greater utility to clients in this regard than can be provided by competing platforms.


Products and Solutions


Software


SMB Market:


Akerna’s suite of small and medium business (“SMB” or "Non-Enterprise") products including MJ Platform, Ample Organics, and Trellis provide SaaS offerings for legal cannabis, hemp and CBD businesses. We provide government-licensed cultivators, manufacturers, distributors, and retail dispensaries with a data-driven seed-to-sale tracking platform that provides clients with an enterprise resource planning solution for managing their inventory and regulatory compliance. Akerna’s products and ecosystem of connections are used by clients to compliantly track inventory through all phases of the seed-to-sale cycle – from cultivation to extraction and infusion to packaging, distribution and retail sales. Data points are collected at every stage of the product life cycle and about multiple aspects of the plant’s growing environment, manufacturing processes, and ingredients, as well as retail pricing and purchase data. In Canada, the first G7 country with a federally legal market, we have a pharmacy portal and insurance adjudication.

We service licensed operators in all verticals of the industry, including cultivation, manufacturing, distribution, and retail dispensaries. We have significant client presence for our commercial software solutions in mature cannabis markets such as Arizona, California, Michigan, Pennsylvania, Colorado, Utah, Illinois, Oklahoma, and Puerto Rico, as well as Canada.


We have exclusivity in the Pennsylvania and Utah markets due to our government contracts, which require operators in the states to use MJ Platform.


Solo Sciences – Anti-counterfeiting Technology

Solo is a technology provider for legal cannabis businesses with a focus on providing a cannabis tracking technology that provides seed-to-sale-to-self data throughout a product’s life cycle and empowers consumers with the ability to confirm the quality and authenticity of a product they have purchased.

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Solo uses proprietary technology to place a unique encrypted arrangement of patterns, the solo*TAGTM or solo*CODETM, onto individual packaging labels. Solo technology is significantly lower cost and more secure than traditional tagging technologies like radio-frequency identification. The technology includes a free consumer mobile application, granting end-users and regulatory agencies the ability to track products in the supply chain, verify their authenticity, and learn more detailed information about the product such as its origins and ingredients. 

The Solo technology platform also enables brands to connect directly with consumers. Through it, product creators can provide end-users with push notifications, targeted news, product insights, loyalty points, etc. Brands embrace the platform as it enables them to increase their revenues and create a more tailored marketing experience. Clients benefit from product incentives while gaining trust in the products they are buying and consuming.

Solo has developed several key partnerships including the Utah Department of Health and Department of Agriculture, through Akerna's Leaf Data Systems contract including solo*TAGTM,, a key tagging and technology component in a closed-loop system used by all Utah cannabis licensees as the state’s primary tracking system at the retail, wholesale, cultivation, and manufacturing levels.


Enterprise Market:


Akerna’s Enterprise product suite provides a comprehensive vertically integrated cannabis ERP and business management software system with a choice of being built on the Microsoft Dynamics 365 Business Central platform or the SAP Business One platform. Our enterprise products were built by cannabis experts with cannabis-specific functionality built into the core of the solution and are designed to meet present and future needs of growing businesses. The software solutions allow business clients to manage their entire operations from cultivation to retail and incorporates Cultivation, Production, Global Compliance, QC, Finance, Dispensing & Retail, CRM, Warehousing, Distribution, Multi-Facility, Multi-Company, Multi-Entity, Language, Currency and more with a client base comprised of leading U.S.-based MSOs and single-state operators, and Canadian LPs, in addition to global cannabis clients outside North America. Our enterprise offerings leverage shared Akerna infrastructure for access to Akerna’s broad ecosystem of offerings and to facilitate compliance with our up-to-date regulatory integrations, unparalleled state and country reporting knowledge, and dedicated team of compliance experts.

Government Market:


Leaf Data Systems - Government Regulatory Software

Leaf Data Systems is our SaaS product for government agencies. Leaf Data Systems provides regulatory authorities with visibility into the operations of licensed medical and recreational cannabis businesses. Government regulators desire visibility at critical junctures within the seed-to-sale chain of custody in order to ensure public safety, monitor sales data for the purposes of taxation, and perform physical inspections of cannabis industry facilities. Leaf Data Systems allows for specific data points captured during these workflows to be compiled into the state and regional view retrievable by regulatory officials.

Licensed cannabis facilities within a state can track plant and product movement and waste across their organization, which is processed into reporting tailored to the government agencies that regulate and enforce the rules of the industry. This gives regulators a tool for transparency and accountability across the cannabis supply chain to ensure public and product safety as well as to monitor sales and inventory within the industry. Leaf Data Systems is customized to the regulations of the state in which it is contracted and tailored to capture the relevant data points desired by regulatory officials.


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As of the date of this report, Leaf Data Systems serves two state clients, the Commonwealth of Pennsylvania and the State of Utah. The State of Utah mandates the use of our proprietary solo*TAGTM the world’s first cryptographically-secure, cannabis product authentication system, exclusively for governments as an alternative to radio-frequency identification tracking. This customized system includes an electronic verification and inventory control system to track plants and products throughout the compliance supply chain.


Business Intelligence and Data Analytics Products

We have four data products: MJ Analytics ("MJA"); and Akerna Acumen Big Data, which both leverage the extensive data captured in each of MJ Platform’s cultivation, E&I, distribution, and retail modules; AmpleData, which leverages data obtained through Canadian regulated retail channels; and Last Call Analytics, which provides retail sales analytics for alcohol brands.

MJ Analytics

MJA gives MJ Platform clients access to aggregate data across their organization to keep track of emerging legal and commercial trends, allowing for informed actionable insights at various levels within the organization, including room, location, state, brand, and administration. MJ Platform allows users to align their operational data from three vantage points: in real-time, past trends, and predictive future. This proprietary database assists the user in making important decisions in real-time with respect to product monitoring, tracking, planning, and pricing.


Built in partnership with Domo and Snowflake, MJA is monetized through the provision of Data Analytics subscriptions to clients. We typically grant a limited, non-exclusive, non-sublicensable license to use our industry data for internal management, reporting, and business optimization purposes. The information typically supplied to clients is aggregated and anonymized information regarding products, which may or may not be those of the client, sold through sales generated through our online service platforms.

Akerna Acumen Business Intelligence

We have cultivated a substantial legal cannabis dataset with over $30 billion in sales tracked and twelve years of data across 30+ states and multiple countries. With the contractual ability to aggregate and anonymize this data, we have launched the Akerna Acumen product to provide banks, investors, researchers, cannabis businesses, and non-cannabis businesses with cannabis market intelligence and valuable market comparison data. The data is available in various formats and is available with updates as frequently as daily.

Last Call Analytics & Ample Data

Ample’s wholly owned subsidiary, Last Call Analytics ("LCA"), is a retail analytics platform designed for the beverage alcohol industry, with a focus on allowing our clients to use data to empower retail operations and generate revenue growth. The platform ingests sales and product data from a wide variety of sources, normalizes and homogenizes the dataset, and displays the resultant analysis in a proprietary application.

With the underlying technologies built by LCA, Ample has created AmpleData, a retail analytics platform for the cannabis industry that applies the same proven solution to data streams ingested from various points within the regulated supply chain. Ample Data is designed to provide key insights for Canadian cannabis license holders, cannabis agencies and government regulators.


Cannabis Business Consulting

We provide project-focused consulting services to clients that are initiating or expanding their cannabis businesses or are interested in data consulting engagements regarding the legal cannabis industry. We typically provide our consulting services to clients in emerging markets that are seeking consultation on newly introduced licensing regimes and assistance with the regulatory compliant build-out of operations in newly opened states.


Entering the cannabis industry is a significant undertaking. We work with clients to efficiently comply with state requirements in connection with the launch and operations of their cannabis businesses. Our management and key personnel bring deep cannabis industry experience to us. Our management team and key personnel have broad experience gained from working with numerous cannabis businesses, with operational experience across every vertical (e.g., cultivation, processing, and retail). Our team members have previously managed projects, including cultivation facilities exceeding100,000square feet, retail operations with locations in multiple states, and online businesses serving an entire country.

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Competitive Advantage

Partner API. We host an open API ecosystem and are continually developing and maintaining an extensive collection of integrations that are designed to connect our solutions to over 80 partners, provide full-service solutions at all points in the cannabis business life cycle, including compliance, hardware, banking, accounting, online ordering, payment solutions, CRM and loyalty, delivery, and business analytics. We believe these integrations provide a competitive advantage as they reduce implementation time, effort, and cost while providing a holistic cannabis solution; We have certified API integration with tier one ERP software providers supplying sophisticated accounting solutions that collect and store business transactions to satisfy external reporting requirements. Additionally, we leverage revenue sharing agreements and referral programs with our strategic partners to further grow our business and our revenue.

Technology. As the inventors of Seed-To-Sale technology, our proprietary platform is an AWS cloud-based software solution. We offer specialized cannabis workflows specific to the needs of the industry. We serve all verticals of the cannabis supply chain (cultivation, manufacturing, distribution, retail and delivery). We are one of the few true, single-platform Seed-To-Sale solutions in the cannabis space, and the sophistication of our technology allows us to uniquely scale across legal markets. Our platform has processed over $30 billion in legal cannabis sales, with speed, reliability, and security capabilities designed to serve the needs of even the largest of enterprise customers. Compliance with state regulations is built into our platform infrastructure, assisting clients in their efforts to operate within the regulation parameters of their individual markets. The business insights provided by the data collection throughout the supply chain enables businesses to optimize their operations and make crucial data-driven decisions for their business. These insights are easily analyzed and made actionable by our MJ Analytics module, built in partnership with Domo, a leading BI platform.

Learning Management System. Through our license with ZolTrain, we are able to provide our Akerna clients with training modules to educate and on-board their staff and improve the patient /consumer experience by pairing education with product information both in person and through digital channels. The Zoltrain platform allows cannabis employees to self-direct their own learning and certification through an Akerna specific curriculum, and their employers are able to monitor and track their progress, assisting clients in ensuring that their staff is fully trained and knowledgable about the software they are required to use within their job functions. This is one of the only LMS platforms specifically designed both for the industry and for our software. It provides detailed notes, takeaways, scored exams and certificates of completion, ensuring staff knows their Seed-To-Sale software inside and out. Zoltrain modules are dynamic, and can be easily updated to accommodate new content or education on new product offerings. The AmpleLearn platform is a similar onboarding and education tool developed for Ample Organics clients to assist with building their proficiency using the software in Canada. Similar to Zoltrain, AmpleLearn is built on industry tested content within a dynamic learning environment. There are assessments, progress reports and certifications that are all available to both the employee and their supervisor.The AmpleLearn product is maintained by the internal team at Ample Organics, ensuring that the content is always up-to-date with the most recent software upgrades and functionality.


Strategy

We intend to leverage our scale and capital markets access to pursue additional growth through organic initiatives and to pursue our ecosystem strategy which leverages integrations, partnerships, and inorganic growth.We believe having a scaled ecosystem gives us more opportunities to leverage our footprint and increase wallet share by providing more value to our clients through having what we believe is the most robust cannabis technology suite available. We intend to pursue additional growth through organic initiatives, including increased marketing personnel and resources, acquisitions, and strategic relationships. 


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Customers

Businesses across the cannabis and hemp industries and of all sizes, ranging from small, single location/ single vertical businesses to multi-state enterprise operations, use the Akerna family of solutions. The cannabis industry is still very much in its infancy compared to more established markets, and as it matures, we are seeing a shift in the typical business model. In the beginning, most operators only managed a single location, or a single vertical operation, and therefore many of our longer-standing clients fall into the small to mid-market size business. Over the past few years, and significantly expedited by the COVID-19 pandemic, we are witnessing large-scale, rapid consolidation within the industry. Many of the original small licensees are being purchased and assumed into larger, multi-state, enterprise level organizations. Our software solutions are designed to be scalable, and as we see this shift in the market, we are focused on extending our customer reach to address the needs of the emerging enterprise level operator. We believe these larger multi-state/multi-vertical operations represent significant long-term future growth opportunities as the cannabis industry continues to consolidate. As more states legalize, these operators are identifying future growth opportunities into these expanded legal markets and need a software solution that can grow with them.

Sales and Marketing

We sell our solutions primarily on a subscription basis with module-based and user-seat pricing, allowing businesses to customize their solution based on their specific business model or vertical. With our integrations to major accounting solutions and cannabis service providers, we are able to customize solutions for all sizes and types of businesses.To gain market share and expand beyond the small to mid- size market, Akerna invests in specialized go-to-market strategies for sales and marketing unique to each state and customer segment.

Our omnichannel marketing program, which includes paid and unpaid digital advertising, event marketing, account-based marketing, content marketing, prospect database nurturing, and other digital marketing activities, is designed to capture inbound marketing leads. We also leverage our expertise and industry intel to identify and engage directly with our prospective customers, especially at the enterprise level.Additionally, we have a broad ecosystem of partners across the cannabis industry and have selectively implemented referral and revenue sharing opportunities with the key players.

We reach each market segment, from emerging small business to enterprise, through channels and tactics that match their expectations for content, outreach, timeliness, and service level. This can require high touch service for some enterprise customers, with more a traditional purchase path for the smallest companies. We hire and train both sales and marketing professionals specialized for the market and the customer segment.

For growth in the regulatory and consulting side, we stay current on emerging legal markets, both nationally and globally to actively conduct outreach and education programs to engage with state regulators and business owners. This strategy strongly supports the growth of our consulting client bases, as we provide license application assistance in new markets, and require in-depth understanding of the regulatory guidelines to be able to successfully win licenses for our customers. We leverage our expertise to provide thought-leadership and industry guidance in order to gain recognition as a leader in the space.

Government Regulation


Cannabis and Cannabis-derived Products

We do not grow, handle, process, or sell cannabis or cannabis-derived products, nor do we ever possess any such material or process any transactions related to the sale of the same. We only provide a technology platform for our clients to assist them with their compliance with state law and to monitor and control their inventory in compliance with state regulatory environments. We do not receive any commissions from sale by our clients and our revenue generation is not based on the sales of cannabis products by our clients, but rather we generate revenues through a fixed-fee based subscription and professional services revenue model. We are not directly subject to state or federal government drug regulation and our products are only intended to be used to assist with compliance with applicable state laws, under which our clients operate.


Our clients are subject to state and federal law as it relates to cannabis growth, processing, and sale. 37 U.S. states have legalized cannabis in some form. The federal government regulates drugs through the Controlled Substances Act (CSA) (21 U.S.C. § 811), which does not recognize the difference between medical and recreational use of cannabis. State laws regulating cannabis are in direct conflict with the CSA, which prohibits cannabis use and possession. Although certain states and territories authorize medical or recreational cannabis cultivation, manufacturing, production, distribution, and sales by licensed or registered entities, under federal law, the cultivation, manufacture, distribution, possession, use, and transfer of cannabis and any related drug paraphernalia, unless specifically exempt, is illegal and any such acts are criminal acts under the CSA.


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While the U.S.Department of Justice has used prosecutorial discretion to not prioritize enforcement actions against state-legal cannabis businesses that are compliant with state, county, municipal and other local laws and regulations and which do not trigger any other federal enforcement priorities, the Department of Justice reserves the right to enforce federal law and there can be no assurance that the federal government will not enforce the CSA and related federal laws in the future.Any shift in enforcement priority at the Department of Justice or with the individual U.S. Attorneys with jurisdiction over our clients, could have a drastic and adverse impact upon our clients and our business.


While we do not grow, handle, process or sell cannabis or cannabis-derived products, our receipt of funds from clients that do conduct such operations in violation of federal law exposes us to risks related to federal racketeering laws. The Racketeer Influenced Corrupt Organizations Act (“RICO”) is a federal statute providing criminal penalties in addition to a civil cause of action for acts performed as part of an ongoing criminal organization. Under RICO, it is unlawful for any person who has received income derived from a pattern of racketeering activity (which includes most felonious violations of the CSA), to use or invest any of that income in the acquisition of any interest, or the establishment or operation of, any enterprise which is engaged in interstate commerce. RICO also authorizes private parties whose properties or businesses are harmed by such patterns of racketeering activity to initiate a civil action against the individuals involved. Although RICO suits against the cannabis industry are rare, a few cannabis businesses have been subject to a civil RICO action.


Our receipt of payments from clients engaged in state-legal cannabis operations could also subject us to the consequences of a variety of federal laws and regulations that involve money laundering, financial record keeping and proceeds of crime, including the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act) and any related or similar rules, regulations or guidelines, issued, administered or enforced by the federal government. Because the funds from activities that are illegal under the CSA, banks and other financial institutions providing services to us risk violation of federal anti money laundering statutes (18 U.S.C. §§ 1956 and 1957), the unlicensed money-remitter statute (18 U.S.C. § 1960) and the Bank Secrecy Act, among other applicable federal statutes. Banks often refuse to provide banking services to businesses involved in the cannabis industry due to the present state of federal laws and regulations governing financial institutions. The lack of banking and financial services presents unique and significant challenges to businesses in the cannabis industry and we may experience similar difficulties in obtaining and maintaining regular banking and financial services because of the activities of our clients.


Any violations of federal laws and regulations could result in significant fines, penalties, administrative sanctions, convictions or settlements arising from civil proceedings conducted by either the federal government or private citizens or criminal charges, including but not limited to, seizure of assets, disgorgement of profits, cessation of business activities or divestiture.In the event that any of our operations, or any proceeds thereof, any dividends or distributions therefrom, or any profits or revenues accruing from such operations were found to be in violation of money laundering legislation or otherwise, such transactions may be viewed as proceeds of crime under one or more of the statutes noted above or any other applicable legislation. This could restrict or otherwise jeopardize our ability to declare or pay dividends or effect other distributions. Furthermore, while there are no current intentions to declare or pay dividends in the foreseeable future, in the event that a determination was made that our proceeds from operations (or any future operations) could reasonably be shown to constitute proceeds of crime, we may decide or be required to suspend declaring or paying dividends without advance notice and for an indefinite period of time.


Privacy & Customer Data

Regulation related to the provision of services over the Internet is evolving, as federal, state, and foreign governments continue to adopt new, or modify existing, laws and regulations addressing data privacy and the collection, processing, storage, transfer, and use of data. In some cases, data privacy laws and regulations, such as the European Union’s (“EU”) General Data Protection Regulation (“GDPR”) that took effect in May 2018, impose new obligations directly on us as both a data controller and a data processor, as well as on many of our clients. In addition, domestic data privacy laws, such as the California Consumer Privacy Act (“CCPA”), which took effect in January 2020, continue to evolve and could expose us to further regulatory burdens. Further, laws such as the EU’s proposed e-Privacy Regulation are increasingly aimed at the use of personal information for marketing purposes and the tracking of individuals’ online activities.


Although we monitor the regulatory environment and have invested in addressing these developments, such as GDPR and CCPA readiness, these laws may require us to make additional changes to our services to enable us or our clients to meet the new legal requirements, and may also increase our potential liability exposure through higher potential penalties for non-compliance. These new or proposed laws and regulations are subject to differing interpretations and may be inconsistent among jurisdictions. These and other requirements could reduce demand for our services, require us to take on more onerous obligations in our contracts, restrict our ability to store, transfer, and process data or, in some cases, impact our ability or our clients’ ability to offer our services in certain locations, to deploy our solutions, to reach current and prospective customers, or to derive insights from customer data globally. The costs of compliance with, and other burdens imposed by, privacy laws, regulations, and standards may limit the use and adoption of our services, reduce overall demand for our services, make it more difficult to meet expectations from or commitments to clients, lead to significant fines, penalties or liabilities for non-compliance, impact our reputation, or slow the pace at which we close sales transactions, any of which could harm our business.

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Furthermore, the uncertain and shifting regulatory environment and trust climate may cause concerns regarding data privacy and may cause our clients or our clients’ customers to resist providing the data necessary to allow our clients to use our services effectively. Even the perception that the privacy of personal information is not satisfactorily protected or does not meet regulatory requirements could inhibit sales of our products or services and could limit the adoption of our cloud-based solutions.

Patents and Trademarks


We primarily rely upon a combination of confidentiality procedures, contractual provisions, copyright, trademark, patent, and trade secret laws, and other similar measures to protect our proprietary information and intellectual property.


We hold 2 patents in the U.S., through Solo, related to its Solo*ID proprietary technology.One patent has an issue date of December 1, 2009 and is set to expire on December 1, 2029.The other patent has an issue date of May 31, 2011 and is set to expire on July 11, 2025.We also have 2 patent applications that are currently pending action by the U.S.Patent Office. One was filed on April 22, 2011 by MJF and the other was filed on January 22, 2022 related to Solo blockchain technology.  

We and our wholly-owned subsidiaries hold 19 trademarks in the U.S., principally related to Akerna, MJ Freeway, Leaf Data Systems, our Daily Dose mailer, Solo*ID and our logos and designs, 7 in Canada, principally related to Ample, AmpleCentral, AmpleData, AmpleExchange and Ample’s logos and designs and 1 in Colombia, 1 in Jamaica and 1 on EUIPO related to Ample’s logo and designs.


Employees


As of December 31, 2023, Gryphon’s miner fleet is composed of 7,128 S19j Pro Antminers, 229 S19k Pro Antminers, 309 S19 Pro Antminers and 876 S19j Pro + Antminers. The S19j Pro Antminers have a hashrate capacity of approximately 100 TH/s per miner and power consumption of approximately 3,050 watts per miner. The S19k Pro Antminers have a hashrate capacity of approximately 120 TH/s per miner and power consumption of approximately 2,760 watts per miner.The S19 Pro Antminers have a hashrate capacity of 110 TH/s and power consumption of 3,250 watts per miner. The S19j Pro + Antminers have a hashrate capacity of 120 TH/s and power consumption of 3,355 watts per miner. The Company’s operations will continue to expand as it acquires additional miners to the extent that opportunities for such acquisitions arise.


The Company has entered into a contract with a digital asset mining pool operator to provide the service of performing hash computations for the mining pool operator. The contract is terminable at any time for any reason by either party without cause and without penalty and the Company’s enforceable right to compensation only begins when the Company provides the service of performing hash computations for the mining pool operator. The contract is for a continuous 24-hour period each day. The Company’s access and usage rights to the pool and service automatically renew for a successive 24-hour period (00:00:00 UTC and 23:59:59 UTC) unless terminated in accordance with the terms set forth by the terms of service. In exchange for performing hash computations for the mining pool, Gryphon is entitled to a fractional share of the fixed cryptocurrency award the mining pool operator receives (less digital asset transaction fees to the mining pool operator which netted as a reduction of the transaction price). Gryphon’s fractional share is based on the proportion of hash computations Gryphon performed for the mining pool operator to the total hash computations contributed by all mining pool participants in solving the current algorithm during the 24-hour period. Hashrate is the measure of the computational power per second used when mining. It is measured in units of hash per second, meaning how many calculations per second that can be performed. The consideration the Company will receive, comprised of block rewards, transaction fees less mining pool operator fees are aggregated in a sub-balance account held by the mining pool operator. That balance, due to the Company, is calculated by the mining pool operator based on the hashrate provided and hash computations completed by the Company for the mining pool from midnight-to-midnight (00:00:00 UTC and 23:59:59 UTC) UTC time, and a sub-account balance is credited one hour later at 1AM UTC time. The balance is then withdrawn to the Company’s whitelisted wallet address, once a day, between the hours of 9am to 5pm UTC time. The rate of payment occurs once per day, as long as the minimum payout threshold of 0.01 bitcoin has accumulated in the sub-account balance, in accordance with the mining pool operator’s terms of service. Pursuant to ASC 606-10-55-42, the Company assessed if the customer’s option to renew represented a material right that represents a separate performance obligation and noted the renewal is not a material right. The definition of a material right is a promise in a contract to provide goods or services to a customer at a price that is significantly lower than the stand-alone selling price of the good or service. The mining pool operator does not provide any discounts and as such there is no economic benefit to the customer and as such a separate performance obligation does not exist under 606-10-55-42. In addition, there are no options for renewal that are separately identifiable from other promises in the contract such as an ability to extend the contract at a reduced price.

The performance obligation of the Bitcoin miner under the mining contracts with Foundry Pool USA involves the service of performing hash computations to facilitate the verification of digital asset transactions. The Company’s miners contribute computing power (i.e. hashrate) that perform hash calculations to the mining pool operator, engaging in the process of validating and securing transactions through the generation of cryptographic hashes. The mining pool then utilizes a specific mining algorithm (e.g. SHA-256) to submit shares (proofs of work) to the mining pool’s server as they contribute to solving the cryptographic puzzles required to mine a block. The Company reviews and analyzes its individual pool performance using a dashboard provided by Foundry Pool USA that includes real-time statistics on hashrate, shares submitted and earnings. The service of performing hash computations in digital asset transaction verification services is an output of the Company’s ordinary activities. The provision of providing these services is the only performance obligation in the Company’s contracts with mining pool operators. The Company performs hash computations for one mining pool operator, Foundry USA. Foundry USA operates its pool on the Full Pay Per Share (FPPS) payout method. FPPS is a variant of the Pay Per Share (PPS) method, where miners receive a fixed payout for each valid share submitted, regardless of whether the pool finds a block.

Regardless of the pool’s success, the Company will receive consistent rewards based on the number of valid shares it contributes. The transaction consideration the Company receives is non-cash consideration, in the form of bitcoin. The Company measures the bitcoin at fair value on the date earned using the average price (calculated by averaging the daily open price and the daily close price) quoted by its Principal Market at the date the Company completed the service of performing hash computations for the mining pool operator. There are no deferred revenues or other liability obligations recorded by the Company since there are no payments in advance of the performance. At the end of each 24 hour period (00:00:00 UTC and 23:59:59 UTC), there are no remaining performance obligations. By utilizing the average daily price of bitcoin on the date earned, the Company eliminates any differences that may arise due to the volatility in trading price between bitcoin and fiat currency during the period where the Company establishes and completes the contract. The consideration is all variable. There is no significant financing component in these transactions.

Prior to April 19, 2023, in consideration of the Company being an early strategic customer of Foundry USA Pool and in view of competition, Foundry USA Pool has not charged Gryphon with a fee for its services. However, as of April 19, 2023, Gryphon is now charged a fee of 0.43%, based on its deployed hashrate.

Gryphon contributes 100% of its Bitcoin hashing power to Foundry USA Pool. The total hashing power of Foundry USA Pool is approximately 172 EH/S (per https://hashrateindex.com/hashrate/pools), as of March 28, 2024, of which Gryphon provides approximately 0.5%. Because cryptocurrency is considered non-cash consideration, fair value of the cryptocurrency award received is determined using the average daily quoted price of the related cryptocurrency in Gryphon’s principal market at the time of contract inception, which is deemed daily. Revenue is recognized when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. After every 24-hour term, the mining pool transfers the cryptocurrency consideration to our designated cryptocurrency wallet. Gryphon has no knowledge of whether Foundry USA Pool maintains insurance for theft or loss and the risks associated with transferring crypto assets. See “Risk Factors — Incorrect or fraudulent cryptocurrency transactions may be irreversible” for details related to the risks associated with transferring crypto assets.

Gryphon does not have visibility into how Foundry USA Pool holds Gryphon’s proportion of mining rewards prior to transfer as they are a private company. Gryphon obtains comfort on the bitcoin received from Foundry USA Pool as management completes an estimated revenue analysis whereas it calculates its percentage of hashrate contributed on a daily basis as a percentage of the global hashrate to identify expected rewards. Gryphon then compares that amount to the actual bitcoin received from Foundry USA Pool for variances. Foundry USA operates its pool on the Full Pay Per Share (FPPS) payout method. FPPS is a variant of the Pay Per Share (PPS) method, where miners receive a fixed payout for each valid share submitted, regardless of whether the pool finds a block. Daily Earnings are calculated from midnight-to-midnight UTC time, and the sub-account balance is credited one hour later at 1 AM UTC time. Earnings accrued in the balance would be withdrawn to the selected whitelisted wallet address, once a day, during 9 AM to 5 PM UTC time. According to the Foundry USA Pool’s FAQ page, the minimum payout threshold for Bitcoin (BTC) is 0.001 bitcoin. Under the FPPS method, Foundry USA provides Gryphon with a stable and predictable payout for their mining efforts. Regardless of the pool’s success, Gryphon will receive consistent rewards based on the number of valid shares (hash rate) they contribute.

While Gryphon may expand its operations beyond the mining of bitcoin in the future, Gryphon has no plans to pursue the acquisition or mining of digital assets other than bitcoin. However, Gryphon has acquired in the past digital assets other than bitcoin as in-kind investments or payments.


Gryphon’s revenue model is to mine and hold bitcoin, and then sell only the bitcoin that is necessary to pay its operating expenses and to reinvest in operational expansion. For the year ended December 31, 2023, the average holding period was 25 days. Prior to December 31, 2022, Gryphon’s average holding period was under 7 days. The bitcoin that is sold to pay operating expenses and to reinvest in operational expansion is sold within a 24 hour time frame of receipt. Gryphon converts mined bitcoin into fiat currency through BitGo Prime LLC (“BitGo Prime”), under the terms of the Electronic Trading Agreement entered into between BitGo Prime and Gryphon as of October 5, 2021. Under such agreement, BitGo Prime and Gryphon may purchase from and sell digital assets to each other, each for its own benefit and account. To facilitate such trading services, BitGo Prime may provide Gryphon online access to its proprietary electronic trading system, with access to and use of the trading system being subject to the terms and conditions of the Agreement. BitGo Prime charges Gryphon no fees for such conversion other than a nominal wire transfer fee associated with the wire of fiat currency to Gryphon’s account. Gryphon will also not pay any commissions and transaction, processing and other fees, including federal, state, and local taxes.

An affiliate of BitGo Prime, BitGo Trust Company Inc., (“BitGo Trust”) serves as the custodian for Gryphon’s digital currency holdings in consideration of nominal fees paid for custodial, transaction, and settlement services provided pursuant to the agreement between Gryphon and BitGo Trust. Gryphon’s CEO, President and CFO each hold Gryphon side private keys that are protected with two-factor authentication. Custodial side keys are held by BitGo Trust who verifies requests with two factor authentication and video reviews. Additionally, as custodian of Gryphon’s digital assets, BitGo Trust has implemented certain security measures with regard to Gryphon’s digital asset holdings. Any liquidation, conversion, or transfer of the digital assets held in custody by BitGo Trust requires authorizations by two Gryphon executives and requires 24 hours prior to the effectiveness of any such transaction. In addition, the digital assets held in custody by BitGo Trust are insured up to $100 million. There can be no assurances that these procedures will be effective, and Gryphon could suffer a loss of its bitcoin due to an adverse software or cybersecurity event. While Gryphon is confident in the security of its digital assets, Gryphon continues to evaluate additional protective measures. See “Risk Factors — Gryphon’s bitcoin may be subject to loss, theft or restriction on access” for Gryphon’s risks and challenges related to custody.”

Intellectual Property

Gryphon holds no patents, copyrights, trademarks, or licenses.

Employees and Advisors

Gryphon currently has three full-time employees, its Chief Executive Officer, Chief Financial Officer and Chief Technical Advisor.

Government Regulation

Government regulation of blockchain technology and Bitcoin specifically is being actively considered by the United States federal government via a number of agencies and regulatory bodies, as well as similar entities in other countries. State government regulations also may apply to Gryphon’s bitcoin mining activities and other related activities in which Gryphon participates or may participate in the future. Certain regulatory bodies have shown an interest in regulating or investigating companies engaged in the blockchain technology or Bitcoin business.

In addition, because transactions in bitcoin provide a reasonable degree of pseudo anonymity, they are susceptible to misuse for criminal activities, such as money laundering. This misuse, or the perception of such misuse (even if untrue), could lead to greater regulatory oversight of Bitcoin platforms, and there is the possibility that law enforcement agencies could close Bitcoin platforms or other Bitcoin-related infrastructure with little or no notice and prevent users from accessing or retrieving bitcoin held via such platforms or infrastructure. For example, the Secretary of the U.S. Department of the Treasury Janet Yellen noted during her nomination hearing before the Senate Finance Committee in January 2021 we had 204 full time employees. Of these employees, 157 are based inthat cryptocurrencies have the potential to improve the efficiency of the financial system but that they can be used to finance terrorism, facilitate money laundering and support malign activities that threaten U.S. national security interests and the integrity of the U.S. and 47 are basedinternational financial systems. Accordingly, Secretary Yellen expressed her view that federal regulators needed to look closely at how to encourage the use of cryptocurrencies for legitimate activities while curtailing their use for malign and illegal activities. Furthermore, in Canada. Our workforce is highly educated, with most of our employees working in engineering, technical, or professional roles. None of our employees areDecember 2020, the Financial Crimes Enforcement Network (“FinCEN”), a member of a union or a party to any collective bargaining agreement. We believe our employee relations are good.


Company Information

Emerging Growth Company

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, (the "JOBS Act") because we went public in the U.S. in January 2018 and meet the criteria outlined in the JOBS Act. We will remain an emerging growth company until up to the last day of the fiscal year following the fifth anniversary of our initial public offering, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenue exceeds $1.07 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period. As allowed by the JOBS Act, we have elected to utilize the extended transition period provided to non-public companies for complying with new or revised accounting standards.


Available Information


We make available, free of charge, on or thorough our website, at www.akerna.com, our annual report on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d)unit of the U.S. Securities Exchange ActDepartment of 1934. Our websitethe Treasury, focused on money laundering and proposed a new set of rules for cryptocurrency-based exchanges aimed at reducing the use of cryptocurrencies for money laundering. These proposed rules would require filing reports with FinCEN regarding cryptocurrency transactions in excess of $10,000 and impose record-keeping requirements for cryptocurrency transactions in excess of $3,000 involving users who manage their own private keys. In January 2021, the Biden Administration issued a memorandum freezing federal rulemaking, including the proposed FinCEN rules, to provide additional time for the Biden Administration to review the rulemaking that had been proposed by the Trump Administration. As a result, it remains unclear whether the proposed FinCEN rules will take effect.


Multiple United States federal agencies and regulators have been active in rulemaking, issuing guidance and regulating various actors in the blockchain technology industry, including the CFTC, SEC, FINRA, OCC, CFPB, FinCEN, OFAC, IRS, FDIC, and Federal Reserve. In March 2022, the United States announced plans to establish a unified federal regulatory regime for cryptocurrency, and in January 2023, the House of Representatives announced its first ever Financial Services Subcommittee on Digital Assets and its intention to develop a regulatory framework for the digital asset industry. In February 2023, Bipartisan leadership of the Senate Banking Committee announced a similar goal. Regulations may substantially change in the future and it is presently not possible to know how regulations will apply to Gryphon’s businesses, or when they will be effective. As the regulatory and legal environment evolves, Gryphon may become subject to new laws, further regulation by the SEC, and other federal or state agencies, which may affect Gryphon’s bitcoin mining and other related activities. Certain state and local authorities have introduced and passed legislation that may affect Gryphon’s business and the information contained thereinbusiness of bitcoin mining. New York recently enacted a 2-year ban on new cryptocurrency mining conducted at fossil fuel-burning plants. It is possible that other states may likewise create laws that specifically impact Gryphon’s business.

In 2022, FTX Trading Ltd. and several other major cryptocurrency exchanges declared bankruptcy. The U.S. Department of Justice brought criminal charges, including charges of fraud, violations of federal securities laws, money laundering, and campaign finance offenses against FTX’s former CEO and others. FTX is also under investigation by the SEC, the Justice Department, and the Commodity Futures Trading Commission, as well as by various regulatory authorities in the Bahamas, Europe and other jurisdictions. In response to these events, the digital asset markets have experienced extreme price volatility and declines in liquidity, and regulatory and enforcement scrutiny has increased, including from the DOJ, the SEC, the CFTC, the White House and Congress. These events continue to develop rapidly, and it is not possible to predict at this time all of the risks that they may pose to Gryphon or connected theretoon the digital asset industry as a whole.

There have been a growing a number of attempts to list on national securities exchanges the shares of funds that hold crypto assets or that have exposures to crypto assets through derivatives. These investment vehicles attempt to provide institutional and retail investors exposure to markets for crypto assets and related products. While the SEC gave approval to the first set of funds linked to crypto asset derivatives with the launches of the ProShares Bitcoin Strategy ETF (BITO), Valkyrie Bitcoin Strategy ETF (BTF), and VanEck Bitcoin Strategy ETF (XBTF) in the fourth quarter of 2021, the SEC previously denied repeated requests for funds that hold crypto assets or that have exposures to crypto assets through derivatives, including a request submitted in connection with a fund operated by the Sponsor. The exchange listing of shares of crypto asset funds would create more opportunities for institutional and retail investors to invest in the crypto asset market. If exchange-listing requests are not intendedultimately approved by the SEC, increased investment interest by institutional or retail investors could fail to be,materialize, which could reduce the demand for crypto assets generally and therefore adversely affect Gryphon.

For additional discussion regarding Gryphon’s belief about the potential risks existing and future regulation pose to Gryphon’s business, see “Risk Factors” herein.

Environmental Considerations

Environmental considerations are not incorporatedtop priority for Gryphon. Gryphon was founded as an ESG-led company. This means that Gryphon has limited the provision of electricity to its bitcoin mining activities to facilities using carbon-free energy, or required the purchase of carbon credits by such facility to provide for carbon neutrality. Gryphon currently has no plans to change this practice. Gryphon’s policy, which it currently has no plans to change, is to avoid conducting bitcoin mining at any facility using a carbon-based electricity source. Gryphon recognizes that a byproduct of the acquisition of bitcoin mining equipment from the existing supply chain is a carbon footprint. To offset this footprint, Gryphon has entered into this Annual Report on Form 10-K.agreements to purchase 74,075 carbon credits. See “— Material Agreements — Carbon Credit Agreements” for more information.



Item 1A. Risk Factors.

Risks Related to the Price of Bitcoin

Gryphon’s future success will depend upon the value of Bitcoin; the value of Bitcoin may be subject to pricing risk and has historically been subject to wide swings.

Gryphon’s operating results depend on the value of Bitcoin because it is the only cryptocurrency that Gryphon mines. Specifically, Gryphon’s revenues from its bitcoin mining operations are based on two factors: (1) the number of bitcoin rewards Gryphon successfully mines and (2) the value of Bitcoin. In addition, Gryphon’s operating results are directly impacted by changes in the value of Bitcoin, because under the value measurement model, impairment of Bitcoin and realized gains will be reflected in Gryphon’s statement of operations (i.e., Gryphon will be marking bitcoin to fair value each closing period). This means that Gryphon’s operating results will be subject to swings based upon increases or decreases in the value of Bitcoin. Further, Gryphon’s current application-specific integrated circuit, or ASIC, machines (which Gryphon refers to as “miners”) are principally utilized for mining bitcoin and cannot mine other cryptocurrencies, such as ether, that are not mined utilizing the “SHA-256 algorithm.” If other cryptocurrencies were to achieve acceptance at the expense of Bitcoin causing the value of Bitcoin to decline, or if Bitcoin were to switch its proof of work algorithm from SHA-256 to another algorithm for which Gryphon’s miners are not specialized, or the value of Bitcoin were to decline for other reasons, particularly if such decline were significant or over an extended period of time, Gryphon’s operating results would be adversely affected, and there could be a material adverse effect on Gryphon’s ability to continue as a going concern or to pursue Gryphon’s strategy at all, which could have a material adverse effect on Gryphon’s business, prospects or operations, and harm investors.

Bitcoin market prices, which have historically been volatile and are impacted by a variety of factors (including those discussed below), are determined primarily using data from various exchanges, over-the-counter markets and derivative platforms. Furthermore, such prices may be subject to factors such as those that impact commodities, more so than business activities, which could be subjected to additional influence from fraudulent or illegitimate actors, real or perceived scarcity, and political, economic, regulatory or other conditions. Pricing may be the result of, and may continue to result in, speculation regarding future appreciation in the value of Bitcoin, which inflates and makes its market prices more volatile or creates “bubble” type risks for Bitcoin.

Bitcoin prices are highly volatile, which may affect our ability to effectively manage growth plans and our profitability.

The price of bitcoin is extremely volatile and in fiscal 2023 the price range of bitcoin was between approximately $16,600 and $44,000. The cost to mine a bitcoin is independent of the then current price of bitcoin, so when prices are low, the cost per coin to mine may consume much of our available cash, which means that there is less capital with which to invest in future company growth. Similarly, when prices are low, our profitability is decreased on a dollar-for-dollar basis correlated to the then price of bitcoin. Given the volatility of bitcoin, these factors render us unable to accurately predict in advance what our growth plans may be and accurately forecast any revenue and profitability projections for any reporting period.

Gryphon may face several risks due to disruptions in the crypto asset markets, including but not limited to the risk from depreciation in Gryphon’s stock price, financing risk, risk of increased losses or impairments in its investments or other assets, risks of legal proceedings and government investigations, and risks from price declines or price volatility of crypto assets.

The use of crypto assets to, among other things, buy and sell goods and services and complete other transactions is part of a new and rapidly evolving industry that employs crypto assets based upon a computer generated mathematical and/or cryptographic protocol. The growth of this industry in general, and the use of crypto assets in particular, is subject to a high degree of uncertainty, and the slowing or stopping of the development or acceptance of developing protocols may adversely affect Gryphon’s operations. The factors affecting the further development of the industry, include, but are not limited to:

●Continued worldwide growth in the adoption and use of crypto assets;
●Governmental and quasi-governmental regulation of crypto assets and their use, or restrictions on or regulation of access to and operation of the network or similar crypto asset systems;
●Changes in consumer demographics and public tastes and preferences;
●The maintenance and development of the open source software protocol of the network;
●The availability and popularity of other forms or methods of buying and selling goods and services, including new means of using fiat currencies;
●General economic conditions and the regulatory environment relating to crypto assets; and
●Consumer sentiment and perception of Bitcoin specifically and crypto assets generally.


Many crypto asset exchanges currently do not provide the public with significant information regarding their ownership structure, management teams, corporate practices or regulatory compliance. As a result, the marketplace may lose confidence in, or may experience problems relating to, crypto asset exchanges, which may cause the price of Bitcoin to decline. For example, in the first half of 2022, each of Celsius Network LLC, et al. (“Celsius”), Voyager Digital Ltd., et al. (“Voyager”), and Three Arrows Capital (“Three Arrows”) declared bankruptcy, resulting in a loss of confidence among participants in the crypto asset ecosystem and negative publicity surrounding crypto assets more broadly. In November 2022, BlockFi Inc. (“BlockFi”) and FTX Trading Ltd. (“FTX”), the third largest crypto asset exchange by volume at the time, halted customer withdrawals and shortly thereafter, FTX and its subsidiaries filed for bankruptcy. In December 2022, Core Scientific Inc. (“Core”), one of the largest publicly traded crypto mining companies in the U.S., filed for bankruptcy. Most recently, in January 2023, Genesis Global Holdco, LLC, et al. (“Genesis”) filed for bankruptcy.

In response to these events, the crypto asset markets, including the market for Bitcoin specifically, have experienced extreme price volatility and several other entities in the crypto asset industry have been, and may continue to be, negatively affected, further undermining confidence in the crypto asset market and in Bitcoin. These events have also negatively impacted the liquidity of the crypto asset market as certain entities affiliated with FTX engaged in significant trading activity. If the liquidity of the crypto asset market continues to be negatively impacted by these events, crypto asset prices, including the price of Bitcoin, may continue to experience significant volatility and confidence in the crypto asset markets may be further undermined. A perceived lack of stability in the crypto asset exchange market and the closure or temporary shutdown of crypto asset exchanges due to business failure, hackers or malware, government-mandated regulation or fraud, may reduce confidence at least in part in crypto asset networks and result in greater volatility in Bitcoin’s value. Because the value of Bitcoin is derived from the continued willingness of market participants to exchange government-issued currency that is designated as legal tender in its country of issuance through government decree, regulation or law for Bitcoin, should the marketplace for Bitcoin be jeopardized or disappear entirely, permanent and total loss of the value of Bitcoin may result. Such a decrease in Bitcoin price may have a material and adverse effect on Gryphon’s results of operations and financial condition as the results of Gryphon’s operations are significantly tied to the price of Bitcoin.

The failure or insolvency of large exchanges like FTX may cause the price of Bitcoin to fall and decrease confidence in the ecosystem, which could adversely affect an investment in Gryphon. Such market volatility and decrease in Bitcoin price may have a material and adverse effect on Gryphon’s results of operations and financial condition as the results of Gryphon’s operations are significantly tied to the price of Bitcoin.

As of the date hereof, Gryphon has not experienced any material impact resulting from the bankruptcy filings of FTX, Three Arrows, Celsius, Voyager, BlockFi, and Genesis and the attendant disruptions in the crypto asset markets. Genesis is owned by Digital Currency Group Inc. (“DCG”), which also owns Foundry Digital LLC (“Foundry”), one of Gryphon’s mining pool providers. However, at this time, Gryphon believes it is not subject to any material risks arising from its previous exposure to Genesis. Other than the Genesis entities, Gryphon (i) has no direct exposure to any crypto asset entities that have recently filed for bankruptcy; (ii) has no assets that may not be recovered due to these bankruptcies; and (iii) has no exposure to any other counterparties, customers, custodians or other crypto asset market third parties known to Gryphon to have (x) experienced material excessive redemptions or withdrawals or suspended redemptions or withdrawals of crypto assets, (y) the crypto assets of their customers unaccounted for, or (z) experienced material compliance failures. Similarly, Gryphon believes it is not subject to any material risks arising from its previous exposure to Core. Core provides hosting services for approximately 2% of Gryphon’s existing fleet and has continued to provide services throughout its bankruptcy process, with no noticeable impact to the level of service provided. Gryphon does not have any assets which may be lost due to the bankruptcy proceedings of Core.

The lack of regulation of digital asset exchanges which Bitcoin, and other cryptocurrencies, are traded on, may expose Gryphon to the effects of negative publicity resulting from fraudulent actors in the cryptocurrency space, and can adversely affect an investment in Gryphon.

The digital asset exchanges on which Bitcoin is traded are relatively new and largely unregulated. Many digital asset exchanges do not provide the public with significant information regarding their ownership structure, management teams, corporate practices, or regulatory compliance. As a result, the marketplace may lose confidence in, or may experience problems relating to, such digital asset exchanges, including prominent exchanges handling a significant portion of the volume of digital asset trading. In 2022, FTX and a number of other digital asset exchanges filed for bankruptcy proceedings after failing to solve financial issues caused by the falling prices of Bitcoin and other cryptocurrencies. FTX and others became the subjects of investigations by various governmental agencies for, among other things, fraud, which caused a loss of confidence in cryptocurrency market participants and an increase in negative publicity for the digital asset ecosystem. As a result, many digital asset markets, including the market for Bitcoin, did and continue to experience increased price volatility. The Bitcoin ecosystem may continue to be negatively impacted and experience long term volatility if public confidence cannot rebound or decreases again due similar future events.


These events are continuing to develop and it is not possible to predict, at this time, every risk that they may pose to Gryphon, Gryphon’s service providers, or the digital asset industry as a whole. A perceived lack of stability in the digital asset exchange market and the closure or temporary shutdown of digital asset exchanges due to business failure, hackers or malware, government-mandated regulation, or fraud, may reduce confidence in digital asset networks and result in greater volatility in cryptocurrency values. These potential consequences of a digital asset exchange’s failure could adversely affect an investment in Gryphon.

The Bitcoin market is exposed to financially troubled cryptocurrency-based companies.

The failure of several cryptocurrency platforms has impacted and may continue to impact the broader cryptocurrency economy; the full extent of these impacts may not yet be known. Bitcoin is part of the cryptocurrency environment and is subject to price volatility resulting from financial instability, poor business practices, and fraudulent activities of players in the cryptocurrency market. When investors in cryptocurrency and cryptocurrency-based companies experience financial difficulty as a result of price volatility, poor business practices, and/or fraud, it has caused, and may continue to cause, loss of confidence in the cryptocurrency space, reputational harm to cryptocurrency assets, heightened scrutiny by regulatory authorities and law makers, and a steep decline in the value of Bitcoin, among other material impacts. Such adverse effects have affected, and may in the future continue to affect, the profitability of Gryphon’s bitcoin mining operations.

There is a lack of liquid markets for, and possible manipulation of, blockchain/cryptocurrency-based assets.

Cryptocurrencies that are represented and trade on a ledger-based platform may not necessarily benefit from viable trading markets. Stock exchanges have listing requirements and vet issuers, requiring them to be subjected to rigorous listing standards and rules, and monitor investors transacting on such platform for fraud and other improprieties. These conditions may not necessarily be replicated on a distributed ledger platform, depending on the platform’s controls and other policies. The more relaxed a distributed ledger platform is about vetting issuers of cryptocurrency assets or users that transact on the platform, the higher the potential risk for fraud or the manipulation of the ledger due to a control event. These factors may decrease liquidity or volume or may otherwise increase volatility of investment securities or other assets trading on a ledger-based system. Such circumstances could have a material adverse effect on Gryphon’s ability to continue as a going concern or to pursue its strategy at all, which could have a material adverse effect on Gryphon’s business, prospects or operations and potentially the value of any bitcoin that Gryphon mines or otherwise acquires or holds for its own account, which in turn could harm investors.

Acceptance and/or widespread use of Bitcoin are uncertain.

Currently, there is a relatively limited use of Bitcoin in the retail and commercial marketplace. Banks and other established financial institutions may refuse to process funds for Bitcoin transactions, process wire transfers to or from Bitcoin exchanges, Bitcoin-related companies or service providers, or maintain accounts for persons or entities transacting in Bitcoin. Conversely, a significant portion of Bitcoin demand is generated by investors seeking a long-term store of value or speculators seeking to profit from the short- or long-term holding of the asset. Price volatility undermines Bitcoin’s role as a medium of exchange, as retailers are much less likely to accept it as a form of payment. Market capitalization for Bitcoin as a medium of exchange and payment method may always be low.

The relative lack of acceptance of Bitcoin in the retail and commercial marketplace limits the ability of end users to use bitcoin to pay for goods and services. Such lack of acceptance could have a material adverse effect on Gryphon’s ability to continue as a going concern or to pursue Gryphon’s strategy at all, which could have a material adverse effect on Gryphon’s business, prospects or operations and potentially the value of Bitcoin Gryphon mines or otherwise acquires or holds for its own account.

The further development and acceptance of digital asset networks and other digital assets, which represent a new and rapidly changing industry, are subject to a variety of factors that are difficult to evaluate. The slowing or stopping of the development or acceptance of digital asset systems may adversely affect an investment in Gryphon.


The use of cryptocurrencies to, among other things, buy and sell goods and services and complete transactions, is part of a new and rapidly evolving industry that employs cryptocurrency assets, including Bitcoin, based upon a computer-generated mathematical and/or cryptographic protocol. Large-scale acceptance of Bitcoin as a means of payment has not, and may never, occur. The growth of this industry in general, and the use of Bitcoin in particular, is subject to a high degree of uncertainty, and the slowing or stopping of the development or acceptance of developing protocols may occur unpredictably. The factors include, but are not limited to:

●continued worldwide growth in the adoption and use of Bitcoin as a medium of exchange;
●governmental and quasi-governmental regulation of Bitcoin and its use, or restrictions on or regulation of access to and operation of the Bitcoin network or similar cryptocurrency systems;
●changes in consumer demographics and public tastes and preferences;
●the maintenance and development of the open-source software protocol of the network;
●the increased consolidation of contributors to the Bitcoin blockchain through mining pools;
●the availability and popularity of other forms or methods of buying and selling goods and services, including new means of using fiat currencies;
●the use of the networks supporting cryptocurrencies for developing smart contracts and distributed applications;
●general economic conditions and the regulatory environment relating to cryptocurrencies; and
●negative consumer sentiment and perception of Bitcoin specifically and cryptocurrencies generally.

The outcome of these factors could have negative effects on Gryphon’s ability to continue as a going concern or to pursue Gryphon’s business strategy at all, which could have a material adverse effect on Gryphon’s business, prospects or operations as well as a potentially negative effect on the value of any bitcoin that Gryphon mines or otherwise acquires or holds for Gryphon’s own account, which would harm investors.

The bitcoin reward for successfully uncovering a block will halve several times in the future and Bitcoin value may not adjust to compensate Gryphon for the reduction in the rewards Gryphon receives from its mining efforts.

Halving is a process designed to control the overall supply and reduce the risk of inflation in cryptocurrencies using a proof-of-work consensus algorithm. At a predetermined block, the mining reward is cut in half, hence the term “halving.” For Bitcoin, the reward was initially set at 50 bitcoin currency rewards per block. This was cut in half to 25 on November 28, 2012 at block 210,000, and then again to 12.5 on July 9, 2016 at block 420,000. The most recent halving for Bitcoin happened on May 11, 2020 at block 630,000 and the reward reduced to 6.25. The next halving will likely occur in 2024 and the reward will reduce to 3.125. This process will reoccur until the total amount of bitcoin currency rewards issued reaches 21 million, which is expected around 2140.

While Bitcoin prices have historically increased around these halving events, which increases in price have correspondingly mitigated the decrease in mining reward, there is no guarantee that the price change would be favorable or would compensate for the reduction in mining reward. If a corresponding and proportionate increase in the trading price of Bitcoin or a proportionate decrease in mining difficulty does not follow these anticipated halving events, the revenue Gryphon earns from its bitcoin mining operations would see a corresponding decrease, which would have a material adverse effect on Gryphon’s business and the economics of Gryphon’s mining operations.

Gryphon aims to mitigate the impacts of halving by maintaining a breakeven profitability floor far below the network average. To do so, Gryphon has developed and implemented a curtailment agreement with its hosting partners to maximize the marginal profitability of its machines.

Gryphon’s partners have also implemented standard operating procedures to maximize the operational efficiency of its sites, such as preventative maintenance and cleaning of equipment. Gryphon believes that these steps can enable it to maintain survivability above its competitors and mitigate the downside risk of decreased rewards.


Cryptocurrencies, including Bitcoin, face significant scaling obstacles that can lead to high fees or slow transaction settlement times.

Cryptocurrencies face significant scaling obstacles that can lead to high fees or slow transaction settlement times, and attempts to increase the volume of transactions may not be effective. Scaling cryptocurrencies is essential to the widespread acceptance of cryptocurrencies as a means of payment, which widespread acceptance is important to the continued growth and development of Gryphon’s business. Many cryptocurrency networks, including the Bitcoin network, face significant scaling challenges. For example, cryptocurrencies are limited with respect to how many transactions can occur per second. Participants in the cryptocurrency ecosystem debate potential approaches to increasing the average number of transactions per second that the network can handle and have implemented mechanisms or are researching ways to increase scale, such as increasing the allowable sizes of blocks, and therefore the number of transactions per block, and sharding (a horizontal partition of data in a database or search engine), which would not require every single transaction to be included in every single miner’s or validator’s block. However, there is no guarantee that any of the mechanisms in place or being explored for increasing the scale of settlement of cryptocurrency and, specifically, Bitcoin transactions will be effective, or how long they will take to become effective, which could adversely affect Gryphon’s business.

Transaction fees may decrease demand for Bitcoin and prevent expansion that could adversely impact an investment in Gryphon.

As the number of bitcoins awarded for solving a block in a blockchain decreases, the incentive for miners to continue to contribute to the Bitcoin network may transition from a set reward to transaction fees. In order to incentivize miners to continue to contribute to the Bitcoin network, the Bitcoin network may either formally or informally transition from a set reward to transaction fees earned upon solving a block. This transition could be accomplished by miners independently electing to record in the blocks they solve only those transactions that include payment of a transaction fee. If transaction fees paid for Bitcoin transactions become too high, the marketplace may be reluctant to accept Bitcoin as a means of payment and existing users may be motivated to switch from Bitcoin to another cryptocurrency or to fiat currency. Either the requirement from miners of higher transaction fees in exchange for recording transactions in a blockchain or a software upgrade that automatically charges fees for all transactions may decrease demand for Bitcoin and prevent the expansion of the Bitcoin network to retail merchants and commercial businesses, resulting in a reduction in the price of Bitcoin that could adversely impact Gryphon’s business. Decreased use and demand for bitcoins that Gryphon has accumulated may adversely affect their value and may adversely impact an investment in Gryphon.

The price of Bitcoin may be affected by the sale of Bitcoin by other vehicles investing in Bitcoin or tracking Bitcoin markets.

The global market for Bitcoin is characterized by supply constraints that differ from those present in the markets for commodities or other assets such as gold and silver. The mathematical protocols under which Bitcoin is mined permit the creation of a limited, predetermined amount of currency, while others have no limit established on total supply. To the extent that other vehicles investing in Bitcoin or tracking Bitcoin markets form and come to represent a significant proportion of the demand for Bitcoin, large redemptions of the securities of those vehicles and the subsequent sale of Bitcoin by such vehicles could negatively affect Bitcoin prices and therefore affect the value of the Bitcoin holdings Gryphon holds. Such events could have a material adverse effect on Gryphon’s ability to continue as a going concern or to pursue Gryphon’s new strategy at all, which could have a material adverse effect on Gryphon’s business, prospects or operations and potentially the value of any bitcoin that Gryphon mines or otherwise acquires or holds for its own account.

The development of other cryptocurrencies and/or digital currencies may adversely affect the value of Bitcoin.

To the extent that other cryptocurrencies are introduced into the market, gain traction and are supported by the deployment of significant resources, the success of any such cryptocurrency could lead to a decrease in demand and the potential exclusion of existing cryptocurrencies, such as Bitcoin.

In addition, central banks in some countries have started to introduce digital forms of legal tender. Whether or not they incorporate blockchain or similar technology, central bank digital currencies as legal tender in the issuing jurisdiction could have an advantage in competing with, or replacing, Bitcoin and other cryptocurrencies as a medium of exchange or store of value. As a result, the value of Bitcoin could decrease, which could have a material adverse effect on Gryphon’s business, prospects, financial condition, and operating results.

If a malicious actor or botnet obtains control in excess of 50% of the processing power active on any digital asset network, including the Bitcoin network, it is possible that such actor or botnet could manipulate the blockchain in a manner that adversely affects an investment in Gryphon.

If a malicious actor or botnet (a volunteer or hacked collection of computers controlled by networked software coordinating the actions of the computers) obtains a majority of the processing power dedicated to mining on any digital asset network, including the Bitcoin network, it may be able to alter the blockchain by constructing alternate blocks if it is able to solve for such blocks faster than the remainder of the miners on the blockchain can add valid blocks. In such alternate blocks, the malicious actor or botnet could control, exclude or modify the ordering of transactions, though it could not generate new digital assets or transactions using such control. Using alternate blocks, the malicious actor could “double-spend” its own digital assets (i.e., spend the same digital assets in more than one transaction) and prevent the confirmation of other users’ transactions for so long as it maintains control. To the extent that such malicious actor or botnet does not yield its majority control of the processing power or the digital asset community does not reject the fraudulent blocks as malicious, reversing any changes made to the blockchain may not be possible. Such changes could adversely affect an investment in Gryphon.


For example, in late May and early June 2014, a mining pool known as GHash.io approached and, during a 24- to 48-hour period may have exceeded, the threshold of 50% of the processing power on the Bitcoin network. To the extent that GHash.io did exceed 50% of the processing power on the network, reports indicate that such threshold was surpassed for only a short period, and there are no reports of any malicious activity or control of the blockchain performed by GHash.io. Furthermore, the processing power in the mining pool appears to have been redirected to other pools on a voluntary basis by participants in the GHash.io pool, as had been done in prior instances when a mining pool exceeded 40% of the processing power on the Bitcoin network.

The approach towards and possible crossing of the 50% threshold indicate a greater risk that a single mining pool could exert authority over the validation of digital asset transactions. To the extent that the digital assets ecosystems do not act to ensure greater decentralization of digital asset mining processing power, the feasibility of a malicious actor obtaining in excess of 50% of the processing power on any digital asset network (e.g., through control of a large mining pool or through hacking such a mining pool) will increase, which may adversely impact an investment in Gryphon.

The decentralized nature of cryptocurrency systems may lead to slow or inadequate responses to crises, which may negatively affect Gryphon’s business.

The decentralized nature of the governance of cryptocurrency systems may lead to ineffective decision making that slows development or prevents a network from overcoming emergent obstacles. Governance of many cryptocurrency systems is by voluntary consensus and open competition with no clear leadership structure or authority. To the extent lack of clarity in corporate governance of the Bitcoin blockchain leads to ineffective decision making that slows development and growth of the Bitcoin network protocol, Gryphon’s business may be adversely affected.

The open-source structure of the Bitcoin network protocol means that the contributors to the protocol are generally not directly compensated for their contributions in maintaining and developing the protocol. A failure to properly monitor and upgrade the protocol could damage the Bitcoin network and an investment in Gryphon.

The Bitcoin network operates based on an open-source protocol maintained by contributors, largely on the Bitcoin Core project on GitHub. As an open-source project, Bitcoin is not represented by an official organization or authority. As the Bitcoin network protocol is not sold and its use does not generate revenues for contributors, contributors are generally not compensated for maintaining and updating the Bitcoin network protocol. The lack of guaranteed financial incentive for contributors to maintain or develop the Bitcoin network and the lack of guaranteed resources to adequately address emerging issues with the Bitcoin network may reduce incentives to address the issues adequately or in a timely manner. Changes to a digital asset network that Gryphon is mining on may adversely affect an investment in Gryphon.

The impact of geopolitical and economic events on the supply and demand for Bitcoin is uncertain.

Geopolitical crises may motivate large-scale purchases of Bitcoin and other cryptocurrencies, which could increase the price of Bitcoin and other cryptocurrencies rapidly. This may increase the likelihood of a subsequent price decrease as crisis-driven purchasing behavior dissipates, which would adversely affect the value of Gryphon’s Bitcoin value following such downward adjustment. Such risks are similar to the risks of purchasing commodities in uncertain times, such as the risk of purchasing, holding or selling gold. Alternatively, as an emerging asset class with limited acceptance as a payment system or commodity, global crises and general economic downturns may discourage investment in Bitcoin as investors focus their investments on less volatile asset classes as a means of hedging their investment risks.

As an alternative to fiat currencies that are backed by central governments, Bitcoin, which is relatively new, is subject to supply and demand forces. How such supply and demand will be impacted by geopolitical events is largely uncertain but could be harmful to Gryphon. Political or economic crises may motivate large-scale acquisitions or sales of Bitcoin either globally or locally. Such events could have a material adverse effect on Gryphon’s ability to continue as a going concern or to pursue Gryphon’s new strategy at all, which could have a material adverse effect on Gryphon’s business, prospects or operations and potentially the value of any bitcoin that Gryphon mines or otherwise acquires or holds for its own account.


Gryphon faces risks of Internet disruptions, which could have an adverse effect on the price of Bitcoin.

A disruption of the Internet may affect the use of Bitcoin. Generally, Bitcoin and Gryphon’s business of mining Bitcoin are dependent upon the Internet. A significant disruption in Internet connectivity could disrupt a currency’s network operations until the disruption is resolved and have an adverse effect on the price of Bitcoin and Gryphon’s ability to mine bitcoin.

Fluctuations in the price of bitcoin may significantly influence the market price of our bitcoin holdings and therefore, the price of our common stock.

To the extent investors view the value of our common stock as linked to the value or change in the value of our bitcoin, fluctuations in the price of bitcoin may significantly influence the market price of our common stock.

If we fail to grow our hash rate, we may be unable to compete, and our results of operations could suffer.

Generally, a bitcoin miner’s chance of solving a block on the Bitcoin blockchain and earning a bitcoin reward is a function of the miner’s hash rate (i.e., the amount of computing power devoted to supporting the Bitcoin blockchain), relative to the global network hash rate. As greater adoption of Bitcoin occurs, we expect the demand for Bitcoin will increase further, drawing more mining companies into the industry and thereby increasing the global network hash rate. As new and more powerful miners are deployed, the global network hash rate will continue to increase, meaning a miner’s chance of earning bitcoin rewards will decline unless it deploys additional hash rate at pace with the industry. Accordingly, to maintain our chances of earning new bitcoin rewards and remaining competitive in our industry, we must seek to continually add new miners to grow our hash rate at pace with the growth in the Bitcoin global network hash rate. However, as demand has increased and scarcity in the supply of new miners has resulted, the price of new miners has increased sharply, and we expect this process to continue in the future as demand for bitcoin increases. Therefore, if the price of bitcoin is not sufficiently high to allow us to fund our hash rate growth through new miner acquisitions and if we are otherwise unable to access additional capital to acquire these miners, our hash rate may stagnate and we may fall behind our competitors. If this happens, our chances of earning new bitcoin rewards would decline and, as such, our results of operations and financial condition may suffer.

Risks Related to Operations

Gryphon is an early-stage company and has a limited history of generating profits.

Gryphon was formed in October 2020 and has a limited history upon which an evaluation of Gryphon’s performance and future prospects can be made. Gryphon began mining operations in September 2021, and had no previous existing operations. Gryphon’s current and proposed operations are subject to all of the business risks associated with new enterprises. These include likely fluctuations in operating results as Gryphon reacts to developments in its market, manages its growth and operations, and responds to the entry of competitors into the market. Further, there is no assurance that Gryphon can successfully execute its business plan. Gryphon has had limited revenues generated since its bitcoin miners became operational in September 2021, and consequently recorded losses in 2023, 2021 and 2020. Gryphon generated minimal profits in 2022 and may not be able to sustain profitability in the future.

Gryphon may be unable to access sufficient additional capital to fund its operations or for future strategic growth initiatives.

Gryphon’s purchase of its fleet of bitcoin miners was a capital intensive project, and Gryphon anticipates that future strategic growth initiatives will likewise be capital-intensive. Gryphon has raised limited capital through private placements to date and expects to raise additional capital to fund its operations and future strategic growth initiatives. If Gryphon raises additional capital through public or private equity offerings, the ownership interest of Gryphon’s existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect Gryphon’s stockholders’ rights. If Gryphon raises additional capital through debt financing, Gryphon may be subject to covenants limiting or restricting Gryphon’s ability to take specific actions, such as incurring additional debt or liens, making capital expenditures or declaring dividends. Further, Gryphon may be unable to raise capital in a timely manner, in sufficient quantities, or on terms acceptable to Gryphon, if at all. If Gryphon is unable to raise the additional capital needed to fund its operations or execute future strategic growth initiatives, Gryphon may be less competitive in its industry and its results of operations and financial condition may suffer. The value of its securities may also be materially and adversely affected.

Gryphon has a substantial amount of debt and significant debt service obligations.

On May 25, 2022, Anchorage Lending CA, LLC (“Anchorage”) entered into an Equipment Loan and Security Agreement (the “Anchorage Loan Agreement”) with Gryphon Opco I LLC (“Gryphon Opco”), a wholly owned subsidiary of Gryphon, pursuant to which Anchorage loaned Gryphon Opco the principal amount of 933.333333 bitcoin. The loan is payable in principal installments of 42.424242 bitcoin together with initial interest at 5.0% per annum, payable monthly in bitcoin. On March 29, 2023, Gryphon executed an amendment to the Anchorage Loan Agreement (the “Anchorage Loan Amendment”), which, among other things, increased the interest rate to 6.0% per annum.


The Anchorage Loan Agreement, as amended by the Anchorage Loan Amendment, contains certain covenants that limit Gryphon’s ability to engage in certain transactions that may be in Gryphon’s long-term best interest. Subject to certain limited exceptions, these covenants do or may limit Gryphon’s ability to or prohibit Gryphon from permitting any of its subsidiaries to, as applicable, among other things:

●convey, sell, lease, transfer, assign, or otherwise dispose of all or any part of 7,200 of Gryphon’s bitcoin mining machines and the Coinmint Agreement (as defined below) that are posted as collateral for the loan;
●keep Gryphon’s bitcoin mining machines at hosting facilities of Gryphon’s choice after March 31, 2024;
●create, incur, assume, or be liable for any additional indebtedness, or create, incur, allow, or permit to exist any additional liens;
●declare dividends or other distributions on Gryphon shares, redeem, retire or purchase for value any Gryphon shares, make any payment to retire or obtain the surrender of any Gryphon warrants or options, or make any payment with respect to any earnout obligation;
●use bitcoin wallet custody or trading execution services of Gryphon’s choice; or
●merge or consolidate with any entity where Gryphon is not the surviving entity without the execution of additional loan documents.

In addition, under the Anchorage Loan Agreement, Gryphon is required to maintain a collateral (mining equipment, digital assets or US dollars) coverage ratio of 110%. If this collateral coverage ratio decreases below 110%, including as a result of a decrease in the value of the bitcoin or bitcoin mining machines posted as collateral under the Anchorage Loan Agreement (due to volatility in the crypto asset markets or otherwise), Gryphon will have to provide Anchorage with additional collateral in the form of bitcoin, U.S. dollars, or additional equipment. If Gryphon is unable to do so, Gryphon may be in default under the Anchorage Loan Agreement, which could have a material adverse effect on its operations, liquidity, financial condition, and results of operations.

While Gryphon has not previously breached and is currently in compliance with the covenants contained in the Anchorage Loan Agreement, as amended by the Anchorage Loan Amendment, Gryphon may breach these covenants in the future. Gryphon’s ability to comply with these covenants may be affected by events and factors beyond its control. In the event that Gryphon breaches one or more covenants, Anchorage may choose to declare an event of default and require that Gryphon immediately repay all amounts outstanding under the Anchorage Loan Agreement and terminate any commitment to extend further credit and foreclose on the collateral. The occurrence of any of these events could have a material adverse effect on Gryphon’s business, financial condition and results of operations.

Gryphon’s independent registered public accounting firm’s report contains an explanatory paragraph that expresses substantial doubt about Gryphon’s ability continue as a “going concern.”

Gryphon’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which contemplate the continuation of Gryphon as a going concern and the realization of assets and satisfaction of liabilities in the ordinary course of business.

Since Gryphon began revenue generation in September 2021, management has financed Gryphon’s operations through equity and debt financing and the sale of the digital assets earned through mining operations.

Gryphon may incur additional losses from operations and negative cash outflows from operations in the foreseeable future. In the event Gryphon does incur losses, it may need to raise debt or equity financing to finance its operations until operations are cashflow positive. However, there can be no assurance that such financing will be available in sufficient amounts and on acceptable terms, when and if needed, or at all. The precise amount and timing of the funding needs cannot be determined accurately at this time and will depend on several factors, including the market price for the underlying commodity mined by Gryphon and its ability to procure the required mining equipment and operate profitably. Gryphon’s financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the ordinary course of business.


Gryphon’s loss of any of its management or advisory team, its inability to execute an effective succession plan, or its inability to attract and retain qualified personnel, could adversely affect Gryphon’s business.

Gryphon’s success and future growth will depend to a significant degree on the skills and services of its management and advisors, including Robby Chang, Gryphon’s Chief Executive Officer and Sim Salzman, Gryphon’s Chief Financial Officer. Gryphon will need to continue to grow its management in order to alleviate pressure on its existing team and in order to continue to develop its business. If Gryphon’s management, including any new hires that Gryphon may make, fail to work together effectively and to execute Gryphon’s plans and strategies on a timely basis, Gryphon’s business could be harmed. Furthermore, if Gryphon fails to execute an effective contingency or succession plan with the loss of any member of management, the loss of such management personnel may significantly disrupt its business.

The loss of key members of management or advisory team could inhibit Gryphon’s growth prospects. Gryphon’s future success also depends in large part on its ability to attract, retain and motivate key management and operating personnel. As Gryphon continues to develop and expand its operations, it may require personnel with different skills and experiences, and who have sound understandings of Gryphon’s business and the Bitcoin network industry. The market for highly qualified personnel in this industry is very competitive, and Gryphon may be unable to attract such personnel. If Gryphon is unable to attract such personnel, its business could be harmed.

Any valuation at this stage is difficult to assess.

Gryphon’s valuation is based upon a number of estimates and assumptions that may prove later to be inaccurate or incomplete. Gryphon began its operations in September 2021 and has limited operating experience and performance history, which makes valuation difficult.

If the bitcoin reward for solving blocks and transaction fees is not sufficiently high, Gryphon may not have an adequate incentive to continue mining and may cease mining operations, which will likely lead to Gryphon’s failure to achieve profitability.

As the number of bitcoin rewards awarded for solving a block in a blockchain decreases, Gryphon’s ability to achieve profitability worsens. Decreased use and demand for bitcoin rewards may adversely affect Gryphon’s incentive to expend processing power to solve blocks. If the award of bitcoin rewards for solving blocks and transaction fees are not sufficiently high, Gryphon or other miners may not have an adequate incentive to continue mining and may cease mining operations. Miners ceasing operations would reduce the collective processing power on the network, which would adversely affect the confirmation process for transactions (i.e., temporarily decreasing the speed at which blocks are added to a blockchain until the next scheduled adjustment in difficulty for block solutions) and make the Bitcoin network more vulnerable to a malicious actor or botnet obtaining control in excess of 50 percent of the processing power active on a blockchain, potentially permitting such actor or botnet to manipulate a blockchain in a manner that adversely affects Gryphon’s activities. A reduction in confidence in the confirmation process or processing power of the network could result and be irreversible. Such events could have a material adverse effect on Gryphon’s business, prospects or operations and potentially the value of any Bitcoin that Gryphon mines or otherwise acquires or holds for its own account.

Bitcoin mining activities are energy-intensive, which may restrict the geographic locations of mining machines and have a negative environmental impact. Government regulators may potentially restrict the ability of electricity suppliers to provide electricity to mining operations, such as Gryphon’s.

Mining bitcoin requires massive amounts of electrical power, and electricity costs are expected to account for a significant portion of Gryphon’s overall costs. The availability and cost of electricity will restrict the geographic locations of Gryphon’s mining activities. Any shortage of electricity supply or increase in electricity costs in any location where Gryphon plans to operate may negatively impact the viability and the expected economic return for bitcoin mining activities in that location.

Further, Gryphon’s business model can only be successful and Gryphon’s mining operations can only be profitable if the costs, including electrical power costs, associated with bitcoin mining are lower than the price of Bitcoin itself. As a result, any equipment Gryphon deploys can only be successful if Gryphon can obtain access to sufficient electrical power on a cost-effective basis through hosting arrangements with mining data centers. Gryphon’s deployment of new mining equipment requires Gryphon to find sites where that is the case. Even if Gryphon’s electrical power costs do not increase, significant fluctuations in, and any prolonged periods of, low Bitcoin prices may also cause Gryphon’s electrical supply to no longer be cost-effective.


Furthermore, if cryptocurrency mining becomes more widespread, government scrutiny related to restrictions on cryptocurrency mining facilities and their energy consumption may significantly increase. The considerable consumption of electricity by mining operators may also have a negative environmental impact, including contribution to climate change, which could set the public opinion against allowing the use of electricity for bitcoin mining activities. This, in turn, could lead to governmental measures restricting or prohibiting the use of electricity for bitcoin mining activities. For example, in September 2022, the White House issued a report regarding the Climate and Energy Implications of Crypto-Assets in the United States. The report states that the Department of Energy and Environmental Protection Agency should initiate a process to solicit data and develop environmental performance and energy conservation standards for crypto-asset technologies, including mining equipment. Should such measures prove ineffective at achieving the Administration’s environmental goals, the report calls for the Administration to explore executive actions and legislation to limit or eliminate the use of high energy intensity consensus mechanisms for crypto-asset mining in the United States. Any such development in the jurisdictions where Gryphon plans to operate could increase Gryphon’s compliance burdens and have a material adverse effect on Gryphon’s business, prospects, financial condition, and operating results.

Additionally, the mining data centers at which Gryphon maintains its mining equipment could be materially adversely affected by power outages and similar disruptions. Given the power requirements for Gryphon’s mining equipment, it would not be feasible to run this equipment on back-up power generators in the event of a government restriction on electricity or a power outage. If Gryphon is unable to receive adequate power supply and is forced to reduce its operations due to the availability or cost of electrical power, it would have a material adverse effect on Gryphon’s business, prospects, financial condition, and operating results.

Gryphon’s bitcoin may be subject to loss, theft or restriction on access.

There is a risk that some or all of Gryphon’s bitcoin could be lost or stolen. Cryptocurrencies are stored in cryptocurrency sites commonly referred to as “wallets” by holders of cryptocurrencies, which may be accessed to exchange a holder’s cryptocurrency assets. Access to Gryphon’s bitcoin assets could also be restricted by cybercrime (such as a denial of service attack) against a service at which Gryphon maintains a hosted hot wallet. A hot wallet refers to any cryptocurrency wallet that is connected to the Internet. Generally, hot wallets are easier to set up and access than wallets in cold storage, but they are also more susceptible to hackers and other technical vulnerabilities. Cold storage refers to any cryptocurrency wallet that is not connected to the Internet. Gryphon holds its bitcoin solely in cold custodial wallets with keys managed by BitGo Trust. Cold storage is generally more secure than hot storage, but is not ideal for quick or regular transactions, and Gryphon may experience lag time in its ability to respond to market fluctuations in the price of Gryphon’s bitcoin assets.

Hackers or malicious actors may launch attacks to steal, compromise or secure bitcoin, such as by attacking the Bitcoin network source code, exchange miners, third-party platforms, cold and hot storage locations or software, through phishing schemes or by other means. Several errors and defects in such codes have been found previously, including those that disabled some functionality for users and exposed users’ information. Exploitations of flaws in the source code that allow malicious actors to take or create money have previously occurred. Despite Gryphon’s efforts and processes to prevent breaches, Gryphon’s devices, as well as Gryphon’s miners, computer systems and those of third parties that Gryphon uses in its operations, are vulnerable to cybersecurity risks, including cyberattacks such as viruses and worms, phishing attacks, denial-of-service attacks, physical or electronic break-ins, employee theft or misuse, and similar disruptions from unauthorized tampering with Gryphon’s miners and computer systems or those of third parties that Gryphon uses in its operations. Any of these events may adversely affect Gryphon’s operations and, consequently, Gryphon’s investments and profitability. The loss or destruction of a private key required to access Gryphon’s digital wallets may be irreversible and Gryphon may be denied access for all time to its bitcoin holdings or the holdings of others held in those compromised wallets. Gryphon’s loss of access to its private keys or a data loss relating to Gryphon’s digital wallets could adversely affect Gryphon’s investments and assets.


Cryptocurrencies are controllable only by the possessor of both the unique public and private keys relating to the local or online digital wallet in which they are held, which wallet’s public key or address is reflected in the network’s public blockchain. Gryphon will publish the public key relating to digital wallets in use when Gryphon verifies the receipt of transfers and disseminates such information into the network, but Gryphon will need to safeguard the private keys relating to such digital wallets. We safeguard and keep private the private keys relating to our digital assets by relying on BitGo Trust’s (as defined herein) 100% cold storage custody solution held in a purpose-built physically-secure environment based on established, industry best practices to safeguard our digital assets from theft, loss, destruction or other issues relating to hackers and technological attack. Gryphon’s CEO holds Gryphon side private keys that are protected with two-factor authentication. Gryphon confirms transactional validity and data for revenue recognition through a daily review and reconciliation of BitGo reports. Custodial side keys are held by BitGo Trust who verifies requests with two factor authentication and video reviews. To the extent such private keys are lost, destroyed or otherwise compromised, Gryphon will be unable to access its bitcoin rewards and such private keys may not be capable of being restored by any network. Any loss of private keys relating to digital wallets used to store Gryphon’s bitcoin could have a material adverse effect on Gryphon’s ability to continue as a going concern or to pursue its new strategy at all, which could have a material adverse effect on Gryphon’s business, prospects or operations and potentially the value of any bitcoin that Gryphon mines or otherwise acquires or holds for its own account.

Our ability to adopt technology in response to changing security needs or trends and reliance on third party, Bitgo Prime, for custody poses a challenge to the safekeeping of our digital assets.

The history of digital asset exchanges has shown that exchanges and large holders of digital assets must adapt to technological change in order to secure and safeguard their digital assets. We rely on Bitgo Trust’s 100% cold storage custody solution held in a purpose-built physically-secure environment based on established, industry best practices to safeguard our digital assets from theft, loss, destruction or other issues relating to hackers and technological attack. We believe that it may become a more appealing target of security threats as the size of our bitcoin holdings grow. To the extent that either BitGo Trust or we are unable to identify and mitigate or stop new security threats, our digital assets may be subject to theft, loss, destruction or other attack, which could adversely affect an investment in us. To the extent that BitGo Trust is no longer, due to the current banking crisis, able to safeguard our assets, we would be at risk of loss if safeguarding protocols fail.

Incorrect or fraudulent cryptocurrency transactions may be irreversible.

Cryptocurrency transactions are irrevocable and stolen or incorrectly transferred cryptocurrencies may be irretrievable. As a result, any incorrectly executed or fraudulent Bitcoin transactions could adversely affect Gryphon’s investments and assets. Cryptocurrency transactions are not, from an administrative perspective, reversible without the consent and active participation of the recipient of the cryptocurrency from the transaction. In theory, Bitcoin transactions may be reversible with the control or consent of a majority of processing power on the Bitcoin network; however, Gryphon does not now, nor is it feasible that Gryphon could in the future, possess sufficient processing power to effect such a reversal. Once a transaction has been verified and recorded in a block that is added to a blockchain, an incorrect transfer of a cryptocurrency or a theft thereof generally will not be reversible and Gryphon may not have sufficient recourse to recover its losses from any such transfer or theft. It is possible that, through computer or human error, or through theft, fraud, phishing schemes or other criminal action, Gryphon’s cryptocurrency rewards could be transferred in incorrect amounts or to unauthorized third parties or uncontrolled accounts. Further, at this time, there is no specifically enumerated U.S. or foreign governmental, regulatory, investigative or prosecutorial authority or mechanism through which to bring an action or complaint regarding missing or stolen cryptocurrency. In the event of a loss, Gryphon would be reliant on existing private investigative entities to investigate any such loss of Gryphon’s bitcoin assets. These third-party service providers rely on data analysis and compliance of Internet service providers with traditional court orders to reveal information such as the IP addresses of any attackers who may have targeted Gryphon. To the extent that Gryphon is unable to recover its losses from such action, error, theft or other criminal action, such events could have a material adverse effect on Gryphon’s ability to continue as a going concern or to pursue Gryphon’s new strategy at all, which could have a material adverse effect on Gryphon’s business, prospects or operations of and potentially the value of any bitcoin that Gryphon mines or otherwise acquires or holds for its own account.


Gryphon may be affected by price fluctuations in the wholesale and retail power markets.

Market prices for power, generation capacity and ancillary services, are unpredictable. Depending upon the effectiveness of any price risk management activity undertaken by Gryphon, including but not limited to attempts to secure hosting services contracts at fixed fees, an increase in market prices for power, generation capacity, and ancillary services may adversely affect Gryphon’s business, prospects, financial condition, and operating results. Long- and short-term power prices may fluctuate substantially due to a variety of factors outside of Gryphon’s control, including, but not limited to:

●increases and decreases in generation capacity;
●changes in power transmission or fuel transportation capacity constraints or inefficiencies;
●volatile weather conditions, particularly unusually hot or mild summers or unusually cold or warm winters;
●technological shifts resulting in changes in the demand for power or in patterns of power usage, including the potential development of demand-side management tools, expansion and technological advancements in power storage capability and the development of new fuels or new technologies for the production or storage of power;
●federal and state power, market and environmental regulation and legislation; and
●changes in capacity prices and capacity markets.

If Gryphon is unable to secure power supply at prices or on terms acceptable to it, a material adverse effect on Gryphon’s business, prospects, financial condition, and operating results would occur.

To remain competitive in Gryphon’s industry, Gryphon seeks to grow its hash rate to match the growing network hash rate and increasing network difficulty of the Bitcoin blockchain, and if Gryphon is unable to grow its hash rate at pace with the network hash rate, Gryphon’s chance of earning bitcoin from its mining operations would decline.

As the adoption of Bitcoin has increased, the price of Bitcoin has generally appreciated, causing the demand for new bitcoin rewards for successfully solving blocks on the Bitcoin blockchain to likewise increase. This has encouraged more miners to attempt to mine bitcoin, which increases the global network hash rate deployed in support of the Bitcoin blockchain.

Because a miner’s relative chance of successfully solving a block and earning a new bitcoin reward is generally a function of the ratio the miner’s individual hash rate bears to the global network hash rate, as the global network hash rate increases, a miner must increase its individual hash rate to maintain its chances of earning new bitcoin rewards. Therefore, as new miners enter the industry and as miners deploy greater and greater numbers of increasingly powerful machines, existing miners must seek to continually increase their hash rates to remain competitive. Thus, a feedback loop is created: as Bitcoin gains popularity and its relative market price increases, more miners attempt to mine bitcoin and the Bitcoin network hash rate is increased; in response, existing miners and new miners devote more and more hash rate to the Bitcoin blockchain by deploying greater numbers of increasingly powerful machines in an attempt to ensure their abilities to earn additional bitcoin rewards do not decrease. Compounding this feedback loop, the network difficulty of the Bitcoin network (i.e., the amount of work (measured in hashes) necessary to solve a block) is periodically adjusted to maintain the pace of new block additions (with one new block added to the blockchain approximately every ten minutes), and thereby control the supply of Bitcoin. As miners deploy more hash rate and the Bitcoin network hash rate is increased, the Bitcoin network difficulty is adjusted upwards by requiring more hash rate to be deployed to solve a block. Thus, miners are further incentivized to grow their hash rates to maintain their chances of earning new bitcoin rewards. In theory, these dual processes should continually replicate themselves until the supply of available bitcoin is exhausted. In response, miners have attempted to achieve greater hash rates by deploying increasingly sophisticated and expensive miners in ever greater quantities. This has become the Bitcoin mining industry’s great “arms race.” Moreover, because there are very few manufacturers of miners capable of producing a sufficient number of miners of adequate quality to meet this need, scarcity results and miner prices increase. Compounding this phenomenon, it has been observed that some manufacturers of bitcoin miners may increase their prices for new miners as the market price of Bitcoin increases.

Accordingly, for Gryphon to maintain its chances of earning new bitcoin rewards and remaining competitive in its industry, Gryphon must seek to continually add new miners to grow its hash rate at pace with the growth in the Bitcoin network hash rate. However, as demand has increased and scarcity in the supply of new miners has resulted, the price of new miners has increased, and Gryphon expects this process to continue in the future as demand for bitcoin increases. Therefore, if the price of Bitcoin is not sufficiently high to allow Gryphon to fund its hash rate growth through new miner acquisitions, and if Gryphon is otherwise unable to access additional capital to acquire these miners, Gryphon’s hash rate may stagnate and Gryphon may fall behind its competitors. If this happens, Gryphon’s chances of earning new bitcoin rewards would decline and, as such, its results of operations and financial condition may suffer.


Gryphon’s business is dependent on a small number of digital asset mining equipment suppliers.

Gryphon’s business is dependent upon digital asset mining equipment suppliers providing an adequate supply of new generation digital asset mining machines at economical prices to customers intending to purchase its hosting and other solutions. The growth in Gryphon’s business is directly related to increased demand for hosting services and digital assets such as Bitcoin, which is dependent in large part on the availability of new generation mining machines offered for sale at a price conducive to profitable digital asset mining, as well as the trading price of digital assets such as Bitcoin. The market price and availability of new mining machines fluctuates with the price of Bitcoin and can be volatile. Higher Bitcoin prices increase the demand for mining equipment and increase the cost. In addition, as more companies seek to enter the mining industry, the demand for machines may outpace supply and create mining machine equipment shortages. There are no assurances that digital asset mining equipment suppliers will be able to keep pace with any surge in demand for mining equipment. Further, manufacturing mining machine purchase contracts are not favorable to purchasers and Gryphon may have little or no recourse in the event a mining machine manufacturer defaults on its mining machine delivery commitments. If Gryphon and its customers are not able to obtain a sufficient number of digital asset mining machines at favorable prices, its growth expectations, liquidity, financial condition and results of operations will be negatively impacted.

Mining machines rely on components and raw materials that may be subject to price fluctuations or shortages, including ASIC chips that have been subject to an ongoing significant shortage.

In order to build and sustain Gryphon’s self-mining operations, Gryphon will depend on third parties to provide it with ASIC chips and other critical components for its mining equipment, which may be subject to price fluctuations or shortages. For example, the ASIC chip is the key component of a mining machine as it determines the efficiency of the device. The production of ASIC chips typically requires highly sophisticated silicon wafers, which currently only a small number of fabrication facilities, or wafer foundries, in the world are capable of producing. ASIC chips were recently subject to significant price increases and shortages that may occur again in the future.

There is also a risk that a manufacturer or seller of ASIC chips or other necessary mining equipment may adjust the prices according to Bitcoin, other cryptocurrency prices or otherwise, so the cost of new machines could become unpredictable and extremely high. As a result, at times, Gryphon may be forced to obtain mining machines and other hardware at premium prices, to the extent they are even available. Such events could have a material adverse effect on Gryphon’s business, prospects, financial condition, and operating results.

Gryphon’s reliance primarily on a single model of miner may subject its operations to increased risk of design flaws.

The performance and reliability of Gryphon’s miners and its technology is critical to Gryphon’s reputation and its operations. Because Gryphon currently only uses Bitmain Antminer type miners, if there are issues with those machines, such as a design flaw in the ASIC chips they employ, Gryphon’s entire system could be affected. Any system error or failure may significantly delay response times or even cause Gryphon’s system to fail. Any disruption in Gryphon’s ability to continue mining could result in lower yields and harm its reputation and business. Any exploitable weakness, flaw, or error common to Bitmain miners could affect all of Gryphon’s miners; therefore, if a defect or other flaw exists and is exploited, Gryphon’s entire miner fleet could be adversely impacted. Any interruption, delay or system failure could result in financial losses, a decrease in the value of Gryphon’s stock and damage to Gryphon’s reputation.

There are risks related to technological obsolescence, the vulnerability of the global supply chain to Bitcoin hardware disruption, and difficulty in obtaining new hardware, which may have a negative effect on Gryphon’s business.

Gryphon’s mining operations can only be successful and profitable if the costs of mining Bitcoin, including hardware and electricity costs, associated with mining Bitcoin are lower than the price of a bitcoin. As Gryphon’s mining facility operates, Gryphon’s miners experience ordinary wear and tear, and may also face more significant malfunctions caused by a number of extraneous factors beyond Gryphon’s control. The physical degradation of Gryphon’s miners will require Gryphon to, over time, replace those miners which are no longer functional. Additionally, as the technology evolves, Gryphon may be required to acquire newer models of miners to remain competitive in the market.

Also, because Gryphon expects to depreciate all new miners, Gryphon’s reported operating results will be negatively affected. Further, the global supply chain for bitcoin miners is presently heavily dependent on China, which has been severely affected by the emergence of the COVID-19 coronavirus global pandemic. The global reliance on China as a main supplier of bitcoin miners has been called into question in the wake of the COVID-19 pandemic and China’s ban on cryptocurrency mining and trading in 2021. Should similar outbreaks or other disruptions to the China-based global supply chain for Bitcoin hardware occur, Gryphon may not be able to obtain adequate replacement parts for Gryphon’s existing miners or to obtain additional miners from the manufacturer on a timely basis. Such events could have a material adverse effect on Gryphon’s ability to pursue Gryphon’s new strategy, which could have a material adverse effect on Gryphon’s business.


Gryphon’s use of third-party mining pools exposes it to additional risks.

Gryphon receives bitcoin rewards from its mining activity through a third-party mining pool operator. Mining pools allow miners to combine their processing power, which increases miners’ chances of solving blocks and receiving bitcoin rewards from the network. The rewards are distributed by the pool operator, proportionally to Gryphon’s contribution to the pool’s overall mining power, after deducting the applicable pool fee, if any, used to solve a particular block on the Bitcoin blockchain. Should the pool operator’s system suffer downtime due to a cyber-attack, software malfunction or other issue, Gryphon’s ability to mine and receive revenue will be negatively impacted.

Gryphon relies on hosting arrangements to conduct its business, and the availability of such hosting arrangements is uncertain and competitive and may be affected by changes in regulation in one or more countries.

Gryphon relies on its hosting arrangements with Coinmint, LLC and, to a lesser degree, Core Scientific, Inc., to provide mining data centers and host its mining equipment. If these mining data centers fail to perform their obligations under their agreements with Gryphon, Gryphon may be forced to look for alternative mining data centers to host its mining equipment, which may not be available on favorable terms or at all. Additionally, if the mining data centers shut down or cannot accommodate additional miners as Gryphon expands its fleet, Gryphon may be forced to look for alternative centers.

In May 2021, China’s State Council issued a statement signaling its intent to restrict cryptocurrency mining and trading activities, resulting in provincial governments taking proactive measurements to prohibit cryptocurrency mining. On September 24, 2021, China’s central bank and its National Development and Reform Commission issued a nation-wide ban on cryptocurrency mining and declaring all financial transactions involving cryptocurrencies illegal. As a result, mining data centers previously operating in China have been forced to shut down and owners of cryptocurrency mining equipment located in China have been attempting to relocate the equipment to mining data centers in other jurisdictions, with a particular focus on locations within the United States. Combined with the increase in the price of bitcoin in 2021, the influx of cryptocurrency miners from China has created conditions of great demand for mining data centers and limited supply. Due to these conditions, there is no assurance that Gryphon will be able to procure alternative hosting agreements on acceptable terms in a timely manner or at all.

 

Significant competition for suitable mining data centers is expected to continue, and other government regulators, including local permitting officials, may potentially restrict the ability of potential mining data centers to begin or continue operations in certain locations. They can also restrict the ability of electricity suppliers to provide electricity to mining operations in times of electricity shortage, or may otherwise potentially restrict or prohibit the provision of electricity to mining operations. While Gryphon is not aware of the existence of any such restrictions in New York, the jurisdiction in which the mining data centers that Gryphon is currently maintaining its machines at are located, new ordinances and other regulations at the federal, state and local levels can be introduced at any time and can be triggered by certain adverse weather conditions or natural disasters, among other reasons.

The mining data centers at which Gryphon maintains its mining equipment may experience damages, including damages that are not covered by insurance.

Gryphon maintains its mining equipment at mining data centers in New York. The mining data centers at which Gryphon maintains its mining equipment, and any future mining data centers at which Gryphon maintains its mining equipment will be, subject to a variety of risks relating to physical condition and operation, including:

●the presence of construction or repair defects or other structural or building damage;
●any non-compliance 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 Gryphon’s properties.


For example, the mining data centers at which Gryphon maintains its mining equipment 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 facilities where Gryphon’s mining equipment is located. The security and other measures Gryphon takes to protect against these risks may not be sufficient. Any property insurance Gryphon obtained in the future may not be adequate to cover the losses Gryphon suffers as a result of any of these events. In addition to the other information containedevent of an uninsured loss, including a loss in this report on Form 10-K, the following Risk Factors should be considered carefully in evaluating our business. Ifexcess of insured limits, at any of the mining data centers at which Gryphon maintains its mining equipment, such mining data centers may not be adequately repaired in a timely manner or at all and Gryphon may lose some or all of the future revenues anticipated to be derived from Gryphon’s equipment located at such mining data centers. Additionally, Gryphon is exposed to regulatory risk in New York given the high concentration of Gryphon’s mining equipment in the state. The recent regulatory changes in New York have not impacted Gryphon’s operations due the scope of the changes being limited to carbon-based electricity. However, Gryphon is acutely aware that further regulatory changes could impact its ability to operate in the state and is prepared to shift its operations to alternative jurisdictions should it be required. Such a shift could be costly, which could have a material adverse effect on Gryphon’s business, financial condition and results of operations.

Gryphon may not be able to compete with other companies, some of whom have greater resources and experience.

Gryphon may not be able to compete successfully against present or future competitors. Gryphon does not have the resources to compete with larger providers of similar services at this time. The Bitcoin industry has attracted various high-profile and well-established operators, some of which have substantially greater liquidity and financial resources than Gryphon does. With the limited resources Gryphon has available, Gryphon may experience great difficulties in expanding and improving its network of computers to remain competitive. Competition from existing and future competitors, particularly those that have access to competitively-priced energy, could result in Gryphon’s inability to secure acquisitions and partnerships that Gryphon may need to expand Gryphon’s business in the future. This competition from other entities with greater resources, experience and reputations may result in Gryphon’s failure to maintain or expand its business, as Gryphon may never be able to successfully execute its business plan. If Gryphon is unable to expand and remain competitive, its business could be negatively affected.

Gryphon’s operations, investment strategies and profitability may be adversely affected by competition from other methods of investing in Bitcoin.

Gryphon competes with other users and/or companies that are mining Bitcoin and other potential financial vehicles, including securities backed by or linked to Bitcoin through entities similar to Gryphon. Market and financial conditions, and other conditions beyond Gryphon’s control, may make it more attractive to invest in other financial vehicles, or to invest in Bitcoin directly. The emergence of other financial vehicles and exchange-traded funds have been scrutinized by regulators and such scrutiny and the negative impressions or conclusions resulting from such scrutiny could be applicable to Gryphon and impact Gryphon’s ability to successfully pursue its strategy or operate at all, or to establish or maintain a public market for Gryphon’s securities. Such circumstances could have a material adverse effect on Gryphon’s ability to continue as a going concern or to pursue its strategy at all, which could have a material adverse effect on Gryphon’s business, prospects or operations and potentially the value of any bitcoin that Gryphon mines or otherwise acquires or holds for its own account, and harm investors.


The development and acceptance of competing blockchain platforms or technologies may cause consumers to use alternative distributed ledgers or other alternatives.

The development and acceptance of competing blockchain platforms or technologies may cause consumers to use alternative distributed ledgers or an alternative to distributed ledgers altogether. Gryphon’s business utilizes presently existent digital ledgers and blockchains and Gryphon could face difficulty adapting to emergent digital ledgers, blockchains, or alternatives thereto. This may adversely affect Gryphon and Gryphon’s exposure to various blockchain technologies and prevent Gryphon from realizing the anticipated profits from its investments. Such circumstances could have a material adverse effect on Gryphon’s ability to continue as a going concern or to pursue Gryphon’s strategy at all, which could have a material adverse effect on its business, prospects or operations and potentially the value of any bitcoin that Gryphon mines or otherwise acquires or holds for Gryphon’s own account, which could in turn harm investors.

Gryphon may not adequately respond to price fluctuations and rapidly changing technology, which may negatively affect Gryphon’s business.

Competitive conditions within the Bitcoin industry require that Gryphon use sophisticated technology in the operation of Gryphon’s business. The industry for blockchain technology is characterized by rapid technological changes, new product introductions, enhancements and evolving industry standards. New technologies, techniques or products could emerge that might offer better performance than the software and other technologies Gryphon currently utilizes, and Gryphon may have to manage transitions to these new technologies to remain competitive. Gryphon may not be successful, generally or relative to Gryphon’s competitors in the Bitcoin industry, in timely implementing new technology into Gryphon’s systems, or doing so in a cost-effective manner. During the course of implementing any such new technology into Gryphon’s operations, Gryphon may experience system interruptions and failures during such implementation. Furthermore, there can be no assurances that Gryphon will recognize, in a timely manner or at all, the benefits that Gryphon may expect as a result of implementing new technology into its operations. As a result, Gryphon’s business and operations may suffer.

There is a possibility of Bitcoin mining algorithms transitioning to proof of stake validation and other mining related risks, which could make Gryphon less competitive and ultimately adversely affect Gryphon’s business.

Proof of stake is an alternative method in validating Bitcoin transactions. Should the algorithm shift from a proof of work validation method to a proof of stake method, mining would require less energy and may render any company that maintains advantages in the current climate (for example, from lower priced electricity, processing, real estate, or hosting) less competitive. Gryphon, as a result of its efforts to optimize and improve the efficiency of its bitcoin mining operations, may be exposed to the risk in the future of losing the benefit of Gryphon’s capital investments and the competitive advantage Gryphon hopes 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 Gryphon’s ability to continue as a going concern or to pursue its new strategy at all, which could have a material adverse effect on Gryphon’s business, prospects or operations and potentially the value of any bitcoin that Gryphon mines or otherwise acquires or holds for its own account.

Gryphon may not be able to realize the benefits of forks. Forks in a digital asset network may occur in the future which may affect the value of bitcoin held by Gryphon.

To the extent that a significant majority of users and miners on a cryptocurrency network install software that changes the cryptocurrency network or properties of a cryptocurrency, including the irreversibility of transactions and limitations on the mining of new cryptocurrency, the cryptocurrency network would be subject to new protocols and software. However, if less than a significant majority of users and miners on the cryptocurrency network consent to the proposed modification, and the modification is not compatible with the software prior to its modification, the consequence would be what is known as a “fork” of the network, with one prong running the pre-modified software and the other running the modified software. The effect of such a fork would be the existence of two versions of the cryptocurrency running in parallel, yet lacking interchangeability and necessitating exchange-type transactions to convert currencies between the two forks. Additionally, it may be unclear following a fork which fork represents the original asset and which is the new asset. Different metrics adopted by industry participants to determine which is the original asset include: referring to the wishes of the core developers of a cryptocurrency, blockchains with the greatest amount of hashing power contributed by miners or validators, or blockchains with the longest chain. A fork in the Bitcoin network could adversely affect Gryphon’s ability to operate.


Gryphon may not be able to realize the economic benefit of a fork, either immediately or ever, which could adversely affect Gryphon’s business. If Gryphon holds bitcoin at the time of a hard fork into two cryptocurrencies, industry standards would dictate that Gryphon would be expected to hold an equivalent amount of the old and new assets following the fork. However, Gryphon may not be able, or it may not be practical, to secure or realize the economic benefit of the new asset for various reasons. For instance, Gryphon may determine that there is no safe or practical way to custody the new asset, that trying to do so may pose an unacceptable risk to Gryphon’s 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. Additionally, laws, regulations or other factors may prevent Gryphon from benefitting from the new asset even if there is a safe and practical way to custody and secure the new asset.

The impacts of climate change may result in additional costs or risks.

The physical risks actuallyof climate change may impact the availability and cost of materials and natural resources, sources and supply of energy, demand for Bitcoin and other cryptocurrencies, and other operating costs. If environmental laws or regulations or industry standards are either changed or adopted and impose significant operational restrictions and compliance requirements on Gryphon’s operations, or if Gryphon’s operations are disrupted due to physical impacts of climate change, Gryphon’s business, capital expenditures, results of operations, financial condition and competitive position could be negatively impacted.

Risks Related to Governmental Regulation and Enforcement

As cryptocurrencies may be determined to be investment securities, Gryphon may inadvertently violate the Investment Company Act of 1940 and incur large losses as a result and potentially be required to register as an investment company or terminate operations and Gryphon may incur third-party liabilities.

Gryphon believes that it is not engaged in the business of investing, reinvesting, or trading in securities, and it does not hold itself out as being engaged in those activities. However, under the Investment Company Act of 1940 (the “Investment Company Act”), a company may be deemed an investment company under section 3(a)(1)(C) thereof if the value of its investment securities is more than 40% of its total assets (exclusive of government securities and cash items) on an unconsolidated basis.

As a result of Gryphon’s investments and its mining activities, including investments in which it does not have a controlling interest, the investment securities Gryphon holds could exceed 40% of Gryphon’s total assets, exclusive of cash items and, accordingly, Gryphon could determine that it has become an inadvertent investment company. The bitcoin that Gryphon owns, acquires or mines may be deemed an investment security by the SEC, although Gryphon does not believe any of the bitcoin it owns, acquires or mines are securities. 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. As of the date of this Report, Gryphon does not believe it is an inadvertent investment company. Gryphon may take actions to cause the investment securities held by it to be less than 40% of its total assets, which may include acquiring assets with Gryphon’s cash and bitcoin on hand or liquidating Gryphon’s investment securities or bitcoin or seeking a no-action letter from the SEC if Gryphon is unable to acquire sufficient assets or liquidate sufficient investment securities in a timely manner.


As the Rule 3a-2 exception is available to a company no more than once every three years, and assuming no other exclusion were available to Gryphon, Gryphon would have to keep within the 40% limit for at least three years after it ceases being an inadvertent investment company. This may limit Gryphon’s ability to make certain investments or enter into joint ventures that could otherwise have a positive impact on Gryphon’s earnings. In any event, Gryphon does 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 SEC. 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 Gryphon’s operations, and Gryphon would be very constrained in the kind of business it could do as a registered investment company. Further, Gryphon 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 Gryphon incurring substantial additional expenses, and the failure to register if required would have a materially adverse impact to conduct Gryphon’s operations.

If regulatory changes or interpretations of Gryphon’s activities require its registration as a money services business under the regulations promulgated by The Financial Crimes Enforcement Network under the authority of the U.S. Bank Secrecy Act, Gryphon may be required to register and comply with such regulations. If regulatory changes or interpretations of Gryphon’s activities require the licensing or other registration of Gryphon as a money transmitter (or equivalent designation) under state law in any state in which Gryphon operates, Gryphon may be required to seek licensure or otherwise register and comply with such state law. In the event of any such requirement, to the extent Gryphon decides to continue, the required registrations, licensure and regulatory compliance steps may result in extraordinary, non-recurring expenses to Gryphon. Gryphon may also decide to cease its operations. Any termination of certain operations in response to the changed regulatory circumstances may be at a time that is disadvantageous to investors.

To the extent that Gryphon’s activities cause it to be deemed a money service business under the regulations promulgated by the Financial Crimes Enforcement Network of the U.S. Treasury Department (“FinCEN”) under the authority of the U.S. Bank Secrecy Act, Gryphon may be required to comply with FinCEN regulations, including those that would mandate Gryphon to implement anti-money laundering programs, make certain reports to FinCEN and maintain certain records.

To the extent that Gryphon’s activities cause Gryphon to be deemed a money transmitter or equivalent designation under state law in any state in which Gryphon operates, Gryphon may be required to seek a license or otherwise register with a state regulator and comply with state regulations that may include the implementation of anti-money laundering programs, maintenance of certain records and other operational requirements. Currently, the New York Department of Financial Services maintains a comprehensive “BitLicense” framework for businesses that conduct “virtual currency business activity.” Gryphon will continue to monitor for developments in New York legislation, guidance and regulations.

Such additional federal or state regulatory obligations may cause Gryphon to incur extraordinary expenses, which could affect Gryphon’s business in a material and adverse manner. Furthermore, Gryphon and its service providers may not be capable of complying with certain federal or state regulatory obligations applicable to money service businesses and money transmitters. If Gryphon is deemed to be subject to and determined not to comply with such additional regulatory and registration requirements, Gryphon may act to dissolve and liquidate Gryphon. Any such action may adversely affect an investment in Gryphon.


Gryphon is subject to an extensive, highly evolving and uncertain regulatory and business landscape and any adverse changes to, or its failure to comply with, any laws and regulations, and adverse business reactions from counterparties could adversely affect its brand, reputation, business, operating results, and financial condition.

Gryphon’s business is subject to extensive laws, rules, regulations, policies, orders, determinations, directives, treaties, and legal and regulatory interpretations and guidance, as well as counterparty risk in the markets in which it operates, including regulatory aspects from financial services, federal energy and other regulators, the SEC, the CFTC, credit, crypto asset custody, exchange, and transfer, cross-border and domestic money and crypto asset transmission, consumer and commercial lending, usury, foreign currency exchange, privacy, data governance, data protection, cybersecurity, fraud detection, antitrust and competition, bankruptcy, tax, anti-bribery, economic and trade sanctions, anti-money laundering, and counter-terrorist financing, as well as the same regulatory risks applicable to counterparties, most notably hosting businesses, as well as the recent economic issues and bankruptcies befalling some in this industry. Many of these legal and regulatory regimes were adopted prior to the advent of the internet, mobile technologies, crypto assets, and related technologies. As a result, some applicable laws and regulations do not contemplate or address unique issues associated with the crypto economy, are subject to significant uncertainty, and vary widely across U.S. federal, state, and local and international jurisdictions. These legal and regulatory regimes, including the laws, rules, and regulations thereunder, evolve frequently and may be modified, interpreted, and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another. Moreover, the complexity and evolving nature of Gryphon’s business and the significant uncertainty surrounding the regulation of the crypto economy requires Gryphon to exercise its judgment as to whether certain laws, rules, and regulations apply to us, and it is possible that governmental bodies and regulators may disagree with Gryphon’s conclusions. To the extent Gryphon has not complied with such laws, rules, and regulations, it could be subject to significant fines, revocation of licenses, limitations on its products and services, reputational harm, and other regulatory consequences, each of which may be significant and could adversely affect its business, operating results, and financial condition.

Additionally, various governmental and regulatory bodies, including legislative and executive bodies, in the United States and in other countries may adopt new laws and regulations, the direction and timing of which may be influenced by changes in the governing administrations and major events in the crypto economy. The collapse of TerraUSD and Luna and the bankruptcy filings of FTX and its subsidiaries, Three Arrows, Celsius, Voyager, Genesis and BlockFi have resulted in calls for heightened scrutiny and regulation of the digital asset industry, with a specific focus on digital asset exchanges, platforms, and custodians. Federal and state legislatures and regulatory agencies are expected to introduce and enact new laws and regulations to regulate digital asset intermediaries, such as digital asset exchanges and custodians. The U.S. regulatory regime — namely the Federal Reserve Board, U.S. Congress and certain U.S. agencies (e.g., the SEC, the CFTC, FinCEN, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation (“FDIC”), and the Federal Bureau of Investigation) as well as the White House have issued reports and releases concerning digital assets, including Bitcoin and digital asset markets. In the near future, various governmental and regulatory bodies, including in the United States, may introduce new policies, laws, and regulations relating to crypto assets and the crypto economy generally, and crypto asset platforms in particular. However, the extent and content of any forthcoming laws and regulations are not yet ascertainable with certainty, and it may not be ascertainable in the near future. The failures of risk management and other control functions at other companies that played a role in these events could accelerate an existing regulatory trend toward stricter oversight of crypto asset platforms and the crypto economy.

Although Gryphon is not directly connected to the recent cryptocurrency market events, Gryphon may still suffer reputational harm due to its association with the cryptocurrency industry in light of the recent disruption in the crypto asset markets. Due to its business activities, Gryphon may be subject to ongoing examinations, oversight, and reviews and currently are, and expect in the future, to be subject to investigations and inquiries, by U.S. federal and state regulators, many of which have broad discretion to audit and examine its business. Moreover, new laws, regulations, or interpretations may result in additional litigation, regulatory investigations, and enforcement or other actions, including preventing or delaying Gryphon from offering certain products or services offered by its competitors or could impact how it offers such products and services. Adverse changes to, or its failure to comply with, any laws and regulations have had, and may continue to have, an adverse effect on its reputation and brand and its business, operating results, and financial condition.


There is no one unifying principle governing the regulatory status of cryptocurrency nor whether cryptocurrency is a security in each context in which it is viewed. Regulatory changes or actions in one or more countries may alter the nature of an investment in Gryphon or restrict the use of digital assets, such as cryptocurrencies, in a manner that adversely affects Gryphon’s business, prospects or operations.

As cryptocurrencies have grown in both popularity and market size, governments around the world have reacted differently, with certain governments deeming cryptocurrencies illegal, and others allowing their use and trade without restriction. In some jurisdictions, such as in the U.S., digital assets, like cryptocurrencies, are subject to extensive, and in some cases overlapping, unclear and evolving regulatory requirements. On March 8, 2022, President Biden announced an executive order on cryptocurrencies, which seeks to establish a unified federal regulatory regime for cryptocurrencies. In connection with FTX’s collapse and bankruptcy filing, the U.S. Department of Justice brought criminal charges, including charges of fraud, violations of federal securities laws, money laundering, and campaign finance offenses against FTX’s former CEO and others. FTX is also under investigation by the SEC, the Justice Department, and the Commodity Futures Trading Commission, as well as by various regulatory authorities in the Bahamas, Europe and other jurisdictions. Regulatory and enforcement scrutiny has also increased, including from the DOJ, the SEC, the CFTC, the White House and Congress. Gryphon is unable to predict the nature or extent of new and proposed legislation and regulation potentially stemming from the Biden Administration executive order and proceedings surrounding FTX.

Bitcoin is the oldest and most well-known form of cryptocurrency. Bitcoin and other forms of cryptocurrencies have been the source of much regulatory consternation, resulting in differing definitional outcomes without a single unifying statement. Bitcoin and other digital assets are viewed differently by different regulatory and standards setting organizations globally as well as in the United States on the federal and state levels. For example, the Financial Action Task Force (“FATF”) and the Internal Revenue Service (“IRS”) consider a cryptocurrency as currency or an asset or property. Further, the IRS applies general tax principles that apply to property transactions to transactions involving virtual currency.

If regulatory changes or interpretations require the regulation of Bitcoin or other digital assets under the securities laws of the United States or elsewhere, including the Securities Act of 1933, the Exchange Act and the 1940 Act or similar laws of other jurisdictions and interpretations by the SEC, the CFTC, the IRS, Department of Treasury or other agencies or authorities, Gryphon may be required to register and comply with such regulations, including at a state or local level. To the extent that Gryphon decides to continue operations, the required registrations and regulatory compliance steps may result in extraordinary expense or burdens to Gryphon. Gryphon may also decide to cease certain operations and change Gryphon’s business model. Any disruption of Gryphon’s operations in response to the changed regulatory circumstances may be at a time that is disadvantageous to Gryphon.

Current and future legislation and SEC-rulemaking and other regulatory developments, including interpretations released by a regulatory authority, may impact the manner in which Bitcoin or other cryptocurrencies are viewed or treated for classification and clearing purposes. In particular, Bitcoin and other cryptocurrencies may not be excluded from the definition of “security” by SEC rulemaking or interpretation requiring registration of all transactions unless another exemption is available, including transacting in bitcoin or cryptocurrency among owners and require registration of trading platforms as “exchanges”.

Gryphon cannot be certain as to how future regulatory developments will impact the treatment of Bitcoin and other cryptocurrencies under the law. While Gryphon received crypto assets other than Bitcoin from the private placement of stock, Gryphon has long since sold these assets and currently does not hold any crypto assets other than Bitcoin. Additionally, Gryphon does not intend to expand its business by acquiring digital assets other than Bitcoin. Nonetheless, if Bitcoin becomes subject to additional regulatory and registration requirements, and Gryphon fails to comply with these, Gryphon may seek to cease certain of its operations or be subjected to fines, penalties and other governmental action. Such circumstances could have a material adverse effect on Gryphon’s ability to continue as a going concern or to pursue its business model at all, which could have a material adverse effect on its business, prospects or operations and potentially the value of any cryptocurrencies Gryphon plans to hold or expect to acquire for its own account.


Banks and financial institutions may not provide banking services, or may cut off services, to businesses that engage in Bitcoin-related activities or that accept bitcoin as payment, including financial institutions of investors in Gryphon’s common stock.

A number of companies that engage in Bitcoin and/or other cryptocurrency-related activities have been unable to find banks or financial institutions that are willing to provide them with bank accounts and other services. Similarly, a number of companies and individuals or businesses associated with Bitcoin may have had and may continue to have their existing bank accounts closed or services discontinued with financial institutions in response to government action, particularly in China, where regulatory response to cryptocurrencies has been to exclude their use for ordinary consumer transactions within China. In January 2023, the Federal Reserve, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation issued a joint statement effectively discouraging banks from doing business with clients in crypto-asset industries. The Federal Reserve also issued a policy statement broadening its authority to cover state-chartered institutions. Moreover, in January 2023, the White House issued a statement cautioning deepening ties between crypto-assets and the broader financial system. Gryphon also may be unable to obtain or maintain these financial services for Gryphon’s business. The difficulty that many businesses that provide Bitcoin and/or derivatives on other cryptocurrency-related activities have and may continue to have in finding banks and financial institutions willing to provide them services could decrease their usefulness and harm their public perception in the future and may be decreasing the usefulness of Bitcoin as a payment system and harming public perception of Bitcoin.

The usefulness of Bitcoin as a payment system and the public perception of Bitcoin could be damaged if banks or financial institutions were to close the accounts of businesses engaging in Bitcoin and/or other cryptocurrency-related activities. This could occur as a result of compliance risk, cost, government regulation or public pressure. The risk applies to securities firms, clearance and settlement firms, national stock exchanges and commodities derivatives exchanges, the over-the-counter market, and the Depository Trust Company, which, if any of such entities adopts or implements similar policies, rules or regulations, could negatively affect Gryphon’s relationships with financial institutions and impede Gryphon’s ability to convert bitcoin to fiat currencies. Such factors could have a material adverse effect on Gryphon’s ability to continue as a going concern or to pursue its strategy at all, which could have a material adverse effect on Gryphon’s business, prospects or operations and harm investors.

It may be illegal now, or in the future, to acquire, own, hold, sell or use bitcoin, ether, or other cryptocurrencies, participate in blockchains or utilize similar cryptocurrency assets in one or more countries, the ruling of which would adversely affect Gryphon.

As Bitcoin has grown in both popularity and market size, governments around the world have reacted differently to Bitcoin; certain governments have deemed them illegal, and others have allowed their use and trade without restriction, while in some jurisdictions, such as in the U.S., subject to extensive, and in some cases overlapping, unclear and evolving regulatory requirements. Until recently, little or no regulatory attention has been directed toward Bitcoin and the Bitcoin network by U.S. federal and state governments, foreign governments and self-regulatory agencies. As Bitcoin has grown in popularity and in market size, the Federal Reserve Board, U.S. Congress and certain U.S. agencies (e.g., the Commodity Futures Trading Commission, the SEC, FinCEN and the Federal Bureau of Investigation) have begun to examine the operations of the Bitcoin network, Bitcoin users and the Bitcoin exchange market.

One or more countries such as China and Russia, which have taken harsh regulatory action in the past, may take regulatory actions in the future that could severely restrict the right to acquire, own, hold, sell or use these cryptocurrency assets or to exchange for fiat currency. In many nations, particularly in China and Russia, it is illegal to accept payment in Bitcoin and other cryptocurrencies for consumer transactions and banking institutions are barred from accepting deposits of Bitcoin. Such restrictions may adversely affect Gryphon as the large-scale use of Bitcoin as a means of exchange is presently confined to certain regions globally. Such circumstances could have a material adverse effect on Gryphon’s ability to continue as a going concern or to pursue Gryphon’s strategy at all, which could have a material adverse effect on Gryphon’s business, prospects or operations and potentially the value of any Bitcoin that Gryphon mines or otherwise acquires or holds for its own account, and harm investors.


Gryphon’s interactions with a blockchain may expose Gryphon to specially designated nationals or blocked persons or cause Gryphon to violate provisions of law that did not contemplate distributed ledger technology.

The Office of Financial Assets Control of the U.S. Department of Treasury (“OFAC”) requires Gryphon to comply with its sanction program and not conduct business with persons named on its specially designated nationals list. However, because of the pseudonymous nature of blockchain transactions, Gryphon may inadvertently and without Gryphon’s knowledge engage in transactions with persons named on OFAC’s specially designated nationals list. Gryphon’s policy prohibits any transactions with such specially designated national individuals, but Gryphon may not be adequately capable of determining the ultimate identity of the individual with whom Gryphon transacts with respect to selling bitcoin assets. Moreover, federal law prohibits any U.S. person from knowingly or unknowingly possessing any visual depiction commonly known as child pornography. Recent media reports have suggested that persons have imbedded such depictions on one or more blockchains. Because Gryphon’s business requires it to download and retain one or more blockchains to effectuate Gryphon’s ongoing business, it is possible that such digital ledgers contain prohibited depictions without Gryphon’s knowledge or consent. To the extent government enforcement authorities literally enforce these and other laws and regulations that are impacted by decentralized distributed ledger technology, Gryphon may be subject to investigation, administrative or court proceedings, and civil or criminal monetary fines and penalties, all of which could harm Gryphon’s reputation.

Gryphon’s management and compliance personnel have limited experience handling a listed cryptocurrency mining-related services company.

Gryphon’s management and compliance personnel have limited experience in handling regulatory and compliance matters relating to a listed cryptocurrency mining-related services company. Gryphon’s key compliance documents and compliance programs, such as AML and KYC procedures, also have a recent history only. Gryphon believes that its measures designed to limit its counterparty risks are appropriate. While Gryphon has been devoting a substantial amount of time and resources to various compliance initiatives and risk management measures, including but not limited to, developing a dedicated internal compliance function, Gryphon cannot assure you the practical application and effectiveness of its compliance program and risk management measures, nor that there will not be a failure in detecting regulatory compliance issues or managing risk exposure, which may adversely affect its reputation, business, financial condition and results of operations

Risks Related to Gryphon’s Securities

The stock price of the Company’s common stock may be volatile or may decline regardless of its operating performance and you may not be able to resell your shares at or above the purchase price.

An active trading market for Gryphon’s common stock may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. An inactive market may also impair Gryphon’s ability to raise capital by selling shares of common stock and may impair Gryphon’s ability to acquire other businesses or technologies using Gryphon’s shares of common stock as consideration, which, in turn, could materially adversely affect Gryphon’s business. The market price of Gryphon’s common stock may fluctuate significantly in response to numerous factors, many of which are beyond Gryphon’s control, including:

●overall performance of the equity markets;
●Gryphon’s operating performance and the performance of other similar companies;
●the published opinions and third-party valuations by banking and market analysts;
●changes in Gryphon’s projected operating results that it provides to the public, Gryphon’s failure to meet these projections or changes in recommendations by securities analysts that elect to follow Gryphon’s common stock;
●regulatory or legal developments in the United States and other countries;
●the level of expenses related to operations;
●Gryphon’s failure to achieve its goals in the timeframe it announces;
●announcements of acquisitions, strategic alliances or significant agreements by Gryphon;


●recruitment or departure of key personnel;
●the economy as a whole and market conditions in Gryphon’s industry;
●trading activity by a limited number of stockholders who together beneficially own a majority of Gryphon’s outstanding common stock;
●the size of Gryphon’s market float;
●political uncertainty and/or instability in the United States;
●the ongoing and future impact of the COVID-19 pandemic and actions taken to slow its spread; and
●any other factors discussed in this Report.

In addition, the equity markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many data mining and cryptocurrency companies. Stock prices of many data mining and cryptocurrency companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. The trading prices for common stock of other cryptocurrency mining companies have also been highly volatile. In the past, stockholders have filed securities class action litigation following periods of market volatility. If Gryphon were to become involved in securities litigation, it could subject Gryphon to substantial costs, divert resources and the attention of management from Gryphon’s business and adversely affect its business.

Gryphon’s operating results may fluctuate significantly or may fall below the expectations of investors or securities analysts, each of which may cause the Company’s stock price to fluctuate or decline.

Gryphon’s operating results will be subject to annual and quarterly fluctuations. Gryphon’s net income and other operating results will be affected by numerous factors, including:

●Gryphon’s execution of any additional collaboration or similar arrangements, and the timing of payments Gryphon may make or receive under existing or future arrangements or the termination or modification of any such existing or future arrangements;
●additions and departures of key personnel;
●strategic decisions by Gryphon or its competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy; and
●changes in general market and economic conditions.

If Gryphon’s operating results fall below the expectations of investors or securities analysts, the price of Gryphon’s common stock could decline substantially. Furthermore, any fluctuations in Gryphon’s operating results may, in turn, cause the price of its stock to fluctuate substantially.

Gryphon’s executive officers, directors and principal stockholders, if they choose to act together, will continue to control or significantly influence all matters submitted to stockholders for approval.

As of March 29, 2023, Gryphon’s executive officers, directors and greater than 5% stockholders owned, in the aggregate, approximately 40.8% of the combined company’s outstanding common stock (assuming no exercise of outstanding warrants). As a result, such persons acting together, have the ability to control or significantly influence all matters submitted to Gryphon’s board of directors or stockholders for approval, including the appointment of Gryphon’s management, the election and removal of directors and approval of any significant transaction, as well as Gryphon’s management and business affairs. This concentration of ownership may have the effect of delaying, deferring or preventing a change in control, impeding a merger, consolidation, takeover or other business combination involving Gryphon, or discouraging a potential acquiror from making a tender offer or otherwise attempting to obtain control of Gryphon’s business, even if such a transaction would benefit other stockholders.


Current or future litigation may harm our financial condition or results of operations.

As described in the section entitled “Gryphon’s Business — Legal Proceedings” in this Report, Gryphon is engaged in litigation, including the Sphere 3D Litigation (as defined below). Litigation proceedings may be uncertain, and adverse rulings could occur, resulting in significant liabilities, penalties or damages. Such current or future substantial legal liabilities or regulatory actions could have a material adverse effect on our business, financial condition, cash flows and reputation.

Gryphon intends to continue to vigorously defend against the Sphere 3D Litigation, including but not limited to the Sphere 3D MSA Termination, which it believes are without merit, and to aggressively pursue its counterclaims against Sphere 3D. However, Gryphon cannot predict the outcome of these proceedings or provide an estimate of potential damages or recovery, if any. Failure by Gryphon to obtain a favorable resolution of the Sphere 3D Litigation could require it to pay damage awards or otherwise enter into settlement arrangements for which its insurance coverage may be insufficient.

Further, any valid termination of the Sphere MSA in accordance with its terms could also have a negative impact on Gryphon’s business and operating results. In addition, such lawsuits may make it more difficult for Gryphon to finance its operations in the future.

We have received a civil investigative demand from the United States Department of Justice (the “DOJ”) and a notice from the Small Business Administration (the “SBA”) relating to our PPP Loan under the CARES Act related to COVID-19, that the DOJ is reviewing documents related to the PPP Loan and the SBA is reviewing their prior decision to forgive our PPP Loan and may reverse that determination, and a reversal of the determination that we are eligible for forgiveness of the PPP Loan could negatively impact the Company.

On April 21, 2020, the Company, while operating the business of Akerna, obtained a loan from KeyBank National Association (“Key Bank”) in the principal aggregate amount of $2.2 million (the “PPP Loan”) pursuant to the Paycheck Protection Program under the CARES Act. The PPP Loan had a two-year term bearing interest at a rate of 1% per annum with principal and interest payments to be paid monthly beginning seven months from the date of the PPP Loan. In August 2021, the Company submitted its application for forgiveness for repayment of the PPP Loan, and on September 3, 2021, repayment of the PPP Loan was forgiven, in full, by the SBA.

On February 5, 2024, the Company received a letter, dated January 25, 2024, from the SBA, on behalf of Key Bank, in which the SBA indicated that, notwithstanding its prior notification of forgiveness, in full, of repayment of the PPP Loan, it was reviewing its prior determination of forgiveness for potential reversal. Specifically, the SBA indicated that based on its preliminary findings, the SBA is considering a full denial of the previously received forgiven amount based on the purported ineligibility of the Company to have received the PPP Loan under the SBA loan programs because the Company, operating the business of Akerna at the time of the PPP Loan, provided software support to the cannabis industry. The Company responded to the SBA on February 6, 2024, providing reasons as to why it believes it was eligible for the PPP Loan, but has not received any further correspondence from the SBA, since that date, and the SBA has not made any financial demands. The Company plans to continue to cooperate with any further inquiry from the SBA.

In January 2024, the Company received a civil investigative demand from the DOJ seeking information and documents about the PPP Loan. The Company is cooperating with the inquiry. At this time, there has been no formal demand for return of the PPP Loan proceeds, and no formal claim or lawsuit has been initiated against the Company.

While no formal determination has been made regarding the SBA review of forgiveness of the PPP Loan, there currently exists a risk that the SBA or the DOJ could determine that we do not qualify in whole or in part for such forgiveness and demand repayment of the PPP Loan. In addition, it is unknown what type of penalties could be assessed against us, if any. Any obligation for us to repay the PPP Loan and any penalties in addition to such repayment could negatively impact our business, financial condition and results of operations could be materially and adversely affected.prospects.

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The issuance of shares of our common stock pursuant to the Akerna Notes and the Anchorage Loan Agreement may result in significant dilution to our stockholders.

 

Risks RelatingThe Anchorage Loan Agreement includes conversion provision whereby Anchorage has a limited right to Our Financial Condition and Operating History


There is substantial doubt about our ability to continue as a going concern.


Our financial statement footnotes include disclosure regarding the substantial doubt about our ability to continue as a going concern. Our financial statements do not includeconvert all or any adjustments that might result from the outcomeportion of the uncertainty regarding our ability to continue as a going concern. This going concern opinion could materially limit our ability to raise additional funds through the issuance of equity or debt securities or otherwise. Further reports on our financial statements may include an explanatory paragraph with respect to our ability to continue as a going concern. Our ability to continue as a going concern is uncertain and dependent upon obtaining the financing necessary to meet our financial commitments and to continue our ongoing operations as currently planned. We do not have sufficient funds to meet planned expenditures over the next twelve months, and will need to seek additional debt or equity financing to meet our planned expenditures. We will require additional financing in the second quarter of 2022 to meet our ongoing operational working capital requirements and continue to meet the financial covenants of our covertible notes. We plan to meet those requirements in part through the use of our at-the-market facility, but there are no guarantees that the facility will permit us to raise sufficient cash to meet our ongoing requirements. These factors raise substantial doubt regarding our ability to continue as a going concern. We we are unable to raise sufficient capital we may have to reduce operations which could significantly affect our results of operations.  If we fail to meet the financial covenants of our debt and cannot obtain a waiver from such provisions or otherwise come to an agreement with the holders of our debt, such holders may declare a defaultoutstanding principal on the debt which could subject our assets to seizure and sale, negatively impacting our business.  See “Risks Relating to our Convertible Debt” below.


We haveloan into a historynumber of losses, expect to continue to incur losses in the near term and may not achieveshares of Gryphon or sustain profitability in the future.

We have incurred significant losses in each fiscal year since our inception in 2010. For the year ended December 31, 2021, we had a net loss of $31.3 million. For the six months ended December 31, 2020 we had a net loss of $16.2 million. For fiscal year ended June 30, 2020, we had a net loss of $14.4 million. These losses have been due to the substantial investments we have made to develop our monitoring and compliance platforms and related software, market these products to government regulatory agencies and commercial businesses and growing our infrastructure to support the increased business. We expect to continue to invest in the further development of our platforms, software, and related product offerings and to grow both our government regulatory and commercial business client base. As a result, we expect our operating expenses to increase in the future due to expected increased sales and marketing expenses, operational costs, product development costs, and general and administrative costs and, therefore, our operating losses will continue or even increase at least through the near term. In addition, because we are now aany public company we will incur significant legal, accounting, and other expenses that MJF didis Gryphon’s parent, if Gryphon is not incur as a non-public company. Furthermore,the public company (the “Conversion Right”). The Conversion Right is available at any time during the one month period (the “Conversion Period”) after which the market capitalization of Gryphon, or its public company parent if Gryphon is not the public company, for the first time exceeds $125,000,000 for five consecutive days. The conversion price is equal to $150,000,000 divided by the extent that we are successful in increasing our client base, we will also incur increased expenses because costs associated with generating and supporting client agreements are generally incurred upfront, while revenuenumber of shares of Gryphon, or its public company parent if Gryphon is generally recognized ratably overnot the termpublic company, common stock outstanding immediately prior to Anchorage’s exercise of the agreement. You should not rely upon our recent revenue growth as indicative of future performance. We may not reach profitability in the near future or at any specific time in the future. If and when our operations do become profitable, we may not sustain profitability.


We have a relatively short operating history, which makes it difficult to evaluate our business and future prospects.

We have a relatively short operating history, which makes it difficult to evaluate our business and future prospects. Our wholly-owned subsidiary, MJF, has been in existence since 2010, and much of our revenue growth has occurredConversion Right during the past four years. We have encountered, and will continue to encounter, risks and difficulties frequently experienced by growing companies in rapidly changing industries, including those related to:Conversion Period.

 

●

market acceptance of our current and future products and services;

●

changing regulatory environments and costs associated with compliance;

●

our ability to compete with other companies offering similar products and services;

●

our ability to effectively market our products and services and attract new clients;

●

existing client retention rates and the ability to upsell clients;

●

the amount and timing of operating expenses, particularly sales and marketing expenses, related to the maintenance and expansion of our business, operations, and infrastructure;

●

our ability to control costs, including operating expenses;

●

our ability to manage organic growth and growth fueled by acquisitions;

●

public perception and acceptance of cannabis-related products and services generally; and

●

general economic conditions and events.

If we do not manage these risks successfully, our business and financial performance will beSales of substantial amounts of common stock in the public market, or the perception that such sales could occur, could materially adversely affected.

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Our long-term results of operations are difficult to predict and depend onaffect the commercial success of our clients, the continued growthmarket price of the cannabis industry generally,common stock and the regulatory environment within which the cannabis industry operates.

Our offers of products and services globally to help government regulatory agencies and commercial businesses monitor regulatory compliance and operate efficiently and successfully in compliance with applicable state laws. Our long-term results will directly depend on the continued growth of the legalized cannabis industry (and public acceptance of cannabis-related products) and the ability of our current and future clients to successfully market their own products and services. If the legalized cannabis marketplace does not continue to grow because the public does not increasingly accept cannabis-related products or government regulators adopt laws, rules, or regulations that terminate or diminish the ability for commercial businesses to develop, market, and sell cannabis-related products, our business and financial performance would be materially adversely affected. Additionally, even if the cannabis marketplace continues to grow rapidly, and government regulation allows for the free-market development of this industry, products, and services competitive with those offered by us may enjoy better market acceptance.

The legalized cannabis industry may not continue to grow and the regulatory environment may not remain favorable to participants in the industry. More generally, our products and services may not experience growing market acceptance, which would adversely impact our ability to grow revenue.


Direct and indirect consequences of the COVID-19 pandemic may have material adverse consequences.

The current COVID-19 pandemic is creating extensive disruptions to the global economy. Governments, businesses, and the public are taking unprecedented actions to contain the spread of COVID-19 and to mitigate its effects, including quarantines, travel bans, shelter-in-place orders, closures of businesses, fiscal stimulus, and legislation designed to deliver monetary aid and other relief. While the scope, duration, and full effects of COVID-19 are rapidly evolving and not fully known, the pandemic and related efforts to contain it have disrupted global economic activity, adversely affected the functioning of financial markets, impacted interest rates, increased economic and market uncertainty, and disrupted trade and supply chains. If these effects continue for a prolonged period or result in sustained economic stress or recession, we may experience adverse effects on our operations. Specifically, if our clients are forced to reduce business hours or close their businesses for an extended period of time or if their customer base experiences financial hardship, our clients may experience a sharp decline in revenue and be unable to meet their obligations to us under existing agreements or be unwilling to extend their agreements past current terms, which may adversely impact our financial results. Further, we may experience a decrease in new clients due to a lack of financial resources or a decline in new markets as businesses and financial markets deal with the impact of COVID-19. As governments are focused on relief efforts and fiscal stimulus measures, important legislation to expand or clarify certain existing or new markets for our products may be postponed or abandoned, which may adversely impact our results. Further, these conditions may impact our ability to access financial markets to obtain the necessary funding to operate our business as currently contemplated, which may adversely affect our liquidity and working capital. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this registration statement, such as those relating to our operations and financial condition. Due to the highly uncertain and dynamic nature of events relating to the COVID-19 pandemic, it is not currently possible to estimate the impact of the pandemic on our business. However, these effects could have a material impact on our operations, and we will continue to monitor the COVID-19 situation closely. Through December 31, 2021, we have experienced delays in our consulting projects and the corresponding delay in revenue recognition for such projects, which we believe could be the result of government shutdowns and other regulatory uncertainty surrounding COVID-19.


Risks Related to the Cannabis Industry


As a company whose clients operate in the cannabis industry, we face many unique and evolving risks.

We currently serve government and private clients with respect to their tracking, monitoring, and compliance needs as they operate in the growing cannabis industry. Any risks related to the cannabis industry that may adversely affect our clients and potential clients may, in turn, adversely affect demand for our products. Specific risks faced by companies operating in the cannabis industry include, but are not limited to, the following:

Marijuana remains illegal under U.S. federal law

Marijuana is a Schedule-I controlled substance under the Controlled Substances Act ("CSA"), and is illegal under federal law. It remains illegal under U.S.s federal law to grow, cultivate, sell or possess marijuana for any purpose or to assist or conspire with those who do so. Additionally, 21 U.S.C. 856 a.1. states that it shall be unlawful to “knowingly open, lease, rent, use, or maintain any place, whether permanently or temporarily, for the purpose of manufacturing, distributing, or using any controlled substance.” Even in those states in which the use of marijuana has been authorized, its use remains a violation of federal law. Since federal law criminalizing the use of marijuana is not preempted by state laws that legalize its use, strict enforcement of federal law regarding marijuana would likely result in our clients’ inability to proceed with their operations, which would adversely affect demands for our products.

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Uncertainty of federal enforcement

On January 4, 2018, former Attorney General Sessions rescinded the previously issued memoranda (known as the Cole Memorandum) from the U.S. Department of Justice (“DOJ”) that had de-prioritized the enforcement of federal law against marijuana users and businesses that comply with state marijuana laws, adding uncertainty to the question of how the federal government will choose to enforce federal laws regarding marijuana. Former Attorney General Sessions issued a memorandum to all U.S.s Attorneys in which the DOJ affirmatively rescinded the previous guidance as to marijuana enforcement, calling such guidance “unnecessary.” Thisone-page memorandum was vague in nature, stating that federal prosecutors should use established principles in setting their law enforcement priorities. Under previous administrations, the DOJ indicated that those users and suppliers of medical marijuana who complied with state laws, which required compliance with certain criteria, would not be prosecuted. On November 7, 2018, Jeff Sessions resigned from his position as Attorney General. The current Attorney General, Merrick Garland, has not indicated any change in enforcement priority for state-compliant marijuana businesses, however, substantial uncertainty regarding federal enforcement remains. Regardless, the federal government has always reserved the right to enforce federal law regarding the sale and disbursement of medical or recreational marijuana, even if state law sanctioned such sale and disbursement. Although the rescission of the Cole Memorandum does not necessarily indicate that marijuana industry prosecutions are now affirmatively a priority for the DOJ, there can be no assurance that the federal government will not enforce such laws in the future. As a result, it is now unclear if the DOJ will seek to enforce the CSA against those users and suppliers who comply with state marijuana laws.


In 2014, Congress passed a spending bill, (the "2015 Appropriations Bill"), containing a provision (the "Appropriations Rider"), blocking federal funds and resources allocated under the 2015 Appropriations Bill from being used to “prevent such States from implementing their own State medical marijuana law.” The Appropriations Rider provided a budgetary constraint on the federal government from interfering with the ability of states to administer their medical marijuana laws, although it did not codify federal protections for medical marijuana patients and producers. Moreover, despite the Appropriations Rider, the DOJ maintains that it can still prosecute violations of the federal marijuana ban and continue cases already in the courts. However, the Ninth Circuit Court of Appeals and other courts have interpreted the language to mean that the DOL cannot prosecute medical marijuana operators complying strictly with state medical marijuana laws. Additionally, the Appropriations Rider must be re-enacted every year. The Appropriations Rider was renewed on December 20, 2019 through the signing of the fiscal year 2020 omnibus spending bill, effective through September 30, 2020, continued re-authorization of the Appropriations Rider cannot be guaranteed. Subsequently, the Appropriations Rider was extended through a series of stopgap spending bills on October 1, December 11, December 18, December 20 and December 22, 2020.On December 27, 2020 the Appropriations Rider was included in the fiscal year 2021 omnibus spending bill and will remain in effect through September 30, 2022.  If the Appropriation Rider is not extended in the future, the risk of federal enforcement and override of state medical marijuana laws would increase.


Despite the rescission of the Cole Memorandum, the Department of the Treasury, Financial Crimes Enforcement Network, has not rescinded the “FinCEN Memo” dated February 14, 2014, which de-prioritizes enforcement of the Bank Secrecy Act against financial institutions and marijuana-related businesses which utilize them. This memo appears to be a standalone document and is presumptively still in effect. At any time, however, the Department of the Treasury, Financial Crimes Enforcement Network, could elect to rescind the FinCEN Memo. This would make it more difficult for usyou to sell your securities at a time and our clients and potential clients to access the U.S. banking systems and conduct financial transactions,price which would adversely affect our operations.you deem appropriate.

 


We could become subject to racketeering laws


While we do not grow, handle, process or sell cannabis or cannabis-derived products, our receiptSales of funds from clients that do conduct such operations in violationa substantial number of federal law exposes us to risks related to federal racketeering laws. The Racketeer Influenced Corrupt Organizations Act (“RICO”) is a federal statute providing criminal penalties in addition to a civil causeshares of action for acts performed as part of an ongoing criminal organization. Under RICO, it is unlawful for any person who has received income derived from a pattern of racketeering activity (which includes most felonious violations of the CSA), to use or invest any of that incomeGryphon’s common stock by Gryphon’s stockholders in the acquisitionpublic market could cause Gryphon’s stock price to fall.

Sales of any interest,a substantial number of shares of Gryphon’s common stock in the public market or the establishmentperception that these sales might occur could significantly reduce the market price of Gryphon’s common stock and impair Gryphon’s ability to raise adequate capital through the sale of additional equity securities.

As of March 29, 2024, Gryphon had outstanding a total of approximately 38,800,340 shares of common stock. Of these shares, approximately 33.5 million shares of common stock are freely tradable, without restriction, in the public market, unless they are purchased by one of Gryphon’s affiliates.

Sales of these shares, or operationperceptions that they will be sold, could cause the trading price of any enterprise which is engaged in interstate commerce. RICO also authorizes private parties whose propertiesGryphon’s common stock to decline.

Future sales and issuances of Gryphon’s common stock or businesses are harmed by such patterns of racketeering activityrights to initiate a civil action against the individuals involved. Although RICO suits against the cannabis industry are rare, a few cannabis businesses have been subjectpurchase common stock, including pursuant to a civil RICO action. Any violation of RICOGryphon’s equity incentive plan, could result in significant fines, penalties, administrative sanctions, convictions or settlements arising from civil proceedings conducted by either the federal government or private citizens or criminal charges, including but not limited to, seizure of assets, disgorgement of profits, cessation of our business activities or divestiture.


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Banking regulations could limit access to banking services and expose us to risk


Our receipt of payments from clients engaged in state-legal cannabis operations could also subject us to the consequences of a variety of federal laws and regulations that involve money laundering, financial record keeping and proceeds of crime, including the Bank Secrecy Act, as amended by Title IIIdilution of the Unitingpercentage ownership of its stockholders and Strengthening America by Providing Appropriate Tools Requiredcould cause Gryphon’s stock price to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act) and any related or similar rules, regulations or guidelines, issued, administered or enforced by the federal government. Since we fund from activities that are illegal under the CSA, banks and other financial institutions providing services to us risk violation of federal anti-money laundering statutes (18 U.S.C. §§ 1956 and 1957), the unlicensed money-remitter statute (18 U.S.C. § 1960) and the Bank Secrecy Act, among other applicable federal statutes. Banks often refuse to provide banking services to businesses involvedfall.

Additional capital will be needed in the cannabis industry duefuture to continue Gryphon’s planned operations. To the present state of federal laws and regulations governing financial institutions. The inability to open bank accounts may make it difficult for us or our clients to operate and our client’s reliance on cash can result in a heightened risk of theft, which could harm their businesses and, in turn, harm our business. Additionally, some courts have denied marijuana-related businesses bankruptcy protection, thus, making it very difficult for lenders to recoup their investments, which may limit the willingness of banks to lend to our clients and to us. The lack of banking and financial services presents unique and significant challenges to businesses in the cannabis industry and weextent Gryphon raises additional capital by issuing equity securities, its stockholders may experience similar difficulties in obtaining and maintaining regular banking and financial services because of the activities of our clients.


Dividends and distributions could be prevented if our receipt of payments from clients is deemed to be proceeds of crime


In the event that any of our operations,substantial dilution. Gryphon may sell common stock, convertible securities or any proceeds thereof, any dividends or distributions therefrom, or any profits or revenues accruing from such operations were found to be in violation of money laundering legislation or otherwise, such transactions may be viewed as proceeds of crime under one or more federal statutes or any other applicable legislation. This could restrict or otherwise jeopardize our ability to declare or pay dividends or effect other distributions. Furthermore, while there are no current intentions to declare or pay dividends in the foreseeable future, in the event that a determination was made that our proceeds from operations (or any future operations) could reasonably be shown to constitute proceeds of crime, we may decide or be required to suspend declaring or paying dividends without advance notice and for an indefinite period of time.


Further legislative development beneficial to our operations is not guaranteed

Among other things, our business involves the provision of an online platform that provides monitoring and tracking of those involved in the cultivation, distribution, manufacture, storage, transportation, and/or sale of medical and adult-use cannabis products in compliance with applicable state law. The success of our business depends on the continued development of the cannabis industry and the activity of commercial business and government regulatory agencies within the industry. The continued development of the cannabis industry is dependent upon continued legislative and regulatory authorization of cannabis at the state level and a continued laissez-faire approach by federal enforcement agencies. Any number of factors could slow or halt progress in this area. Further regulatory progress beneficial to the industry cannot be assured. While there may be ample public support for legislative action, numerous factors impact the legislative and regulatory process, including election results, scientific findings or general public events. Any one of these factors could slow or halt progressive legislation relating to cannabis and the current tolerance for the use of cannabis by consumers, which could adversely affect the demand for our product and operations.


The cannabis industry could face strong opposition from other industries

We believe that established businesses in other industries may have a strong economic interest in opposing the development of the cannabis industry. Cannabis may be seen by companies in other industries as an attractive alternative to their products, including recreational marijuana as an alternative to alcohol, and medical marijuana as an alternative to various commercial pharmaceuticals. Many industries that could view the emerging cannabis industry as an economic threat are well established, with vast economic and federal and state lobbying resources. It is possible that companies within these industries could use their resources to attempt to slow or reverse legislation legalizing cannabis. Any inroads these companies make in halting or impeding legislative initiatives that would be beneficial to the cannabis industry could have a detrimental impact on our clients and, in turn on our operations.

The legality of marijuana could be reversedequity securities in one or more statestransactions at prices and in a manner it determines from time to time. If Gryphon sells common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. These sales may also result in material dilution to Gryphon’s existing stockholders, and new investors could gain rights superior to existing stockholders.

The voters or legislatures of states in which marijuana has already been legalized could potentially repeal applicable laws that permit the operation of both medical and retail marijuana businesses. These actions might force businesses, including those that are our clients, to cease operations in one or more states entirely.

 

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Changing legislationPursuant to the 2024 Omnibus Incentive Plan (the “2024 Plan”), Gryphon’s board of directors is authorized to grant stock options and evolving interpretationsother equity-based awards to its employees, directors and consultants, which equity-based awards would also cause dilution to its stockholders. The number of shares of Gryphon’s common stock reserved for issuance under the 2024 Plan is 15% of the law

Laws and regulations affecting the medical and adult-use marijuana industry are constantly changing, which could detrimentally affect our clients and, in turn, our operations. Local, state, and federal marijuana laws and regulations are broad in scope and subject to evolving interpretations, which could require our clients and thus us to incur substantial costs associated with modification of operations to help ensure such clients’ compliance. In addition, violations of these laws, or allegations of such violations, could disrupt our clients’ business and result in a material adverse effect on our operations. In addition, it is possible that regulations may be enacted in the future that will limit the amount of cannabis growth or related products that our commercial clients are authorized to produce. We cannot predict the nature of any future laws, regulations, interpretations, or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our operations.

Dependence on client licensing

Our business is dependent on our clients obtaining various licenses from various municipalities and state licensing agencies. There can be no assurance that any or all licenses necessary for our clients to operate their businesses will be obtained, retained or renewed. If a licensing body were to determine that a client of ours had violated applicable rules and regulations, there is a risk the license granted to that client could be revoked, which could adversely affect our operations. There can be no assurance that our existing clients will be able to retain their licenses going forward, or that new licenses will be granted to existing and new market entrants.

Insurance risks

In the U.S, many marijuana-related businesses are subject to a lack of adequate insurance coverage. In addition, many insurance companies may deny claims for any loss relating to marijuana or marijuana-related operations based on their illegality under federal law, noting that a contract for an illegal transaction is unenforceable.

The cannabis industry is an evolving industry and we must anticipate and respond to changes.

The cannabis industry is not yet well-developed, and many aspects of this industry’s development and evolution cannot be accurately predicted. While we have attempted to identify any risks specific to the cannabis industry, you should carefully consider that there are other risks that cannot be foreseen or are not described in this Annual Report, which could materially and adversely affect our business and financial performance. We expect that the cannabis market and our business will evolve in ways that are difficult to predict. For example, it is anticipated that over time, we will reach a point in most markets where we have achieved a market penetration level in which new client acquisitions are less productive, and the continued growth of our revenue will require more focus on increasing the rate at which existing clients purchase products and services across our platforms. Our long-term success will depend on our ability to successfully adjust our strategy to meet the changing market dynamics. If we are unable to successfully adapt to changes in the cannabis industry, our operations could be adversely affected.


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Risks related to Our Business

A significant portion of our business is and is expected to be, from government contracts, which present certain unique risks.

Contracts for Leaf Data Systems with government agencies in Pennsylvania, Washington, and Utah represented 16%, 25% and  39% of our revenue for the year ended December 31, 2021, the six months ended December 31, 2020 and fiscal year ended June 30, 2020, respectively. In order to obtain a government contract for Leaf Data Systems, we are required to follow a competitive bidding process in each state where we seek a contract. Government contracts have very specific compliance requirements that often require contractors to invest material time and money to prepare a bid to ensure that our technology, processes, and staff meet these specific requirements. After expenditures of such time and money, there is no assurance that the bid will result in an award of a contract. Further, even if a contract is awarded, there are strict procedures that government agencies follow when it comes to reimbursementtotal number of the costs incurred inshares of common stock outstanding at the course of fulfilling contracts. Accordingly, it is possible that some or all costs might not be reimbursed under a government contract as contemplated by us.

Government agencies also typically audit and investigate government contractors. These agencies review a contractor’s performance under its contracts, its cost structure, its business systems, and compliance with applicable laws, regulations, and standards. If an audit or investigation uncovers improper or illegal activities, we may be subject to civil or criminal penalties and administrative sanctions, including reductionsclosing of the valueMerger, or 5,810,033 shares of contracts, contract modifications or terminations, forfeiturecommon stock. If the board of profits, suspensiondirectors of payments, penalties, fines, and suspension, or prohibition from doing business withGryphon elects to increase the government. In addition, we could suffer serious reputational harm if allegations of impropriety were made against us. Any such imposition of penalties, or the loss of such government contracts, could materially adversely affect our business, financial condition, results of operations, and growth prospects.

There also is typically a longer window of liability under government contracts than private contracts, and the government can seek claims after the contract has ended and payments under the contract have been made. The terms of government contracts may also require the sharing of proprietary information, processes, software, and product development efforts with the government. Additionally, government employees are required to follow certain protocols to ensure there is no appearance of impropriety in the bidding process. As a result, bidders on government contracts must ensure that there is no appearance of favoritism, gift-giving, bribery, or the exertion of other influences in the bidding process. Any finding of the same can result in fines to the bidder and cancellation of contracts. The applicable state government generally has the ability to terminate our contract, in whole or in part, without prior notice, for convenience or for default based on performance. If a government contract were to be terminated for convenience, we generally would be protected by provisions covering reimbursement for costs incurred on the contract and profit on those costs, but not the anticipated profit that would have been earned had the contract been completed. The state government also has the ability to stop work under a contract for a limited period of time for its convenience.

We cannot assure you that we will be successful in navigating the government contract bidding process or that we will be able to maintain our existing government contracts or obtain additional government contracts in the future.

Our operations may be adversely affected by disruptions to our information technology, or IT, systems, including disruptions from cybersecurity breaches of our IT infrastructure.


We rely on information technology networks and systems, including those of third-party service providers, to process, transmit, and store electronic information. In particular, we depend on our information technology infrastructure for a variety of functions, including financial reporting, data management, project development, and email communications. Any of these systems may be susceptible to outages due to fire, floods, power loss, telecommunications failures, terrorist attacks, sabotage, and similar events. Global cybersecurity threats and incidents can range from uncoordinated individual attempts to gain unauthorized access to our information technology systems to sophisticated and targeted measures known as advanced persistent threats. The ever-increasing use and evolution of technology, including cloud-based computing, create opportunities for the unintentional dissemination or intentional destruction of confidential information stored in our systems or in non-encrypted portable media or storage devices. We could also experience a business interruption, information theft of confidential information, or reputational damage from industrial espionage attacks, malware, or other cyber-attacks, which may compromise our system infrastructure or lead to data leakage, either internally or at our third-party providers. Despite the implementation of network security measures and disaster recovery plans, our systems and those of third parties on which we rely may also be vulnerable to computer viruses, break-ins, and similar disruptions. If we or our vendors are unable (or are perceived as unable) to prevent such outages and breaches, our operations may be disrupted, and our business reputation could be adversely affected.


We expect that risks and exposures related to cybersecurity attacks will remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats.


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Privacy regulation is an evolving area and compliance with applicable privacy regulations may increase our operating costs or adversely impact our ability to service our clients and market our products and services.

Because we store, processes, and use data, some of which contains personal information, we are subject to complex and evolving federal, state, and foreign laws and regulations (including Canada’s Cannabis Act and related regulations and the European Union’s general data protection regulation, or GDPR) regarding privacy, data protection, and other matters. While we believe we are currently in compliance with applicable laws and regulations, many of these laws and regulations are subject to change and uncertain interpretation, and could result in investigations, claims, changes to our business practices, increased cost of operations, and declines in user growth, retention, or engagement, any of which could seriously harm our business.

We rely on third parties for certain services made available to users of our platforms, which could limit our control over the quality of the user experience and our cost of providing services.

Some of the applications and services available through the Leaf Data System and MJ Platform are provided through relationships with third-party service providers. We do not typically have any direct control over these third-party service providers. These third-party service providers could experience service outages, data loss, privacy breaches, including cyber-attacks, and other events relating to the applications and services they provide that could diminish the utility of these services and which could harm users thereof. The MJ Platform itself does not depend on any third-party software or applications and is based entirely on open source technologies and custom programming. The MJ Platform, however, is hosted by Amazon Web Services, a third-party service provider. There are readily available alternative hosting services available should we desire or need to move to a different web host. Certain ancillary services provided by us also uses the services of third-party providers, for which, we believe, there are readily available alternatives on comparable economic terms. Offering integrated platforms, such as the Leaf Data System and MJ Platform which rely, in part, on the services of other providers lessens the control that we have over the total client experience. Should the third-party service providers we rely upon not deliver at standards we expect and desires, acceptance of our platforms could suffer, which would have an adverse effect on our business and financial performance. Further, we cannot be assured of entering into agreements with such third-party service providers on economically favorable terms.

Acquisitions and integration issues may expose us to risks.


Our business strategy includes making targeted acquisitions. Any acquisition that we make may be of significant size, may change the scale of our business and operations, and may expose us to new geographic, political, operating, financial, and geological risks. Our success in our acquisition activities depends on our ability to identify suitable acquisition candidates, negotiate acceptable terms for any such acquisition, and integrate the acquired operations successfully with our own. Any acquisitions would be accompanied by risks. For example, there may be significant changes in our market value after we have committed to complete the transaction and have established the purchase price or exchange ratio; a potential targeted acquisition’s business and prospects may prove to be below expectations; we may have difficulty integrating and assimilating the operations and personnel of any acquired companies, realizing anticipated synergies and maximizing the financial and strategic position of the combined enterprise and maintaining uniform standards, policies, and controls across the organization; the integration of the acquired business or assets may disrupt our ongoing business and our relationships with employees, clients, suppliers, and contractors; and the acquired business or assets may have unknown liabilities that may be significant. If we choose to use equity securities as consideration for such an acquisition, existing shareholders may suffer dilution. Alternatively, we may choose to finance any such acquisition with our existing resources. There can be no assurance that we would be successful in overcoming these risks or any other problems encountered in connection with such acquisitions. To grow and be successful, we need to attract and retain qualified personnel.


In any future acquisitions, we may not be able to successfully integrate acquired personnel, operations, and technologies, or effectively manage the combined business following the acquisition. We also may not achieve the anticipated benefits from future acquisitions due to a number of factors, including: (a) an inability to integrate or benefit from acquisitions in a profitable manner; (b) unanticipated costs or liabilities associated withshares available for future grant by the acquisition; (c) the incurrence of acquisition-related costs; (d) the diversion of management’s attention from other business concerns; (e) the loss of our or the acquired business’ key employees; or (f) the issuance of dilutive equity securities, the incurrence of debt, or the use of cash to fund such acquisitions.

To grow and be successful, we need to attract and retain qualified personnel.

Our growth and success will depend to a significant extent on our ability to identify, attract, hire, train, and retain qualified professional, creative, technical, and managerial personnel. Competition for experienced and qualified talent in the cannabis industry can be intense. We may not be successful in identifying, attracting, hiring, training, and retaining such personnel in the future. If we are unable to hire, assimilate, and retain qualified personnel in the future, such inability could adversely affect our operations.

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Wemaximum amount each year, stockholders may experience risks related to our Chief Financial Officer moving to part-time. 

Mr. Fowle, our Chief Financial Officer, will move to a part-time position beginning April 1, 2022. While Mr. Fowle has committed to us to spend at least [15] hours a week on our matters, Mr. Fowle may experience conflicts of interest between his requirements to us as our Chief Financial Officer and his obligations to any other positions he may accept in the time no dedicated to us.If Mr. Fowle cannot manage his financial department properly in the amount of time dedicated to us or otherwise experiences difficulty in managing his time between us and his other ventures, we could experience risks regarding the timing and preparation of our financial reports, internal financial management matters or otherwise experience risks regarding our disclosure controls and procedures and internal control over financial reporting which could negatively impact our business and our stockholders.



We are smaller and less diversified than many of our potential competitors.

While we believe we are a leading provider in the software solutions segment of the cannabis industry, there are general software design and integrated business platform companies seeking to provide online and software-based business solutions and operations integration to clients in numerous industries. The continued growth of the cannabis industry will likely attract some of these existing companies and incentivize them to produce solutions that are competitive with those offered by us. Many of these potential competitors are a part of large diversified corporate groups with a variety of other operations and expansive resources. We may not be able to successfully compete with larger enterprises devoting significant resources to compete in our target market space, which may negatively affect operations. 


Our business and stock price may suffer as a result of our limited public company operating experience and if securities or industry analysts do not publish or cease publishing research or reports about us, our business, or our market, or if they change their recommendations regarding our common stock in an adverse manner, the price and trading volume of our common stock could decline.

If we are unable to execute our business strategy, either as a result of our inability to manage effectively our business in a public company environment or for any other reason, our business, prospects, financial condition, and operating results may be harmed.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market, or our competitors. We currently have limited coverage by securities and industry analysts. If no additional securities or industry analysts commence coverage of us, our stock price and trading volume would likely be negatively impacted. If any of the analysts who cover, or who may cover us in the future, change their recommendation regarding our stock in an adverse manner, or provide more favorable relative recommendations about our competitors, the price of our common stock would likely decline. If any analyst who may cover us were to cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets,dilution, which could cause ourGryphon’s stock price or trading volume to decline.


Risks related to Intellectual Property

Protecting and defending against intellectual property claims may have a material adverse effect on our business.

Our ability to compete depends, in part, upon successful protection of our intellectual property relating to our Leaf Data Systems and MJ Platform, and intellectual property acquired in business combinations, such as Solo, Trellis, and Ample. We seek to protect our proprietary and intellectual property rights through patent applications, available copyright and trademark laws, nondisclosure agreements, and licensing and distribution arrangements with reputable companies in our target markets. While patent protection for inventions related to cannabis and cannabis-related products is available, there are substantial difficulties faced in the patent process by cannabis-related businesses. Further, patent applications may be rejected for numerous other reasons beyond those related to the cannabis industry, including that the subject matter of the application is found to be non-patentable. Our previous patent applications were denied and while we are continuing to pursue such applications and believe they are with merit, there can be no assurance that patents will be issued on these applications. The failure to be awarded patents on our technology could weaken our ability to enforce our intellectual property rights. Any such enforcement, whether we have been granted patent protection or not, would be costly, and there can be no assurance that we will have the resources to undertake all necessary action to protect our intellectual property rights or that we will be successful. Any infringement of our material intellectual property rights could require us to redirect resources to actions necessary to protect the same and could distract management from our underlying business operations. The infringement of our material intellectual property rights and resulting actions could adversely affect our operations.

fall.

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Our success dependsDelaware law and provisions in part upon our ability to protect our core technology and intellectual property.

Our success depends in part upon our ability to protect our core technology and intellectual property. To establish and protect our proprietary rights, we rely on a combination of patent applications, trade secrets, including know-how, license agreements, confidentiality procedures, non-disclosure agreements with third parties, employee disclosure and invention assignment agreements, and other contractual rights. 

We generally control access to and use of our proprietary technology and other confidential information through the use of internal and external controls, including contractual protections with employees, contractors, clients, and partners, and our software is protected by the U.S. and international copyright laws.

Despite efforts to protect our trade secrets and proprietary rights through intellectual property rights, licenses, and confidentiality agreements, unauthorized parties may still copy or otherwise obtain and use our software and technology, as was the case when our source code was compromised in June 2017. We have taken significant actions to improve security but will be required to regularly modify our systems to combat new hacking approaches as they develop. In addition, as our international operations expand, effective intellectual property protection may not be available or may be limited in foreign countries.

Others may assert intellectual property infringement claims against us.

Companies in the software and technology industries own large numbers of patents, copyrights, trademarks, and trade secrets, and frequently enter into litigation based on allegations of infringement, misappropriation, or other violations of intellectual property or other rights. In addition, various “non-practicing entities” that own patents and other intellectual property rights often attempt to aggressively assert their rights in order to extract value from technology companies. It is possible that others may claim from time to time that our products misappropriate or infringe the intellectual property rights of third parties. Irrespective of the validity or the successful assertion of any such claims, we could incur significant costs and diversion of resources in defending against these claims, which could adversely affect our operations. We may receive unfavorable preliminary or interim rulings in the course of litigation, and there can be no assurances that favorable final outcomes will be obtained in all cases. We may decide to settle such lawsuits and disputes on terms that are unfavorable to us. As a result, we may also be required to develop alternative non-infringing technology or practices or discontinue the practices. The development of alternative non-infringing technology or practices could require significant effort and expense or may not be feasible.  

Risks related to Our Charter Documents


Anti-takeover provisions contained in ourGryphon’s amended and restated certificate of incorporation and amended and restated bylaws as well as provisions of Delaware law, could impair a takeover attempt and limit the price investors might be willing to pay in the future for our common stock and could entrench management.

Our Amended and Restated Certificate of Incorporation contains provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. We are also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together these provisions may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.


These provisions:



●create a staggered Board of Directors making it more difficult for stockholders to remove a majority of the Board of Directors and take control;


●grant the Board of Directors the ability to designate the terms of and issue new series of preferred shares, which can be created and issued by the Board of Directors without prior stockholder approval, with rights senior to those of the common stock;


●impose limitations on our stockholders’ ability to call special stockholders’ meetings; and


●

make it more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities. 


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In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in our Amended and Restated Certificate of Incorporation, our bylaws, and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our Board of Directors or initiate actions that are opposed by our then-current Board of Directors, including to delay or impede a merger, tender offer or proxy contest involving us. Any delay or prevention of a change in control transaction or changes in our Board of Directors could causedifficult, thereby depressing the markettrading price of ourGryphon’s common stock to decline.


Our corporate opportunity provisions in our Amended and Restated Certificate of Incorporation could enable management to benefit from corporate opportunities that might otherwise be available to us.stock.

 

Our Amended and Restated Certificate of Incorporation provides that the doctrine of corporate opportunity, or any other analogous doctrine, shall not apply with respect to us, or any of our directors or officers in circumstances where the application of such doctrine would conflict with any fiduciary duties or contractual obligations they may otherwise have.

Our management may become aware, from time to time, of certain business opportunities (such as acquisition opportunities) and may direct such opportunities to other businesses in which they have invested, in which case we may not become aware of or otherwise have the ability to pursue such opportunity. Further, such businesses may choose to compete with us for these opportunities, possibly causing these opportunities to not be available to us or causing them to be more expensive for us to pursue. These potential conflicts of interest could adversely impact our business or prospects if attractive business opportunities are procured by such parties for their own benefit rather than for ours.


OurGryphon’s amended and restated certificate of incorporation provides, subject(as amended) and bylaws contain provisions that could depress the trading price of Gryphon’s common stock by acting to limited exceptions,discourage, delay or prevent a change of control of Gryphon or changes in its management that the stockholders of Gryphon may deem advantageous. These provisions include the following:

●establish a classified board of directors so that not all members of Gryphon’s board of directors are elected at one time;
●permit the board of directors to establish the number of directors and fill any vacancies and newly-created directorships;
●provide that directors may only be removed for cause;
●require super-majority voting to amend some provisions in Gryphon’s bylaws;
●prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of Gryphon’s stockholders;
●provide that the board of directors is expressly authorized to amend or repeal Gryphon’s bylaws;
●restrict the forum for certain litigation against Gryphon to Delaware; and
●establish advance notice requirements for nominations for election to Gryphon’s board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.


Any provision of Gryphon’s amended and restated certificate of incorporation (as amended) or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for Gryphon’s stockholders to receive a premium for their shares of Gryphon’s common stock, and could also affect the price that some investors are willing to pay for Gryphon’s common stock.

Gryphon’s amended and restated certificate of incorporation designate a state or federal court located within the state of Delaware as the exclusive forum for substantially all disputes between Gryphon and its stockholders, which could limit Gryphon’s stockholders’ ability to choose the judicial forum for disputes with Gryphon or its directors, officers or employees.

Gryphon’s amended and restated bylaws provide that, unless it consents in writing to the selection of an alternative forum, to the fullest extent permitted by law, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of Gryphon, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of Gryphon to Gryphon or Gryphon’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL or the amended and restated certificate of incorporation or amended and restated bylaws, or (iv) any action asserting a claim governed by the internal affairs doctrine will be the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.

Our amended and restated certificate of incorporation requires, to the fullest extent permitted by law, that derivative actions brought in our name, actions against directors, officers, and employees for breach of fiduciary duty, actions under the Delaware general corporation law or under our amended and restated certificate of incorporation, or actions asserting a claim governed by the internal affairs doctrine may be brought only in(or if the Court of Chancery indoes not have jurisdiction, another state court located within the State of Delaware, and,or if brought outsideno state court located within the State of Delaware has jurisdiction, the stockholder bringingfederal district court for the suit will be deemedDistrict of Delaware) in all cases subject to have consentedthe court’s having personal jurisdiction over the indispensable parties named as defendants. These exclusive forum provisions do not apply to service of process on such stockholder’s counsel. This choice of forum provision does not preclude or contract the scope of exclusive federal or concurrent jurisdiction for any actions broughtclaims under the Securities Act or the Exchange ActAct.

To the extent that any such claims may be based upon federal law claims, Section 27 of 1934, as amended, or the Exchange Act. Accordingly, ourAct creates exclusive forum provision will not relieve us of our dutiesfederal jurisdiction over all suits brought to comply withenforce any duty or liability created by the federal securities laws andExchange Act or the rules and regulations thereunder,thereunder.

Section 22 of the Securities Act creates concurrent jurisdiction for federal and our stockholders will not be deemedstate courts over all suits brought to have waived our compliance with these laws,enforce any duty or liability created by the Securities Act or the rules and regulations.regulations thereunder. However, Gryphon’s amended and restated certificate of incorporation contains a federal forum provision which provides that unless Gryphon consents in writing to the selection of an alternative forum, the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act.

 

Any person or entity purchasing or otherwise acquiring any interest in sharesany of our capital stock shallGryphon’s securities will be deemed to have notice of and consented to thethis provision. This exclusive forum provisions in our amended and restated certificate of incorporation. This choice of forum provision does not exclude stockholders from suing in federal court for claims under the federal securities laws but may limit a stockholder’s ability to bring such claimsa claim in a judicial forum that it finds favorableof its choosing for disputes with usGryphon or any of ourits directors, officers or other employees, or stockholders, which may discourage lawsuits with respect to such claims.


Alternatively, ifagainst Gryphon or its directors, officers and other employees. If a court were to find the choice ofexclusive forum provision contained in ourGryphon’s amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, weGryphon may incur additional costs associated with resolving such actionthe dispute in other jurisdictions, which could harm our business, operatingGryphon’s results and financial condition.

Risks Relating to our Convertible Debtof operations.


The issuance of shares of our

Gryphon does not currently intend to pay dividends on its common stock, pursuantand, consequently, your ability to our Senior Convertible Notes may resultachieve a return on your investment will depend on appreciation, if any, in significant dilution to our stockholders.the price of Gryphon’s common stock.


The conversion of our outstanding Senior Convertible Notes, issued

Gryphon has never declared or paid any cash dividend on October 5, 2021, could result in the issuance of a significant number of shares of ourGryphon’s common stock. The original $20 million principal amountexpectation is that Gryphon will retain future earnings for the development, operation and expansion of Senior Convertible NotesGryphon’s business and Gryphon does not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, the Anchorage Loan Agreement prohibits Gryphon from declaring or paying any cash dividends without Anchorage’s prior written consent, and the terms of any future debt agreements may preclude Gryphon from paying dividends. Any return to stockholders will therefore be limited to the appreciation of their stock. There is convertible at a price of $4.05 per share, which would result in the issuance of 4,938,272no guarantee that shares of ourGryphon’s common stock uponwill appreciate in value or even maintain the conversion of the Senior Convertible Notes in full. At the option of Akerna, the installment payments on the Senior Convertible Notesprice at which stockholders have purchased their shares.


There can be converted into shares of common stock of Akerna at a price per share equalno assurance that we will continue to the lower of (i) the conversion price then in effect, or (ii) the greater of (x) the floor price of $0.54 and (y) 90% of the lower of (A) the volume-weighted average price of the common stock as of the trading day immediately preceding the applicable date of determination and (B) the quotient of (I) the sum of the volume-weighted average price of the common stock for each of the two (2) trading daysbe able to comply with the lowest volume-weighted average pricecontinued listing standards of the common stock during the ten consecutive trading day period ending on and including the trading day immediately prior to the applicable date of determination, divided by (II) two.Nasdaq.


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Due

Our continued eligibility to maintain the variable naturelisting of the adjustments of installment conversion prices and the formula that sets certain conversion prices of these securities basedour Common Stock on Nasdaq depends on a discount tonumber of factors, including the then-current market price, we could issue up to 37,037,037 shares of common stock as of December 31, 2021, upon conversion of the Senior Convertible Notes at the floor price, which may result in significant dilution to our stockholders and could negatively impact the trading price of our common stock.Common Stock and Public Warrants and the number of persons that hold our Common Stock. If Nasdaq delists our securities from trading on its exchange for failure to meet its listing standards, such as the corporate governance requirements or the minimum closing bid price requirement, and we are not able to list such securities on another national securities exchange, then our Common Stock could be quoted on an over-the-counter market. If this were to occur, we and our stockholders could face significant material adverse consequences, including:

Our obligations to the holders of our Senior Convertible Notes are secured by a security interest in substantially all of our assets, if we default on those obligations, the Senior Convertible Note holders could foreclose on our assets.

 

●a limited availability of market quotations
●reduced liquidity for our securities;
●a determination that our common stock is a “penny stock,” which will require brokers trading the common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for shares of common stock;
●a limited amount of news and analyst coverage; and
●a decreased ability for us to issue additional securities or obtain additional financing in the future.

Our obligations under the Senior Convertible Notes, issued on October 5, 2021, and the related transaction documents are secured by

Gryphon’s management is required to devote a security interest in substantially allsubstantial amount of our assets. As a result, if we default on our obligations under such Senior Convertible Notes, the collateral agent on behalf of the holders of the Senior Convertible Notes could foreclose on the security interests and liquidate some or all of our assets, which would harm our business, financial condition and results of operations and could require ustime to reduce or cease operations and investors may lose all or part of your investment.comply with public company regulations.

 

Events of default underAs a public company, Gryphon incurs significant legal, accounting and other expenses that Gryphon did not incur as a private company. The Sarbanes-Oxley Act, the Senior Convertible Notes include: (i) the failure of the registration statement to which this prospectus relates (under the registration rights agreement between the CompanyDodd-Frank Wall Street Reform and the holders) to be filed with the SEC or the failure of the applicable registration statement to be declared effectiveConsumer Protection Act as well as rules implemented by the SEC by deadlines set forthand Nasdaq, impose various requirements on public companies, including those related to corporate governance practices. Gryphon’s management and other personnel will need to devote a substantial amount of time to these requirements. Certain members of Gryphon’s management do not have significant experience in the registration rights agreement; (ii) (x) the effectiveness of the applicable registration statement lapsesaddressing these requirements. Moreover, these rules and regulations will increase Gryphon’s legal and financial compliance costs and will make some activities more time-consuming and costly.

Among other things, Gryphon’s management is responsible for any reason or such registration statement is unavailable to any holder of registrable securitiesestablishing and Rule 144 (subject to certain conditions) is not unavailable to any holder of the conversion shares; (iii) suspension of trading of the Company’s common stock on a national securities exchange for five days; (iv) uncured conversion failure; (v) failure by the Company to maintain required share allocations for the conversion of the Senior Convertible Notes; (vi) failure by the Company to pay principal when due; (vii) failure of the Company to remove restricted legends from shares issued to a holder upon conversion of the Senior Convertible Notes; (viii) the occurrence of any default under, redemption of or acceleration prior to maturity of at least an aggregate of $50,000 of indebtedness of the Company; (ix) bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for the relief of debtors shall be instituted by or against the Company or any subsidiary and not dismissed within 45 days of initiation; (x) the commencement by the Company or any subsidiary of a voluntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law; (xi) the entry by a court of a decree, order, judgment or other similar document in respect of the Company or any subsidiary of a voluntary or involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law; (xii) final judgment for the payment of money aggregating in excess of $50,000 are rendered against the Company or any subsidiary of the Company and not bonded or discharged within 30 days; (xiii) failure of the Company or any subsidiary to pay when due any debts in excess of $50,000 due to any third party; (xiv) breaches by the Company or any subsidiary of any representations or warranties in the securities purchase agreement for the Senior Convertible Notes or any document contemplated thereby; (xv) a false or inaccurate certification by the Company that either (A) the “Equity Conditions” (asmaintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Senior Convertible Notes) are satisfied, (B) there has been no “Equity Conditions Failure,” (as defined in the Senior Convertible Notes) or (C) asExchange Act. Gryphon’s compliance with these requirements will require that it incur substantial accounting and related expenses and expend significant management efforts. Gryphon will need to whether any Event of Default has occurred; (xvi) failure of the Company or any subsidiaryhire additional accounting and financial staff to comply with certainpublic company regulations. The costs of the covenants in the Senior Convertible Notes; (xvii) the occurrence of (A) at any time after the six month anniversary of the issuance date, any current public information failurehiring such staff may be material and there can be no assurance that remains outstanding for a period of twenty (20) trading days or (B) any restatement of any financial statements of the Company filed with the SEC; (xviii) any material adverse effect occurring; (xix) any provision of any transaction document shall at any time for any reason cease to be valid and binding or enforceable; (xx) any security document shall for any reason (other than pursuant to the express terms thereof or due to any failure or omission of the collateral agent) fail or cease to create a separate valid and perfected and, except to the extent permitted by the terms hereof or thereof, first priority lien; (xxi) any material damage to, or loss, theft or destruction of, any collateral, that is material to the business of the Company or any subsidiary and is not reimbursed by insurance; or (xxii) any Event of Default occurs under any other Senior Convertible Notes.

The holders of the Senior Convertible Notes have certain additional rights upon an event of default under such Senior Convertible Notes, which could harm our business, financial condition, and results of operations and could require us to reduce or cease our operations.

Under the Senior Convertible Notes, the holders have certain rights upon an event of default. Such rights include (i) the remaining principal amount of the Senior Convertible Notes bearing interest at a rate of 15% per annum, (ii) during the event of default the holders of the Senior Convertible Notesstaff will be entitledimmediately available to convert all or any portion of the Senior Convertible Notes at an alternate conversion price equal to the lower of (i) the conversion price then in effect, and (ii) 80% of the lower of (x) the volume weighted average price of the common stock as of the trading day immediately preceding the applicable date of determination and (y) the quotient of (A) the sum of the volume weighted average price of the common stock for each of the two (2) trading days with the lowest volume weighted average price of the common stock during the ten consecutive trading day period ending and including the trading day immediately prior to the applicable date of determination, divided by (B) two, but not less than the floor price, and (iii) the holder having the right to demand redemption of all or a portion of the Senior Convertible Notes, as described below. At any time after certain notice requirements for an event of default are triggered, a holder of Senior Convertible Notes may require us to redeem all or any portion of the convertible note by delivering written notice. The redemption price will equal the greater of (i) 115% of the outstanding principal of the convertible note to be redeemed and accrued and unpaid interest and unpaid late charges thereon, and (ii) an amount equal to the market value of the shares of the common stock underlying the Senior Convertible Notes, as determined in accordance with the Senior Convertible Notes. Upon the occurrence of certain events of default relating to the bankruptcy of Akerna, whether occurring prior to or following the maturity date, Akerna will be required to immediately redeem the Senior Convertible Notes, in cash, for an amount equal to 115% of the outstanding principal of the Senior Convertible Notes, and accrued and unpaid interest and unpaid late charges thereon, without the requirement for any notice or demand or other action by any holder or any other person or entity. We may not have sufficient funds to settle the redemption price and, as described above, this could trigger rights under the security interest granted to the holders and result in the foreclosure of their security interests and liquidation of some or all of our assets.Gryphon.


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The exerciseMoreover, if Gryphon identifies deficiencies in its internal control over financial reporting that are deemed to be material weaknesses, investors could lose confidence in the accuracy and completeness of any of these rights upon an event of default could substantially harm ourGryphon’s financial condition, substantially dilute our other shareholders and force us to reduce or cease operations and investors may lose all or part of their investment.

Risks Relating to Our Common Stock

We may seek to raise additional funds, finance acquisitions, or develop strategic relationships by issuing securities that would dilute investors' ownership. Depending on the terms available to us, if these activities result in significant dilution, it may negatively impact the trading price of our shares of common stock.

Any additional financing that we secure, may require the granting of rights, preferences, or privileges senior to, or pari passu with, those of our common stock. Any issuances by us of equity securities may be at or below the prevailing market price of our common stock and in any event, may have a dilutive impact on stockholders' ownership interest, which could causereports, the market price of ourGryphon’s common stock to decline. We may also raise additional funds through the incurrence of debt,could decline and Gryphon could be subject to sanctions or investigations by Nasdaq, the limitations imposedSEC or other regulatory authorities.

Item 1B. Unresolved Staff Comments.

Not Applicable.

Item 1C. Cybersecurity.

Information Security Program

The mission of our information security organization is to design, implement, and maintain an information security program that protects our systems, services, and data against unauthorized access, disclosure, modification, damage, and loss. The information security organization is comprised of internal and external security and technology professionals. We continue to make investments in information security resources to mature, expand, and adapt our capabilities to address emerging cybersecurity risks and threats.


Cybersecurity Risk Management and Strategy

Cybersecurity risk management is one component of our information security program that guides continuous improvement to, and evaluates the confidentiality, integrity, and availability of our critical systems, data, and operations.

Our approach to controls and risk management is based on guidance from the National Institute of Standards and Technology (“NIST”) and the Crypto Currency Security Standard (“CCSS”). This does not mean that we meet any particular technical standards, specifications, or requirements, but rather that we use the NIST and CCSS as a guide to help us identify, assess, and manage cybersecurity controls and risks relevant to our business.

Our cybersecurity risk management program includes:

●Identifying cybersecurity risks that could impact our facilities, third-party vendors/partners, operations, critical systems, information, and broader enterprise IT environment. Risks are informed by threat intelligence, current and historical adversarial activity, and industry specify threats;

●Performing a cybersecurity risk assessment to evaluate our readiness if the risks were to materialize; and

●Ensuring risk is addressed and tracking any necessary remediation through an action plan.

While we face a number of ongoing cybersecurity risks in connection with our business, such risks have not materially affected us to date, including our business strategy, results of operations, or financial condition.

Cybersecurity Governance

Our Board considers cybersecurity risk as part of its risk oversight function and has delegated the oversight of cybersecurity and other information technology risks to the Board’s Audit Committee. As part of this oversight, we created the Information Security Advisory Team (the “Task Force”). The Task Force is comprised of senior managers and executives from multiple departments within the Company, including the IT, finance, legal and operations departments. The Task Force oversees our information security program and our strategy, including management’s implementation of cybersecurity risk management. The Task Force meets at least quarterly to discuss matters involving cybersecurity risks.

The Task Force ultimately provides information to our Audit Committee regarding its activities, including those related to cybersecurity risks. The Audit Committee also receives a briefing and continuing education from a member of the Task Force relating to our cyber risk management program at least annually. The Task Force is responsible for notifying the Audit Committee of material cybersecurity incidents.

Cybersecurity Incidents

The cryptocurrency earned from the Sphere 3D’s mining operations is held in a wallet, in which the Company holds the cryptographic key information and maintains the internal recordkeeping of the cryptocurrency. The Company’s contractual arrangements state that Sphere 3D retains legal ownership of the cryptocurrency; has the right to sell, pledge, or transfer the cryptocurrency; and benefits from the rewards and bears the risks associated with the ownership, including as a result of any cryptocurrency price fluctuations. Sphere 3D also bears the risk of loss as a result of fraud or theft unless the loss was caused by our current outstanding Senior Convertible Notes,the Company’s gross negligence or the issuance or saleCompany’s willful misconduct. The Company does not use any of other securities or instruments senior to our shares of common stock. We cannot be certain how the repayment of our Senior Convertible Notes will be funded and we may issue further equity or debt in order to raise funds to repay the promissory notes, including funding that may be highly dilutive. The holders of any securities or instruments we may issue may have rights superior to the rights of our common stockholders. If we experience dilutioncryptocurrency resulting from the issuanceSphere 3D MSA as collateral for any of additional securities and we grant superior rights to new securities over holders of our common stock,the Company’s loans or other financing arrangements, nor does it may negatively impact the trading price of our shares of common stock and stockholders may lose alllend, or part of their investment.pledge cryptocurrency held for Sphere.


Warrants are exercisable for our common stock, which could increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.

 

Currently, there are warrantsA threat actor representing to purchase 5,813,804 shares of our common stock. Eachone of our warrants is exercisable foroneshare of common stock at $11.50per share. Tobe the extent such warrants are exercised, additional shares of common stock will be issued, which will result in dilution toSphere 3D CFO inserted themselves into an email exchange between the then-existing holders of common stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could adversely affect the market price of our common stock.


Certain of our warrants are accounted for as a warrant liability and are recorded at fair value upon issuance with any changes in fair value each period reported in our statement of operations, which may have an adverse effect on the market price of our securities.

We had 225,635 warrants that were issued in private placements that occurred concurrently with the initial public offering of MTech, our successor (the "private warrants"). These private warrantsSphere 3D CFO and the sharesCompany’s CEO, which also included Sphere 3D’s CEO, regarding the transfer of Company common stock issuable uponSphere 3D’s BTC from the exercise ofCompany’s wallet to Sphere 3D’s wallet. The threat actor requested that the private warrants are exercisable for cash or on a cashless basis, at the holder's option, and are non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the private warrants are held by someone other than the initial purchasers or their permitted transferees, the private warrants willBTC be redeemable by the Company and exercisable by such holders on the same basis as the warrants included in the units sold in the initial public offering, in which case the 225,635 private warrants could be redeemed by the Company for $2,256.35. Under generally accepted accounting principles in the United States ("GAAP"), the Company is requiredtransferred to evaluate contingent exercise provisions of these warrants and then their settlement provisions to determine whether they should be accounted for as a warrant liability or as equity.an alternate wallet. As a result, 26 BTC, with a value of approximately $560,000 at the time, was transferred to a wallet controlled by the threat actor. Via counsel, Gryphon engaged with US Federal law enforcement to recover the BTC. Despite these attempts by law enforcement to recover the BTC, recovery was not possible. Gryphon subsequently wired the commensurate amount in USD to Sphere 3D to make them whole for the stolen BTC. Gryphon also engaged a nationally recognized third-party firm to perform a forensic analysis. The analysis revealed that the threat actor did not enter the email exchange via Gryphon’s IT systems. Sphere 3D made a claim with its insurance carrier. If Sphere 3D is reimbursed by its insurance carrier, the Company would request reimbursement from Sphere 3D. The Company has also subsequently modified its control systems to protect against any future attempted incursions. During the quarter ended June 30, 2023, the Company made a payment to Sphere 3D for $560,000, which was classified as a general and administrative expense on Gryphon’s condensed consolidated statement of operations.

Item 2. Properties.

The principal executive offices of Gryphon are located at 5953 Mabel Road, Unit 138, Las Vegas, NV 89110, and its telephone number is (877) 646-3374. We consider our current office space adequate for our current operations.


Item 3. Legal Proceedings.

Sphere 3D Litigation

On April 7, 2023, Sphere 3D filed suit against Gryphon in the Southern District of New York. The lawsuit concerns the Sphere MSA between the parties where Gryphon agreed to act as Sphere 3D’s “exclusive provider of any and all management services for all blockchain and cryptocurrency-related operations.” Sphere 3D alleges that Gryphon has fallen short in its obligations under the Sphere MSA, and is suing for alleged breach of contract, breach of the provision thatimplied covenant of good faith and fair dealing, and breach of fiduciary duty (such matter, the private warrants, when held by someone other than“Sphere 3D Litigation”).

On June 15, 2023, Sphere 3D filed an amended complaint in connection with the initial purchasers or their permitted transferees, will be redeemable by the Company, the requirementsSphere 3D Litigation, which clarified certain of Sphere 3D’s prior allegations. On June 28, 2023, Gryphon requested leave to file a motion to dismiss Sphere 3D’s claims for accounting for these warrants as equity are not satisfied. Therefore, the Company is required to account for these private warrants as a warrant liabilitybreach of fiduciary duty and record (a) that liability at fair value and (b) any subsequent changes in fair value asbreach of the endimplied covenant of each periodgood faith and fair dealing, which the Court granted on August 11, 2023. On August 18, 2023, Gryphon filed: (i) its motion to dismiss Sphere 3D’s claims for breach of fiduciary duty and breach of the implied covenant of good faith and fair dealing; and (ii) its answer and counterclaims against Sphere 3D, asserting, among other things, that Sphere had breached the Sphere MSA, breached the implied covenant of good faith and fair dealing in connection with that contract, acted negligently in connection with a separate incident, and defamed Gryphon. Gryphon’s answer and counterclaims further asserted the defamation counterclaim against Sphere 3D’s Chief Executive Officer, Patricia Trompeter, personally.

On September 20, 2023, Sphere 3D filed a second amended complaint in connection with the Sphere 3D Litigation, which earnings are reported. The impact of changes in fair value on earnings may have an adverse effectadded a claim against Gryphon alleging that Gryphon’s counterclaim for defamation against Sphere 3D violated New York’s anti-SLAPP law.

On October 6, 2023, Sphere 3D delivered a purported termination notice to Gryphon with respect to the Sphere MSA, largely on the market pricebasis of our common stock.the allegations made by Sphere 3D in the Sphere 3D Litigation (the “Sphere 3D MSA Termination”). On January 17, 2024, Gryphon filed an amended answer with fourth amended counterclaims to Sphere 3D’s second amended complaint, in which, among other things, Gryphon alleged that Sphere 3D’s attempted termination of the Sphere MSA was wrongful and ineffective, because it violated the terms of the Sphere MSA, and thus that Sphere 3D continues to owe Gryphon all amounts to which Gryphon would otherwise be entitled under the Sphere MSA through that contract’s term ending in August 2026.


We may face additional risks,Gryphon intends to continue to vigorously defend against the Sphere 3D Litigation, including regulatory, litigation, stockholder or other actionsbut not limited to the Sphere 3D MSA Termination, which it believes are without merit, and negative impacts on our stock price,to aggressively pursue its counterclaim against Sphere 3D for breach of the Sphere MSA. On March 25, 2024, Gryphon filed a pre-motion letter with the Court seeking pre-judgment attachment of the equity shares in Core that Sphere 3D received as a result of the material weakness in our internal control over financial reporting and revisionsCore Settlement (as defined below) to our financial statements.


Assecure a resultjudgment against Sphere 3D. However, Gryphon cannot predict the outcome of our material weaknesses in internal control over financial reporting, the change in accounting for certain warrants, and the related revisionsthese proceedings or provide an estimate of potential damages or recovery, if any. Failure by Gryphon to our prior financial statements or that may in the future be raised by the SEC, we face potential additional risks, including regulatory, litigation, stockholder or other actions and negative impacts on our stock price, which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the material weakness in our internal control over financial reporting and the preparation of our financial statements. Asobtain a favorable resolution of the date of this report, we have no knowledge of any such litigationSphere 3D Litigation could require it to pay damage awards or dispute. However, we can provide no assurance that such litigation or dispute will not arise in the future.otherwise enter into settlement arrangements for which its insurance coverage may be insufficient. Any such litigationdamage awards or dispute, whether successfulsettlement arrangements in current or not,future litigation could have a material adverse effect on ourGryphon’s business, operating results of operations andor financial condition.


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The market price of our shares of common stock Even if Sphere 3D’s claims are not successful, or if Gryphon is particularly volatile given our status assuccessful in pursuing its counterclaims or negotiating a relatively new public company with a generally small and thinly traded public float, which could lead to wide fluctuations in our share price. Stockholders may be unable to sell their shares of common stock atfavorable settlement, defending against this or above their purchase price, which may result in substantial losses to them.

The market for our shares of common stockfuture litigation is characterized by significant price volatility when compared to the shares of larger, more established companies that trade on a national securities exchange and have large public floats, and we expect that our share price will continue to be more volatile than the shares of such larger, more established companies for the indefinite future. The volatility in our share price is attributable to a number of factors, including the fact that our shares are thinly traded relative to larger, more established companies. The price for our shares of common stock could, for example, decline precipitously in the event that a large number of our shares of common stock are sold on the market without commensurate demand. As of the December 31, 2021, there are public warrants to purchase 5,813,804 shares of our common stock at $11.50 per share and a $20 million in principal amount of Senior Convertible Notes at a price of $4.05 per share, which if exercised or converted and sold into the open market could cause our stock price to decline. In addition, because we may be considered a speculative or “risky” investment due to our lack of profits to date, certain investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares of common stock on the market more quickly and at greater discounts, thus resulting in a rapid downward decline in the price of our common stock. Many of these factors are beyond our control and may decrease the market price of our shares of common stock, regardless of our operating performance.


The market price of our common stock is still likely to be highly volatile and subject to wide fluctuations, and stockholders may be unable to resell shares of common stock at or above the price at which they are acquired.

The market price of our common stock is likely to be highly volatileexpensive and could be subject to wide fluctuations in response to a number of factors that are beyond our control, including, but not limited to:

●

Variations in our revenues and operating expenses;

●

Actual or anticipated changes in the estimates of our operating results or changes in stock market analyst recommendations regarding our common stock, other comparable companies, or our industry generally;

●

Market conditions in our industry, the industries of our clients, and the economy as a whole;

●

Actual or expected changes in our growth rates or our competitors’ growth rates;

●

Developments in the financial markets and worldwide or regional economies;

●

Announcements of innovations or new products or services by us or our competitors;

●

Announcements by the government relating to regulations that govern our industry;

●

Sales of our common stock or other securities by us or in the open market; and

●

Changes in the market valuations of other comparable companies.

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The trading price of our shares of common stock might also decline in reaction to events that affect other companies in our industry, even if these events do not directly affect us. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion ofdivert management’s attention and resources, all of which could materiallyhave an adverse and adversely affect ourmaterial impact on Gryphon’s business, operating results and financial condition.

Wecondition and negatively affect Gryphon’s value. Further, any valid termination of the Sphere MSA in accordance with its terms could also have not paid dividendsa negative impact on Gryphon’s business and operating results. In addition, such lawsuits may make it more difficult for Gryphon to finance its operations in the past and do not expect to pay dividends for the foreseeable future, and any return on investment may be limited to potential future appreciation in the value of our common stock.future.

 

We currently intend to retain any future earnings to supportCore Complaint and Related Matters

In connection with the development and expansion of our business and do not anticipate paying cash dividends on our shares of common stockongoing Core Chapter 11 bankruptcy proceedings in the foreseeable future. Our paymentUnited States Bankruptcy Court for the Southern District of Texas, Houston Division, on November 21, 2023, the Company was notified that Core Scientific and its debtor affiliates filed an adversary proceeding complaint (“Core Complaint”) against Sphere 3D and the Company (“Core Litigation”). As it pertains to the Company, the Core Complaint alleged, among other things, that the Company breached certain miner hosting agreements between Core and the Company by failing to deliver miners to Core under the miner hosting agreements. The Core Complaint sought damages in the amount of $100 million and a declaratory judgment that Core has no continuing obligations under those miner hosting agreements. The Company disputed the allegations of the complaint and was prepared to assert all available defenses as well as counterclaims against Core. However, before the Company had to respond to the Core Complaint, the parties reached a mutually agreeable settlement where all claims against the Company would be released and the Core Complaint dismissed with prejudice.  Therefore, on January 2, 2024, the Core Debtors filed an emergency motion in the Core Chapter 11 bankruptcy proceedings, seeking the Court’s approval of a settlement resolving all claims as between the Core Debtors, on the one hand, and Sphere 3D and Gryphon on the other hand, arising from the miner hosting agreements; any future dividends will beclaims and disputes as between Sphere 3D and Gryphon are excluded from this proposed settlement. The Bankruptcy Court approved the settlement by order entered on January 16, 2024 (the “Core Settlement”).


On November 21, 2023, the Company was notified by Core Scientific, Inc. that Core intended to cease hosting operations of 133 ASIC miners that the Company had operating at Core as of September 30, 2023. As of December 31, 2023, the discretion of our Board of Directors after taking into account various factors, including without limitation, our financial condition, operating results, cash needs, growth plans, andCompany had removed its hosted equipment pursuant to the terms of any credit agreementsthe operative Master Services Agreement between the Company and Core. This hosted capacity represented approximately 1% of the Company’s overall fleet and management does not anticipate this action to result in a material impact to its operations. The Company relocated those miners to its other existing operations.

PPP Loan

On April 21, 2020, the Company obtained a loan from KeyBank National Association (“Key Bank”) in the principal aggregate amount of $2.2 million (the “PPP Loan”) pursuant to the Paycheck Protection Program under the CARES Act. The PPP Loan had a two-year term bearing interest at a rate of 1% per annum with principal and interest payments to be paid monthly beginning seven months from the date of the PPP Loan. In August 2021, the Company submitted its application for forgiveness for repayment of the PPP Loan, and on September 3, 2021, repayment of the PPP Loan was forgiven, in full, by the SBA.

On February 5, 2024, the Company received a letter, dated January 25, 2024, from the SBA, on behalf of Key Bank, in which the SBA indicated that, we may benotwithstanding its prior notification of forgiveness, in full, of repayment of the  the PPP Loan, it was reviewing its prior determination of forgiveness for potential reversal. Specifically, the SBA indicated that based on its preliminary findings, the SBA is considering a partyfull denial of the previously received forgiven amount based on the purported ineligibility of the Company to have received the PPP Loan under the SBA loan programs because the Company, operating as Akerna at the time. Totime of the extentPPP Loan, provided software support to the cannabis industry. The Company responded to the SBA on February 6, 2024, providing reasons as to why it believes it was eligible for the PPP Loan, but has not received any further correspondence from the SBA, since that date, and the SBA has not made any financial demands. The Company plans to continue to cooperate with any further inquiry from the SBA.

In January 2024, the Company received a civil investigative demand from the DOJ seeking information and documents about the PPP Loan. The Company is cooperating with the inquiry. At this time, there has been no formal demand for return of the PPP Loan proceeds, and no formal claim or lawsuit has been initiated against the Company.

Dutchie Litigation

On January 13, 2023, Courier Plus Inc. d/b/a Dutchie (“Dutchie”) filed a complaint in the Court of Common Pleas, Dauphin County, Commonwealth of Pennsylvania against Akerna and MJ Freeway, LLC (“MJF”) (which was a wholly-owned subsidiary prior to the closing of the Business Combination), alleging unfair competition, tortious interference, and unjust enrichment with respect to MJF’s exclusive government contract with the Commonwealth of Pennsylvania. We filed a preliminary objection alleging serious defects, such as jurisdiction. The parties attended a hearing in July 2023. In October 2023, the courts dismissed the case but left some items available in the complaint for an appeal. Dutchie has amended its complaint and filed again. We filed another preliminary objection to their amended complaint. A hearing on our preliminary objections is scheduled for April 9, 2024. Before and throughout this dispute, we have worked with the Commonwealth of Pennsylvania to ensure continued compliance with our contract. We intend to continue to defend our position vigorously and, at this time, do not pay dividends, our sharesbelieve an estimate of common stock may be less valuable becausepotential loss, if any, is appropriate.

TreCom Litigation 

On April 2, 2021, TreCom Systems Group, Inc. (“TreCom”) filed suit against Akerna and MJF in federal District Court for the Eastern District of Pennsylvania, seeking recovery of up to approximately $2.0 million for services allegedly provided pursuant to a returnSubcontractor Agreement between MJF and TreCom. MJF provided a notice of termination of the operative Subcontractor Agreement on investment will only occur ifAugust 4, 2020. MJF disputes the validity of TreCom’s invoices and the enforceability of the alleged agreement that TreCom submitted to the extent our stock price appreciates,court. Akerna filed counterclaims against TreCom for breach of contract, a declaratory judgment, commercial disparagement, and defamation. TreCom failed to return Akerna’s intellectual property and issued numerous disparaging statements to one of Akerna’s clients. TreCom subsequently filed a motion to dismiss these counterclaims, which may never occur. In addition, investors must relywas denied by the court. Akerna intends to vigorously defend against TreCom’s claims, and pursue its own claims. Both parties recently filed motions for summary judgment with respect to the validity of each parties’ claims.  The court has not advised the parties if it will hold a hearing on sales of their common stock after price appreciation as the only way to realize their investment, and if the price of our common stock does not appreciate, then there will be no return on investment. Investors seeking cash dividends should not purchase our common stock.


General Risks

We may not be able to timely and effectively implement controls and procedures required by Section 404motions or when an order is expected.  As most of the Sarbanes-Oxley Actmaterial facts at issue are disputed by the parties, the court may deny both motions, in which case the matter will move towards trial. With respect to the TreCom matter, we established a loss contingency of 2002.

The standards required for a public company under Section 404 of$0.2 million in 2021 on the Sarbanes-Oxley Act of 2002 are significantly more stringent than those requiredbooks of MJF as a privately held company. Management may not be able to effectively and timely implement controls and procedures that adequately respond to the regulatory compliance and reporting requirements that are applicable to us. If we are not able to implement the additional requirements of Section 404 in a timely manner or with adequate compliance, we may not be able to conclude that our internal controls over financial reporting are effective, which may subject us to adverse regulatory consequences and could harm investor confidence and the market price of our common stock.

Failure to remediate material weaknesses in internal controls over financial reporting could result in material misstatements in our financial statements.

Our management has identified material weaknesses in our internal controls over financial reporting and has concluded that due to such material weaknesses, our internal controls over financial reporting (including disclosure controls and procedures) were not effectiveremains outstanding as of December 31, 2021. If not remediated, our failure to establish and maintain effective disclosure controls and procedures over financial reporting could result in material misstatements in our financial statements and a failure to meet our reporting and financial obligations, each of which could have a material adverse effect on our financial condition and the trading price of our common stock.2023.

The requirements of being a public company may strain our resources and divert management’s attention. 

As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of NASDAQ, and other applicable securities rules and regulations. Compliance with these rules and regulations increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. We may need to hire more employees in the future or engage outside consultants to comply with these requirements, which will increase our costs and expenses.

In addition, changing laws, regulations, and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time-consuming. These laws, regulations, and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations, and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected. 

 

28


We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our shares of common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. Additionally, as an emerging growth company, we have elected to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As such, our financial statements may not be comparable to companies that comply with public company effective dates. It cannot be predicted if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our share price may be more volatile.


Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited. 

Under Section 382 and related provisions of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in its equity ownership over a three year period), the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attribute to offset its post-change income may be limited. We may, in the future, as a result of subsequent shifts in our stock ownership, experience, an “ownership change.” Thus, our ability to utilize carryforwards of our net operating losses and other tax attributes to reduce future tax liabilities may be substantially restricted. At this time, we have not completed a study to assess whether an ownership change under Section 382 of the Internal Revenue Code has occurred at any time in the past or may occur in the foreseeable future, due to the costs and complexities associated with completing such a study. Therefore, we may not be able to take full advantage of these carryforwards for federal or state tax purposes. 


Our operations could be adversely affected by events outside of our control, such as natural disasters, wars, or health epidemics.

We may be impacted by business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods, and fires. An outbreak of any of the foregoing or fear of any of the foregoing could adversely impact us by disrupting the operations of our clients, which could result in delayed payments, non-renewal of contracts, and other adverse effects on the market for our products or by causing product development and implementation delays and disruptions (including as a result of government regulation and prevention measures). We may incur expenses or delays relating to such events outside of our control, which could have a material adverse impact on our business, operating results, and financial condition.


Item 1B. Unresolved Staff Comments.

Not Applicable. 

Item 2. Properties.

Our corporate headquarters are located in Denver, Colorado, although we do not lease or own any real property associated with our corporate headquarters as our workforce is primarily remote. We have one facility that we lease in Las Vegas, Nevada which serves as office space for our Las Vegas based employees. We believe that our existing facilities are adequate for our current needs and that suitable additional or alternative space would be available to us to lease on commercially reasonable terms if and when we need it. 

Item 3. Legal Proceedings.

From time to time, we may become involved in other legal proceedings or be subject to claims arising in the ordinary course of our business. Regardless of the outcome of any existing or future litigation, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors. 


Refer to "Commitments and Contingencies" under Note 14 to our consolidated financial statements included elsewhere in this Form 10-K for a further discussion of our current legal proceedings.

Item 4. Mine Safety Disclosures.

 

Not applicable.


29

PART II

 


PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

(a) Market Information for Common Stock and Warrants


Our common stock and warrants have been listed on the Nasdaq Capital Market since June 19, 2019 under the symbols “KERN” and “KERNW”, respectively. 

 

Holders

As of December 31, 2021, we had 261 holders of record of our common stock and 6 holders of record of our warrants. Because many of ourOur shares of common stock are held by brokers and other institutionstraded on behalf of shareholders, we are unable to estimate the total number of shareholders represented by these record holders.Nasdaq under the symbol “GRYP.”

 

Dividends(b) Holders

 

WeOn March 29, 2024, there were 301 holders of record of shares of our common stock.

(c) Dividends

As of the date of this Report, we have never declared ornot paid any cash dividends on our common stock. We currently intend to retain all available funds andstockholders. The declaration of any future earnings for use in the operation of our business and do not anticipate paying any dividends on our common stock in the foreseeable future. Any future determination to declare dividendscash dividend will be made at the discretion of our Boardboard of Directorsdirectors and will depend onupon our financial condition, results of operations,earnings, if any, our capital requirements and financial position, the general businesseconomic conditions, and other factors thatpertinent conditions. It is our Board of Directors may deem relevant.

Unregistered Sales of Equity Securities


All unregistered sales of equity securities duringpresent intention not to pay any cash dividends in the year ended December 31, 2021, were previously reportedforeseeable future, but rather to reinvest earnings, if any, in our Current Reports on Form 8-K.


Repurchase of Securitiesbusiness operations.


During the year ended December 31, 2021, neither we nor any of our affiliates repurchased shares of our common stock or warrants registered under Section 12 of the Exchange Act.


2019 Long Term Incentive Plan Summary


The purpose of the Incentive Plan is to enable Akerna to offer its employees, officers, directors and consultants whose past, present and/or potential future contributions to Akerna have been, are, or will be important to its success, an opportunity to acquire a proprietary interest in Akerna. The various types of incentive awards that may be provided under the Incentive Plan are intended to enable Akerna to respond to changes in compensation practices, tax laws, accounting regulations and the size and diversity of its business.

Plan Administration

The Incentive Plan is administered by the compensation committee of the Akerna Board (the “Compensation Committee”) or by the full Akerna Board, which may determine, among other things, (1) the persons who are to receive awards, (2) the type or types of awards to be granted to such persons, (3) the number of shares of common stock to be covered by, or with respect to what payments, rights, or other matters are to be calculated in connection with the awards, (4) the terms and conditions of any awards, (5) whether, to what extent, and under what circumstances awards may be settled or exercised in cash, shares of common stock, other securities, other awards or other property, or cancelled, forfeited, or suspended and the method or methods by which awards may be settled, exercised, cancelled, forfeited, or suspended, (6) whether, to what extent, and under what circumstances the delivery of cash, shares of common stock, other securities, other awards or other property and other amounts payable with respect to an award, and (7) make any other determination and take any other action that the Compensation Committee deems necessary or desirable for the administration of the Incentive Plan.

Stock Options

Stock options granted under the Incentive Plan may be of two types: (i) Incentive Stock Options (as defined in the Incentive Plan) and (ii) Non-qualified Stock Options (as defined in the Incentive Plan). Any stock option granted under the Incentive Plan shall contain such terms, as the Compensation Committee may from time to time approve.

The term of each stock option shall be fixed by the Compensation Committee; provided, however, that no stock option may be exercisable after the expiration of ten years from the date of grant; provided, further, that no Incentive Stock Option granted to a person who, at the time of grant, owns stock possessing more than 10% of the total combined voting power of all classes of voting stock of Akerna (“10% Shareholder”) may be exercisable after the expiration of five years from the date of grant.

30


The exercise price per share purchasable under a stock option shall be determined by the Compensation Committee at the time of grant; provided, however, that the exercise price of a stock option may not be less than 100% of the fair market value on the date of grant; provided, further, that the exercise price of an Incentive Stock Option granted to a 10% Shareholder may not be less than 110% of the fair market value on the date of grant.


Stock Appreciation Rights

The Compensation Committee may grant Stock Appreciation Rights in tandem with a stock option or alone and unrelated to a stock option. The Compensation Committee may grant stock appreciation rights to participants who have been or are being granted stock options under the Incentive Plan as a means of allowing such participants to exercise their stock options without the need to pay the exercise price in cash. In the case of a Non-qualified Stock Option, a stock appreciation right may be granted either at or after the time of the grant of such Non-qualified Stock Option. In the case of an Incentive Stock Option, a stock appreciation right may be granted only at the time of the grant of such Incentive Stock Option. Stock appreciation rights shall be exercisable as shall be determined by the Compensation Committee. All or a portion of a stock appreciation right granted in tandem with a stock option shall terminate and shall no longer be exercisable upon the termination or after the exercise of the applicable portion of the related stock option.

Restricted Stock and Restricted Stock Units

Shares of restricted stock may be awarded either alone or in addition to other awards granted under the Incentive Plan. The Compensation Committee shall determine the eligible persons to whom, and the time or times at which, grants of restricted stock will be awarded, the number of shares to be awarded, the price (if any) to be paid by the holder, any restriction period, the vesting schedule and rights to acceleration thereof, and all other terms and conditions of the awards. In addition, the Compensation Committee may award restricted stock units, which may be subject to vesting and forfeiture conditions during the applicable restriction period, as set forth in an agreement.

Restricted stock constitutes issued and outstanding shares of common stock for all corporate purposes. The holder will have the right to vote such restricted stock and to exercise all other rights, powers and privileges of a holder of common stock with respect to such restricted stock, subject to certain limited exceptions. Upon the expiration of the restriction period with respect to each award of restricted stock and the satisfaction of any other applicable restrictions, terms and conditions, all or part of such restricted stock shall become vested in accordance with the terms of the agreement. Any restricted stock that does not vest shall be forfeited to Akerna and the holder shall not thereafter have any rights with respect to such restricted stock.

The Compensation Committee may provide that settlement of restricted stock units will occur upon or as soon as reasonably practicable after the restricted stock units vest or will instead be deferred, on a mandatory basis or at the holder’s election, in a manner intended to comply with tax laws. A Holder will have no rights of a holder of common stock with respect to shares subject to any restricted stock unit unless and until the shares are delivered in settlement of the restricted stock unit. If the Committee provides, a grant of restricted stock units may provide a holder with the right to receive dividend equivalents.

Other Stock-Based Awards

Other Stock-Based Awards may be awarded, subject to limitations under applicable law, that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, shares of common stock, as deemed by the Compensation Committee to be consistent with the purposes of the Incentive Plan, including, without limitation, purchase rights, shares of common stock awarded that are not subject to any restrictions or conditions, convertible or exchangeable debentures, or other rights convertible into shares of common stock and awards valued by reference to the value of securities of or the performance of specified subsidiaries.

Change of Control Provisions

The Incentive Plan provides that in the event of a change of control event, (1) all of the then outstanding options and stock appreciation rights granted pursuant to the Incentive Plan will immediately vest and become immediately exercisable as of a time prior to the change in control and (2) any performance goal restrictions related to an award will be deemed achieved at 100% of target levels and all other conditions met as of a time prior to the change in control. In the event of the sale of all of Akerna’s assets or a change of control event, then the Compensation Committee may (1) accelerate the vesting of any and all Stock Options and other awards granted and outstanding under the Incentive Plan; (2) require a holder of outstanding options to relinquish such award to Akerna upon the tender by Akerna to holder of cash, stock or other property, or any combination thereof pursuant to the terms of the Incentive Plan and (3) terminate all incomplete performance periods in respect of awards in effect on the date the acquisition occurs, determine the extent to which performance goals have been met based upon such information then available as it deems relevant and cause to be paid to the holder all or the applicable portion of the award based upon the Compensation Committee’s determination of the degree of attainment of performance goals, or on such other basis determined by the Compensation Committee.


31

 

The Akerna Board may at any time, and from time to time, amend alter, suspend or discontinue any of the provisions of the Incentive Plan, but no amendment, alteration, suspension or discontinuance shall be made that would impair the rights of a holder under any agreement theretofore entered into hereunder, without the holder’s consent, except as set forth in this Incentive Plan or the agreement. Notwithstanding anything to the contrary herein, no amendment to the provisions of the Incentive Plan shall be effective unless approved by the stockholders of Akerna to the extent stockholder approval is necessary to satisfy any provision of the Ethics Code or other applicable law or the listing requirements of any national securities exchange on which Akerna’s securities are listed.


(d) Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides information as of December 31, 2021, with respect to the shares of our common stock that may be issued under our existing equity compensation plans:

 

 

Number of securities to be issued upon exercise of outstanding options, warrants and rights or vesting of restricted stock units
(column - a)

 

 

Weighted- average exercise price of outstanding options, warrants and rights or vesting of restricted stock units
(column - b)

 

 

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in 

column (a))
(column - c)

 

2019 - Equity compensation plan approved by security holders

 

 

683,767

 

 

$

—

 

 

 

459,539

 

Total

 

 

683,767

 

 

$

—

 

 

 

459,539

 

 

Item None.6. [RESERVED]

 

(e) Recent Sales of Unregistered Securities

 

There are no transactions that have not been previously included in a Current Report on Form 8-K

(f) Repurchase of Securities

None.

Item 6. [RESERVED]

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

As discussed elsewhere in this Annual Report on Form 10-K for the year ended December 31, 2023 and below, Gryphon Digital Mining, Inc. (“Gryphon”) became a publicly held entity in February 2024 upon the completion of a reverse merger transaction (the “Merger”) with Akerna Corp., herein referred to as we, us, our, the Company or Akerna. Akerna provided software as a service (“SaaS”) solutions within the cannabis industry that enabled regulatory compliance and inventory management through several wholly-owned subsidiaries including MJ Freeway, LLC (“MJF”), Trellis Solutions, Inc. (“Trellis”), Ample Organics, Inc. (“Ample”), Last Call Analytics (“LCA”), solo sciences, inc. (“Solo”), Viridian Sciences, Inc. (“Viridian”), and The NAV People, Inc. d.b.a. 365 Cannabis (“365 Cannabis”).

 

The following discussion and analysis is exclusively attributable to the operations of Akerna for the years ended December 31, 2023 and 2022, as well as certain activities up to and including the effective date of the Merger, or February 9, 2024. This discussion and analysis should be read in conjunction with our consolidated financial statements for the yearyears ended December 31, 2021, the six month transition period ended December 31, 2020,2023 and the year ended June 30, 2020,2022 and the related notes thereto, which have been prepared in accordance with GAAP. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those set forth under the section heading “Item 1A. Risk Factors” above and elsewhere in this report on Form 10-K. See section heading “Note Regarding Forward-Looking Statements” above.


Akerna is the leading provider of enterprise software solutions within the cannabis industry. By providing an integrated ecosystem of applications and services that enables compliance, regulation, consumer safety and taxation, Akerna is building the technology backbone of the cannabis industry. Our solutions provide clients with integrated security, transparency, and scalability capabilities, all while maintaining compliance with their governing regulations.

We intend to leverage our scale and capital markets access to pursue additional growth through organic initiatives and to pursue our ecosystem strategy which leverages integrations, partnerships, and inorganic growth.We believe having a scaled ecosystem gives us more opportunities to leverage our footprint and increase wallet share by providing more value to our clients through having what we believe is the most robust cannabis technology suite available. We intend to pursue additional growth through organic initiatives, including increased marketing personnel and resources, acquisitions, and strategic relationships. we will continue scaling our platform for continued growth, adding new features and functionality, supporting new products and content types, and improving the user experience.

We offer our software solutions to our customers as a subscription-based service. Subscription fees are based upon the chosen package which includes differentiated platform capabilities, support and user accounts. As customers recognize the value of our platform, we increasingly engage with them to facilitate broad adoption across other parts of their business.


32

 

We believe having a scaled ecosystem gives us more opportunities to leverage our footprint and increase wallet share by providing more value to our clients through having what we believe is the most robust cannabis technology suite available. In order to accelerate customer growth, we intend to pursue additional initiatives, including increased marketing personnel and resources, acquisitions, and strategic relationships. We believe we are underpenetrated in the overall market and have significant opportunity to expand our customer base over time.Key Business Metrics


We have invested in professional services, customer support and customer success functions to support our sales force by helping customers successfully deploy our platform. We actively engage with our customers to assess whether they are satisfied and fully realizing the benefits of our platform. While these efforts often require a substantial commitment and upfront costs, we believe our investment in product, customer support, customer success and professional services will create opportunities to expand our customer relationships over time.

 

We plan to continue to make investments in areas of our business to continue to expand our platform functionality to enhance current offerings and build new features.


On April 1, 2021 and October 1, 2021, we completed our acquisitions of Viridian and 365 Cannabis which is reflected in the consolidated financial statements for the fiscal year ended December 31, 2021.The impact of the acquisition is discussed in our results of operations below.


Key Business Metrics

In addition to our results determined in accordance with U.S. Generally Accepted Accounting Principles, or GAAP,accounting principles generally accepted in the United States (“GAAP”), we believe earnings before interest, taxes, depreciation and amortization, or EBITDA, and Adjusted EBITDA are useful in evaluating our operating performance. We useused EBITDA and Adjusted EBITDA, to evaluate our ongoingcontinuing operations and for internal planning and forecasting purposes. Please see the heading Non-GAAP“Non-GAAP Financial MeasuresMeasures” for additional discussion and a reconciliation of GAAPour net loss determined in accordance with GAAP to these non-GAAP measures.measures for the years ended December 31, 2023 and 2022.

 

Impact of COVID-19 



 In December 2019, COVID-19 was first reported. After ongoing assessment of the rapid spread, number of cases and countries affected,

Key Developments

The following general business developments had a significant impact on March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. The COVID-19 pandemic has created significant global economic uncertainty, impacted the business of our clients, impacted our consulting business and our results of operations, financial position and could further impactcash flows:

Strategic Shift in Business Strategy

During the fourth quarter of 2022, we committed to a number of significant actions that collectively represented a strategic shift in our business strategy and a complete exit from the SaaS business serving the cannabis industry. The shift was effectuated in a two-part exit strategy whereby we (i) disposed of our component SaaS business units in advance of (ii) the Merger with Gryphon, an entity unaffiliated with the SaaS and cannabis industries (see below).

Prior to the aforementioned shift in strategy, we implemented a restructuring initiative (the “Restructuring”) in May 2022 whereby we reduced our headcount by 59 employees and incurred and paid $0.6 million of associated costs in an effort to minimize costs and streamline the organization. There were no remaining obligations under the Restructuring after December 31, 2022.

During 2023, we disposed of 365 Cannabis, LCA and Ample (the “Disposal Group”) through a series of sale transactions. As a result of these transactions, the Disposal Group met the criteria to be considered “discontinued operations” as that term is defined in GAAP. Accordingly, the assets and liabilities of these entities are classified and reflected on our consolidated balance sheet as of December 31, 2022 as attributable to “discontinued operations” and their results of operations and our cash flowsare classified as “discontinued operations” in the future.consolidated statements of operations for the years ended December 31, 2023 and 2022, respectively. Certain financial disclosures including major components of the assets and liabilities and results of operations of the Disposal Group are provided in Note 15 to the consolidated financial statements. We effectively abandoned our operations for Trellis, Solo and Viridian during the year ended December 31, 2023 after all contractual commitments were satisfied with the customers and vendors of those businesses. The results of operations of those business units are reflected in these consolidated financial statements for all periods presented as a component of continuing operations. We committed to the sale of MJF (the “Sale Transaction”) during 2023; however, the required stockholder approval and certain other consents required to complete the Sale Transaction were not obtained until January of 2024. Accordingly, the assets and liabilities and results of operations of MJF are reflected in the consolidated financial statements for all periods presented as a component of continuing operations. The Sale Transaction closed on February 9, 2024 (see below).

On January 27, 2023, we entered into an agreement and plan of merger, as amended on April 28, 2023 and June 14, 2023 (the “Merger Agreement”) with Gryphon and Akerna Merger Co. (“Akerna Merger”). Required approval of the Merger Agreement by the stockholders of Akerna and Gryphon as well as approval by Nasdaq of the continued listing of Gryphon after the closing of the Merger was obtained in January 2024. On February 9, 2024, concurrent with the closing of the Sale Transaction, Akerna Merger merged with and into Gryphon, with Gryphon surviving the Merger as a wholly-owned subsidiary of Akerna. Following the closing of the Merger, the former Gryphon and Akerna stockholders immediately before the Merger owned approximately 92.5 percent and 7.5 percent, respectively, of the outstanding capital stock on a fully diluted basis which effectively resulted in a change in control of the Company. Upon completion of the Merger, Akerna changed its name to Gryphon and its common stock began trading on the Nasdaq under the symbol “GRYP.”



Sale Transaction

On January 27, 2023, we entered into a securities purchase agreement (the “Initial SPA”) with a third party to sell MJF and Ample for $4.0 million in cash. Subsequently, we received a superior offer from Alleaves Inc. (“Alleaves”), as described below, which was presented to the third party for an opportunity to match or exceed Alleaves’ offer in accordance with the Initial SPA. The third party ultimately declined to present a counter-offer and on April 5, 2023, we terminated the Initial SPA. As a result of the termination, Akerna paid a termination fee and reimbursement for expenses of $0.2 million in June 2023. These costs were included in the line item “Other expense, net” in our consolidated statements of operations.

On April 28, 2023, we entered into a securities purchase agreement (the “SPA”) with MJ Freeway Acquisition Co (“MJ Acquisition”), an affiliate of Alleaves. Upon the terms and subject to the satisfaction of the conditions described in the SPA, including approval of the transaction by Akerna’s stockholders, Akerna would sell MJF and Ample to MJ Acquisition for a purchase price of $5.0 million, consisting of $4.0 million in cash at closing and a loan by MJ Acquisition to Akerna in the principal amount of $1.0 million evidenced by a note (the “MJA Note”) and security documents with such note to be deemed paid in full upon closing. 

The COVID-SPA was amended on October 12, 2023, November 15, 2023 and December 28, 2023 to facilitate the following, among other administrative matters attributable to the Sale Transaction: (i) reduced the cash to be paid at closing to $1.85 million from the original $4.0 million, (ii) required Akerna to sell Ample in an unrelated transaction to an unaffiliated third party (see Note 15 to the consolidated financial statement) with the sales proceeds from such sale, less an allowance for legal fees, to further reduce the proceeds to be received from MJ Acquisition upon closing of the Sale Transaction, (iii) provided for an additional $0.650 million from MJ Acquisition to Akerna for working capital purposes and (iv) amended the MJA Note (the “Amended and Restated Secured Promissory Note”) to increase the principal to $1.650 million and adjust for its settlement at closing such that in would be converted into a number of shares of Akerna common stock, $0.0001 par value (“Common Stock”) upon closing equivalent to $1.650 million divided by the 5-day volume weighted average price of Akerna’s Common Stock.19

At a special meeting held on January 29, 2024 (the “Special Meeting”), the stockholders of Akerna approved the Sale Transaction.

 pandemic impacted our clients’ business

In order to consummate the Merger and Sale Transaction, pursuant to the terms of the SPA, as amended, the Company also entered into a release and termination agreement dated February 8, 2024 (the “MJA Release and Termination Agreement”) with MJ Acquisition to obtain a release under and termination of the Second Amended and Restated Security and Pledge Agreement dated November 15, 2023 entered into by and among the Company, certain of its subsidiaries, and MJ Acquisition under the Second Amended and Restated Intellectual Property Security Agreement dated November 15, 2023 by and between the Company, certain of its subsidiaries and MJ Acquisition and under the Second Amended and Restated Guaranty dated November 15, 2023, by and between certain subsidiaries of the Company and MJ Acquisition (the “MJA Credit Agreements”). Pursuant to the MJA Release and Termination Agreement, MJ Acquisition released the Company and its subsidiaries from all of the security interests and guarantees set forth in the MJA Credit Agreements and agreed that, upon receipt by MJ Acquisition of the assignment of the membership interests of MJF and the industry. Nearly every stateshares of Common Stock to be issued to MJ Acquisition upon conversion of the Amended and country where medicalRestated Secured Promissory Note held by MJ Acquisition into shares of Common Stock, the MJA Credit Agreements would terminate without any further action by MJ Acquisition.

On February 9, 2024, we closed the Sale Transaction pursuant to the SPA, as amended. Upon the terms and adult use cannabis was legal declared access essential, which we believe is a significant shiftsubject to the satisfaction of the conditions described therein, Akerna sold to MJ Acquisition all of the membership interests in sentiment. Our clients also have experienced increased consumer demand throughoutMJF for an aggregate purchase price of approximately $1.284 million and conversion of the year, including during the pandemic. We believe COVID-19 has accelerated consolidationAmended and Restated Secured Promissory Note in the cannabis industry. At the peakamount of $1.650 million which principal amount converted into shares of Common Stock of Akerna at closing of the crisis, cannabis companies lost on average Sale Transaction, with such Amended and Restated Secured Promissory Note deemed paid in full upon closing of the Sale Transaction.75

% to 90


%

Merger

On January 27, 2023, we entered into the Merger Agreement with Gryphon. Concurrent with the signing and in support of  the Merger, we and each of the holders of the 2021 Senior Secured Convertible Notes (the “Senior Convertible Notes ”) entered into exchange agreements (the “Exchange Agreements”) whereby the holders would ultimately convert the principal amounts of each of their value,however, industry salesnote holdings to a level that would represent 19.9 percent of the outstanding shares of Common Stock prior to the closing of the Sale Transaction and the Merger. Prior to the stockholder vote required for the closing of those transaction, the remaining Senior Convertible Notes outstanding would be converted into a special class of exchangeable preferred stock to facilitate the required stockholder vote and then be converted into shares of our Common Stock subject to the Merger. For a limited period, the conversion price of the Senior Convertible Notes was lowered to $24.00 per share from $95.00 per share. In accordance with the Exchange Agreements and upon the occurrence of an any additional capital raising transaction, the conversion price would be adjusted accordingly. In connection with an equity offering in 2021 increased 40% over 2020. As we move towards economic recovery fromJune 2023 (see Note 11 to the pandemic, more state governments are lookingconsolidated financial statements), the conversion price was further reduced to cannabis legalization to generate tax revenue and create jobs. During the November 2020 election,$10.00 per share. Through December 6, 2023, a total of 7$3.187 million in principal amount of the Senior Convertible Notes were exchanged for 237,213 shares of Common Stock in connection with the Exchange Agreements.

 initiatives

On December 14, 2023, we designated and authorized 3,244 shares of Series C Preferred Stock with a par value of $1,000 per share (“Series C Preferred Stock”). Each share of the Series C Preferred Stock would have voting power equivalent to 2,000 shares of Common Stock. On December 20, 2023, Akerna and the holders of the Senior Convertible Notes that were parties to the Exchange Agreements entered into an amendment no. 1 to each of their respective the Exchange Agreements (the “Amended Exchange Agreements”) to establish the initial closing at which time each of the holders of the Senior Convertible Notes received 1,711 shares of Series C Preferred Stock (3,422 shares in total) in exchange for $1.711 million in principal amount of the Senior Convertible Notes ($3.422 million on a combined basis).5

 states passed

At the Special Meeting, the stockholders of Akerna approved the Merger concurrent with overwhelming majority support, showing increased bi-partisan support. These initiatives bringapproval by Gryphon’s stockholders. In addition, the totalstockholders of Akerna approved: (i) an amendment to the Company’s amended and restated certificate of incorporation, as amended, to effect a reverse stock split of the Company’s Common Stock, at a ratio of one (1) new share for every fifteen (15) to one hundred (100) shares of outstanding Common Stock, with the exact ratio and effective time of the reverse stock split of Akerna Common Stock to be determined by the Akerna board of directors, agreed to by Gryphon and publicly announced by press release, (ii) an increase to the number of states with legal, medical marketsauthorized shares of Common Stock to facilitate the closing of the Merger, (iii) approval of an amendment to the amended and restated certificate of incorporation to change the corporate name from “Akerna Corp.” to “Gryphon Digital Mining, Inc.,” (iv) approval of the Akerna 2024 Omnibus Incentive Plan and (v)  approval of the issuance of Common Stock upon the conversion of $1.650 million in principal amount of the Amended and Restated Secured Promissory Note held by MJ Acquisition.36

 

On February 8, 2024, we entered into amendment no. 2 (“Amendment No. 2”) to the Exchange Agreements. Pursuant to Amendment No. 2, the Company and adult-use markets to 17, plus Washington, DC. Various additional states have pending legislation aimed at expanding or adding legalization to their markets. Inthe holders of the Senior Convertible Notes amended the terms of job creation, over 107,059 jobs were addedthe Exchange Agreements to (i) set the “Final Closing Date” under the Exchange Agreement to conduct the “Final Exchange” to take place immediately following the Effective Date of the Merger, (ii) agree that the “Company Optional Redemption Price” of the Senior Convertible Notes in relation to the cannabis workforce in 2021“Cash Sweep” was $nil (iii) agree as to the principal amount of the Senior Convertible Note remaining outstanding held by each holder following the payment of portion of the Senior Convertible Note pursuant to the Cash Sweep and that such Senior Convertible Note will be exchanged at the Final Closing into shares of Common Stock based on a per share price of $4.60 (being $0.23, as adjusted to reflect the 1-for-20 reverse stock split to be effected immediately prior to the Final Closing), raising the total(iv) agree that such number of full-time equivalent jobsshares of Common Stock will not exceed the “Maximum Percentage” and therefore there will be no “Abeyance Shares”, and (v) the Final Exchange shall be consummated pursuant to Section 3(a)(9) of the Securities Act and the terms set forth in Amendment No. 2. Pursuant to the terms of Amendment No. 2, on February 9, 2024, the remaining principal amount of Senior Convertible Notes was exchanged for 824,977 shares of Common Stock. 

On February 8, 2024, we entered into certain exchange agreements under Section 3(a)(9) of the United States Securities Act of 1933, as amended (the “Securities Act”), in relation to the exchange of the Company’s issued and outstanding shares of Series C Preferred Stock for shares of Common Stock (the “3(a)(9) Exchange Agreements”). Pursuant to the Section 3(a)(9) Exchange Agreements, on February 9, 2024, all 3,244 Series C Shares with a face value of $1,000 per share were exchanged for 756,746 shares of Common Stock. 


In order to consummate the Merger and the Sale Transaction, pursuant to the terms of the Exchange Agreements, we entered into a release and termination agreement dated February 8, 2024 (“Release and Termination Agreement”), to obtain a release under, and termination of, the Amended and Restated Security and Pledge Agreement dated October 5, 2021 entered into by and among the Company, certain of its subsidiaries, and the collateral agent named therein, the Amended and Restated Intellectual Property Security Agreement dated October 5, 2021 by and between the Company, certain of its subsidiaries and the collateral agent named therein, and the Amended and Restated Guaranty dated October 5, 2021 by and between certain subsidiaries of the Company and the collateral agent named therein (collectively, the “Credit Agreements”). Pursuant to the Release and Termination Agreement, the collateral agent released the Company and its subsidiaries from all of the security interests and guarantees set forth in the industry to 428,059.


The ultimate extentCredit Agreements and agreed that, upon receipt by the holders of the impactSenior Convertible Notes of (i) the shares of Common Stock to be issued pursuant to Amendment No. 2 and (ii) evidence of the COVID-19 pandemic on our operational and financial performance will depend on certain developments, includingreceipt of assignment of a stated monetary interest in the durationCompany’s Employee Retention Tax Credit (“ERTC”) to the holders of the outbreak, the severitySenior Convertible Notes (who were also holders of the disease, responsive actions takenSeries C Shares), the Credit Agreements would terminate without any further action by public health officials, the impacts on our clientscollateral agent or the holders of the Senior Convertible Notes. Further, we entered into a separate consent and our sales cycles, our abilityagreement dated February 8, 2024 with each of the two institutions that hold the Senior Convertible Notes, pursuant to generate new business,which each such holder separately consented to the impacts on our clients, employeeRelease and industry events,Termination Agreement (the “Noteholder Consents”).

On February 8, 2024, we entered into a ERTC & Liability Assignment Agreement (the “ERTC Agreement”) with Distributionco LLC, a Colorado limited liability company (“Distributionco”). Pursuant to the ERTC Agreement, in order to (i) induce the holders of the Senior Convertible Notes and Series C Shares to agree to the effects on our vendors, allclosing of which are uncertainthe Merger and currently cannotSale Transaction, (ii) settle certain accounts payable to a third party service provider and (iii) settle certain amounts of compensation due and payable to officers of the Company, the Company agreed to the assignment of the Company ERTC credit anticipated to be predicted. As a result,approximately $2.1 million to Distributionco in exchange for Distributionco assuming the extentabove liabilities of the Company totaling in the aggregate, $2.1 million of liabilities.

On February 8, 2024, we entered into share settlement agreements (the “Share Settlement Agreements”) with certain former officers of the Company (the “Purchasers”), pursuant to which the COVID-19 pandemic will continuePurchasers were issued shares of Common Stock as satisfaction for outstanding compensation balances owed to impact our financial condition or resultsthe Purchasers. On February 9, 2024, an aggregate of operations is uncertain. Due446,611 shares of Common Stock (the “Settlement Shares”) were issued to our subscription-based business model, the effectPurchasers pursuant to the terms of the COVID-19 pandemic may not be fully reflected in our results of operations until future periods. IfShare Settlement Agreements. 

In order to induce the COVID-19 pandemic has a substantial impact on our employees’Purchasers to execute and deliver the Share Settlement Agreements, we agreed to provide certain registration rights under the Securities Act and applicable state securities laws with respect to the Settlement Shares, pursuant to registration rights agreements (the “Registration Rights Agreements”), partners’ or clients’ productivity, our results of operationsdated February 8, 2024, between the Company and overall financial performance may be harmed.


33


See the section entitled “Risk Factors” for further discussioneach of the impact and possible future impactsPurchasers.

On February 9, 2024, the Company completed the transactions contemplated by the Merger Agreement, as amended. Under the terms of the COVID-19 pandemicMerger Agreement, Merger Sub merged with and into Gryphon, with Gryphon surviving as a wholly-owned subsidiary of Akerna. On the Effective Date of the Merger, each share of Gryphon’s common stock, par value $0.0001 per share (the “Gryphon Common Stock”), and Gryphon’s preferred stock, par value $0.0001 per share (the “Gryphon Preferred Stock,” collectively referred to herein with the Gryphon Common Stock as the “Gryphon Shares”), outstanding immediately prior to the Effective Date was converted into the right to receive approximately 1.7273744 shares of Gryphon Common Stock.  Each warrant to purchase common stock of Gryphon that was issued and outstanding at the Effective Date will remain issued and outstanding, and was assumed by the Company and is exercisable for shares of Common Stock pursuant to its existing terms and conditions as adjusted to reflect the ratio of exchange of Gryphon Shares for shares of Common Stock.  Immediately after giving effect to the Merger, the Company had 38,733,554 shares of Common Stock outstanding and warrants to purchase Common Stock outstanding and exercisable to acquire shares of Common Stock. On February 9, 2024, the Common Stock began trading on our business.


Strategic Acquisitionsthe Nasdaq under the symbol “GRYP.”

 

We have pursued and expect to continue to pursue acquisitions that align with our strategic objectives to build relevant content, technology, and expertise to best serve our current and future customers. Accordingly, the comparability of periods covered by our consolidated financial statements are, and in the future may be, affected by the impact of these acquisitions.


 

Components of Results of Operations

 

Revenue

 

We generategenerated revenue from two primary sources: (1) software and (2) consulting services. Revenue from software comprised approximately 92%, 86%99 percent and 79%93 percent of our revenue for the yearyears ended December 31, 2021, six months ended December 31, 2020,2023, and year ended June 30, 2020,2022, respectively.Revenue from consulting services comprised approximately 7%, 12%1 percent and 19%7 percent of our revenue for the year ended December 31, 2021, six months ended December 31, 2020, and year ended June 30, 2020,same periods, respectively.


Software. Our software iswas solutioned for our key markets, SMB and enterprise customers. Our SMB customers become a natural funnel for our larger, more robust enterprise offerings built on SAP and Microsoft.government regulatory agencies. In either market,these markets, software revenue iswas generated from subscriptions and services related to the use of our commercial software platforms, MJ Platform, Ample, Trellis, Viridian,Platform®, and 365 Cannabis, our government regulatory platform, Leaf Data Systems, and the sale of business intelligence, data analytics and other software related services.Systems®. Software contracts are generally quarterly or annual contracts paid monthly, quarterly, or annually in advance of service and cancellable upon 30 or 90 days’ notice, although we dodid have many multi-year commercial software contracts. Leaf Data SystemsSystems® contracts are generally multi-year contracts payable annually or quarterly in advance of service. Commercial softwareMJ Platform® and Leaf Data SystemsSystems® contracts generally maycould only be terminated early for breach of contract as defined in the respective agreements. Amounts that have been invoiced are initially recorded as deferred revenue or contract liabilities. Subscription revenue is recognized on a straight-line basis over the service term of the arrangement beginning on the date that our solution is made available to the customer and ending at the expiration of the subscription term.

  

Consulting Services. Consulting services revenue iswas generated by providing solutions for prospective and current cannabis, hemp and cannabidiol business operators in the pre-application of licensures and pre-operational phases of development. These services includeincluded application and business plan preparation as they seek licenses to be granted. Consulting projects completed during the pre-application phase generally solidifysolidified us as the software vendor of choice for subsequent operational phases once the operator iswas granted the license. As a result, our consulting revenue is driven as new emerging states pass legislation, and as our client-operators gain licenses. Accordingly, we expect our consulting services to grow over time as more states emerge with legalization reforms.


Other Revenue. Our other revenue iswas derived primarily from point-of-sale hardware and other non-recurring revenue.


Cost of Revenue and Operating Expenses

Cost of Revenue

Revenue. Our cost of revenue iswas derived from direct costs associated with operating our commercial and government regulatory software platforms and providing consulting services. The cost of revenue for our commercial and government regulatory platforms relatesrelated primarily to hosting and infrastructure costs and subcontractor expenses incurred in connection with certain government contracts.contracts. Consulting cost of revenue relatesrelated primarily to our employees’ and consultants’ salaries and other related compensation expenses. We recordrecorded the cost of revenue using the direct cost method. This method requires the allocation of direct costs including support services and materials to the cost of revenue. 

 

Product Development Expenses

Development. Our product development expenses includeincluded salaries and benefits, nearshore contractor expenses, technology expenses, and other overhead related to the ongoing maintenance of our commercial and government regulatory software platforms and planning for new software development. Product development costs, other than software development expenses qualifyingthat qualified for capitalization, arewere expensed as incurred. Capitalized software development costs consist primarily of employee-related costs. We devotedevoted substantial resources to enhancingenhance and maintainingmaintain our technology infrastructure, developingdeveloped new and enhancingenhanced existing solutions, conductingconducted quality assurance testing, and improvingimproved our core technology.


34

 

Sales and Marketing Expenses


Marketing. Sales and marketing expense iswas primarily salaries and related expenses,, including commissions, for our sales, marketing, and client service staff. We also categorizecategorized payments to partners and marketing programs as sales and marketing expenses. Marketing programs consist of advertising, events, such as trade shows, corporate communications, brand building, and product marketing activities. We plan to continue to invest in marketing and sales by expanding our domestic and international selling and marketing activities, building brand awareness, attracting new clients, and sponsoring additional marketing events. The timing of these marketing events will affectaffected our marketing costs in a particular quarter.


We deferdeferred the portion of sales commissions that iswere considered a cost of obtaining a new contract with a customer in accordance with the revenue recognition standard and amortize theseamortized those deferred costs over the period of benefit, currentlygenerally one year. We expenseexpensed the remaining sales commissions as incurred. The rates at which sales commissions arewere earned variesvaried depending on a variety of factors, including the nature of the sale (new, renewal, or add-on service offering), the type of service or solution sold, and the sales channel.


General and Administrative Expenses

 

General and Administrative. Our general and administrative expenses includeincluded salaries and benefits and other costs of departments serving administrative functions, such as executives,executive and corporate governance, finance and accounting, human resources, public relations and investor relations. In addition, general and administrative expense includesincluded non-personnel costs, such as professional fees and other supporting corporate expenses not allocated to cost of revenue, product and development or sales and marketing.


Total Other (Income) Expense, Net

 

Total other (income) expense, net consists of interest income on cash and cash equivalents, interest expense on our debt, quarterly remeasurement of the fair value of our convertible notes and derivative liability, foreign currency gains and losses, and other nonoperating gains and losses.


 

Results of Operations for the Year Ended December 31, 2021 (audited) compared with2023 Compared to the Year Ended December 31, 2020 (unaudited)2022


The following table highlights the various sources ofour operating revenues and operating expenses attributable to our continuing operations for the year ended December 31, 20212023 as compared to the year ended December 31, 2020 (unaudited). The results for the year ended December 31, 2020 were derived by combining the audited six-month transition period ended December 31, 2020 with Akerna’s three-month period ended March 31, 2020 and three-month period ended June 30, 2020:

2022:

 
Year Ended December 31,

 Change
Period over period
 
 

2021



2020 (unaudited)


  
Revenue





      
Software
$18,998,409

$11,963,028
 $7,035,381  59%
Consulting

1,510,413


1,739,683
  (229,270)  (13)%
Other revenue

176,152


196,257
  (20,105)  (10)%
Total revenue

20,684,974


13,898,968
  6,786,006  49%
 







        
Cost of revenue

8,119,487


6,355,825
  1,763,662  28%
Gross profit

12,565,487


7,543,143
  5,022,344  67%
 







        
Operating Expenses







        
Product development

6,271,966


5,129,814
  1,142,152  22%
Sales and marketing

9,108,173


8,085,897


1,022,276

13%
General and administrative

10,422,207


11,018,356
  (596,149)  (5)%
Depreciation and amortization

5,735,150


3,223,844
  2,511,306  78% 
Impairment of long-lived assets

14,383,310


6,887,000


7,496,310

109%
Total operating expenses

45,920,806


34,344,911
  11,575,895  34%
 







        
Loss from operations
$(33,355,319)
$(26,801,768) $(6,553,551)  24%

nm – percentage change not meaningful


  For the Years Ended
December 31,		  Change 
  2023  2022  Period over period 
Revenue            
Software $6,787,285  $9,748,268  $(2,960,983)  (30)%
Consulting  39,750   682,309   (642,559)  (94)%
Other revenue  9,409   27,593   (18,184)  (66)%
Total revenue  6,836,444   10,458,170   (3,621,726)  (35)%
                 
Cost of revenue  3,401,441   4,911,503   (1,510,062)  (31)%
Gross profit  3,435,003   5,546,667   (2,111,664)  (38)%
Gross profit margin  50%  53%        
                 
Operating expenses                
Product development  2,335,609   4,088,294   (1,752,685)  (43)%
Sales and marketing  2,293,767   5,572,721   (3,278,954)  (59)%
General and administrative  5,677,485   8,018,255   (2,340,770)  (29)%
Depreciation and amortization  27,191   4,421,995   (4,394,804)  (99)%
Impairment of long-lived assets  —   26,528,630   (26,528,630)  (100)%
Total operating expenses  10,334,052   48,629,895   (38,295,843)  (79)%
                 
Loss from operations $(6,899,049) $(43,083,228) $36,184,179   (84)%
35


Revenue

Software Revenue

Total Revenue


Totalsoftware revenue increaseddeclined to $20.7$6.8 million for the year ended December 31, 20212023 from $13.9$9.7 million for the year ended December 31, 2020, an increase2022, for a decrease of $6.8$3.0 million, or 49%. The increase in30 percent. Software revenue accounted for 99 percent and 93 percent of total revenue in 2023 and 2022, respectively. The decline was driven primarily by growthattributable to the abandonment of the Trellis, Solo and Viridian business units resulting in a loss of $1.4 million of revenues (ii) customer churn of $0.8 million during 2023 in our softwareMJ Platform service offerings and (iii) lower continuing Leaf Data System revenues, fewer change requests attributable to our two state clients as well as the transition of a key client’s business from implementation fees to traditional subscription service from 2023 to 2022 for a combined decline of $$0.8 million.7.0 million, or 59% compared to the prior period.

 The growth in software was offset by a decline in

Consulting Revenue

Our consulting revenue of $0.2 million, or 13%, primarily a result of government shut-down related to COVID-19 as discussed below.


Software Revenue

Total software revenue increased to $19.0was less than $0.1 million for the year ended December 31, 2021 from $12.02023 compared to $0.7 million for the year ended December 31, 2020, for an increase of $7.0 million, or 59%. Software revenue related to our enterprise offering, Viridian and 365 Cannabis, during the year ended December 31, 2021, were $4.8 million compared to $0 in the prior year and software revenue related to our non-enterprise offerings, which include MJ Platform, Ample, Trellis, Solo, and Leaf Data Systems, for the year ended December 31, 2021, were $12.8 million compared to $11.6 million in the prior year. There was also in an increase in partnership and data revenue which was $1.4 million for the year ended December 31, 2021, compared to $0.4 million for the same period in the prior year. Software revenue accounted for 92% and 86% of total revenue in 2021 and 2020, respectively. As indicated above, the increase in software revenue for the year ended December 31, 2021 was primarily attributable to our acquisitions of Ample, Viridian, and 365 Cannabis.


Consulting Revenue

Consulting revenue includes revenue generated from consulting services delivered to prospective and current cannabis, hemp and CBD businesses and business operators. Our consulting revenue was $1.5 million for the year ended December 31, 2021 compared to $1.7 million for the year ended December 31, 2020,2022, a decrease of $0.2$0.6 million, or 13%.94 percent. Consulting revenue was 7%1 percent and 13%7 percent of total revenue for 20212023 and 2020,2022, respectively. Due toIn anticipation of the nature ofSale Transaction and the Merger, we had de-emphasized our consulting revenue, our dependence on emerging market activity as well as the ongoing pandemic as a driver of demand, the percentage of consulting revenue over total revenue has varied from period to period depending on whether state legislation has expanded to allow new market entrants or growth of existing market participant operations.services during 2023. 

 

Other Revenue

 

Other revenue includes retail/resale revenue, which was generated from point-of-sale hardware.hardware and other non-recurring revenues. Other revenue was $0.2less than $0.1 million for each of the years ended December 31, 20212023 and 20202022 and was approximately 1%less than one percent of total revenue for each of the years ended December 31, 20212023 and 2020.2022, respectively.

 


Cost of Revenue 

  

Cost of revenue increaseddecreased to $8.1$3.4 million for the year ended December 31, 20212023 from $6.3$4.9 million for the year ended December 31, 2020,2022, for an increasea decrease of $1.8$1.5 million, or 28%. Total cost of revenue increased31 percent. The decrease was due primarily as a result of our acquisitions of Ample, Viridian, and 365 Cannabis,to the specific drivers being an increase infollowing (i) lower hosting expenses, by $1.6platform license costs and software applications of $0.8 million during 2023 and fees for SAP(ii) lower compensation-related and Microsoft licensescontractor and consulting costs of $1.3 million in the amount of $0.5 million.2023. These increases from acquisitions weredecreases partially offset by net savingsthe effects of $0.6the capitalization of $0.2 million of certain software development costs in Leaf Data Systems contractor costs during the year ended December 31, 2021 compared2022 while none were capitalized in 2023 and $0.4 million related to the year ended December 31, 2020.reversal of a legal settlement during 2022.

 

Gross Profit

 

Gross profit increaseddecreased to $12.6$3.4 million for the year ended December 31, 20212023 from $7.5$5.5 million for the year ended December 31, 2020,2022, for an increasea decrease of $5.0$2.1 million, or 67%.38 percent. Gross margin increaseddecreased to 61%50 percent for the year ended December 31, 20212023 from 54%53 percent for the year ended December 31, 2020.2022. This improvementdecline in gross profit was due primarily to the decline in revenue and slightly higher margin was primarily due to operating synergies realizedrevenues from our acquired assets, our ongoing initiatives to drive operating effectiveness and acquiring additional B2B customers, which have a higher gross margin. 


the loss of Viridian revenues.

36


Operating Expenses


Product Development


Product development expense increaseddecreased to $6.3 million $2.3 million for the year ended December 31, 20212023 from $5.1$4.1 million for the year ended December 31, 2020,2022, for an increasea decrease of $1.2 $1.8 million, or 22%. Product development expense increased43 percent. The decrease was due primarily dueto (i) lower compensation-related and contractor expenses of $1.8 million during 2023, (ii) lower stock-based compensation costs of $0.3 million during 2023 and (iii) $0.1 million of lower software application costs during 2023. These declines were primarily attributable to the acquisitionseffects of Ample, Viridian, and 365 Cannabisa corporate restructuring initiative (the “Restructuring”) completed during 2022 which reduced our overall headcount. The Restructuring resulted in a $1.4reduction of our workforce by 59 employees, or approximately 33 percent of the Company’s headcount at that time. The Restructuring resulted in $0.2 million increaseof direct costs attributable to Product development during 2022. These declines were partially offset by the capitalization of software development costs of $0.6 million during 2022 while no such costs were capitalized in salary-related expenses2023. 

Sales and a $0.3Marketing

Sales and marketing expense decreased to $2.3 million increase in stock compensation expense for the year ended December 31, 2021 compared to year ended December 31, 2020. These increases were partially offset by savings on contractor expenses in the amount of $0.72023 from $5.6 million.


Sales and Marketing


Sales and marketing expense increased to $9.1 millionfor the year ended December 31, 2021 from $8.1 million 2022, for the year ended December 31, 2020, for an increasea decrease of $1.0$3.3 million or 13%.59 percent. The increasedecline was due primarily to (i) lower compensation-related and contractor expenses of $2.6 million in sales2023, (ii) lower trade show and related promotional expenses of $0.2 million during 2023, (iii) lower software applications costs of $0.3 million during 2023 and (iv) lower public relations and media costs of $0.1 million during 2023. These declines were primarily attributable to the effects of the Restructuring in 2022 which reduced our overall headcount and related employee support costs. The Restructuring resulted in $0.2 million of direct costs attributable to Sales and marketing expense is primarily related to the acquisitions of Ample, Viridian, and 365 Cannabis which resulted in an increase of $1.0 million in salary-related expenses and aduring 2022. These declines were partially offset by $0.1 million increase in stockof higher stock-based compensation expense for the year ended December 31, 2021 compared to year ended December 31, 2020. These increases were slightly offset by a reduction in external marketing consulting costs as we moved more of our marketing initiatives in house. during 2023.


General and Administrative


General and administrative expense decreased to $10.4 million for the year ended December 31, 2021 from $11.0 million for the year ended December 31, 2020, for a decrease of $0.6 million, or 5%. This decrease was primarily related to a reduction in acquisition-related expenses of $2.9 million, as we completed two acquisitions, Viridian and 365 Cannabis, during the year ended December 31, 2021 compared to three acquisitions, Solo, Trellis, and Ample, during 2020. There was also a decrease of $0.6 million in rental expenses related to the termination of our office spaces in Denver in December 2020 and Toronto in June 2021, a decrease in financing fees of $0.9 million, and a decrease of $0.3 million in salary-related expenses as a direct result of cost-saving measures placed into service during 2020. Partially offsetting these decreases is a $1.9 million increase in restructuring charges during 2021 attributable to a lease settlement agreement for relinquishing office space in Toronto and the related write off of leasehold improvements associated with the lease termination, as well as an increase of $0.6 million for legal, audit, tax and other professional service fees as our business has continued to grow. We also had a $2.0 million change in fair value of contingent consideration during the year ended December 31, 2020 related to the 2020 acquisitions.


Depreciation and Amortization


Depreciation and amortization expense increased to $5.7 million for the year ended December 31, 20212023 from $3.2$8.0 million for the year ended December 31, 2020. The increase in2022, for a decrease of $2.3 million, or 29 percent. This decrease was due primarily to the following: (i) lower overall compensation-related and contractor costs of $0.8 million during the 2023 period attributable to lower overall headcount as well as lower stock-based and performance-based incentive compensation, (ii) lower recurring professional fees of $0.9 million during the 2023 period, (iii) lower occupancy and support costs of $0.1 million during the 2023 period as we operated on a 100 percent remote basis, (iv) lower software application costs of $0.3 million during 2023, (v) lower credit loss charges of $0.4 million during 2023, (vi) lower franchise and sale and use taxes of $0.1 million during 2023, (vii) the receipt of a partial employer retention tax credit of $0.2 million during 2023 and (viii) the reversal of a contingency for rent of $0.5 million attributable to a prior office lease. These declines were partially offset by $1.1 million of higher professional fees and related costs associated with strategic initiatives transaction, particularly the Sales Transaction and the Merger, as well as $0.1 million of restructuring charges during 2023.

Depreciation and Amortization

Depreciation and amortization expense is entirely relateddecreased to the acquired intangible assets from our acquisitions completed in calendar year 2021 and 2020.


Impairment of long-lived assets


Due to a continued decline in market conditions and declines in the operating results of our non-enterprise reporting unit, we recorded an impairment charge of $14.4less than $0.1 million duringfor the year ended December 31, 2021. During2023 from $4.4 million for the year ended December 31, 2020, we recorded a $6.9 million impairment charges (see Note 6 – Goodwill and Intangible Assets, Net to the consolidated financial statements for further discussion on the impairments recorded).


37

Results of Operations for the Six Months Ended December 31, 2020 (audited) compared with the Six Months Ended December 31, 2019 (unaudited) 


2022. The following table highlights the various sources of revenues and operating expenses for the six months ended December 31, 2020 as compared to the six months ended December 31, 2019:

 
Six Months Ended December 31,

 Change
Period over period
 
 

2020



2019 

(unaudited)


  
Revenue





     
Software
$6,766,985

$4,802,654
 $1,964,331  41%
Consulting

916,099


1,556,363
  (640,264) (41)%
Other revenue

141,700


140,076
  1,624 1%
Total revenue

7,824,784


6,499,093
  1,325,691  20%
 







       
Cost of revenue

3,141,041


2,994,940
  146,101  5%
Gross profit

4,683,743


3,504,153
  1,179,590  34%
 







       
Operating Expenses







       
Product development

3,166,088


1,234,403
  1,931,685 156%
Sales and marketing

3,928,028


3,725,012


203,016

5%
General and administrative

4,435,067


4,655,207
  (220,140) (5)%
Depreciation and amortization

2,007,237


104,667
  1,902,570  nm 
Impairment of long-lived assets

6,887,000


—


6,887,000

nm
Total operating expenses

20,423,420


9,719,289
  10,704,131  nm
 







       
Loss from operations
$(15,739,677)
$(6,215,136) $(9,524,541) 153%

nm – percentage change not meaningful


Total Revenue


Total revenue increased to $7.8 million for the six months ended December 31, 2020 from $6.5 million for the six months ended December 31, 2019, an increase of $1.3 million, or 20%. The increase in total revenue was driven primarily by growth in our software business of $2.0 million, or 41% compared to the prior period. The growth in software was offset by a decline in consulting revenue of $0.6 million, or 41%, primarily a result of government shut-down related to COVID-19 as discussed below.


Software Revenue

Total software revenue increased to $6.8 million for the six months ended December 31, 2020 from $4.8 million for the six months ended December 31, 2019, for an increase of $2.0 million, or 41%. Total software revenue increased $2.8 million primarily as a result of the acquisition of Ample, Trellis and Solo, offset by a decline in government revenue of $0.4 million, primarily as a result of these contracts maturing to a run-and-maintain mode, and a decline in other software revenue of $0.4 million. Total software revenue accounted for 86% and 74% of total revenue for the six months ended December 31, 2020, and 2019, respectively.

Consulting Revenue

Consulting revenue includes revenue generated from consulting services delivered to prospective and current cannabis, hemp and CBD businesses and business operators. Our consulting revenue was $0.9 million for the six months ended December 31, 2020 compared to $1.6 million for the six months ended December 31, 2019, a decrease of $0.6 million, or 41%. This decrease is mainly due to the impact of COVID-19. Consulting services are also correlated to state legalizations and other regulatory expansion activity. As a result, individual year-over-year comparisons may experience variability depending on the timing of recent legislative changes. During the COVID-19 pandemic and resulting shut-down, state legislatures have turned their focus to the pandemic and tabled work on cannabis legislation, which resulted in delays in our providing consulting services during the six months ended December 31, 2020. However, many state ballot initiatives were passed in the November 2020 election that provides for new medical or adult-use marijuana. We expect, despite the slowing of our consulting activity experienced during the pandemic, we will see increased demand for our services following the November 2020 election. As a sign consulting revenue is starting to rebound from the impacts of the COVID-19 pandemic, consulting revenue increased to $0.6 million for the three months ended December 31, 2020 from $0.3 million for the three months ended September 30, 2020, an increase of $0.3 million, or 100%.


38


Consulting revenue was 12% and 24% of total revenue for the six months ended December 31, 2020 and 2019, respectively. Due to the nature of consulting revenue and our dependence on emerging market activity as well as the ongoing pandemic as a driver of demand, the quarters in which we recognize consulting revenue has varied from year to year depending on whether state legislation has expanded to allow new market entrants or growth of existing market participant operations.

Other Revenue

Other revenue includes retail/resale revenue, which was generated from point-of-sale hardware. Other revenue was $0.1 million for the six months ended December 31, 2020 and $0.1 million for the six months ended December 31, 2019. Other revenue was 2.0% and 2% of total revenue for the six months ended December 31, 2020 and 2019.

Cost of Revenue 

Cost of revenue increased to $3.1 million for the six months ended December 31, 2020 from $3 million for the six months ended December 31, 2019, for an increase of $0.1 million, or 5%. Total cost of revenue increased $0.4 million as a result of the acquisition of Ample, Trellis and Solo, offset by a decline in professional services costs of $0.3 million due to declining use of third-party consulting firms for our government solution as a result of these contracts maturing to a run-and-maintain mode.


Gross Profit

Gross profit increased to $4.7 million for the six months ended December 31, 2020 from $3.5 million for the six months ended December 31, 2019, for an increase of $1.2 million, or 34%. Gross margin increased to 60% for the six months ended December 31, 2020 from 54% for the six months ended December 31, 2019. Total gross profit increased $2.6 million as a result of the acquisition of Ample, Trellis and Solo, offset by the decline in consulting revenue of $0.6 million, a decline government revenue of $0.4 million, primarily as a result of these contracts maturing to a run-and-maintain mode and a decline in other software revenue of $0.4 million.


Operating Expenses


Product Development


Product development expense increased to $3.2 million for the six months ended December 31, 2020 from $1.2 million for the six months ended December 31, 2019, for an increase of $1.9 million, or 156%. The increase was due primarily to $1.3 millionthe full impairment of capitalized software attributable to MJF and the intangible assets attributable to Trellis, Solo and Viridian during 2022. 

Impairment of long-lived assets

During 2022, we determined that, in employee-related costs from higher headcount and other operating cost related to acquisitions. Stock compensation expense increased $0.4 million compared to the prior period. Software costs increased $0.3 million primarily a result of additional investment in information technology security and reporting tools and software hosting costs, including data infrastructure.


Sales and Marketing


Sales and marketing expense increased to $3.9 million for the six months ended December 31, 2020 from $3.7 million for the six months ended December 31, 2019, for an increase of $0.2 million or 5%. Total sales and marketing expense increased $0.8 million as a result of the acquisition of Ample, Trellis and Solo, offset by a decline other sales and marketing expense of $0.6 million primarily a result of decreased travel costs and a reduction in customer event spend due primarily to cancelling all in-person customer activities and events as a result of the COVID-19 pandemic.


General and Administrative


General and administrative expense decreased to $4.4 million for the six months ended December 31, 2020 from $4.7 million for the six months ended December 31, 2019, for a decrease of $0.2 million, or 5%. Total general and administrative expense increased $0.6 million as a result of the acquisition of Ample, Trellis and Solo. Bad debt expense decreased $0.6 million during the six months ended December 31, 2020, as compared to the six months ended December 31, 2019, due to our improvement in the overall qualityconsideration of our revenue and client portfolio, andshifts in strategy, the enhancementcarrying value of all of our salesnoncurrent assets, including capitalized software, intangible assets and marketing team which has resulted in a steady decline in the number and amount of delinquent accounts. We recorded a benefit of $1.0 million to reflect the estimated fair value of contingent consideration paid for our acquisition of Trellis and Ample. During 2020, we vacated certain leased offices in the U.S. following the dislocation of our workforce because of the COVID-19 pandemic. As a result,goodwill was not recoverable with its undiscounted cash flows during their remaining useful lives. Accordingly, we recorded a restructuring charge of $0.4$26.5 million which was recorded in general and administrative expenses. Stock compensation expenses increased $0.3 million for the six months ended December 31, 2020, as compared to the six months ended December 31, 2019


Depreciation and Amortizationfully impair these assets.


Depreciation and amortization expense increased to $2.0 million for the six months ended December 31, 2020 from $0.1 million for the six months ended December 31, 2019. Amortization expense increased entirely as a result of acquired intangible assets from our acquisitions completed in calendar 2020.


39

Impairment of long-lived assets



As a result of delays in executing on strategic initiatives related to acquisitions completed in calendar 2020 we recorded a $6.9 million impairment adjustment during the six months ended December 31, 2020. There were no similar charges during the six months ended December 31, 2019. A goodwill impairment charge of $4.2 million was recorded related to our Ample reporting unit and an intangible asset charge of $2.7 million was recorded for intangible assets acquired from our Solo transaction (see Note 6 – Goodwill and Intangible Assets, Net to the consolidated financial statements for further discussion on the impairments recorded).


Non-GAAP Financial Measures


In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP.


Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. Other companies, including companies in our industry, may calculate similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison.We attempt to compensate for these limitations by providing specific information regarding the GAAP items excluded from these non-GAAP financial measures.


Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures with their most directly comparable GAAP financial measures and not rely on any single financial measure to evaluate our business.


EBITDA and Adjusted EBITDA


We believe that EBITDA and Adjusted EBITDA, when considered with the consolidated financial statements determined in accordance with GAAP, are helpful to investors in understanding our performance and allows for comparison of our performance and credit strength to our peers. EBITDA and Adjusted EBITDA should not be considered alternatives to net loss as determined in accordance with GAAP as indicators of our performance or liquidity.


We define EBITDA as net loss before loss from discontinued operations, net of tax, interest income and expense, net, changes in fair value of convertible notes, changes in fair value of derivative liabilities,liability, provision for income taxes, and depreciation and amortization. We calculate Adjusted EBITDA as EBITDA further adjusted to exclude the effects of the following items for the reasons set forth below:



●impairment of long-lived assets, as this is a non-cash, non-recurring item, which effects the comparability of results of operations and liquidityliquidity;;


●
stock-based compensation expense, as this represents a non-cash charge and our mix of cash and share-basedstock-based compensation may differ from other companies, which effectsaffects the comparability of results of operations and liquidity;


●costs incurred in connection with business combinationsstrategic initiative transactions, including the Sale Transaction, the Merger and mergersthe associated dispositions, that are required to be expensed as incurred in accordance with GAAP, because business combination and merger relatedsuch costs are specific to the complexity and size of the underlying transactions as well as the frequency of our acquisition activity these costsand are not reflective of our ongoing operations;


●costs incurred in connection with non-recurring financing activities and related transactions, including a reverse stock split during 2022 as well as fees incurred as a direct result of electing the fair value option to account for our debt instruments;


●restructuring charges, which includeincludes severance costs associated with the Restructuring to terminate a leaseemployees in functions that have been eliminated and the related writeoff of leasehold improvementscosts and furniture,credits associated with terminated leases, among others as we believe these costsitems are not representative of operating performance;


●gainloss on forgivenesssale of PPP loan, as this is a one-time forgiveness of debtan equity investment that iswas not recurring across all periods and we believe inclusion of the gainloss is not representative of operating performance;

●

equity in losses of investees because our share of the operations of investees is not representative of our own operating performance and may not be monetized for a number of years; 


●and changes in the fair value of contingent consideration because these adjustments are not recurring across all periods and we believe these costs are not representative of operating performance.

●other non-operating expenses which includes a one-time gain on debt extinguishment and one-time loss on disposal of fixed assets, which effects the comparability of results of operations and liquidity;



40


The reconciliation of net loss to EBITDA and Adjusted EBITDA is as follows:




Year Ended December 31,
Six Months Ended December 31,
 Year Ended December 31, 


2021
2020

 

2020

2019

 2023  2022 



(unaudited)

(unaudited)

(unaudited)


(unaudited)
 (unaudited) (unaudited) 

Net Loss


$(31,328,711)
$(26,888,791)

 

$(16,219,296)
$(3,757,952)









 








Interest expense (income)

1,531,497



161,646

193,084


(125,239)
Net loss $(11,578,169) $(79,057,610)
Loss from discontinued operations, net of tax  2,975,500   32,779,739 
Interest expense, net  1,130,343   853,566 

Change in fair value of convertible notes



1,365,904

195,273

 


961,273

—  370,457   2,884,273 
Change in fair value of derivative liability

(248,198)

(376,811)

((746,852))

(2,332,075)  —   (63,178)

Income tax expense (benefit)



(2,262,225)

31,185

 


200


104,667
Income tax benefit  —   (701,119)

Depreciation and amortization



5,735,150

3,223,844

 


2,007,237


—
  27,190   4,421,995 

EBITDA


$(25,206,583)
$(23,653,654)

 

$(13,804,354)
$(6,110,599) $(7,074,679) $(38,882,334)
















Impairment of long-lived assets

14,383,310

6,887,000

6,887,000


—
  —   26,528,630 

Stock-based compensation expense



1,967,817

1,871,069

 


1,197,589


492,650
  374,069   844,766 

Business combination and merger related costs



449,940

3,339,864

 


1,094,503


733,867
Strategic transaction and merger related costs  1,904,150   5,081 

Non-recurring financing fees



458,691

1,316,984

 


139,594


—
  —   583,482 
Restructuring charges

2,419,908

490,146


490,146


—  (501,109)  503,895 
Changes in fair value of contingent consideration

—

(1,991,000)

(993,000)

—

Gain on forgiveness of PPP loan

(2,234,730)

—

—


—
Equity in losses of investee

7,564

16,335

12,643


—
Other non-operating expense (income)

(186,177)

59,397

59,271


130
Loss on sale of investment  —   221,101 

Adjusted EBITDA


$(7,940,260)
$(11,663,859)

 

$(4,916,608)
$(4,883,952) $(5,297,569) $(10,195,379)


Going Concern and Management'sManagement’s Liquidity Plans

 

In accordance with the Financial Accounting Standards Board’s (“FASB”) standard on going concern, Accounting Standard Update, or ASU No. 2014-15, The Company assessesCodification (“ASC”) 205-40, Going Concern (“ASC 205-40”), we assess going concern uncertainty in itsour consolidated financial statements to determine if it haswe have sufficient cash, cash equivalents and working capital on hand, including marketable equity securities, and any available borrowings on loans, to operate for a period of at least one year from the date the consolidated financial statements are issued, which is referred to as the “look-forward period” as defined by ASU No. 2014-15.ASC 205-40. As part of this assessment, based on conditions that are known and reasonably knowable to The Company, itus, we will consider various scenarios, forecasts, projections, estimates and will make certain key assumptions, including the timing and nature of projected cash expenditures or programs, and itsour ability to delay or curtail expenditures or programs, if necessary, among other factors. Based on this assessment, as necessary or applicable, The Company makeswe make certain assumptions aroundregarding implementing curtailments or delays in the nature and timing of programs and expenditures to the extent The Company deemswe deem probable thosethat such implementations can be achieved and it haswe have the proper authority to execute them within the look-forward period in accordance with ASU No. 2014-15.ASC 205-40.


The accompanying consolidated financial statements have been prepared on the basis that weAkerna will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. However, since our inception in 2019 we have incurred recurring operating losses from operations, used cash from operations,operating activities and relied on capital raising transactionsactivities to continue ongoing operations. During the year ended December 31, 2021, six months ended December 31, 2020, and year ended June 30, 2020, we incurred a loss from operations of $33.4 million, $15.7 million, and $17.3 million, respectively, and used cash in operations of $8.2 million, $8.7 million, and $14.3 million, respectively. At December 31, 2021, the Company had a working capital deficit of $10.9 million with $13.9 million in cash available to fund future operations. TheseCollectively, these factors raise substantial doubt as defined by GAAP, about theregarding our ability of the Company to continue to operate as a going concern for the twelve months followingfrom the issuance of thesedate our consolidated financial statements. Thesestatements were issued in the absence of a significant capital transaction. The accompanying consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the CompanyAkerna be unable to continue as a going concern.



41


On July 23, 2021, we entered into an Equity Distribution AgreementIn connection with Oppenheimer & Co. Inc. and A.G.P./Alliance Global Partners ("ATM Program"). Pursuant to the termsclosing of the ATM Program, we may offerSale Transaction and sell from time to time, up to $25 millionMerger, substantially all of sharesthe assets and liabilities of the legacy Akerna business were disposed of such that after February 8, 2024, our common stock. Asassets and liabilities and capital structure reflected those of December 31,Gryphon immediately after the closing of those transactions. Since Gryphon began revenue generation in September 2021, we have raised gross proceeds of $1.9 millionmanagement has financed its operations through the issuance of 556,388 shares through the ATM program. While no assurance can be provided that we will be able to raise further capital under the program, we intend to use the net proceeds fromequity and debt financing and the sale of our shares of common stock,the digital assets earned through mining operations. Gryphon may incur additional losses from operations and negative cash outflows from operations in the foreseeable future. In the event Gryphon continues to incur losses, it may need to raise debt or equity financing to finance its operations until operations are cashflow positive. However, there can be no assurance that such financing will be available in sufficient amounts and on acceptable terms, when and if any, for general corporate purposes, including working capital, marketing, product development, capital expendituresneeded, or at all. The precise amount and merger and acquisition activities.


On October 5, 2021, we entered into a securities purchase agreement with the two institutional investors that held the Company's convertible notes issued in June of 2020 (the "2020 Notes") to sell senior secured notes in a private placement (the "Senior Convertible Notes"). The Senior Convertible Notes have an aggregate principal amount of $20 million, an aggregate original issue discount of 10%, and rank senior to all our other outstanding and future indebtedness. Approximately $3.3 milliontiming of the proceeds fromfunding needs cannot be determined accurately at this time and will depend on several factors, including the Senior Convertible Notes were used to payoff the 2020 Notes, which were then to be cancelled. The net proceeds from the issuance of the Senior Convertible Notes was approximately $14.6 million, following the original issue discount and deductions for expenses and paydown of the 2020 Notes. These net proceeds will be used to support Akerna's ongoing growth initiatives and continued investment in current and future technology infrastructure. The Senior Convertible Notes are convertible into shares of common stock of Akerna at a conversionmarket price of $4.05 per share. The Senior Convertible Notes mature on October 5, 2024 and are to be repaid in monthly installments beginning on January 1, 2022. The Senior Convertible Notes can be repaid in common shares or cash.


Management’s plan for the Company to continue as a going concern includes raising additional capital from our ATM program, subject to certain effects on the Senior Convertible Notes should we utilize the program, including resetting the conversion price of the Senior Convertible Notes should we raise more than $5 million under the ATM program, settling our contingent consideration and Senior Convertible Notes in common stock rather than cash as it comes due, and implementing certain cost cutting strategies throughout the organization, while continuing to seek to grow our customer base and realize synergies as we continue to integrate our recent acquisitions. Ifunderlying commodity mined by the Company is unable to raise sufficient additional funds through the ATM Program, it will have to develop and implement a plan to extend payables, reduce expenditures, or scale back our business plan until sufficient additional capital is raised through other equity or debt offerings to support further operations. Such offerings may include the issuance of shares of common stock, warrants to purchase common stock, preferred stock, convertible debt or other instruments that may dilute our current stockholders.


The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplishprocure the required mining equipment and operate profitably. The aforementioned factors indicate that management’s plans described indo not alleviate the preceding paragraph and eventually secure other sources of financing and attain profitable operations. We will require additional financing in the second quarter of 2022 to meet our ongoing operational working capital requirements and continue to meet the financial covenants of the Senior Convertible Notes. As noted above, we plan to meet those requirements in part through the use of our ATM Facility, but there are no guarantees that the ATM Facility will permit us to raise sufficient cash to meet our ongoing requirements.These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of the consolidatedthese financial statements. If we are unable to raise sufficient capital we may have to reduce operations which could significantly affect our results of operations.If we fail to meet the financial covenants of the Senior Convertible Notes and cannot obtain a waiver from such provisions or otherwise come to an agreement with the holders of our debt, such holders may declare a default on the debt which could subject our assets to seizure and sale, negatively impacting our business. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and liabilities that might be necessary if the Company is unable to continue as a going concern.


Our corporate liquidity requirements primarily include payroll costs and corporate general and administrative expenses and our current sources of corporate liquidity include the cash on hand from our Senior Convertible Notes as well as the proceeds we anticipate from the access to our ATM Program.  


42


Cash Flows

 


Cash Flows

 

Our cash and restricted cash balance was $14.4 million and $18.3$0.8 million, as of December 31,, 2021 and 2020, respectively. 2023. Cash flow information areis as follows:

 

 Year Ended December 31, 


Year ended December 31, 2021

Six months ended December 31, 2020


 2023  2022 

Cash provided by (used in):






     






Operating activities


$(8,167,904)
$(8,705,738) $(5,888,352) $(10,900,729)

Investing activities


(10,485,085)

(7,139,047)  1,237,362   (3,972,144)

Financing activities


14,736,252


9,532,380
  (2,767,405)  8,635,827 
Effect of change in exchange rates on cash and restricted cash

18,623

(2,783)  3,601   (22,225)
Net decrease in cash and restricted cash
$(3,898,114)
$
(6,315,188) $(7,414,794) $(6,259,271)

 

Operating Activities


Our largest source of operating cash is cashwas collections from our customers for subscriptions to our products.products and related services. Our primary usesuse of cash in operating activities arewas for compensation and employee-related expenditures,expenses, marketing expenses and third-party hosting costs. Net cash used in operating activities iswas impacted by our net loss adjusted for certain non-cash items, including depreciation and amortization expenses, changeimpairments of long-lived assets, changes in the fair value of convertible notes, and derivative liabilities and contingent consideration obligations, stock-based compensation and deferred income taxes, among other non-cash items as well as the effect of changes in operating assets and liabilities. 


Net cash used in operating activities totaled $8.2decreased by $5.0 million to $5.9 million during the year ended December 31, 2021 and $8.72023 from $10.9 million during the six months ended December 31, 2020. For the year ended December 31, 2021,2022. The decrease in the use of cash from operating activities during 2023 as compared to 2022 was consumed from operations by a net lossdue primarily to the sale of $31.3 million, less non-cash items365 Cannabis, LCA and Ample and the abandonment of $24.0 millionSolo, Trellis and a net changeViridian during 2023 as well as the impact of the Restructuring in assets2022 which resulted the payment of severance benefits in 2022, but lower overall compensation and liabilitiesemployee-related costs in the second half of $0.8 million. For the six months ended December 31, 2020, cash was consumed from operations by a net loss of $16.2 million, less non-cash items of $9.7 million2022 and a net change in assets and liabilities of $2.2 million. 


Investing Activitiesthroughout 2023.

 

Investing Activities

Our primary investing activities have historically consisted of the capitalization of internal-use software necessary to deliver significant new features and functionality in our platformplatforms which providesprovide value to our customers. As our business grows, we expect our capital expenditures to continue to increase. Other investing activities include cash outflows related to purchases of property and equipment, and from time-to-time, the cash paid for assetacquisitions or received from the sale of business units and business acquisitions.investments.


Net cash used in investing activities totaled $10.5decreased $5.2 million to a source of $1.2 million during the year ended December 31, 2021, as2023 from a resultuse of net cash paid as consideration for the 365 Cannabis acquisition and amounts invested in the development of our software products. Net cash used by investing activities$4.0 million during the six monthsyear ended December 31, 2020 was $7.12022. The decrease is due primarily to the (i) net cash received from the sales of  365 Cannabis ($0.5 million), LCA ($0.1 million) and Ample ($0.6 million) acquisition during 2023 and (ii) payments for $4.3 million as a result of amounts  invested in the development of our software products in the 2022 period while no amounts were paid during 2023. In addition, the use of cash in the 2022 period was partially offset by a return of $0.4 million of cash attributable to working capital from the 365 Cannabis acquisition and nominal proceeds from the net cash paid as consideration for the acquisitionsale of Ample.
an equity investment.


Financing Activities


Our financing activities have consisted primarily of proceeds from issuance of our common stock,Common Stock and warrants, issuances of convertibleand repayments attributable to long-term debt and proceedsthe value of shares withheld from the exercisevesting of warrants.certain stock-based compensation awards.

 

Net cash provided by financing activities totaled $14.7 million duringDuring the year ended December 31, 2021 and represents cash2023, we made principal payments of $4.9 million on the Senior Convertible Notes. These payments were partially offset by proceeds of $18.0$0.5 million from the issuance of convertible debt in October 2021, proceeds from our ATM program in the amount of $1.8one million partially offset by the value of shares withhold for tax withholdings and payments on our convertible debt in the amount of $0.5 million and $4.6 million, respectively. Net cash provided by financing activities was $9.5 million for the six months ended December 31, 2020, of which $12 million was related to the common stock offering that closed on October 30, 2020, partially offset by $1.5 millionin payments on our financing obligations and $1.0 million of offering costs from issuing common stock.


43


ATM Program


On July 23, 2021, we entered into an Equity Distribution Agreement with Oppenheimer & Co. Inc. and A.G.P./Alliance Global Partners (the "ATM Program"). Pursuant to the terms of the Agreement, we may offer and sell from time to time, up to $25 million of shares of our common stock. As of December 31, 2021, we have raised gross proceeds of $1.9 million through the issuance of 556,388 shares through the ATM program.


Senior Secured Convertible Notes Issuance


On October 5, 2021, we entered into a Securities Purchase Agreement ("SPA") with the two institutional investors that held the Company's convertible notes issued on June 8, 2020 (the "2020 Notes") to sell a new series of senior secured notesCommon Stock in a private placement (the "Senior Convertible Notes"). The Senior Convertible Notes have an aggregate principal amountoffering and a combined total of $20,000,000, an aggregate original issue discount of 10%, and rank senior to all our other outstanding and future indebtedness. Approximately $3.3$1.650 million of thein proceeds from MJ Acquisition in connection with the Senior Convertible Notes were used to payoffAmended and Restated Secured Promissory Note. During the 2020 Notes, which were then to be cancelled. Theyear ended December 31, 2022, we received net proceeds of $9.2 million from a unit offering of 2,173,913 shares of Common Stock and warrants and $1.9 million from the issuance of the Senior Convertible Notes was approximately $14.6 million, following the original issue discount and deductions for expenses and paydown of the 2020 Notes. These net proceeds will be used to support Akerna's ongoing growth initiatives and continued investment in current and future technology infrastructure. The Senior Convertible Notes are convertible into642,956 shares of common stock of Akerna at a conversion price of $4.05 per share. The Senior Convertible Notes can be repaid in common shares or cash.

Maturity and Repayment Dates

The Senior Convertible Notes mature on October 5, 2024, or the Maturity Date. The principal amount is payable in monthly installments beginning on January 1, 2022. Unless deferredCommon Stock through our at-the-market offering programs which was partially offset by the holder, on installment dates from January 1, 2022 through, and including, June 1, 2023, $1.1$1.4 million in principal amount will be payable and on installment date July 1, 2023, $0.2 million in principal amount will be payable. With respect to installment dates from August 1, 2023 through and including the maturity date of October 5, 2024, any deferred payments from prior installment dates will be payable. We may not prepay any portion of the principal amount nor interest, if any.

Interest

The Senior Convertible Notes are being sold with an original issue discount and do not bear interest except upon the occurrence of an Event of Default (described below), in which event the applicable rate will be 15.0% per annum. 

Conversion 

The Senior Convertible Notes are convertible at any time in whole or in part, at the option of the Note Holders, into shares of the common stock at a rate equal to the amount of principal interest (if any) and unpaid late charges (if any), divided by a conversion price of $4.05, or the Conversion Price. The Conversion Price is subject to standard adjustments in the event of any stock split, stock dividend, stock combination, recapitalization or other similar transaction.

In connection with the occurrence of Events of Default, the Note Holders will be entitled to convert all or any portion of the Senior Convertible Notes at an alternate conversion price equal to the lower of (i) the conversion price then in effect, and (ii) 80% of the lower of (x) the volume-weighted average price, or VWAP, of the common stock as of the trading day immediately preceding the applicable date of determination and (y) the quotient of (A) the sum of the VWAP of the common stock for each of the two trading days with the lowest VWAP of the common stock during the ten consecutive trading day period endingpayments on and including the trading day immediately prior to the applicable date of determination, divided by (B) two, but not less than the floor price of $0.54.


Events of Default

The Senior Convertible Notes are subject to certain customary events of default, see Item 1A. “Risk Factors – Risks Related to our Convertible Debt” for a short discussion of events of default under the Senior Convertible Notes. In addition, we paid approximately $1.0 million, net, in cash for the offering and subsequent redemption associated with convertible redeemable preferred stock that was necessary to effectuate a reverse stock split during 2022. 


Off-Balance Sheet Arrangements

 

None.


Critical Accounting Policies and Significant Judgments and Estimates

 


Critical Accounting Estimates

Our consolidated financial statements and the related notes included in this Annual Report on Form 10-K are prepared in accordance with GAAP. TheAs described in Note 3 to the consolidated financial statements, the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable underafter taking into account our circumstances and expectations for the circumstances.future based on available information. Our actual results could differ from these estimates.


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CriticalWe consider an accounting policiesestimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and estimates(ii) changes in the estimate that are thosereasonably likely to occur from period to period or use of different estimates that we consider critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates.


Revenue Recognition

We generate revenue through the sale of our cloud-based software and the delivery of consulting services. Revenues are recognized when control of these services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those services. We determine revenue recognition through the following steps:

·Identification of the contract, or contracts, with a customer

·Identification of the performance obligationsreasonably could have used in the contract

·Determination of the transaction price

·Allocation of the transaction price to the performance obligations in the contract

·Recognition of revenue when, or as, we satisfy a performance obligation 

We recognize subscription on a ratable basis over the contract term beginning on the date that our service is made available to the customer. Our subscription contracts range from twelve months to thirty-six months in duration, are billed in advance and are non-cancelable. We consider the access to our platform and related support services in a customer contract to be a series of distinct services which comprise a single performance obligation because they are substantially the same and have the same pattern of transfer. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether transfer of control to customers has occurred. We record contract liabilities to deferred revenue when cash payments are received or due. Deferred revenue consists of the unearned portion of customer billings.

Consulting revenue contracts have an initial set of proprietary deliverables that are provided to clients upfront, which is considered a separate performance obligation. As such, 30% of the contract value is recognized upfront when deliverables are provided, with the remaining recognized over the life of the contract as the consulting services are performed.


Capitalized Software Development Costs

We capitalize software development costs incurred to develop functionality for our commercial software platforms and government regulatory software platform, as well as certain upgrades and enhancements that are expected to result in enhanced functionality. These costs include personnel and related expenses for employees, costs of third-party contractors and other services directly associated with the development projects. We capitalize certain software development costs for new offerings as well as upgrades to our existing software platforms. We amortize these development costs over the estimated useful life of two to five years on a straight-line basis. We believe there are two key estimates within the capitalized software balance, which are the determination of the amounts to be capitalized and the determination of the useful life of the software.

We determine the amount of software development costs to be capitalized based on the amount of time spent by our developers on projects in the application stage of development. Costs associated with building or significantly enhancing our commercial software platform and our government regulatory platform are capitalized, while costs associated with planning new developments and maintaining our software platforms are expensed as incurred. There is judgment involved in estimating the time allocated to a particular project in the application stage as well as the determination of whether the project is an enhancement to the existing software or maintenance thereof. A significant change in the time spent on each project or the determination of the nature of projects involving existing software platforms couldcurrent period, would have a material impact on the amount capitalizedour financial condition or results of operations. There are items within our financial statements that require estimation but are not deemed critical, as defined above.

For a detailed discussion of our significant accounting policies and related amortization expensejudgments, see Note 3 of the Notes to Consolidated Financial Statements in subsequent periods.“Item 8. Financial Statements and Supplementary Data” of this report. 

 

We determined that a two-to-five-year life is appropriate for our capitalized software based on our best estimate of the useful life of the software after considering factors such as continuous developments in the technology, obsolescence and anticipated life of the service offering before significant upgrades. Based on our prior experience, software will generally remain in use for a minimum of two to five years before being significantly replaced or modified to keep up with evolving client needs. While we do not anticipate any significant changes to this two-to-five-year estimate, a change in this estimate could produce a material impact on our consolidated financial statements. For example, if we received information that indicated the useful life of all software was one year rather than two to five, our capitalized software balance would materially decrease, and our expense would materially increase. 


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Stock-Based Compensation

Stock-based compensation for all employee and non-employee stock-based awards, including restricted stock units and restricted stock, is measured at fair value on the date of grant and recognized over the service period. The fair value of restricted stock units and restricted stock are calculated based on the fair value of our common stock on the date of grant.

Stock-based compensation expense is recognized over the requisite service periods of awards, which is typically one to four years for restricted stock units and restricted stock. The estimated forfeiture rate applied to employee awards is based on historical forfeiture rates. The estimated number of stock-based awards that will ultimately vest requires judgment, and to the extent actual results, or updated estimates, differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period actual results are realized or estimates are revised. A higher forfeiture rate will result in an adjustment that will decrease stock-based compensation expense, whereas a lower forfeiture rate will result in an adjustment that will increase stock-based compensation expense. We do not apply a forfeiture rate assumption to value non-employee awards, given the nature of the services provided.

Business Combinations


We account for business acquisitions using the purchase method of accounting, in accordance with which assets acquired and liabilities assumed are recorded at their respective fair values at the acquisition date. Goodwill represents the excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed.


Significant judgment is used in determining fair values of assets acquired and liabilities assumed, as well as intangible assets and their estimated useful lives. Fair value and useful life determinations are based on, among other factors, estimates of future expected cash flows attributable to the acquired intangible assets and appropriate discount rates used in computing present values. Management applied significant judgement in estimating the fair value of the acquired developed technology intangible asset, which involved significant estimates and assumptions with respect to forecasted revenue growth rates, the revenue attributable to the acquired intangible asset over its estimated economic life and the discount rate. These judgments may materially impact the estimates used in allocating the purchase price consideration to the fair value of assets acquired and liabilities assumed, as well as our current and future operating results. Actual results may vary from these estimates that may result in adjustments to goodwill and acquisition date fair values of assets and liabilities during a measurement period or upon a final determination of asset and liability fair values, whichever occurs first. Adjustments to the fair value of assets acquired and liabilities assumed made after the end of the measurement period are recorded within our operating results.


Contingent Consideration Liabilities


ASC 805 requires that contingent consideration be estimated and recorded at fair value as of the acquisition date as part of the total consideration transferred. Contingent consideration is an obligation of the acquirer to transfer additional assets or equity interests to the selling shareholders in the future if certain future events occur or conditions are met, such as the attainment of product development milestones. Contingent consideration also includes additional future payments to selling shareholders based on achievement of components of earnings, such as “earn-out” provisions or percentage of future revenues, including royalties paid to the selling shareholders based on a percentage of revenues generated from CHI and Sera Labs over the contractual period. 


The fair value of milestone-based contingent consideration was determined using a scenario analysis valuation method which incorporates our assumptions with respect to the likelihood of achievement of revenue and gross margin percentage milestones, as defined in the Sera Labs Merger Agreement, credit risk, timing of the contingent consideration payments and a risk-adjusted discount rate to estimate the present value of the expected payments, all of which require significant management judgment and assumptions. Since the contingent consideration payments are based on nonfinancial, binary events, management believes the use of the scenario analysis method is appropriate.


The fair value of all contingent consideration after the Sera Labs Merger Date is reassessed by us as changes in circumstances and conditions occur, with the subsequent change in fair value recorded in our consolidated statements of operations. Changes in key assumptions can materially affect the estimated fair value of contingent consideration liabilities and, accordingly, the resulting gain or loss that we record in our consolidated financial statements. See Note 17 to our consolidated financial statements included elsewhere in this Report. 


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Impairment of Goodwill and Acquired Intangible Assets

Goodwill is not amortized but rather tested for impairment at least annually, or more frequently if events or changes in circumstances indicate that goodwill may be impaired. Goodwill impairment is recognized when the carrying value of goodwill exceeds our implied fair value. Goodwill is evaluated for impairment annually on October 31, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable.

Acquisition intangible assets consist primarily of technology, customer relationships and trade names. Purchased intangible assets are recorded at fair value on the date of acquisition and amortized over their estimated useful lives following the pattern in which the economic benefits of the assets will be consumed, generally straight-line. We continually evaluate whether events and circumstances have occurred that indicate the remaining estimated useful life of amortizable long-lived assets may warrant revision or that the remaining balance may not be recoverable. When factors indicate that acquisition intangible assets should be evaluated for possible impairment, we use an estimate of the related undiscounted future cash flows over the remaining life of the amortizable long-lived assets in measuring whether they are recoverable. if the estimated undiscounted future cash flows do not exceed the carrying value of the asset, a loss is recorded as the excess of the asset’s carrying value over its fair value.

Determining if an impairment triggering event has occurred (which may include, but is not limited to, a significant adverse change in customer demand or business climate or a significant decrease in expected cash flows) requires significant management judgement. 


Senior Convertible Notes


We determined at the issuance of our Senior Convertible Notes to elect the fair value option. At issuance, the carrying value of the Senior Convertible Notes was recorded at estimated fair value calculated using probability weighted valuations of various settlement scenarios. The valuations of the various settlement outcomes were calculated using Monte Carlo simulation models and discounted cash flow models. We remeasure the Senior Convertible Notes to estimated fair value on each reporting period using valuation techniques similar to those applied at issuance. The change in the fair value resulting from changes in instrument specific credit risk is recognized as other comprehensive income with the remainder of the change recognized in current earnings. We believe key estimates used in accounting for the Senior Convertible Notes are the fair value at the reporting period end as well as the determination of the portion of the change resulting from instrument specific credit risk, including assumptions regarding the probability of various outcomes and the volatility of Akerna's common stock. A significant change in the probability weighting or the volatility could have a material impact to the carrying value of the Senior Convertible Notes as well as the amount of change recognized during the period in earnings.  


Income Taxes 

Income taxes are accounted for using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of other assets and liabilities. We provide for income taxes at the current and future enacted tax rates and laws applicable in each taxing jurisdiction. We use a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and disclosures regarding uncertainties in income tax positions. We recognize interest and penalties related to income tax matters in selling, general and administrative expenses in the consolidated statement of operations.

We recognize deferred tax assets to the extent that its assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of its net recorded amount, we will make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.


Going Concern Assessment


With the implementation of FASB’s standard on going concern, ASU No. 2014-15, we assess going concern uncertainty in our consolidated financial statements to determine if we have sufficient cash and cash equivalents on hand and working capital, including available loans or lines of credit, if any, to operate for a period of at least one year from the date our consolidated financial statements are issued, which is referred to as the “look-forward period” as defined by ASU No. 2014-15. As part of this assessment, based on conditions that are known and reasonably knowable to us, we consider various scenarios, forecasts, projections, and estimates, and we make certain key assumptions, including the timing and nature of projected cash expenditures or programs, and our ability to delay or curtail those expenditures or programs, if necessary, among other factors. Based on this assessment, as necessary or applicable, we make certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent we deem probable those implementations can be achieved and we have the proper authority to execute them within the look-forward period in accordance with ASU No. 2014-15. 

Recent Accounting Pronouncements

Please refer to Note 23 – “SummarySummary of Significant Accounting Policies”Policies to the consolidated financial statements for our discussion aboutregarding Akerna’s adoption of new accounting pronouncements adopted and those pending.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable

 

Item 8. Financial Statements and Supplementary Data.


The independent registered public accounting firm'sfirm’s report and, consolidated financial statements listed in the “Index to Financial Statements” on page F-1 of this Report are filed as part of this report and incorporated herein by this reference.



47

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.

 

None.

 

Item 9A. Controls and Procedures.


Disclosure Controls and Procedures


Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)), as of the end of the period covered by this report. Based on such evaluation and as a result of the unremediated material weaknesses described below, our chief executive officer and chief financial officer have concluded that as of the end of such period, our disclosure controls and procedures were  not effective in ensuring that: (i) information required to be disclosed by us in reports that we file or submit to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and (ii) material information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for accurate and timely decisions regarding required disclosure. 


Management determined that our disclosure controls and procedures were ineffective due to certain material weaknesses in our internal control over financial reporting as set forth below.


Management'sManagement’s Annual Report on Internal Control Over Financial Reporting

 

OurOur management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) 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 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 receipts and expenditures are being made only in accordance with authorizations of our management and directors; and




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

 

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

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021.2023. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013 Framework).


Based on this assessment, management concluded that as of December 31, 2021,2023, we have not maintained effective internal control over financial reporting.


Material Weaknesses


A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. Pursuant to management'smanagement’s review of disclosure controls and procedures and internal control over financial reporting, Akerna management determined that the followingfollowing material weaknesses in our internal control over financial reporting and prevented management from concluding that our disclosure controls and procedures and internal controls over financial reporting were effective as of the end of the period covered by this report:


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●

·

The Company’s internal controls over financial reporting pertaining to certain key process areas of financial reporting were not properly designed and/or operating effectively..

 


 

Notwithstanding the identified material weaknesses described above, management believes that the consolidated financial statements included in this Report on Form 10-K are fairly presented in all material respects in accordance with GAAP, and our chief executive officer and chief financial officer have certified that, based on their knowledge, the consolidated financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for each of the periods presented in this report.

Remediation

Remediation

We are in the process of executing ourAkerna’s remediation plans to address the material weaknesses described above. Duringabove were suspended in consideration of the year ended December 31, 2021, we have:
Merger which was completed in February 2024. Gryphon has assumed internal control over financial reporting subsequent to the Merger.



·Hired additional experienced resources with the appropriate skills to fill key accounting functions.

·Engaged an outside firm to assist in the overall evaluation and documentation of the design and operating effectiveness of our internal controls over financial reporting and have remediated past deficiencies in the design of our internal control framework for certain key process areas including revenue, capitalized software, business combinations, intangibles, goodwill, stock-based compensation, general financial reporting, and information technology.

·Developed a long-term plan to both (i) complete the remediation of the design of our internal controls over financial reporting for our remaining process areas, and (ii) begin the remediation of the deficiencies in operating effectiveness of our internal controls over financial reporting across all process areas.

 

We believe these actions and the improvements we expect to achieve, when fully implemented, will strengthen our internal control over financial reporting and remediate the material weaknesses. However, the material weaknesses will not be considered fully remediated until the applicable controls operate for a sufficient period of time for management to test the results for operating effectiveness. While no assurance can be provided, the Company believes it will make further progress in remediating these material weaknesses during 2022.2023.


Attestation Report of Independent Registered Public Accounting Firm


An attestation report on our internal control over financial reporting by our independent registered public accounting firm is not included herein, because, as an emerging growth company, we are exempt from the requirement to provide such report.

Changes in Internal Control over Financial Reporting

During the most recently completed fiscal quarter, there have been no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, as described above in our remediation efforts.reporting.

Inherent Limitations on Effectiveness of Controls

Management recognizes that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.  


Item 9B. Other Information.

 

Not applicable. None.


Item 9C. Disclosure regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

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Not applicable.


PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

The following is a list of our directors and executive officers as of March 29, 2024, along with the specific information required by Rule 14a-3 of the Exchange Act:

NameAgePosition
Robby Chang46Chief Executive Office, President and Director
Simeon Salzman43Chief Financial Officer and Secretary
Brittany Kaiser36Director and Chairperson of the Board
Jessica Billingsley46Director
Heather Cox53Director
Steve Gutterman54Director

Executive Officers

Robby Chang, Chief Executive Officer, President and Director

Robby Chang has served as Gryphon’s Chief Executive Officer and a director since the closing of the Business Combination and as Legacy Gryphon’s Chief Executive Officer and a director since January 14, 2021. Mr. Chang has also been a director of Fission Uranium Corp. (TSX: FCU), a mineral exploration company, since April 2018, a director of Ur-Energy, Inc. (NYSE American: URG), an exploration stage mining company, since March 2018, and a director of Shine Minerals Corp., a company engages in the acquisition, exploration, and evaluation of mineral properties, since November 2018. Mr. Chang is also the Chief Executive Officer and founder of Chang Advisory Inc., a consulting service company, since December 2020. Prior to that, from August 2019 to January 2021, Mr. Chang was an independent consultant for traditional mining and crypto currency companies. From July 2018 to March 2020, Mr. Chang was a member of the board of advisors of District Metals Corp. (TSX.V: DMX), a mineral exploration stage company. From February 2018 to August 2019, Mr. Chang served as CFO of Riot Platforms, Inc. (Nasdaq: RIOT), a provider of Bitcoin mining and data center hosting, and oversaw the company’s business operations, investor relations and finances. From January 2011 to January 2018, Mr. Chang was the managing director and Head of Metals and Mining Research of Cantor Fitzgerald. Mr. Chang graduated from the Rotman School of Management at University of Toronto with his MBA in 2006. We believe Mr. Chang is fit to serve on our board of directors based on his diverse leadership experience across multiple industries, including mineral exploration, cryptocurrency, consulting, and metals and mining research.

Simeon Salzman, Chief Financial Officer and Secretary

Simeon Salzman has served as Gryphon’s Chief Financial Officer since the closing of the Business Combination and joined Legacy Gryphon’s management team as the Chief Financial Officer on June 19, 2023. Mr. Salzman is an accomplished financial executive with a diverse background in overseeing financial functions and driving growth. From late 2020 to March 2023, Mr. Salzman served as the Chief Financial Officer and Chief Accounting Officer for Marathon Digital Holdings, Inc. (Nasdaq: MARA), a digital asset technology company. During his tenure, the company experienced significant market capitalization growth, peaking at $8 billion, up from the market capitalization of $500 million. In addition, he was an integral part of the negotiations with major investment firms and was able to secure substantial capital investments utilizing debt and equity offerings totaling approximately $2 billion dollars. Prior to that, from July 2018 to October 2020, Mr. Salzman served as the Chief Financial Officer of the Las Vegas Monorail Company, where he managed the financial operations of a completely electric, zero-emission driverless monorail transit system that served approximately 4.6 million passengers annually. During his tenure, he implemented effective financial strategies, ensuring compliance and achieving significant cost savings. Before joining the Las Vegas Monorail Company, Mr. Salzman held the position of Chief Financial Officer for Wendoh Media and Corner Bar Management from May 2015 through July 2018. He successfully revitalized various food and beverage establishments in Downtown Las Vegas by streamlining operations resulting in double-digit returns to the bottom line. Mr. Salzman holds dual degrees with a Bachelor of Science in Accounting and a Bachelor of Arts in Criminal Justice & Criminology from the University of Maryland, College Park. He is also a Certified Public Accountant.


Non-Employee Directors

Brittany Kaiser, Chairperson of the Board

Brittany Kaiser has served as our Chairperson of the board since the closing of the Business Combination and as the chairperson of Legacy Gryphon’s board of directors since February 4, 2021 and as a director of Legacy Gryphon since December 21, 2020. Ms. Kaiser is also an independent director of Lucy Scientific Discovery Inc. (Nasdaq: LSDI), a psychotropics contract manufacturing company, since December 2020, Chief Executive Officer and director of Achayot Partners LLC, a digital asset consulting firm, since April 2019, President and director of Own Your Data Foundation, a non-profit foundation implementing digital intelligence education programs since August 2019 and co-founder of Digital Asset Trade Association, an advocacy group for distributed ledger technology since February 2018. Prior to that, Ms. Kaiser served as business development director at SCL USA, a provider of consumer research, targeted advertising and other data-related services from March 2017 to January 2018 and SCL Group Ltd. (UK) from February 2015 to March 2017. Ms. Kaiser graduated from Middlesex University School of Law in 2015. Ms. Kaiser was selected to serve on our board of directors based on her broad experience in diverse leadership roles, including digital asset consulting, non-profit leadership, and distributed ledger technology advocacy.

Jessica Billingsley

Jessica Billingsley has served as a director on our board of directors since the closing of the Business Combination. Ms. Billingsley served as Chief Executive Officer and director of Akerna since the consummation of its business combination on June 17, 2019, and Chairman of the Board since July 2019. Ms. Billingsley co-founded MJF, Akerna’s wholly-owned subsidiary, in 2010 and served as President of MJF from 2010 to April 2018 and Chief Executive Officer since May 2018. An early investor in one of Colorado’s first legal medical cannabis businesses, Ms. Billingsley created the category of cannabis seed-to-sale technology after seeing the need first-hand. Prior to MJF, Ms. Billingsley was the founder and chief executive officer of Zoco, LLC, a technology services firm with clients across the United States. Ms. Billingsley has 20 years of technology and systems experience with rapidly scaling businesses, and founded her first business at the age of 22. Ms. Billingsley served on the board of the National Cannabis Industry Association from 2012 – 2019 and currently serves as Chair of the Board of the United States Cannabis Council. Ms. Billingsley was named one of Fortune’s 10 most promising women entrepreneurs in 2015 and named one of Inc. Magazine’s 100 Female Founders in 2018. Ms. Billingsley holds a dual degree from the University of Georgia in Computer Science and Communications. Ms. Billingsley was selected to serve on our board of directors based on her extensive experience with technology and systems companies, broad experience in the telecommunications industry, and her background as an entrepreneur.

Heather Cox

Heather Cox has been at the forefront of building and leading disruptive fintech, healthtech, data and digital businesses throughout her career, from the early days of E*TRADE to more recently in the healthcare space serving as the Chief Digital Health and Analytics Officer for Humana (NYSE: HUM) from August 2018 to February 2023. At Humana, she was accountable for building the firm’s digital care delivery operations and leading enterprise advanced analytics, including the application of Artificial Intelligence at scale in healthcare. Prior to Humana, Heather served as Chief Technology and Digital Officer at United Services Automobile Association (“USAA”), a financial services company providing insurance and banking products from September 2016 to March 2018, where she built personalized and digitally enabled end-to-end experiences for USAA members. Heather served as CEO of Citi FinTech at Citigroup, a fintech start-up that she designed that allowed Citigroup to harness innovation in the global fintech ecosystem. Prior, she headed Card Operations for Capital One, where she reshaped customer and digital experience for Capital One cardholders. Heather has been named to several American Banker Women to Watch Lists, including a designation of the #3 Woman to Watch nationally in banking in 2017. In 2015, she was named Digital Banker of the Year by American Banker and one of the 10 most innovative CEOs in banking by Bank Innovation. Since March 2018, Heather has served on the board of directors of NRG Energy (Nasdaq: NRG), and since August 2022, has served on the board of directors of Atlantic Union Bankshares Corporation (Nasdaq: AUB). Heather graduated cum laude with a Bachelor of Arts in Economics from the University of Illinois at Urbana- Champaign. Ms. Cox was selected to serve on our board of directors based on her extensive career in fintech, healthtech, data, and digital businesses, demonstrating her expertise in driving innovation and digital transformation.

Steve Gutterman

Mr. Gutterman has built, led, acquired and invested in market-changing companies for almost 30 years. Since July 2021 he has served as CEO of Falcon International, a large private cannabis company in California. Previously, he served from January 2020 to July 2021 as CEO of General Cannabis Corp, also known as TREES Corporation (OTC: CANN), a cannabis retailer and cultivator company, and from May 2018 to November 2020 as President of Harvest Health & Recreation Inc. (CSE: HARV), since acquired by Trulieve (CSE: TRUL) to form the largest cannabis company in the US as measured by revenue. Prior to Harvest Health & Recreation Inc., he held a variety of senior roles including at E*TRADE Financial (Nasdaq: ETFC) from February 2000 to July 2005, where he was EVP and COO of E*TRADE Bank. During his tenure, the bank’s assets increased from $1 billion to $35 billion. He also served as the CEO of GeoPoll from November 2012 to July 2018, a market research company and was Managing Director of MBH Enterprises, a private equity company focused on technology and infrastructure, from August 2005 to November 2012. Mr. Gutterman was selected to serve on our board of directors based on his extensive experience in building, leading, acquiring, and investing in transformative companies over the past 25 years. His track record of success demonstrate his strategic prowess and ability to drive growth and innovation across various sectors.


Family Relationships.

There are no family relationships among any of the directors or executive officers.

Composition of our Board of Directors

Our Board currently consists of five directors. Our amended and restated certificate of incorporation, as amended, and bylaws, as amended, provide that the total number of directors constituting the entire Board shall be seven directors; provided that, the total number of directors constituting the entire Board of Directors may be changed to such number as may be fixed from time to time exclusively by resolution adopted by the affirmative vote of at least a majority of the Board. Our Board is divided into three classes, designated as Class I, Class II and Class III directors, with only one class of directors being elected in each year and each class serving a three-year term. The term of office of the Class I directors, consisting of Steve Gutterman and Heather Cox, will expire at our 2025 annual meeting of stockholders. The term of office of the Class II directors, consisting of Brittany Kaiser and Rob Chang, will expire at our 2026 annual meeting of stockholders. The term of office of the Class II director, consisting of Jessica Billingsley, will expire at our 2024 annual meeting of stockholders. When considering whether directors have the experience, qualifications, attributes or skills, taken as a whole, to enable our Board to satisfy its oversight responsibilities effectively in light of our business and structure, the Board focuses primarily on each person’s background and experience as reflected in the information discussed in each of the directors’ individual biographies set forth above. We believe that our directors provide an appropriate mix of experience and skills relevant to the size and nature of our business.

Director Independence

 

The information required by this itemAs our common stock is incorporated by reference tolisted on the relevant information fromNasdaq Capital Market, our Proxy Statement to be filed in connection with our 2022 Annual Meeting of Shareholders within 120 days after the enddetermination of the fiscal year ended December 31, 2021.


Codeindependence of Business Conductdirectors is made using the definition of “independent director” contained in Nasdaq Listing Rule 5605(a)(2). Our Board has affirmatively determined that each of Ms. Kaiser, Ms. Billingsley, Ms. Cox and EthicsMr. Gutterman are “independent directors,” as that term is defined in the Nasdaq rules. Under the Nasdaq rules, our Board must be composed of a majority of “independent directors.” Additionally, subject to certain limited exceptions, our Board’s audit, compensation, and nominating and corporate governance committees also must be composed of all independent directors.

 

Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act. Under the rules of Nasdaq, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

To be considered to be independent for purposes of Rule 10A-3 of the Exchange Act, a member of an audit committee of a listed company may not, other than in his capacity as a member of our audit committee, our Board, or any other committee of our Board: (1) accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries.

Committees of the Board of Directors

Presently, our board of directors has the following standing committees: Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee. Each of the standing committees is composed solely of independent directors.


Audit Committee

We have established an audit committee of the Board of Directors. Mr. Gutterman, Ms. Kaiser and Ms. Billingsley serve as the members of our audit committee. Under the Nasdaq listing standards and applicable SEC rules, we are required to have three members of the audit committee, all of whom must be independent. Each of Mr. Gutterman, Ms. Kaiser and Ms. Billingsley are independent.

Mr. Gutterman serves as the chair of the audit committee. Each member of the audit committee is financially literate and our Board has determined that Mr. Gutterman qualifies as an “audit committee financial expert” as defined in applicable SEC rules.

We have adopted an audit committee charter, which details the principal responsibilities of the audit committee, including:

●To assist board oversight of (i) the integrity of our financial statements, (ii) our compliance with legal and regulatory requirements, (iii) our independent auditor’s qualifications and independence, and (iv) the performance of our internal audit function and independent auditors; the appointment, compensation, retention, replacement, and oversight of the work of the independent auditors and any other independent registered public accounting firm engaged by us;
●To (i) approve all audit engagement fees and terms and (ii) pre-approve all audit and permitted non-audit and tax services that may be provided by the Company’s independent auditors or other registered public accounting firms.
●At least annually, to evaluate the qualifications, performance and independence of the Company’s independent auditors, including an evaluation of the lead audit partner; and to assure the regular rotation of the lead audit partner at the Company’s independent auditors and consider regular rotation of the accounting firm serving as the Company’s independent auditors.
●To review and discuss with the Company’s independent auditors and management the Company’s quarterly financial statements and the disclosure under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to be included in the Company’s Quarterly Report on Form 10-Q before such Form 10-Q is filed; and to review and discuss the Form 10-Q for filing with the SEC.
●To review, approve and oversee any transaction between the Company and any related person (as defined in Item 404 of Regulation S-K promulgated by the SEC) and any other potential conflict of interest situations on an ongoing basis, in accordance with Company policies and procedures, and to develop policies and procedures for the Committee’s approval of related party transactions.
●To review with management and the Company’s independent auditors: (i) any major issues regarding accounting principles and financial statement presentation, including any significant changes in the Company’s selection or application of accounting principles; (ii) any significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements, including the effects of alternative GAAP methods; and (iii) the effect of regulatory and accounting initiatives and off-balance sheet structures on the Company’s financial statements.
●To assist and advise the Board and the Compensation Committee thereof in enforcing the Company’s executive compensation clawback policy and related laws, rules and regulations.


Compensation Committee

We have established a compensation committee of our Board of Directors. The members of our compensation committee are Ms. Billingsley, Ms. Cox and Ms. Kaiser. Ms. Billingsley serves as chair of the compensation committee. We have adopted a compensation committee charter, which details the principal responsibilities of the compensation committee, including:

●To review and approve the Company’s compensation programs and arrangements applicable to its executive officers, including without limitation salary, incentive compensation, equity compensation and perquisite programs, and amounts to be awarded or paid to individual officers under those programs and arrangements, or make recommendations to the Board regarding approval of the same.
●To determine the objectives of the Company’s executive officer compensation programs, identify what the programs are designed to reward, and modify (or recommend that the Board modify) the programs as necessary and consistent with such objectives and intended rewards.
●To ensure appropriate corporate performance measures and goals regarding executive officer compensation are set and determine the extent to which they are achieved and any related compensation earned.
●To at least annually review and approve the Company’s goals and objectives relevant to CEO compensation, evaluate the CEO’s performance in light of such goals and objectives, and determine and approve the CEO’s compensation level based on this evaluation.
●To review and approve any new equity compensation plan or any material change to an existing plan where stockholder approval has not been obtained.
●To assist management in complying with our proxy statement and annual report disclosure requirements;
●To implement and enforce the Company’s executive compensation clawback policy and related laws, rules and regulations, including determining what constitutes “incentive-based compensation” and, if a clawback is triggered due to a financial statement restatement, the amount of any clawback.

The charter also provides that the compensation committee may select, retain and terminate independent legal counsel and other experts or consultants, as it deems appropriate, without seeking approval of the Board or management, including the authority to approve the fees payable to such counsel, experts or consultants and any other term of retention. However, before engaging or receiving advice from a compensation consultant, external legal counsel or any other adviser, the compensation committee will consider the independence of each such adviser, including the factors required by Nasdaq and the SEC.

Nominating and Corporate Governance Committee

We have established a nominating and corporate governance committee of the Board of Directors. The members of our nominating and corporate governance are Ms. Kaiser, Mr. Gutterman and Ms. Billingsley. Ms. Kaiser serves as chair of the nominating and corporate governance committee.

We have adopted a nominating and corporate governance committee charter, which details the principal responsibilities of the nominating and corporate governance committee, including:

●The identification, evaluation and recommendation of qualified candidates to become Board members.
●The oversight of the implementation of and monitoring compliance with the Company’s Code of Business Conduct (other than with respect to complaints regarding accounting or auditing issues).
●Coordinating and overseeing Board, committee, and director evaluations.
●Periodic review of the Company’s governance documents as appropriate.


The charter also provides that the nominating and corporate governance committee may, in its sole discretion, retain or obtain the advice of, and terminate, any search firm to be used to identify director candidates, and will be directly responsible for approving the search firm’s fees and other retention terms.

We have not formally established any specific, minimum qualifications that must be met or skills that are necessary for directors to possess. In general, in identifying and evaluating nominees for director, our Board of Directors considers educational background, diversity of professional experience, knowledge of our business, integrity, professional reputation, independence, wisdom, and the ability to represent the best interests of our shareholders. Prior to our initial Business Combination, holders of our Public Shares do not have the right to recommend director candidates for nomination to our Board of Directors.

Compensation Committee Interlocks and Insider Participation

None of the members of our compensation committee is or has been an officer or employee of our company. None of our executive officers currently serves, or in the past year has served, as a member of the Board’s compensation committee (or other board committee performing equivalent functions) of any entity that has one or more of its executive officers serving on our Board or compensation committee. See the section titled “Item 13. Certain Relationships and Related Transactions, and Director Independence” for information about related party transactions involving members of our compensation committee or their affiliates.

Code of Ethics

We have adopted a code of business conductethics applicable to our directors, officers and ethics, oremployees (the “Code of Ethics”). We have filed a copy of our Code of Ethics and our audit committee, compensation committee and nominating and corporate governance charters as exhibits to this Report. Our stockholders are also able to review these documents by accessing our public filings at the SEC’s website at www.sec.gov. In addition, a copy of the Code of Ethics that applieswill be provided without charge upon request from us. We intend to all of our employees, officers and directors of Akerna and our affiliated entities. The Code of Ethics is available on our website at www.akerna.com and we will postdisclose any amendments to or waivers from, including an implicit waiver, theof certain provisions of our Code of Ethics in a Current Report on that website.
Form 8-K.


Trading Policies

On March 30, 2024, we adopted revised insider trading policies and procedures governing the purchase, sale, and/or other dispositions of our securities by directors, officers and employees, which are reasonably designed to promote compliance with insider trading laws, rules and regulations, and applicable Nasdaq listing standards (the “Insider Trading Policy”).

The foregoing description of the Insider Trading Policy does not purport to be complete and is qualified in its entirety by the terms and conditions of the Insider Trading Policy, a copy of which is attached hereto as Exhibit 19 and is incorporated herein by reference.


Item 11. Executive Compensation

The information required by this item is incorporated by reference to the relevant information from our Proxy Statement to be filed in connection with our 2022 Annual Meeting of Shareholders within 120 days after the end ofAkerna’s named executive officers for the fiscal year ended December 31, 2022 were Jessica Billingsley, Chief Executive Officer, L. Dean Ditto, Chief Financial Officer, David McCullough, Chief Technology Officer and Ray Thompson, Chief Operating Officer.

Summary Compensation Table

The following table sets forth all information concerning the compensation earned, for the fiscal years ended December 31, 2023, 2022 and 2021 for services rendered to us by persons who served as our named executive officers at the end of December 31, 2023.

    Salary  Bonus  Stock
Awards		  All Other
Compensation		  Total 
Name and Principal Position Year ($)  ($)  ($)  ($)  ($) 
(a) (b) (c)  (d)  (e)       
Jessica Billingsley 2023  300,000   134,130(1)  —   —   434,130 
Chief Executive Officer 2022  297,916   —   —   6,587(2)  304,503 
  2021  262,500   201,866(3)  108,200(4)  11,774(5)  584,340 
                       
Ray Thompson 2023  235,417   34,323(6)  —   —   269,740 
Chief Operating Office 2022  233,854   —   —   —   233,854 
  2021  200,000   —   83,200(7)  —   283,200 
                       
David McCullough 2023  250,000   35,641(8)  —   —   285,641 
Chief Technology Officer 2022  240,432   —   —   —   240,432 
  2021  200,000   60,075(9)  83,200(10)  —   343,275 
                       
L. Dean Ditto 2023  250,000   15,496(11)  —   —   265,496 
Chief Financial Officer 2022  68,750   —   25,000(12)  49,200(13)  142,950 

(1)In connection with the year ended 2022, Ms. Billingsley was awarded a discretionary cash bonus in 2023 of $134,130 that was paid in January of 2024.

(2)In addition to cash and stock awards, Ms. Billingsley may redeem loyalty awards generated by corporate purchases made on certain credit cards for her personal use. During the year ended 2022, Ms. Billingsley redeemed $6,587 in loyalty awards for her personal use.

(3)Pursuant to Ms. Billingsley’s employment agreement with Akerna, she was eligible for a bonus that is determined by the board of directors on the basis of fulfillment of the objective performance criteria established in its discretion. For the year ended 2021, the bonus was determined based Akerna’s relative performance against budgeted targets, as further described below. The Board evaluated the achievement of these targets and Ms. Billingsley’s 2021 fiscal year bonus amount was $201,866 which was paid in 2022.

(4)During the year ended 2021, Ms. Billingsley was awarded 1,000 restricted stock units with a grant date fair value of $83,200. These awards vested 25% annually on December 1 with the final vesting scheduled to occur on December 1, 2024. As compensation for the 2021 fiscal year, Ms. Billingsley was also awarded a discretionary bonus of 1,117 restricted shares with a grant date fair value of $25,000. These shares fully vested on April 12, 2022.

(5)In addition to cash and stock awards, Ms. Billingsley may redeem loyalty awards generated by corporate purchases made on certain credit cards for her personal use. During the year ended 2021, Ms. Billingsley redeemed $11,774 in loyalty awards for her personal use.

(6)In connection with the year ended 2022, Mr. Thompson was awarded a discretionary cash bonus in 2023 of $34,323 that was paid in January of 2024.

(7)During the year ended 2021, Mr. Thompson was awarded 1,000 restricted stock units with a grant date fair value of $83,200. These awards vested 25% annually on December 1 with the final vesting scheduled to occur on December 1, 2024.

(8)In connection with the year ended 2022, Mr. McCullough was awarded a discretionary cash bonus in 2023 of $35,641 that was paid in January of 2024.

(9)During the year ended 2021, Mr. McCullough was awarded a discretionary cash bonus of $60,075.

(10)During the year ended 2021, Mr. McCullough was awarded 1,000 restricted stock units with a grant date fair value of $83,200. These awards vested 25% annually on December 1 with the final vesting scheduled to occur on December 1, 2024.

(11)In connection with the year ended 2022, Mr. Ditto was awarded a discretionary cash bonus in 2023 of $15,496 that was paid in January of 2024.

(12)On July 25, 2022, Mr. Ditto was awarded a discretionary bonus of 6,701 restricted shares with a grant date fair value of $25,000. These shares fully vested on the grant date.

(13)In the period during 2022 in which Mr. Ditto was serving as the Company’s Interim Chief Financial Officer, he was compensated as a consultant for $49,200.


Legacy Gryphon Executive Compensation

The following table sets forth information concerning the compensation of the named executive officer for the years ended December 31, 2023 and December 31, 2022:

Name and Principal Position Year  Salary(1)  Bonus  Stock
Awards(2)		  Total
Compensation
Rob Chang  2023  $228,167(3) $228,167  $                                 $456,334
Chief Executive Officer  2022   230,640(1)  —       —  230,640
                       
Simeon Salzman  2023   107,692  $100,000       530,496(2) 738,188
Chief Financial Officer  2022   —   —       —  —

(1)

The amounts for Mr. Chang’s salary and bonus in the table were converted from Canadian dollars to United States dollars using an average exchange rate of (i) 1 CAD for 0.7688 USD for 2022 and (ii) 1 CAD for 0.7408 USD for 2023.

(2)The amounts reported in this column reflect the aggregate grant date fair value of shares granted to the applicable named executive officer as computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC Topic 718”). These amounts do not necessarily correspond to the actual value recognized by the applicable named executive officer. The assumptions used in the valuation of these awards are consistent with the valuation methodologies specified in Note 1 to Gryphon’s consolidated financial statements included elsewhere in this proxy statement/prospectus. See the narrative below for more information on the stock awards in this column.

Consulting Agreement with Chang Advisory, Inc.

Mr. Chang serves as Gryphon’s Chief Executive Officer pursuant to a Consulting Agreement between Gryphon and Chang Advisory, Inc. (“Chang Advisory”), effective January 14, 2021. Mr. Chang is the sole owner of Chang Advisory. Under the agreement, Chang Advisory’s base fee was initially CAD $175,000 per year. The agreement provided that the base fee would increase to CAD $300,000 per year upon the closing of either: (i) an equity financing totaling at least CAD $5 million or (ii) a debt and equity financing totaling at least CAD $10 million. This condition was met in March 2021 and, accordingly, the base fee is currently CAD $300,000 per year. Under the agreement, Chang Advisory’s base fee for any year may not be reduced without the written consent of both Chang Advisory and Gryphon, and Chang Advisory is entitled to an annual cash incentive opportunity with a target equal to 100% of Chang Advisory’s base fee for such year. The agreement further provides that Gryphon will pay to Chang Advisory harmonized sales tax on any invoice or other compensation paid to Chang Advisory in the event that Gryphon’s head office becomes located in Canada or in the event that any law or governmental authority requires that such tax be remitted by Chang Advisory in respect of any such compensation.

On the effective date of the agreement, Chang Advisory became entitled to purchase, for USD $0.004 per share, 15.2% of the outstanding shares of common stock of Gryphon as of such date. In the event that Chang Advisory’s engagement with Gryphon terminates by reason of Chang Advisory’s resignation or by reason of a material breach by Chang Advisory of the agreement, or for cause (as defined below), prior to the one-year anniversary of the effective date of the agreement, Gryphon or any other affiliate of Gryphon had the right (but not the obligation) to repurchase (i) 75% of the such shares if such termination occurred within six months of the effective date of the agreement; and (ii) 50% of such shares if such termination occurred after six months and within one year of such effective date, in each case for a price of USD $0.004 per share. Such repurchase right expired on the one-year anniversary of the effective date of the agreement.

In the event that Chang Advisory’s engagement is terminated by Gryphon without cause, is terminated by Chang Advisory for good reason, or in the event that there is a change in control (as defined in the agreement), all unvested equity awards held by Chang Advisory will accelerate vesting and, with respect to any stock options, such options will remain fully exercisable until their original expiry date. In the event of Chang Advisory’s termination for cause or voluntary resignation, all equity awards granted to Chang Advisory that are outstanding on the date of such termination or resignation will continue to vest on the original schedule and any stock options will remain exercisable until the earlier of (i) the expiration date set forth in the applicable stock option agreement; or (ii) the expiration of 6 months measured from the date of such termination or resignation.


The agreement also provides that Chang Advisory will be entitled to receive reimbursement from Gryphon for all reasonable business expenses, and Mr. Chang and his partner and dependents will be eligible to participate in the benefit plans that are available to the executive officers of Gryphon. Under the agreement, Gryphon will indemnify Chang Advisory and Mr. Chang to the fullest extent permitted by law against all costs, charges, awards, legal fees and expenses which Chang Advisory and/or Mr. Chang is/are involved because of its/his/their association with Gryphon, and Gryphon will at all times maintain a Directors and Officers Insurance Policy under which Chang Advisory and Mr. Chang will be insured.

Upon termination of engagement due to the death or disability (as defined in the agreement) of Chang Advisory, Chang Advisory will be entitled to receive: (i) any unpaid annual bonus for the year immediately prior to the year of such termination (in an amount equal to the greater of the bonus percentage accrued by Gryphon or Chang Advisory’s target annual bonus) and (ii) a pro-rated share of Chang Advisory’s target annual bonus for the year of such termination (in an amount equal to the bonus percentage accrued by Gryphon through the last closed accounting month prior to such termination but with such bonus percentage being deemed to be fully accrued if Gryphon is at least on target to attain the appropriate financial targets for such year). In addition, in the case of termination due to disability, Gryphon will continue Chang Advisory’s and/or Mr. Chang’s participation in the benefit plans for so long as he remains disabled as defined under those plans.

Under the agreement, should Gryphon terminate Chang Advisory’s engagement (other than for cause or as a result of Chang Advisory’s death or disability), or in the event Chang Advisory resigns for good reason, or in the event of a termination of Chang Advisory’s engagement whether by Chang Advisory or by Gryphon for any reason other than cause within 6 months of a change in control, then Gryphon will pay to Chang Advisory (i) a termination fee equal to the annual fee; (ii) bonus for any prior year that has been earned but is unpaid (in an amount equal to the greater of the bonus percentage accrued by Gryphon or Chang Advisory’s target annual bonus); and (iii) a pro-rated share of Chang Advisory’s target annual bonus for the year of such termination (in an amount equal to the bonus percentage accrued by Gryphon through the last closed accounting month prior such termination but with such bonus percentage being deemed to be fully accrued if Gryphon is at least on target to attain the appropriate financial targets for such year).

For purposes of the agreement, “cause” means that Chang Advisory or Mr. Chang has engaged in any one of the following: (i) intentional misconduct involving Gryphon or its assets, including, without limitation, material misappropriation of Gryphon’s funds or property; (ii) reckless or willful misconduct in the performance of Chang Advisory’s duties in the event such conduct continues after Gryphon has provided 30 days written notice to Chang Advisory and a reasonable opportunity to cure such misconduct; (iii) conviction of, or plea of nolo contendere to, any felony or misdemeanor involving dishonesty or fraud; (iv) the material violation of any of Gryphon’s policies, including without limitation, Gryphon’s policies on equal engagement opportunity and the prohibition against unlawful harassment; (v) the material breach of any provision of the agreement after 30 days written notice to Chang Advisory of such breach and a reasonable opportunity to cure such breach; or (vi) any other misconduct that has a material adverse effect on the business or reputation of Gryphon after 30 days written notice to Chang Advisory of such breach and a reasonable opportunity to cure the adverse effects of such misconduct.

Executive Employment Agreement with Simeon Salzman

Gryphon and Simeon Salzman are party to an Executive Employment Agreement dated June 19, 2023, the effective date of the employment agreement. Because Mr. Salzman recently joined Gryphon in, his compensation is not disclosed in the 2022 Summary Compensation Table presented above. The employment agreement provides for the terms described in this paragraph. Mr. Salzman will serve as the Chief Financial Officer of Gryphon (and, under certain circumstances, such other position as Gryphon’s Chief Executive Officer may designate), reporting to Gryphon’s Chief Executive Officer. Mr. Salzman will receive a base salary of $200,000 and will be eligible to receive an annual bonus with a target of up to 50% of his then-current base salary. Mr. Salzman will receive a time-based equity grant covering 390,800 Gryphon Shares (the “Equity Grant”), vesting as follows (subject to Mr. Salzman’s continued employment with Gryphon through the relevant vesting date): 1/6 of the Equity Grant will vest upon the 6-month anniversary of the effective date of the employment agreement and the remainder of the Equity Grant will vest in substantially equal quarterly installments commencing with the first quarter following the 6 month anniversary of the effective date of the employment agreement. The vesting of the Equity Grant will be accelerated if Mr. Salzman is continuously employed through of a change in control of Gryphon (excluding a reverse takeover transaction or merger for the purposes of listing Gryphon on a public exchange). Mr. Salzman will be entitled to receive those benefits that are made available to the other similarly situated executive employees of Gryphon, and will be reimbursed for reasonable out-of-pocket expenses. Upon the termination of the employment agreement during the first two full financial reporting quarters of Gryphon by (a) Mr. Salzman for good reason (as defined in the employment agreement) or (b) by Gryphon without cause (as defined in the employment agreement), then, subject to Mr. Salzman’s execution and non- revocation of and compliance with a separation and release agreement in a form provided by Gryphon, Gryphon will pay Mr. Salzman an amount equal to 3 months of his then current base salary. Upon such a termination of the employment agreement following the first two full financial reporting quarters of Gryphon, Gryphon will pay Mr. Salzman an amount equal to (a) 12 months of his then current base salary, plus (b) Mr. Salzman’s then-current annual bonus target.


Outstanding Equity Awards at 2023 Fiscal Year-End

A summary of the number and the value of the outstanding equity awards as of December 31, 2022 held by the named executive officers is set out in the table below.

  Stock Awards(1) 

Name

 Number of
Shares or
Units of
Stock
That Have Not 
Vested
(#)		  Market Value 
of Shares or
Units of Stock
That Have Not 
Vested
($)		  Equity Incentive
Plan Awards:
Number of
Unearned
Shares, Units or
Other Rights
That Have Not 
Vested
(#)		  Equity
Incentive Plan 
Awards: Market 
or Payout Value 
of Unearned
Shares, Units or
Other Rights
That Have Not 
Vested
($)		 
Jessica Billingsley  —   —   250(2)  109 
Chief Executive Officer  —   —   250(3)  109 
                 
Ray Thompson  —   —   250(2)  109 
Chief Operating Office  —   —   250(3)  109 
                 
David McCullough  —   —   250(2)  109 
Chief Technology Officer  —   —   250(3)  109 

(1)Each RSU represents a contingent right to receive one share of Common Stock of the Company.

(2)Represents 250 RSUs which were scheduled to vest on July 1, 2024.

(3)Represents 250 RSUs which were scheduled to vest on December 1, 2024.

Pension Benefits

None of our employees participate in or have account balances in qualified or non-qualified defined benefit plans sponsored by us. Our Compensation Committee may elect to adopt qualified or non-qualified benefit plans in the future if it determines that doing so is in our company’s best interest.


Non-qualified Deferred Compensation

None of our employees participate in or have account balances in non-qualified defined contribution plans or other non-qualified deferred compensation plans maintained by us. Our Compensation Committee may elect to provide our officers and other employees with non-qualified defined contribution or other non-qualified compensation benefits in the future if it determines that doing so is in our company’s best interest.

Employee Benefits and Stock Plans

2024 Omnibus Incentive Plan

Set forth below is a summary of the material features of the 2024 Plan, which was adopted in connection with the closing of the Business Combination.

The 2024 Plan provides for the following grants: (a) incentive stock options (within the meaning of Section 422 of the Internal Revenue Code of 1986 (the “Code”)) (“ISO” or “ISOs”); (b) nonstatutory stock options (i.e., options other than ISOs) (“NSO” or “NSOs”), (c) stock appreciation rights (“SAR” or “SARs”), (d) restricted stock grants, (e) restricted stock unit grants (“RSU” or “RSUs”), (f) performance grants, and (g) other grants based in whole or in part by reference to shares that are granted pursuant to the terms and conditions of the 2024 Plan.

Subject to any Capitalization Adjustment (as defined and described below) and the automatic increase (as described later in this paragraph), and any other applicable provisions in the 2024 Plan, the total number of shares reserved and available for issuance pursuant to the 2024 Plan is 5,810,033 shares which was 15% of the total number of shares of Common Stock outstanding at the closing of the Business Combination (the “Share Reserve”). The Share Reserve will automatically increase on January 1st of each year, for a period of not more than ten years, commencing on January 1, 2025 and ending on (and including) January 1, 2033 by the lesser of (a) 3% of the total number of the shares of Common Stock outstanding on December 31st of the immediately preceding calendar year, and (b) such number of shares determined by the Board.

Following the effective date of the 2024 Plan (the “Plan Effective Date”), any shares subject to an outstanding grant or any portion thereof granted under the 2024 Plan will be returned to the Share Reserve and will be available for issuance in connection with subsequent grants under the 2024 Plan to the extent such shares: (a) are cancelled, forfeited, or settled in cash; (b) are used to pay the exercise price of such outstanding grant or any Tax-Related Items (as defined below) arising in connection with vesting, exercise or settlement of such outstanding grant; (c) are surrendered pursuant to an Exchange Program (as defined below); (d) expire by their terms at any time; or (e) are reacquired by the Company pursuant to a forfeiture provision or repurchase right by the Company (collectively, “Returning Shares”). Shares subject to Substitute Grants (as defined below) will not be deducted from the Share Reserve and may not be returned to the Share Reserve as Returning Shares.

Subject to the provisions relating to Capitalization Adjustments described below, the maximum number of shares that may be issued pursuant to the exercise of ISOs is 5,810,033 shares which was 15% of the total number of shares of common stock outstanding at the closing of the Merger (the “Incentive Stock Option Limit”).

If, after the Plan Effective Date, the number of outstanding shares is changed or the value of the shares is otherwise affected by a stock dividend, extraordinary dividend or distribution (whether in cash, shares or other property, other than a regular cash dividend) recapitalization, stock split, reverse stock split, subdivision, combination, consolidation, reclassification, spin-off or similar change in the capital structure of the Company or any similar equity restructuring transaction, as that term is used in Statement of Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor thereto), without consideration (a “Capitalization Adjustment”), then (a) the maximum number and class of shares or type of security reserved for issuance and future grant from the Share Reserve, (b) the exercise price, purchase price, and number and class of shares or type of security subject to outstanding grants, and (c) the number and class of shares subject to the Incentive Stock Option Limit, will be proportionately adjusted, subject to any required action by the board of directors or the stockholders of the Company and in compliance with applicable laws; provided that fractions of a share will not be issued.

The shares issuable under the 2024 Plan will be authorized but unissued or forfeited shares, treasury shares or shares reacquired by the Company in any manner.


Incentive stock options may be granted only to employees of the Company, and its parent and any subsidiary entities (to the extent permitted under Section 422 of the Code). All other grants may be granted to employees, consultants and directors, provided such consultants and directors render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction.

The maximum number of shares subject to grants (and of cash subject to cash-settled grants) granted under the 2024 Plan or otherwise during any one calendar year to any non-employee director for service on the board of directors, taken together with any cash fees paid by the Company to such non-employee director during such calendar year for service on the board of directors, will not exceed $1,000,000 in total value (calculating the value of any such grants based on the grant date fair value of such grants for financial reporting purposes).

Each option or SAR will be in such form and will contain such terms and conditions as the Administrator (defined below) deems appropriate. Each SAR will be denominated in share equivalents. The provisions of separate options or SARs need not be identical.

Options and SARs may be exercisable within the times or upon the events determined by the Administrator and as set forth in the grant agreement governing such grant. No option or SAR will be exercisable after the expiration of ten (10) years from the date the option or SAR is granted, or such shorter period specified in the grant agreement. In addition, in the case of an ISO granted to a person who, at the time the ISO is granted, directly or by attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any parent or subsidiary (“Ten Percent Holder”), such option may not be exercisable after the expiration of five (5) years from the date the ISO is granted.

The exercise price of an option or SAR will be such price as is determined by the Administrator and set forth in the grant agreement; provided that (a) in the case of an ISO (i) granted to a Ten Percent Holder, the exercise price will be no less than one hundred ten percent (110%) of the fair market value (as defined in the 2024 Plan) on the date of grant and (ii) granted to any other employee, the exercise price will be no less than one hundred percent (100%) of the fair market value on the date of grant, and (b) in the case of an NSO or SAR, the exercise price will be such price as is determined by the Administrator. Notwithstanding the foregoing, an option or SAR that is a Substitute Grant (as defined below) may be granted with an exercise price lower than one hundred percent (100%) of the fair market value.

Upon exercise of a SAR, a grantee will be entitled to receive payment from the Company in an amount determined by multiplying (a) the difference between the fair market value of a share on the date of exercise over the exercise price, by (b) the number of shares with respect to which the SAR is exercised. At the discretion of the Administrator, the payment from the Company for the SAR exercise may be in cash, in shares of equivalent value, or in some combination thereof.

Unless explicitly provided otherwise in a grantee’s grant agreement, if a grantee’s continuous service status (as defined in the 2024 Plan) is terminated, the grantee (or his or her legal representative, in the case of death) may exercise his or her option or SAR (to the extent such grant was exercisable on the termination date) within the following period of time following the termination of the grantee’s continuous service status: (a) three (3) months following a termination of a grantee’s continuous service status by the Company or any parent or subsidiary without cause (as defined in the 2024 Plan) or by the grantee for any reason (other than due to death or disability (as disability is defined in the Plan)); (b) six (6) months following a termination due to the grantee’s disability; (c) twelve (12) months following a termination due to the grantee’s death; and (d) twelve (12) months following the grantee’s death, if such death occurs following the date of such termination but during the period such grant is otherwise exercisable (as provided in clauses (a) or (b) above).


Except as otherwise provided in the grant agreement, if a grantee’s continuous service status is terminated by the Company or any parent or subsidiary for cause, the grantee’s options or SARs will terminate and be forfeited immediately upon such grantee’s termination of continuous service status, and the grantee will be prohibited from exercising any portion (including any vested portion) of such grants on and after the date of such termination of continuous service status.

To the extent that the aggregate fair market value of shares with respect to which options designated as ISOs are exercisable for the first time by any grantee during any calendar year (under all plans of the Company or any parent or subsidiary of the Company) exceeds One Hundred Thousand Dollars ($100,000), such excess options will be treated as NSOs. For this purpose, ISOs will be taken into account in the order in which they were granted, and the fair market value of the shares subject to an ISO will be determined as of the date of the grant of such option.

Without stockholder approval, the Administrator may modify, extend or renew outstanding options or SARs, and authorize the grant of new options or SARs in substitution therefor, including in connection with an Exchange Program. Any such action may not, without the written consent of a grantee, materially impair any of such grantee’s rights under any grant previously granted, except that the Administrator may reduce the exercise price of an outstanding option or SAR without the consent of a grantee by a written notice (notwithstanding any adverse tax consequences to the grantee arising from the repricing); provided, however, that the exercise price may not be reduced below the fair market value on the date the action is taken to reduce the exercise price.

A restricted stock grant is an offer by the Company to sell or issue (with no payment required, unless explicitly provided otherwise in a grantee’s grant agreement) shares to a grantee that are subject to certain specified restrictions. Each restricted stock grant will be in such form and will contain such terms and conditions as the Administrator will deem appropriate. The terms and conditions of restricted stock grants may change from time to time, and the terms and conditions of separate grant agreements need not be identical.

The purchase price for shares issued pursuant to a restricted stock grant, if any, will be determined by the Administrator on the date the restricted stock grant is granted and, if permitted by applicable law, no cash consideration will be required in connection with the payment for the purchase price where the Administrator provides that payment will be in the form of services previously rendered.

Grantees holding restricted stock grants will be entitled to receive all dividends and other distributions paid with respect to such shares, unless the Administrator provides otherwise at the time the grant is granted. If any such dividends or distributions are paid in shares, the shares will be subject to the same restrictions on transferability and forfeitability as the restricted stock grants with respect to which they were paid.

An RSU grant is a grant covering a number of shares that may be settled in cash, or by issuance of those shares at a date in the future. Each RSU grant will be in such form and will contain such terms and conditions as the Administrator will deem appropriate. The terms and conditions of RSU grants may change from time to time, and the terms and conditions of separate grant agreements need not be identical. Unless otherwise determined by the Administrator, no purchase price will apply to an RSU settled in shares. Payment of vested RSUs will be made as soon as practicable after the date(s) determined by the Administrator and set forth in the grant agreement. The Administrator, in its sole discretion, may settle vested RSUs in cash, shares, or a combination of both.

The Administrator may permit grantees holding RSUs to receive dividend equivalent rights (as defined in the 2024 Plan) on outstanding RSUs if and when dividends are paid to stockholders on shares. In the discretion of the Administrator, such dividend equivalent rights may be paid in cash or shares, and may either be paid at the same time as dividend payments are made to stockholders or delayed until shares are issued pursuant to the underlying RSUs, and may be subject to the same vesting or performance requirements as the RSUs. If the Administrator permits dividend equivalent rights to be made on RSUs, the terms and conditions for such dividend equivalent rights will be set forth in the applicable grant agreement.

A performance grant is a grant that may be granted, may vest or may become eligible to vest contingent upon the attainment during a performance period of performance goals determined by the Administrator. Performance grants may be granted as options, SARs, restricted stock, RSUs or other grants, including cash-based grants.


Performance grants will be based on the attainment of performance goals that are established by the Administrator for the relevant performance period. Prior to the grant of any performance grant, the Administrator will determine and each grant agreement will set forth the terms of each performance grant. A performance grant may but need not require the grantee’s completion of a specified period of service. The Administrator will determine the extent to which a performance grant has been earned in its sole discretion. The Administrator may reduce or waive any criteria with respect to a performance goal, or adjust a performance goal (or method of calculating the attainment of a performance goal) to take into account unanticipated events, including changes in law and accounting or tax rules, as the Administrator deems necessary or appropriate, or to reflect the impact of extraordinary or unusual items, events or circumstances to avoid windfalls or hardships. The Administrator may also adjust or eliminate the compensation or economic benefit due upon attainment of performance goals in its sole discretion, subject to any limitations contained in the grant agreement and compliance with applicable law.

Other forms of grants valued in whole or in part by reference to, or otherwise based on, shares, including the appreciation in value thereof (e.g., options or stock rights with an exercise price or strike price less than 100% of the fair market value of the shares at the time of grant) may be granted either alone or in addition to other grants provided for in the 2024 Plan. Subject to the provisions of the 2024 Plan and applicable law, the Administrator may determine the persons to whom and the time or times at which such other grants will be granted, the number of shares (or the cash equivalent thereof) to be granted pursuant to such other grants and all other terms and conditions of such other grants.

Payment from a grantee for shares acquired pursuant to the 2024 Plan may be made in cash or cash equivalents or, where approved for the grantee by the Administrator and where permitted by applicable law (and to the extent not otherwise set forth in the applicable grant agreement): (a) by cancellation of indebtedness of the Company owed to the grantee; (b) by surrender of shares held by the grantee that are clear of all liens, claims, encumbrances or security interests and that have a fair market value on the date of surrender equal to the aggregate payment required; (c) by waiver of compensation due or accrued to the grantee for services rendered or to be rendered to the Company or an affiliate; (d) by consideration received by the Company pursuant to a broker-assisted or other form of cashless exercise program implemented by the Administrator in connection with the 2024 Plan; (e) by the Company withholding otherwise deliverable shares having a fair market value on the date of withholding equal to the aggregate payment required; (f) by any combination of the foregoing; or (g) by any other method of payment as is permitted by applicable law.

 

Regardless of any action taken by the Company or any affiliate, the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account, employment tax, stamp tax or other Tax-Related Items related to the grantee’s participation in the 2024 Plan and legally applicable to the grantee, including any employer liability for which the grantee is liable (the “Tax-Related Items”) is the grantee’s responsibility.

Unless otherwise provided in the grantee’s grant agreement, the Administrator, or its delegate(s) (as permitted by applicable law), in its sole discretion and pursuant to such procedures as it may specify from time to time and subject to limitations of applicable law, may require or permit a grantee to satisfy any applicable withholding obligations for Tax-Related Items, in whole or in part by (without limitation): (a) requiring the grantee to make a cash payment; (b) withholding from the grantee’s wages or other cash compensation paid to the grantee by the Company or any affiliate; (c) withholding from the shares otherwise issuable pursuant to a grant; (d) permitting the grantee to deliver to the Company already-owned shares or (e) withholding from the proceeds of the sale of otherwise deliverable shares acquired pursuant to a grant either through a voluntary sale or through a mandatory sale arranged by the Company. The Company or an affiliate may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates, including up to the maximum applicable rate in the grantee’s jurisdiction.

Except as expressly provided in the 2024 Plan or an applicable grant agreement, or otherwise determined by the Administrator, grants granted under the 2024 Plan will not be transferable or assignable by the grantee, other than by will or by the laws of descent and distribution. Any options, SARs or other grants that are exercisable may only be exercised: (a) during the grantee’s lifetime only by (i) the grantee, or (ii) the grantee’s guardian or legal representative; (b) after the grantee’s death, by the legal representative of the grantee’s heirs or legatees. The Administrator may permit transfer of grants in a manner that is not prohibited by applicable law.

No grantee will have any of the rights of a stockholder with respect to any shares until the shares are issued to the grantee, except for any dividend equivalent rights permitted by an applicable grant agreement. After shares are issued to the grantee, the grantee will be a stockholder and have all the rights of a stockholder with respect to such shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such shares, subject to any repurchase or forfeiture provisions in any restricted stock grant, the terms of the Company’s insider trading policy, and applicable law.


Without prior stockholder approval, the Administrator may conduct an Exchange Program, subject to consent of an affected grantee (unless not required in connection with a repricing pursuant to the 2024 Plan, or under the terms of a grant agreement) and compliance with applicable law. For purposes of the 2024 Plan, “Exchange Program” means a program pursuant to which (a) outstanding grants are surrendered, cancelled or exchanged for cash, the same type of grant or a different grant (or combination thereof) or (b) the exercise price of an outstanding grant is increased or reduced.

All grants granted under the 2024 Plan will be subject to clawback or recoupment under any clawback or recoupment policy adopted by the board of directors or the Administrator or required by applicable law during the term of grantee’s employment or other service with the Company that is applicable to officers, employees, directors or other service providers of the Company. In addition, the Administrator may impose such other clawback, recovery or recoupment provisions in a grant agreement as the Administrator determines necessary or appropriate.

Except as otherwise provided in the applicable grant agreement or as determined by the Administrator, if a grantee’s continuous service status terminates for any reason, vesting of a grant will cease and such portion of a grant that has not vested will be forfeited, and the grantee will have no further right, title or interest in any then-unvested portion of the grant. In addition, the Company may receive through a forfeiture condition or a repurchase right any or all of the shares held by the grantee under a restricted stock grant that have not vested as of the date of such termination, subject to the terms of the applicable grant agreement.

In the event that the Company is subject to a change in control (as defined in the 2024 Plan), outstanding grants acquired under the 2024 Plan will be subject to the agreement evidencing the change in control, which need not treat all outstanding grants in an identical manner. Such agreement, without the grantee’s consent, may provide for one or more of the following with respect to all outstanding grants as of the effective date of such change in control: (a) the continuation of an outstanding grant by the Company (if the Company is the successor entity); (b) the assumption of an outstanding grant by the successor or acquiring entity (if any) of such change in control (or by its parents, if any); (c) the substitution by the successor or acquiring entity in such change in control (or by its parents, if any) of equivalent awards with substantially the same terms for such outstanding grants; (d) the full or partial acceleration of exercisability or vesting and accelerated expiration of an outstanding grant and lapse of the Company’s right to repurchase or re-acquire shares acquired under a grant or lapse of forfeiture rights with respect to shares acquired under a grant; (e) the settlement of such outstanding grant (whether or not then vested or exercisable) in cash, cash equivalents, or securities of the successor entity (or its parent, if any) with a fair market value equal to the required amount provided in the definitive agreement evidencing the change in control, followed by the cancellation of such grants; or (e) the cancellation of outstanding grants in exchange for no consideration.

The Company, from time to time, may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either (a) granting a grant under the 2024 Plan in substitution of such other company’s award; or (b) assuming such award as if it had been granted under the 2024 Plan if the terms of such assumed award could be applied to a grant granted under the 2024 Plan (a “Substitute Grant”). Such substitution or assumption will be permissible if the holder of the Substitute Grant would have been eligible to be granted a grant under the 2024 Plan if the other company had applied the rules of the 2024 Plan to such grant. The exercise price and the number and nature of shares issuable upon exercise or settlement of any such Substitute Grant will be adjusted appropriately pursuant to Section 424(a) of the Code and/or Section 409A of the Code, as applicable.

The 2024 Plan will be administered by the Compensation Committee or the Board acting as the Compensation Committee(the “Administrator”). Without limitation, the Administrator will have the authority to, subject to the preceding sentence: construe and interpret the 2024 Plan, any grant agreement and any other agreement or document executed pursuant to the 2024 Plan; prescribe, amend, expand, modify and rescind or terminate rules and regulations relating to the 2024 Plan or any grant (including the terms or conditions of any grant); approve persons to receive grants; determine the form, terms and conditions of grants; determine the number of shares or other consideration subject to grants; determine the fair market value in good faith and interpret the applicable provisions of the 2024 Plan and the definition of fair market value in connection with circumstances that impact the fair market value, if necessary; determine whether grants will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to, other grants under the 2024 Plan or awards under any other incentive or compensation plan of the Company or any affiliate; grant waivers of any conditions of the 2024 Plan or any grant; determine the vesting, exercisability and payment of grants; correct any defect, supply any omission or reconcile any inconsistency in the 2024 Plan, any grant or any grant agreement; determine whether a grant has been earned or has vested; determine the terms and conditions of any, and to institute any exchange program; adopt or revise rules and/or procedures (including the adoption or revision of any subplan under the 2024 Plan) relating to the operation and administration of the 2024 Plan to facilitate compliance with requirements of local law and procedures outside the united States (provided that board of directors approval will not be necessary for immaterial modifications to the 2024 Plan or any grant agreement made to ensure or facilitate compliance with the laws or regulations of the relevant foreign jurisdiction); delegate any of the foregoing to one or more persons pursuant to a specific delegation as permitted by the terms of the 2024 Plan and applicable law, including Section 157(c) of the Delaware General Corporation Law; and make all other determinations necessary or advisable in connection with the administration of the 2024 Plan. We expect that our Compensation Committee will administer the 2024 Plan.


To the maximum extent permitted by applicable laws, each member of the Administrator (including officers of the Company or an affiliate of the Company, if applicable), or of the board of directors, as applicable, will be indemnified and held harmless by the Company against and from (i) any loss, cost, liability or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the 2024 Plan or pursuant to the terms and conditions of any grant except for actions taken in bad faith or failures to act in good faith, and (ii) any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such claim, action, suit or proceeding against him or her; provided that such member will give the Company an opportunity, at its own expense, to handle and defend any such claim, action, suit or proceeding before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification will not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s Certificate of Incorporation or Bylaws, by contract, as a matter of law or otherwise, or under any other power that the Company may have to indemnify or hold harmless each such person.

The 2024 Plan and all grants granted thereunder will be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to that body of laws pertaining to conflict of laws.

The Administrator may amend the 2024 Plan or any grant in any respect the Administrator deems necessary or advisable, subject to the limitations of applicable law and the 2024 Plan. If required by applicable law, the Company will seek stockholder approval of any amendment of the 2024 Plan that (a) materially increases the number of shares available for issuance under the 2024 Plan (excluding any Capitalization Adjustment); (b) materially expands the class of individuals eligible to receive grants under the 2024 Plan; (c) materially increases the benefits accruing to grantees under the 2024 Plan; (d) materially reduces the price at which shares may be issued or purchased under the 2024 Plan; (e) materially extends the term of the 2024 Plan; (f) materially expands the types of grants available for issuance under the 2024 Plan; or (g) as otherwise required by applicable law.

The 2024 Plan will terminate automatically on the tenth (10th) anniversary of the Plan Effective Date. No grant will be granted pursuant to the 2024 Plan after such date, but grants previously granted may extend beyond that date. The Administrator may suspend or terminate the 2024 Plan at any earlier date at any time. No grants may be granted under the 2024 Plan while the 2024 Plan is suspended or after it is terminated.

No amendment, suspension or termination of the 2024 Plan or any grant may materially impair a grantee’s rights under any outstanding grant, except with the written consent of the affected grantee or as otherwise expressly permitted in the 2024 Plan. Subject to the limitations of applicable law, if any, the Administrator may amend the terms of any one or more grants without the affected grantee’s consent (a) to maintain the qualified status of the grant as an ISO under Section 422 of the Code; (b) to change the terms of an ISO, if such change results in impairment of the grant solely because it impairs the qualified status of the grant as an ISO; (c) to clarify the manner of exemption from, or to bring the grant into compliance with, Section 409A of the Code; or (d) to facilitate compliance with other applicable laws.

Summary of U.S. Federal Income Tax Consequences

The following summary is intended only as a general guide to the U.S. federal income tax consequences of participation in the 2024 Plan. The summary is based on existing U.S. laws and regulations, and there can be no assurance that those laws and regulations will not change. The summary is not complete and does not discuss the tax consequences upon a grantee’s death, or the income tax laws of any municipality, state or foreign country in which the grantee may reside. Tax consequences for any particular grantee may vary based on individual circumstances.

Incentive Stock Options. A grantee recognizes no taxable income for regular income tax purposes because of the grant or exercise of an option that qualifies as incentive stock option under Section 422 of the Code. If a grantee exercises the option and then later sells or otherwise disposes of the shares acquired through the exercise the option after both the two-year anniversary of the date the option was granted and the one-year anniversary of the exercise, the grantee will recognize a capital gain or loss equal to the difference between the sale price of the shares and the exercise price, and we will not be entitled to any deduction for federal income tax purposes.


However, if the grantee disposes of such shares either on or before the two-year anniversary of the date of grant or on or before the one-year anniversary of the date of exercise (a “disqualifying disposition”), any gain up to the excess of the fair market value of the shares on the date of exercise over the exercise price generally will be taxed as ordinary income, unless the shares are disposed of in a transaction in which the grantee would not recognize a loss (such as a gift). Any gain in excess of that amount will be a capital gain. If a loss is recognized, there will be no ordinary income, and such loss will be a capital loss. Any ordinary income recognized by the grantee upon the disqualifying disposition of the shares generally should be deductible by the Company for federal income tax purposes, except to the extent such deduction is limited by applicable provisions of the Code.

For purposes of the alternative minimum tax, the difference between the option exercise price and the fair market value of the shares on the exercise date is treated as an adjustment item in computing the grantee’s alternative minimum taxable income in the year of exercise. In addition, special alternative minimum tax rules may apply to certain subsequent disqualifying dispositions of the shares or provide certain basis adjustments or tax credits for purposes.

Nonstatutory Stock Options. A grantee generally recognizes no taxable income as the result of the grant of such an option. However, upon exercising the option, the grantee normally recognizes ordinary income equal to the amount that the fair market value of the shares on such date exceeds the exercise price. If the grantee is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of the shares acquired by exercising a nonstatutory stock option, any gain or loss (based on the difference between the sale price and the fair market value on the exercise date) will be taxed as capital gain or loss. Any ordinary income recognized by the grantee upon exercising a nonstatutory stock option generally should be deductible by the Company for federal income tax purposes, except to the extent such deduction is limited by applicable provisions of the Code. No tax deduction is available to the Company with respect to the grant of a nonstatutory stock option or the sale of the shares acquired through the exercise of the nonstatutory stock option.

Stock Appreciation Rights. In general, no taxable income is reportable when a stock appreciation right is granted to a grantee. Upon exercise, the grantee generally will recognize ordinary income equal to the fair market value of any shares received. Any additional gain or loss recognized upon any later disposition of the shares would be capital gain or loss.

Restricted Stock Awards. A grantee acquiring shares of restricted stock generally will recognize ordinary income equal to the fair market value of the shares on the vesting date, reduced by any amount paid by the grantee for such shares. If the grantee is an employee, such ordinary income generally is subject to withholding of income and employment taxes. The grantee may elect, under Section 83(b) of the Code to accelerate the ordinary income tax event to the date of acquisition by filing an election with the Internal Revenue Service no later than thirty (30) days after the date the shares are acquired. Upon the sale of shares acquired under a restricted stock award, any gain or loss, based on the difference between the sale price and the fair market value on the date the ordinary income tax event occurs, will be taxed as capital gain or loss.

Restricted Stock Unit Awards. There are no immediate tax consequences of receiving an award of restricted stock units. A grantee who is awarded restricted stock units generally will recognize ordinary income equal to the fair market value of shares issued to such grantee at the end of the applicable vesting period or, if later, the settlement date elected by the administrator or a grantee. Any additional gain or loss recognized upon any later disposition of any shares received would be capital gain or loss.

Performance Shares and Performance Unit Awards. A grantee generally will recognize no income upon the grant of a performance share or a performance unit award. Upon the settlement of such awards, grantees normally will recognize ordinary income in the year of receipt in an amount equal to the cash received and the fair market value of any cash or unrestricted shares received. If the grantee is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of any shares received, any gain or loss, based on the difference between the sale price and the fair market value on the date the ordinary income tax event occurs, will be taxed as capital gain or loss.

Section 409A. Section 409A of the Code provides certain requirements for non-qualified deferred compensation arrangements with respect to an individual’s deferral and distribution elections and permissible distribution events. Awards granted under the 2024 Plan with a deferral feature will be subject to the requirements of Section 409A of the Code. If an award is subject to and fails to satisfy the requirements of Section 409A of the Code, the recipient of that award may recognize ordinary income on the amounts deferred under the award, to the extent vested, which may be before the compensation is actually or constructively received. Also, if an award subject to Section 409A of the Code violates the provisions of Section 409A of the Code, Section 409A of the Code imposes an additional 20% federal income tax on compensation recognized as ordinary income, and interest on such deferred compensation.


Tax Effect for the Company. We generally will be entitled to a tax deduction in connection with an award under the 2024 Plan equal to the ordinary income realized by a grantee when the grantee recognizes such income (for example, the exercise of a nonstatutory stock option) except to the extent such deduction is limited by applicable provisions of the Code. Special rules limit the deductibility of compensation paid to our chief executive officer, chief financial officer and other “covered employees” as determined under Section 162(m) of the Code and applicable guidance. Under Section 162(m) of the Code, the annual compensation paid to any of these specified executives will be deductible only to the extent that it does not exceed $1,000,000.

THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF U.S. FEDERAL INCOME TAXATION UPON GRANTEES AND THE COMPANY WITH RESPECT TO AWARDS UNDER THE 2024 PLAN. IT DOES NOT PURPORT TO BE COMPLETE AND DOES NOT DISCUSS THE IMPACT OF EMPLOYMENT OR OTHER TAX REQUIREMENTS, THE TAX CONSEQUENCES OF A GRANTEE’S DEATH, OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE, OR FOREIGN COUNTRY IN WHICH THE GRANTEE MAY RESIDE.

Benefits and Perquisites

The Company is in the process of developing a benefits program for its named executive officers, which will include medical, dental, vision, life and AD&D insurance, as well as short- and long-term disability coverage. Additionally, flexible spending accounts, vacation time, paid holidays, and participation in a 401(k) plan are being considered as part of our benefits package.

Compensation of Directors

Director Compensation for Legacy Gryphon

The following table and accompanying narrative set forth information about the 2023 compensation provided to certain of members of the Legacy Gryphon Board and the Akerna Board, all of whom currently serve as members of the Board of Directors of the Company. These individuals are as follows:

●Rob Chang (current member of the Gryphon Board)

●Brittany Kaiser (current member of the Gryphon Board)

●Jessica Billingsley (Chief Executive Officer of Akerna and Chairperson of the Akerna Board)

Rob Chang is a Gryphon named executive officer who also served on the Gryphon Board of directors during 2022. The 2023 compensation information for Mr. Chang is presented in the Summary Compensation Table above and he was not entitled to any additional compensation for his service on the Gryphon Board during 2022 or 2023. Jessica Billingsley served as Chairperson of the Akerna Board and Akerna’s Chief Executive Officer.

Name Fees
Earned
($)		  Stock
Awards
($)		  Total
($)		 
Rob Chang —  —  — 
Brittany Kaiser  200,000   —   200,000 
Heather Cox  50,625   94,830   145,455 
Steve Gutterman  50,625   94,830   145,455 
Jessica Billingsley(1)  —   —   — 

(1)At the end of 2023, Ms. Billingsley held no unvested equity awards.

Prior to the Closing, Gryphon did not have a formal compensation policy for non-employee directors and instead entered into Director Agreements with its directors. Gryphon is in the process of reviewing and evaluating its compensation framework as a result of becoming a publicly-traded company, and intends to adopt a new policy for compensation of non-employee directors.


Director Agreement with Ms. Kaiser

Ms. Kaiser and Gryphon entered into a Director Agreement on May 12, 2021, pursuant to which she agreed to serve Gryphon as a member of the Gryphon Board upon the terms and conditions set forth in Director Agreement, subject to any necessary approval by Gryphon’s stockholders after an initial one-year term on the Gryphon Board. The Director Agreement requires Ms. Kaiser to use her best efforts to promote the interests of Gryphon and to dedicate a minimum of 20 hours per week to Gryphon. Under the Director Agreement, Ms. Kaiser is entitled to a base fee of $200,000 per year, which may not be reduced without the written consent of Ms. Kaiser. During the term of Director Agreement, Gryphon will reimburse Ms. Kaiser for all reasonable out-of-pocket expenses incurred by Ms. Kaiser, subject to certain pre-approval requirements. In connection with the entry into the Director Agreement, Achayot Partners LLC received 700,000 shares of Gryphon’s common stock. Ms. Kaiser is the CEO and 50% owner of Achayot Partners LLC with Natalie Kaiser, the other 50% owner of Achayot Partners LLC. The term of the Director Agreement is the period commencing on the May 12, 2021 and terminating upon the earliest of (a) May 12, 2024; (b) the death of Ms. Kaiser; (c) the termination of Ms. Kaiser from her membership on the Gryphon Board by the mutual agreement of Gryphon and Ms. Kaiser; (d) the removal of Ms. Kaiser from the Gryphon Board by the majority stockholders of Gryphon or the stockholder who appointed Ms. Kaiser, as applicable; and (e) the resignation by Ms. Kaiser from the Gryphon Board. During her service as a member of the Gryphon Board and for a period of one year thereafter, Ms. Kaiser will not interfere with Gryphon’s relationship with, or endeavor to entice away from Gryphon, any person who, on the date of the termination of Ms. Kaiser’s service as a member of the Gryphon Board and/or at any time during the one year period prior to the termination of such service, was an employee or customer of Gryphon or otherwise had a material business relationship with Gryphon. Ms. Kaiser is also subject to a customary non-competition covenant in favor of Gryphon during her service as a member of the Gryphon Board and for a period of six months thereafter. Under the Director Agreement, Gryphon will indemnify Ms. Kaiser for her activities as a member of the Gryphon Board to the fullest extent permitted under applicable law and will use its best efforts to maintain Directors and Officers Insurance benefitting the Gryphon Board.

In connection with the closing of the Merger, the board of directors of the combined company is expected to adopt a new non-employee director compensation policy. The new policy will be designed to attract and retain high quality non-employee directors by providing competitive compensation and to align their interests with the interests of the combined company’s stockholders through equity awards.

Director Compensation for Akerna

The following table sets forth the compensation granted to directors of Akerna who were not also executive officers during the fiscal year ended December 31, 2023 and who are not currently directors of the Company. Compensation to directors of Akerna that were not also executive officers is detailed above and is not included on this table.

Name Fees Earned or Paid in Cash
($)		  Stock
Awards
($)		  Option
Awards
($)		  Non-equity
Incentive Plan
Compensation
($)		  Nonqualified 
Deferred
Compensation
Earnings
($)		  All Other
Compensation
($)		  Total
($)		 
Barry Fishman  31,396     —   —      —      —       —   31,396 
Matt Kane  41,750   —   —   —   —   —   41,750 
Tahira Rehmatullah  41,750   —   —   —   —   —   41,750 
Scott Sozio(1)  175,000   —   —   —   —   —   175,000 

(1)Mr. Sozio receives compensation pursuant to his role as the Head of Corporate Development and is not compensated independently as a director.

Narrative Disclosure to Director Compensation Table for Akerna

Compensation granted to our directors who are not also executive officers or employees during the fiscal year ended December 31, 2023 was paid in cash including base annual compensation of $20,000 and annual committee fees of $21,750 for participation on each of the audit, compensation, corporate governance and nominating committees. Mr. Fishman’s compensation was prorated as he resigned as a director on November 15, 2023.

Compensation Policies and Practices and Risk Management

The Compensation Committee has reviewed the design and operation of Akerna’s compensation policies and practices for all employees, including executives, as they relate to risk management practices and risk-taking incentives. The Compensation Committee believes that Akerna’s compensation policies and practices do not encourage unnecessary or excessive risk taking and that any risks arising from Akerna’s compensation policies and practices for its employees are not reasonably likely to have a material adverse effect on Akerna.

Compensation Committee Interlocks and Insider Participation

No member of the Compensation Committee has ever been an officer or employee of Akerna. None of Akerna’s executive officers serve, or have served during the last fiscal year, as a member of the Board, compensation committee, or other board committee performing equivalent functions of any other entity that has one or more executive officers serving as one of Akerna’s directors or on the Compensation Committee.


Item 12. Security Ownership of Certain Beneficial Owners and Management, and Related Stockholder Matters

 

The following table sets forth information required by this item is incorporated by referenceregarding the beneficial ownership of our shares of Common Stock as of March 29, 2024 based on information obtained from the persons named below, with respect to the relevant information frombeneficial ownership of our Proxy Statement to be filed in connection with our 2022 Annual Meetingshares of Shareholders within 120 days after the end of the fiscal year ended December 31, 2021.Common Stock, by:

 

●each person known by us to be the beneficial owner of more than 5% of our outstanding our shares of Common Stock;

●each of our executive officers and directors that beneficially owns our shares of Common Stock; and

●all our executive officers and directors as a group.

In the table below, percentage ownership is based on 38,800,340 shares of our Common Stock, issued and outstanding as of March 29, 2024.

Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them.

Name of Beneficial Owner Total # of
Shares
Beneficially
Owned		  Percentage of
Ownership(1)		 
Robby Chang(2)  3,309,648   9.3%
Brittany Kaiser(3)  1,178,349   3.3%
Simeon Salzman  109,642   * 
Heather Cox  13,677   * 
Steve Gutterman  13,677   * 
Jessica Billingsley(4)  3,094   * 
All directors and officers as a group (6 persons named above)  4,628,087   13.2%
         
Other 5% Stockholders        
Dan Tolhurst(5)  3,309,649   9.3%
Roxy Capital Corp.(6)  3,309,362   9.3%
RJL 18 Capital Canada LP(7)  3,201,399   9.0%

*Represents beneficial ownership of less than 1%.
(1)Based on 35,423,906 shares of common stock outstanding as of March 29, 2024.
(2)Based on a Schedule 13D filed on February 16, 2024. Represents shares held by Chang Advisory Inc. Mr. Chang is the Chief Executive Officer of Chang Advisory Inc. and has voting and investment control over the shares held by it. Mr. Chang disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.
(3)Represents shares held by Achayot Partners LLC. Ms. Kaiser is the CEO and 50% owner of Achayot Partners LLC and shares voting and investment control over the shares held by it with Natalie Kaiser, the other 50% owner of Achayot Partners LLC. Ms. Kaiser disclaims beneficial ownership of such shares except to the extent of her pecuniary interest therein.
(4)Represents 2,696 shares held by Jessica Billingsley Living Trust and 398 shares held directly by Ms. Billingsley. Ms. Billingsley, the trustee of the Jessica Billingsley Living Trust, has sole and dispositive power over the shares held by the Jessica Billingsley Living Trust.
(5)Based on a Schedule 13G filed on February 22, 2024.
(6)Based on a Schedule 13G filed on February 16, 2024. Eric Lazer is the CEO and 100% owner of Roxy Capital Corp. and has voting and investment control over the shares held by it. Mr. Lazer disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.
(7)Based on a Schedule 13G filed on February 16, 2024. Dean Lazer is the CEO and 100% owner of RJL 18 Capital LP and has voting and investment control over the shares held by it. Mr. Lazer disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.


Item 13. Certain Relationships and Related Transactions, and Director Independence

Gryphon Transactions

 

The information required by this item is incorporated by referenceIn addition to the relevant informationcompensation arrangements in the section titled “Executive Compensation,” the following is a description of each transaction since January 1, 2022, and each currently proposed transaction, in which:

●Legacy Gryphon has been or is to be a participant;

●the amount involved exceeded or exceeds $120,000; and

●any of Legacy Gryphon’s directors, executive officers, or beneficial holders of more than 5% of any class of Legacy Gryphon’s capital stock, or any immediate family member of, or person sharing the household with, any of these individuals or entities, had or will have a direct or indirect material interest.

Brittany Kaiser, a director of the board of Gryphon, lives in the same residence as a principal of DecentraNet, LLC (“DecentraNet”). Gryphon, its founder and President Dan Tolhurst, and DecentraNet entered into an advisory agreement, dated February 9, 2021. Under this agreement, DecentraNet agreed to provide certain services for a two-year term. DecentraNet advised and collaborated with Gryphon to oversee strategic and operational functions, assist with recruiting candidates for its board of directors as well as other advisors, recruit core employees and consultants, prepare a business development roadmap, and recruit marketing and branding employees. As compensation, Gryphon agreed to grant DecentraNet restricted shares of common stock equal to 0.5% of its total equity, amounting to 62,340 shares. The restricted shares were to vest according to a two-year vesting schedule, under which the shares would have vested in 24 equal monthly installments from our Proxy Statementthe date of the agreement. Vesting was to be filedsubject to DecentraNet’s continuous service. In addition, Gryphon agreed to grant a percentage of gross revenues of any business partnerships brought to Gryphon by DecentraNet. The commission was to be 5% beginning on the date of the first payment or revenue generated, after which no further commissions would have been owed. In addition, if Gryphon had conducted an equity offering of a utility token and had an opinion letter from an AmLaw100 law firm or SEC no action letter confirming such; or where DecentraNet’s team acted as Tier 1 or Tier 2 finders under SEC guidance, DecentraNet or its team would have obtained referral-based cash compensation for funds raised through its network equal to 5% of funds raised. Had the total equity raised via DecentraNet’s network exceeded $5,000,000, DecentraNet would have been entitled to a success fee equal to 2% of its total equity. Had the total equity raised via DecentraNet’s network exceeded $10,000,000, DecentraNet would have been entitled to an additional success fee equal to 3% of its total equity, bringing the total success fee to 5% of its total equity. Gryphon also agreed to reimburse DecentraNet for necessary expenses. The agreement was terminated as of May 6, 2021, with the vesting of DecentraNet’s restricted shares accelerated to the date of termination.

Company Transactions

In addition to the compensation arrangements in the sections titled “Management” and “Executive Compensation,” the following is a description of each transaction since January 1, 2022, and each currently proposed transaction, in which:

●the Company has been or is to be a participant;

●the amount involved exceeded or exceeds $120,000; and

●any of the Company’s directors, executive officers, or beneficial holders of more than 5% of any class of the Company capital stock, or any immediate family member of, or person sharing the household with, any of these individuals or entities, had or will have a direct or indirect material interest.


Employment of Scott Sozio

In July 2019, we hired Mr. Scott Sozio, at will, to serve as our Head of Corporate Development. As restructured in August 2020, Mr. Sozio receives an annual base salary of $150,000, a one-time grant of $600,000 in restricted stock units (92,166 restricted stock units) issued in August 2020 vesting over 4 years, as discussed below, and deal related compensation of 0.5% of the transaction value of acquisition completed by Akerna, payable one-half in restricted stock units of Akerna at the option of the Board.

In April 2020, Mr. Sozio was granted 1,230 restricted stock units of the Akerna under our 2019 Equity Incentive Plan in relation to the closing of our acquisition of Trellis, which vested immediately. In August of 2020, Mr. Sozio’s compensation was restructured and he was granted 92,166 restricted stock units, which vest one quarter each year beginning on July 1, 2021. In September 2020, Mr. Sozio was granted 10,000 restricted stock units as part of our annual employee grants, which vest one quarter each year beginning on July 1, 2021 and 38,527 restricted stock units in connection with the closing of our 2022 Annual Meetingacquisition of Shareholders within 120 days afterAmple, which vested immediately. In April 2021, Mr. Sozio was granted 2,976 restricted stock units of the endAkerna under our 2019 Equity Incentive Plan in relation to the closing of our acquisition of Viridian, which vested immediately. In October 2021, Mr. Sozio was granted 29,210 restricted stock units of the Akerna under our 2019 Equity Incentive Plan in relation to the closing of our acquisition of 365 Cannabis, which vested immediately. In April 2021, Mr. Sozio was granted 10,000 restricted stock units as part of our annual employee grants, which vest one quarter each year beginning on December 1, 2021

Indemnification

Our amended and restated certificate of incorporation contains provisions limiting the liability of directors, and our amended and restated bylaws provides that we will indemnify the directors and executive officers to the fullest extent permitted under Delaware law. Our amended and restated certificate of incorporation and bylaws also provide the Board with discretion to indemnify the other officers, employees, and agents when determined appropriate by the Board. In addition, we entered into an indemnification agreement with each of its directors and executive officers, which requires us to indemnify them.

Related Person Transactions Policy and Procedure

Our Code of Ethics requires us to avoid, wherever possible, all related party transactions that could result in actual or potential conflicts of interests, except under guidelines approved by the Board (or the audit committee). Related-party transactions are defined as transactions in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) the Company or any of its subsidiaries is a participant, and (3) any (a) executive officer, director or nominee for election as a director, (b) greater than 5% beneficial owner of shares of Common Stock, or (c) immediate family member, of the persons referred to in clauses (a) and (b), has or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 10% beneficial owner of another entity). A conflict of interest situation can arise when a person takes actions or has interests that may make it difficult to perform his or her work objectively and effectively. Conflicts of interest may also arise if a person, or a member of his or her family, receives improper personal benefits as a result of his or her position.


Our audit committee, pursuant to its written charter, is responsible for reviewing and approving related-party transactions to the extent we enter into such transactions. The audit committee will consider all relevant factors when determining whether to approve a related party transaction, including whether the related party transaction is on terms no less favorable to us than terms generally available from an unaffiliated third-party under the same or similar circumstances and the extent of the related party’s interest in the transaction.

Item 14. Principal Accountant Fees and Services.

Marcum LLP was the Company’s independent registered public accounting firm for the fiscal years ended December 31, 2023 and 2022. As discussed in greater detail below, the following table shows the fees paid or accrued by us to Marcum during the fiscal years ended December 31, 2023 and 2022:

Type of Service 2023  2022 
Audit Fees $304,880  $325,480 
Audit-Related Fees (1)  222,694   118,965 
Tax Fees  —   — 
Other Fees  —   — 
Total $527,574  $444,445 

(1)For the years ended December 31, 2023 and 2022 audit-related fees related to registration statements.

“Audit Fees” relate to fees and expenses billed by Marcum for the annual audits, including the audit of our financial statements, review of our quarterly financial statements and for comfort letters and consents related to stock issuances.

“Audit-Related Fees” relate to fees for assurance and related services that traditionally are performed by independent auditors that are reasonably related to the performance of the audit or review of the financial statements, such as due diligence related to acquisitions and dispositions, attestation services that are not required by statute or regulation, internal control reviews and consultation concerning financial accounting and reporting standards.

“Tax Fees” relate to fees for all professional services performed by professional staff in our independent auditor’s tax division, except those services related to the audit of our financial statements. These include fees for tax compliance, tax planning and tax advice, including federal, state and local issues. Services may also include assistance with tax audits and appeals before the Internal Revenue Service and similar state and local agencies, as well as federal, state and local tax issues related to due diligence.

“All Other Fees” relate to fees for any services not included in the above-described categories.

As a result of the consummation of the Business Combination, RBSM LLP will be the Company’s independent registered public accounting firm for the fiscal year endedending December 31, 2021. 2024.

 

Item 14. Principal Accounting FeesPre-Approval Policies and ServicesProcedures

 

The information requiredAudit Committee charter provides that the Audit Committee will pre-approve all audit services and non-audit services to be provided by this itemour independent auditors before the accountant is incorporated by referenceengaged to render these services. The Audit Committee may delegate its authority to pre-approve services to one or more committee members, provided that the designees present the pre-approvals to the relevant information fromfull committee at the next committee meeting. Since the formation of our Proxy StatementAudit Committee, and on a going-forward basis, the Audit Committee has and will pre-approve all auditing services and permitted non-audit services to be filedperformed for us by our auditors, including the fees and terms thereof (subject to the de minimis exceptions for non-audit services described in connection with our 2022 Annual Meeting of Shareholders within 120 days after the endExchange Act which are approved by the audit committee prior to the completion of the fiscal year ended December 31, 2021. audit).


50



PART IV

 

Item 15. Exhibits, Financial Statement Schedules.

 

(a) The following documents are filed as part of this Report: 

 

Page
 

(1)

Report of Independent Registered Public Accounting Firm (PCAOB 00688); Marcum LLP, Los Angeles, CAF-2
Consolidated Balance Sheets as of December 31, 2023 and 2022F-3
Consolidated Statements of Operations for the Years Ended December 31, 2023 and 2022F-4
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2023 and 2022F-5
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2023 and 2022F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022F-7
Notes to Consolidated Financial Statements

F-8

 

Our audited consolidated balance sheets as of December 31, 2021, and 2020, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity and cash flows for the year ended December 31, 2021, the transitional six months ended December 31, 2020 and the year ended June 30, 2020, the footnotes thereto, and the report of Marcum LLP, independent registered public accounting firm, are filed herewith.

(2)Financial Statement Schedules:

 

(2)

Financial Schedules:

None.

FinancialAll financial statement schedules have beenare omitted because they are either not applicable or the amounts are immaterial and not required, or the required information is includedpresented in the financial statements orand notes hereto.   thereto beginning on page F-1 of this Report.

 

(3) Exhibits

 

Exhibit 
Number

 

Description

Number2.1+

 

 Description

2.1+

Agreement and Plan of Merger, dated as of October 10, 2018,January 27, 2023, by and among MTech Acquisition Corp., Akerna Corp., Purchaser Merger Sub Inc., Company Merger Sub LLC, MTech Sponsor LLC in the capacity as the Purchaser Representative thereunder, MJ Freeway LLC and Harold Handelsman in the capacity as the Seller Representative thereunderGryphon (incorporated by reference to Exhibit 2.1 to Akerna’sthe registrant’s Registration Statement on Form S-4 (File No. 333-228220))S-4/A filed on January 8, 2024)

2.2

 

First Amendment to Agreement and Plan of Merger, effectivedated as of April 17, 2019,28, 2023, by and among MTech Acquisition Corp., Akerna Corp., MTech Purchaser Merger Sub Inc., MTech Company Merger Sub LLC, MTech Sponsor LLC,, in the capacity as the Purchaser Representative under the Merger Agreement, MJ Freeway LLC, and Jessica Billingsley, in the capacity as the Seller Representative under the Merger AgreementGryphon (incorporated by reference to Exhibit 2.22.7 to Akerna’sthe registrant’s Registration Statement on Form S-4 (File No. 333-228220))S-4/A filed on January 8, 2024)

2.3
ArrangementSecond Amendment to Agreement and Plan of Merger dated December 18, 2019June 14, 2023, by and among Akerna Corp., Merger Sub and Gryphon (incorporated by reference to Exhibit 10.12.8 to the Current Reportregistrant’s Registration Statement on Form 8-KS-4/A filed by Akerna on December 18, 2019)January 8, 2024)
2.4
Amendment to Arrangement Agreement dated February 28, 2020 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Akerna on March 3, 2020)
2.5
Amendment No. 2 to Arrangement Agreement dated May 26, 2020 (incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K filed by Akerna on July 8, 2020)
2.6
Amendment No. 3 to Arrangement Agreement dated June 1, 2020 (incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K filed by Akerna on July 8, 2020)

3.1

 

Amended and Restated Certificate of Incorporation of Akerna Corp. (incorporated by reference to Exhibit 3.1 on Current Report on Form 8-K filed by Akerna on June 21, 2019)

3.2*

Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the registrant’s Quarterly Report on Form 10-KT10-Q filed by Akerna on March 31, 2021)November 14, 2022)

3.33.2
First Certificate of Designation for the Special Voting ShareAmendment to Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the registrant’s Quarterly Report on Form 10-Q filed on November 14, 2022)
3.3Certificate of Amendment for Name Change (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed by Akerna on July 8, 2020)February 13, 2024)
3.4*
Amended and Restated Bylaws
4.1*Description of Securities of the Registrant

4.14.2

 

Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Akerna’sthe registrant’s Registration Statement on Form S-4 (File No. 333-228220))S-4/A filed on January 8, 2024)

4.24.3

 

Specimen Warrant Certificate (incorporated by reference to Exhibit 4.2 to Akerna’sthe registrant’s Registration Statement on Form S-4 (File No. 333-228220))S-4/A filed on January 8, 2024)

4.34.4

 

Form of Warrant Agreement (incorporated by reference to Exhibit 4.3 onto Current Report on Form 8-K filed by Akerna on June 21, 2019)

514.5

 

4.4
Stock Purchase Agreement, dated September 13, 2021, relating to the 365 Cannabis acquisitionForm of Warrant (incorporated by reference to Exhibit 10.14.9 to the registrant’s post-effective amendment to Form S-1 filed on July 1, 2022)
4.6Form of Underwriter’s Warrants (incorporated by reference to Exhibit 4.11 to the registrant’s post-effective amendment to Form S-1 filed on July 1, 2022)
4.7Promissory Note, dated July 6, 2021, by and among Sphere 3D Corp. and Gryphon Digital Mining, Inc. (incorporated by reference to Exhibit 4.20 to the registrant’s Registration Statement on Form S-4/A filed on January 8, 2024)
4.8Form of Gryphon Warrant (incorporated by reference to Exhibit 4.21 to the registrant’s Registration Statement on Form S-4/A filed on January 8, 2024)
4.9Promissory Note, dated May 25, 2022, by and between Gryphon Opco I LLC and Anchorage Lending CA, LLC (incorporated by reference to Exhibit 4.22 to the registrant’s Registration Statement on Form S-4/A filed on January 8, 2024)
4.10+Amended and Restated Promissory Note, dated March 29, 2023, by and between Gryphon Opco I LLC and Anchorage Lending CA, LLC (incorporated by reference to Exhibit 4.23 to the registrant’s Registration Statement on Form S-4/A filed on January 8, 2024)
10.1  Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.8 to Current Report on Form 8-K filed by Akerna on September 21, 2021)February 13, 2024)
4.510.2
Securities Purchase Agreement, dated October 5, 2021 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Akerna on October 5, 2021)
4.6
Form of Secured Convertible Notes (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Akerna on October 5, 2021)
4.7
Form of Security Agreement (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed by Akerna on October 5, 2021)
4.8
Form of Guaranty Agreement (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed by Akerna on October 5, 2021)
9.1
Voting and Exchange Trust Agreement (incorporated by reverence to Exhibit 9.1 to the Current Report on Form 8-K filed by Akerna on July 8, 2020)

10.1

 

Registration Rights Agreement, dated January 29, 2018, by and among MTech Acquisition Corp., MTech Sponsor LLC, and MTech Sponsor LLC (incorporated by reference to Exhibit 10.1 on Current Report on Form 8-K filed by Akerna on June 21, 2019)

10.2

First Amendment to Registration Rights Agreement, dated June 17, 2019, by and among MTech Acquisition Corp., Akerna Corp. and MTech Sponsor LLC (incorporated by reference to Exhibit 10.2 on Current Report on Form 8-K filed by Akerna on June 21, 2019)

10.3

Stock Escrow Agreement, dated January 29, 2018, by and among MTech Acquisition Corp., MTech Sponsor LLC, and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 10.3 on Current Report on Form 8-K filed by Akerna on June 21, 2019)

10.4

Amendment to Stock Escrow Agreement, dated June 17, 2019, by and among MTech Acquisition Corp., Akerna Corp., MTech Sponsor LLC, and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 10.4 on Current Report on Form 8-K filed by Akerna on June 21, 2019)

10.5

Non-Competition and Non-Solicitation Agreement dated June 17, 2019, by and among Jessica Billingsley, Akerna Corp., MJ Freeway and MTech Sponsor LLC (incorporated by reference to Exhibit 10.5 on Current Report on Form 8-K filed by Akerna on June 21, 2019)

10.6

Non-Competition and Non-Solicitation Agreement dated June 17, 2019, by and among Amy Poinsett, Akerna Corp., MJ Freeway and MTech Sponsor LLC (incorporated by reference to Exhibit 10.6 on Current Report on Form 8-K filed by Akerna on June 21, 2019)

10.7

Form of Indemnification Agreement of Officers and Directors (incorporated by reference to Exhibit 10.7 onto Current Report on Form 8-K filed by Akerna on June 21, 2019)

10.810.3  

 

Form of Subscription Agreement, by and among MTech Acquisition Corp., Akerna Corp., and each purchaser signatory thereto (incorporated by reference to Exhibit 10.8 on Current Report on Form 8-K filed by Akerna on June 21, 2019)

10.9

Form of Agreement to Transfer Sponsor Shares, by and among MTech Acquisition Corp., Akerna Corp., each transferee signatory thereto, and Continental Stock Transfer &Trust Company (incorporated by reference to Exhibit 10.9 on Current Report on Form 8-K filed by Akerna on June 21, 2019)

10.10∧

Employment Agreement, dated June 17, 2019, by and between Jessica Billingsley and Akerna Corp. (incorporated by reference to Exhibit 10.10 on Current Report on Form 8-K filed by Akerna on June 21, 2019)

10.11∧

MTech Acquisition Holdings Inc. 2019 Long Term Incentive Plan (incorporated by reference to Exhibit 10.5 to Akerna's Registration Statement on Form S-4 (File No. 333-228220))

10.12∧

Form of Option Grant Certificate (incorporated by reference to Exhibit 10.12 on Current Report on Form 8-K filed by Akerna on June 21, 2019)

10.13∧

Form of Restricted Stock Unit Award (incorporated by reference to Exhibit 10.13 on Current Report on Form 8-K filed by Akerna on June 21, 2019)

10.14∧

Form of Stock Award (incorporated by reference to Exhibit 10.14 on Current Report on Form 8-K filed by Akerna on June 21, 2019)

10.15∧

Form of Restricted Stock Award (incorporated by reference to Exhibit 10.15 on Current Report on Form 8-K filed by Akerna on June 21, 2019)

52

10.16∧

Form of Appreciation Rights Award (incorporated by reference to Exhibit 10.16 on Current Report on Form 8-K filed by Akerna on June 21, 2019)

10.17

Form of Lock-Up Agreement, by and among MTech Acquisition Holdings, Inc., MTech Sponsor LLC, and each holder signatory thereto (incorporated by reference to Exhibit 10.3 to Akerna’sthe registrant’s Registration Statement on Form S-4 (File No. 333-228220))S-4/A filed on January 8, 2024)

10.1810.4  
Office ServiceMaster Services Agreement, dated September 30, 2019, effective February 1, 2020August 19, 2021, by and between Sphere 3D. Corp. and Gryphon Digital Mining, Inc. (incorporated by reference to Exhibit 10.110.44 to Akerna's Quarterly Reportthe registrant’s Registration Statement on Form 10-Q for the three months ended September 30, 2019)S-4/A filed on January 8, 2024)


10.1910.5++
Stock PurchaseCoinmint Colocation Mining Services Agreement, dated November 25, 2018July 1, 2021, by and between Gryphon Digital Mining, Inc. and Coinmint, LLC (incorporated by reference to Exhibit 10.110.47 to Akerna’s Current Reportthe registrant’s Registration Statement on Form 8-KS-4/A filed on November 26, 2019)January 8, 2024)
10.20∧10.6  
LetterMaster Services Agreement, effectivedated September 23, 201912, 2021, by and between AkernaCore Scientific, Inc. and Nina SimoskoGryphon Digital Mining, Inc. (incorporated by reference to Exhibit 10.48 to the registrant’s Registration Statement on Form S-4/A filed on January 8, 2024)
10.7  Amendment No. 1 to Master Services Agreement, dated December 29, 2021, by and between Gryphon Digital Mining, Inc. and Sphere 3D Corp. (incorporated by reference to Exhibit 10.49 to the registrant’s Registration Statement on Form S-4/A filed on January 8, 2024)
10.8++  Non-Fixed Price Sales and Purchase Agreement, dated April 14, 2021, by and between Bitmain Technologies Limited and Gryphon Digital Mining, Inc. (incorporated by reference to Exhibit 10.52 to the registrant’s Registration Statement on Form S-4/A filed on January 8, 2024)
10.9+Agreement and Plan of Merger, dated June 3, 2021, among Sphere 3D Corp., Sphere GDM Corp. and Gryphon Digital Mining, Inc. (incorporated by reference to Exhibit 10.53 to the registrant’s Registration Statement on Form S-4/A filed on January 8, 2024)
10.10  Merger Agreement amendment, dated December 29, 2021, among Sphere 3D Corp., Sphere GDM Corp. and Gryphon Digital Mining, Inc. (incorporated by reference to Exhibit 10.54 to the registrant’s Registration Statement on Form S-4/A filed on January 8, 2024)
10.11  Security Agreement dated July 6, 2021, by and among Sphere 3D. Corp. and Gryphon Digital Mining, Inc. (incorporated by reference to Exhibit 10.55 to the registrant’s Registration Statement on Form S-4/A filed on January 8, 2024)
10.12  Amendment No. 1 to Promissory Note and Security Agreement, dated August 30, 2021, by and among Sphere 3D. Corp. and Gryphon Digital Mining., Inc. (incorporated by reference to Exhibit 10.56 to the registrant’s Registration Statement on Form S-4/A filed on January 8, 2024)
10.13  Amendment No. 2 to Promissory Note and Security Agreement, dated September 29, 2021, by and among Sphere 3D Corp. and Gryphon Digital Mining, Inc. (incorporated by reference to Exhibit 10.57 to the registrant’s Registration Statement on Form S-4/A filed on January 8, 2024)
10.14  Amendment No. 3 to Promissory Note and Security Agreement, dated December 29, 2021, by and among Sphere 3D Corp. and Gryphon Digital Mining, Inc. (incorporated by reference to Exhibit 10.58 to the registrant’s Registration Statement on Form S-4/A filed on January 8, 2024)
10.15  Equipment Loan and Security Agreement, dated May 25, 2022, by and between Anchorage Lending CA, LLC and Gryphon Opco I LLC (incorporated by reference to Exhibit 10.59 to the registrant’s Registration Statement on Form S-4/A filed on January 8, 2024)
10.16  Guaranty, dated May 25, 2022, by and among Gryphon Digital Mining, Inc., Anchorage Lending CA LLC, and Gryphon Opco I LLC (incorporated by reference to Exhibit 10.60 to the registrant’s Registration Statement on Form S-4/A filed on January 8, 2024)
10.17+Amendment and Reaffirmation Agreement, dated March 29, 2023, by and among Gryphon Opco I LLC, Gryphon Digital Mining, Inc., and Anchorage Lending CA, LLC (incorporated by reference to Exhibit 10.61 to the registrant’s Registration Statement on Form S-4/A filed on January 8, 2024)
10.18+ Amended and Restated Equipment Loan and Security Agreement, dated March 29, 2023, by and between Anchorage Lending CA, LLC and Gryphon Opco I LLC (incorporated by reference to Exhibit 10.62 to the registrant’s Registration Statement on Form S-4/A filed on January 8, 2024)
10.19  Electronic Trading Agreement dated October 5, 2021 by and among Gryphon and BitGO Prime LLC (incorporated by reference to Exhibit 10.63 to the registrant’s Registration Statement on Form S-4/A/A filed on July 5, 2023)
10.20  BitGo Custodial Services Agreement (incorporated by reference to Exhibit 10.64 to the registrant’s Registration Statement on Form S-4/A/A filed on September 6, 2023)
10.21  Amended Exchange Agreement dated December 20, 2023 (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed by Akerna on October 1, 2019)December 22, 2023)
10.21∧10.22 *#
LetterConsulting Agreement effective September 26, 2019 between, MJ Freeway, LLCdated February 1, 2021, between Gryphon and Ray Thompson (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Akerna on October 1, 2019)Chang Advisory, Inc.
10.2210.23 *#
CovenantExecutive Employment Agreement, effective September 23, 2019dated June 19, 2023, between AkernaGryphon and Nina Simosko (incorporated by reference to Exhibit 10.3 to the Current Report of Form 8-K filed by Akerna on October 1, 2019)Simeon Salzman
10.2310.24 *#
CovenantDirector Agreement, dated May 12, 2021, between Akerna Corp.Gryphon and Ray Thompson (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed by Akerna on October 1, 2019)Brittany Kaiser
10.24∧19*
Letter Agreement dated December 17, 2019 between Akerna and John Fowle (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Akerna on December 23, 2019)
10.25
Covenant Agreement dated December 17, 2019 between Akerna and John Fowle (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Akerna on December 23, 2019)
10.26
Exchangeable Share Support Agreement (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Akerna on July 8, 2020)
10.27
Escrow Agreement (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Akerna on July 8, 2020)
10.28
Rights Indenture (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed by Akerna on July 8, 2020)
10.29
Agreement and Plan of Reorganization with Navigator Acquisition Corp. dated March 10, 2021 (incorporated by reference to Exhibit 10.1 to the Form 10-Q filed by Akerna on May 21, 2021)
10.30
At-the-Market Distribution Agreement dated July 23, 2021 (incorporated by reference to Exhibit 10.1 to the Form 8-K filed by Akerna on July 23, 2021)
10.31
Form of Lock-Up Agreement (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Akerna on October 4, 2021)
10.32
Registration Rights Agreement with Sellers of 365 Cannabis (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed by Akerna on October 4, 2021)
10.33
Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed by Akerna on October 5, 2021)
10.34
Form of Voting Agreement (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed by Akerna on October 5, 2021)

21.1*

Insider Trading Policy

Subsidiaries of Akerna Corp.

21*

Subsidiaries
23.1*

 

Consent of Marcum LLP, Independent Registered Public Accountants for Akerna


31.1*

*

 

Certification of Chief Executive Officer certification underPursuant to Securities Exchange Act Rules 13a-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*

*

 

Certification of Chief Financial Officer certification underPursuant to Securities Exchange Act Rules 13a-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.2002

32.1*

*

 

Certification of Chief Executive Officer andPursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2**Certification of Chief Financial Officer certification underPursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.2002

101*97*

 

Executive Compensation Recovery Policy

101.INS*Inline XBRL Instance Document
101.SCH*Inline XBRL Taxonomy Extension Schema Document
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*Cover Page Interactive Data FilesFile (formatted as Inline XBRL and contained in Exhibit 101)

 

*Filed herewith
**Furnished herewith
+The exhibits and schedules to this Exhibit have been omitted pursuant to Item 601(b)(2)601(a)(5) of Regulation S-K. The registrant hereby agrees to furnish a copy of any omitted schedules to the Commission upon request.
++∧Portions of this Exhibit (indicated with [***]) have been omitted pursuant to Item 601(b)(10)(iv) as the registrant has determined that (i) the omitted information is not material and (ii) the omitted information is the type that the Registrant treats as private or confidential.
#Management compensatory plan, contract or compensatory plan or arrangementarrangement.


Item 16. Form 10-K Summary


None.

 

53

None. 


SIGNATURES

 


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrantRegistrant has duly caused this reportReport to be signed on its behalf by the undersigned, thereunto duly authorized.

 

April 1, 2024

AKERNA CORP.Gryphon Digital Mining, Inc.

 

 

 

 

By:

/s/ Jessica BillingsleyRob Chang

 

Name:

Jessica BillingsleyRob Chang

 

Title:

Chief Executive Officer

(Principal Executive Officer)

Date:

March 31, 2022

 

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Rob Chang and Simeon Salzman, jointly and severally, his or her attorney-in-fact, with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this reportReport has been signed below by the following persons on behalf of the registrantRegistrant and in the capacities and on the dates indicated.

 

Signature

 

Title

 

Date

 

 

 

/s/ Jessica BillingsleyRob Chang

 

Chief Executive Officer, President and Director

(Principal Executive Officer)

 

March 31, 2022April 1, 2024

Jessica BillingsleyRob Chang

 

 

 

 

 

/s/ John FowleSimeon Salzman

 

Chief Financial Officer (Principal

(Principal Financial and Accounting Officer)

 

March 31, 2022April 1, 2024

John FowleSimeon Salzman

 

 

 

 

 

/s/ Scott SozioJessica Billingsley

 

Director

 

March 31, 2022April 1, 2024

Scott SozioJessica Billingsley

 

 

 

 

 

/s/ Matthew R. Kane Heather Cox

 

Director

 

March 31, 2022April 1, 2024

Matthew R. KaneHeather Cox

 

 

 

 

 

/s/ Tahira RehmatullahSteven Gutterman

 

Director

 

March 31, 2022April 1, 2024

Tahira RehmatullahSteven Gutterman

 

 

 

 

 

/s/ Barry FishmanBrittany Kaiser

 

Director

 

March 31, 2022April 1, 2024

Barry FishmanBrittany Kaiser

 

 

 

 

 

54



AKERNA CORP.

 

Gryphon Digital Mining, Inc.

 

INDEX TO CONSOLIDATEDCONSOLIDATED FINANCIAL STATEMENTS

Page
 




Report of Independent Registered Public Accounting Firm ((PCAOB PCAOB 00688); Marcum LLP, Los Angeles, CAF-2


Consolidated Balance Sheets as of December 31, 20212023 and 20202022F-3


Consolidated Statements of Operations for the YearYears Ended December 31, 2021, the Six Months Ended December 31, 20202023 and the Year Ended June 30, 20202022F-4


Consolidated Statements of Comprehensive Loss for the YearYears Ended December 31, 2021, the Six Months Ended December 31, 20202023 and the Year Ended June 30, 20202022F-5


Consolidated Statements of Changes in Equity for the YearYears Ended December 31, 2021, the Six Months Ended December 31, 20202023 and the Year Ended June 30, 20202022F-6


Consolidated Statements of Cash Flows for the YearYears Ended December 31, 2021, the Six Months Ended December 31, 20202023 and the Year Ended June 30, 20202022F-7


Notes to Consolidated Financial StatementsF-8F-8

 

F-1



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of

Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

 

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.) (the “Company”) as of December 31, 20212023 and 2020,2022, the related consolidated statements of operations, comprehensive loss, changes in equitystockholders’ deficit and cash flows for each of the yeartwo years in the period ended December 31, 2021, for the transitional six months ended December 31, 2020, and for the year ended June 30, 2020,2023, 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, 20212023 and 2020,2022, and the results of its operations and its cash flows for each of the yeartwo years in the period ended December 31, 2021, for the transitional six months ended December 31, 2020, and for the year ended June 30, 2020,2023, in conformity with accounting principles generally accepted in the United States of America.

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 1,2, the Company has a significant working capital deficiency,deficit, has incurred significant losses from operations, and needs to raise additional funds 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 1.2. 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 audits. 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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits 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 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 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 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 provideprovides a reasonable basis for our opinion.

 

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

/s/ Marcum llp

Marcum llp

We have served as the Company’s auditor since 2018.

 

Los Angeles, CA

April 1, 2024

March 31, 2022

F-2



AKERNA CORP.

Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

Consolidated Balance Sheets


  As of December 31, 
  2023  2022 
Assets      
Current assets      
Cash $768,461  $877,844 
Restricted cash  —   7,000,000 
Accounts receivable, net  147,855   429,949 
Prepaid expenses and other current assets  420,082   1,121,763 
Current assets of discontinued operations  —   1,328,784 
Total current assets  1,336,398   10,758,340 
         
Fixed assets, net  21,689   48,880 
Noncurrent assets of discontinued operations  —   8,661,272 
Total assets $1,358,087  $19,468,492 
         
Liabilities and Stockholders’ Deficit        
Current liabilities        
Accounts payable, accrued expenses and other current liabilities $4,820,630  $4,023,183 
Contingent consideration payable  —   2,283,806 
Current portion of deferred revenue  399,652   568,771 
Current portion of long-term debt  5,149,000   13,200,000 
Current liabilities of discontinued operations  —   2,432,374 
Total current liabilities  10,369,282   22,508,134 
         
Deferred revenue, noncurrent  —   161,803 
Long-term debt, less current portion  —   1,407,000 
Noncurrent liabilities of discontinued operations  —   217,083 
Total liabilities  10,369,282   24,294,020 
         
Commitments and contingencies (Note 10)  —   — 
         
Convertible redeemable preferred stock, par value $0.0001; Series A and Series B, 0 shares issued and outstanding as of December 31, 2023 and 2022 (Note 11)  —   — 
         
Stockholders’ deficit        
Series C Preferred stock, par value $1,000; 3,422 shares authorized, 3,422 and 0 shares issued and outstanding as of December 31, 2023 and 2022  3,422,000   — 
Special voting preferred stock, par value $0.0001; 1 share authorized, issued and outstanding as of December 31, 2023 and 2022, with $1 preference in liquidation; exchangeable shares, no par value, 248,484 and 285,672 shares issued and outstanding as of December 31, 2023 and 2022, respectively (see Note 11)  1,900,138   2,185,391 
Common stock, par value $0.0001; 150,000,000 shares authorized, 517,605 and 230,140, issued and outstanding as of December 31, 2023 and 2022, respectively  52   23 
Additional paid-in capital  164,583,630   160,207,804 
Accumulated other comprehensive income  227,000   347,100 
Accumulated deficit  (179,144,015)  (167,565,846)
Total stockholders’ deficit  (9,011,195)  (4,825,528)
Total liabilities and stockholders’ deficit $1,358,087  $19,468,492 


December 31,

December 31,

 

2021


2020

 

Assets

 


 

 

 

Current assets:

 


 

 

 

Cash

$13,934,265

$

17,840,640

 

Restricted cash


508,261

 

500,000

 

Accounts receivable, net


1,403,774

 

1,753,547

 

Prepaid expenses and other current assets


2,383,764

 

2,458,727

 

             Total current assets


18,230,064


22,552,914

 









Fixed assets, net


153,151


1,193,433

Investment, net


226,101


233,664
Capitalized software, net
7,311,676


3,925,739
Intangible assets, net
21,609,794


7,388,795
Goodwill
46,942,681


41,874,527
Other noncurrent assets
9,700


0—
Total assets$94,483,167

$77,169,072








Liabilities and Equity





 

 

 









Current liabilities:





 

 

 

Accounts payable, accrued expenses and other current liabilities

$6,063,520

$

3,188,576

 

Contingent consideration payable
6,300,000


0—

Deferred revenue


3,543,819

 

843,900

 

Current portion of long-term debt


13,200,000

 

11,707,363

 

Derivative liability
63,178


311,376

            Total current liabilities


29,170,517


16,051,215

 









 Long-term portion of deferred revenue
582,676


0—
 Long-term debt, less current portion
4,105,000



3,895,237
 Deferred tax liabilities
675,291


0—








Total liabilities
34,533,484


19,946,452








Commitments and contingencies (Note 14)





 

  

 









Equity:





 

 

 

 Preferred stock, par value $0.0001; 5,000,000 shares authorized, 1 share special voting preferred stock issued and outstanding at December 31, 2021 and December 31, 2020


0—

  

0—

 

 Special voting preferred stock, par value $0.0001; 1 share authorized, issued and outstanding as of December 31, 2021 and December 31, 2020, with $1 preference in liquidation; exchangeable shares, 0 par value, 309,286 and 2,667,349 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively (See Note 4)
2,366,038


20,405,219

 Common stock, par value $0.0001; 75,000,000 shares authorized, 31,001,884 and 19,901,248, issued and outstanding at December 31, 2021 and December 31, 2020, respectively


3,100

 

1,990

 

Additional paid-in capital


146,027,258

 

94,086,433

 

Accumulated other comprehensive loss
61,523

(91,497)

Accumulated deficit


(88,508,236)

 

(57,179,525

)

            Total equity


59,949,683

  

57,222,620

 

Total liabilities and equity$94,483,167

$

77,169,072

 

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


F-3


AKERNA CORP.

Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

Consolidated Statements of Operations


  For the Years Ended
December 31,		 
  2023  2022 
Revenue      
Software $6,787,285  $9,748,268 
Consulting  39,750   682,309 
Other revenue  9,409   27,593 
Total revenue  6,836,444   10,458,170 
Cost of revenue  3,401,441   4,911,503 
Gross profit  3,435,003   5,546,667 
Operating expenses        
Product development  2,335,609   4,088,294 
Sales and marketing  2,293,767   5,572,721 
General and administrative  5,677,485   8,018,255 
Depreciation and amortization  27,191   4,421,995 
Impairment of long-lived assets  —   26,528,630 
Total operating expenses  10,334,052   48,629,895 
Loss from operations  (6,899,049)  (43,083,228)
         
Other (expense) income        
Interest expense, net  (1,130,343)  (853,566)
Change in fair value of convertible notes  (370,457)  (2,884,273)
Change in fair value of derivative liability  —   63,178 
Other expense, net  (202,820)  (221,101)
Total other (expense) income  (1,703,620)  (3,895,762)
         
Net loss from continuing operations before income taxes  (8,602,669)  (46,978,990)
Income tax benefit on continuing operations  —   701,119 
Net loss from continuing operations  (8,602,669)  (46,277,871)
Loss from discontinued operations, net of tax  (2,975,500)  (32,779,739)
Net loss $(11,578,169) $(79,057,610)
Deemed dividends related to convertible redeemable preferred stock  —   (955,500)
Net loss attributable to common stockholders $(11,578,169) $(80,013,110)
         
Basic and diluted weighted average common shares outstanding  371,020   146,393 
Basic and diluted loss per common share from continuing operations $(23.19) $(322.65)
Basic and diluted loss per common share from discontinued operations $(8.02) $(223.92)
Basic and diluted loss per common share $(31.21) $(546.56)

   


Year Ended December 31,

Six Months Ended

December 31,


Year Ended

June 30,


 


2021

2020


2020













Revenue












Software

$18,998,409

$6,766,985

$9,976,580

Consulting


1,510,413


916,099


2,379,947

Other revenue


176,152


141,700


216,749

     Total revenue


20,684,974


7,824,784


12,573,276

Cost of revenue


8,119,487


3,141,041


6,209,724

Gross profit


12,565,487


4,683,743


6,363,552

Total Operating expenses:












Product development


6,271,966


3,166,088


3,206,310
Sales and marketing
9,108,173


3,928,028


7,792,480
General and administrative 
10,422,207


4,435,067


11,320,715

Depreciation and amortization


5,735,150


2,007,237


1,315,898
Impairment of long-lived assets
14,383,310


6,887,000


0—

     Total operating expenses


45,920,806


20,423,420


23,635,403

Loss from operations


(33,355,319)

(15,739,677)

(17,271,851)












Other (expense) income:












Interest (expense) income, net
(1,531,497)

(193,084)

156,678
Change in fair value of convertible notes
(1,365,904)

(961,273)

766,000
Change in fair value of derivative liability
248,198


746,852


1,962,034
Gain on forgiveness of PPP Loan
2,234,730


0—


0—

Other (expense) income


186,420


(59,273)

(254)
Total other (expense) income
(228,053)

(466,778)

2,884,458












Net loss before income taxes and equity in losses of investee
(33,583,372)

(16,206,455)

(14,387,393)

Income tax (expense) benefit


2,262,225

(200)

(30,985)

Equity in losses of investee 


(7,564)

(12,641)

(3,692)

Net Loss

$(31,328,711)
$(16,219,296)
$(14,422,070)

Net loss attributable to noncontrolling interest in consolidated subsidiary


0—


8,815


849,759
  Net loss attributable to Akerna shareholders$(31,328,711)
$(16,210,481)
$(13,572,311)
  Basic and diluted weighted average common shares outstanding 
25,641,950


16,056,030

11,860,212

Basic and diluted net loss per common share

$(1.22)
$(1.01)
$(1.14)

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

F-4


AKERNA CORP.

Consolidated Statements of Comprehensive Loss



Year Ended

December 31,


Six Months Ended

December 31,


Year Ended

June 30,




2021

2020


2020












Net loss$(31,328,711)

$(16,219,296)
$(14,422,070)
Other comprehensive (loss) income:










Foreign currency translation
53,020


(21,497)

0—
Unrealized (loss) gain on convertible notes
100,000


(133,000)

63,000
Comprehensive loss
(31,175,691)

(16,373,793)

(14,359,070)
Comprehensive loss attributable to the noncontrolling interest
0—


8,815


849,759
Comprehensive loss attributable to Akerna shareholders $(31,175,691)
$(16,364,978)
$(13,509,311)

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

F-5


AKERNA CORP. 

Consolidated Statements of Changes in Equity


    Special Voting Preferred Stock

Common Stock


Additional

Paid-In 

Capital


Accumulated Other Comprehensive Loss


Accumulated
Deficit

Total

Stockholder's

Equity


Noncontrolling 

Interest

in Consolidated

Subsidiary


Total

Equity


 
SharesAmount






























Balance as of June 30, 20190—
$0—


10,589,746
$1,059
$46,299,233
$0—
$(27,582,558)$18,717,734
$0—
$18,717,734
Common stock issued upon warrant exercise0—

0—

369,311

37

4,247,028

0—

0—

4,247,065

0—

4,247,065
Common stock issued in business combinations0—

0—

2,299,650

230

20,081,236

0—

0—

20,081,466

0—

20,081,466
Non-controlling interest in acquired subsidiary0—

0—

0—

0—

0—

0—

0—

0—

5,554,011

5,554,011
Stock-based compensation amortization—

0—

—

0—

1,253,234

0—

0—

1,253,234

0—

1,253,234
Forfeitures of restricted shares0—

0—

(54,901)
(5)
5

0—

0—

0—

0—

0—
Change in fair value of Convertible Notes0—

0—

0—

0—

0—

63,000

0—

63,000

0—

63,000
Warrant Adjustment
—

0—

—

0—

21,738

0—

0—

21,738

0—

21,738
Net loss —

0—

—

0—

0—

0—

(13,572,311)
(13,572,311)
(849,759)
(14,422,070)
Balance as of June 30, 20200—
$0—

13,203,806
$1,321
$71,902,474
$63,000
$(41,154,869)$30,811,926
$4,704,252
$35,516,178
Adoption of ASC 606 Adjustment0—

0—

0—

0—

0—

0—

185,825

185,825

0—

185,825
Balance as of July 1, 20200—
$0—

13,203,806
$1,321
$71,902,474
$63,000
$(40,969,044)$30,997,751
$4,704,252
$35,702,003
Issuance of common stock0—

0—

5,000,000

500

11,031,880

0—

0—

11,032,380

0—

11,032,380
Special voting preferred stock issued in business combination
3,294,574

25,203,490

0—

0—

0—

0—

0—

25,203,490

0—

25,203,490
Conversion of exchangable shares to common(627,225)
(4,798,271)
627,225

63

4,798,208

0—

0—

0—

0—

0—
Acquisition of noncontrolling interest0—

0—

800,000

80

4,695,357

0—

0—

4,695,437

(4,695,437)
0—
Stock-based compensation amortization—

0—

—

0—

1,298,540

0—

0—

1,298,540

0—

1,298,540
Settlement of convertible debt0—

0—

112,867

11

359,989

0—

0—

360,000

0—

360,000
Restricted stock unit vesting0—

0—

157,350

15

(15)
0—

0—

0—

0—

0—
Unrealized loss (gains) on Convertible Notes—

0—

—

0—

0—

(133,000)
0—

(133,000)
0—

(133,000)
Foreign currency translation adjustments—

0—

—

0—

0—

(21,497)
0—

(21,497)
0—

(21,497)
Net loss—

0—

—

0—

—

0—

(16,210,481)
(16,210,481)
(8,815)
(16,219,296)
Balance – December 31, 20202,667,349
$20,405,219

19,901,248
$1,990
$94,086,433
$(91,497)$(57,179,525)$57,222,620$0—
$57,222,620
Conversion of Exchangeable Shares to common stock(2,358,063)
(18,039,181)
2,358,063

237

18,038,944

0—

0—

0—

0—

0—
Settlement of convertible debt0—

0—

3,094,129

309

11,610,277

0—

0—

11,610,586

0—

11,610,586
Shares withheld for withholding taxes0—

0—

(121,786)
(12)
(520,383)
0—

0—

(520,395)
0—

(520,395)
Shares issued in connection with Viridian Acquisition0—

0—

1,031,000

103

6,187,897

0—

0—

6,188,000

0—

6,188,000
Shares issued in connection with Asset Purchase0—

0—

83,333

8

299,992

0—

0—

300,000

0—

300,000
Shares issued in connection with 365 Cannabis Acquisition0—

0—

3,571,429

357

11,995,704

0—

0—

11,996,061

0—

11,996,061
Stock-based compensation—

0—

—

0—

2,070,358

0—

0—

2,070,358

0—

2,070,358
Shares issued in connection with the ATM program0—

0—

556,388

56

1,828,063

0—

0—

1,828,119

0—

1,828,119
Settlement of liabilities with shares
0—

0—

101,705

10

430,015

0—

0—

430,025

0—

430,025
Restricted stock vesting0—

0—

427,711

42

(42)
0—

0—

0—

0—

0—
Forfeitures of restricted shares0—

0—

(1,336)
0—

0—

0—

0—

0—

0—

0—
Foreign currency translation adjustments—

0—

—

0—

0—

53,020

0—

53,020

0—

53,020
Unrealized loss (gains) on convertible notes—

0—

—

0—

0—

100,000

0—

100,000

0—

100,000
Net loss—

0—

—

0—

0—

0—

(31,328,711)
(31,328,711)
0—

(31,328,711)
Balance – December 31, 2021309,286
$2,366,038

31,001,884
$3,100
$146,027,258
$61,523
$(88,508,236)$59,949,683
$0—
$59,949,683

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


F-6


AKERNA CORP.

Consolidated Statements of Cash Flows



Year Ended December 31,


Six Months Ended December 31,


Year Ended June 30,


2021

2020

2020

Cash flows from operating activities

 

 






 

 


 

Net Loss

$

(31,328,711

)
$

(16,219,296

)

 

$

(14,422,070

)

Adjustment to reconcile net loss to net cash used in operating activities

 

 




 

 

 

 

 

 

Equity in losses of investment
7,564


12,643


3,692

Bad debt expense

 

  556,890




72,832


 

 

1,094,507

 

Stock-based compensation expense

 

  2,070,359




1,197,589


 

 

1,166,130

 

Loss on write off of fixed assets
1,045,179


0—


0—
Gain on forgiveness of PPP loan

(2,234,730)

0—


0—

Depreciation and amortization


5,735,150


2,007,237




1,315,898
Amortization of deferred contract costs
492,683


228,766


0—
Non-cash interest expense
1,009,331


32,727


0—
Foreign currency gain

(3,312)


0—


0—
Impairment of long-lived assets
14,383,310


6,887,000


0—
Gain on debt extinguishment
(186,177)

0—


0—
Loss on sale of fixed asset
0—


84,835


0—
Debt issuance costs
0—


0—


1,177,390
Change in fair value of convertible notes
1,365,904


961,273

(766,000)
Change in fair value of derivative liability
(248,198)

(746,852)

(1,962,034)
Change in fair value of contingent consideration 
0—


(993,000)

(998,000)

Changes in operating assets and liabilities:

 





    

 

 

 

    

 

Accounts receivable

 

  849,785




1,008,775

 

 

(1,621,262

)

Prepaid expenses and other current assets

 

(8,988

)

(689,729

)

 

 

(592,807

)

Other assets

 

  0—




41,925

 

 

(58,925

)

Accounts payable, accrued expenses and other current liabilities

 

1,610,470



(2,498,375

)

 

 

1,602,751

Deferred tax liabilities
(2,274,295)

0—


0—

Deferred revenue

 

  (1,010,118

)

(94,088

)

 

 

(286,922

)

Net cash used in operating activities

 

  (8,167,904

)

(8,705,738

)

 

 

(14,347,652

)

 

 

 




 

 

 

 

 

 

Cash flows from investing activities

 

 




 

 

 

 

 

 

Developed software additions


(5,427,230)

(1,847,710)

(3,102,728)
Furniture, fixtures, and equipment additions
(39,263)

(12,203)

(156,636)
Cash paid for business combinations, net of cash acquired
(5,018,592)

(5,279,134)

(88,720)

Investment in equity method investee


0—


0—

(250,000)

Net cash used by investing activities

 

  (10,485,085

)

(7,139,047

)

 

 

(3,598,084

)

 

 

 




 

 

 

 

 

 

Cash flows from financing activities

 

 




 

 

 

 

 

 

Value of shares withheld related to tax withholdings
(520,395)

0—


0—
Proceeds from stock offering, net
1,828,119


0—


0—

Proceeds from the issuance of long term debt


18,000,000


0—


17,164,600
Payments of principal amounts of debt
0—


0—


0—
Payments on debt
(4,571,472)

(1,500,000)

0—
Cash paid for debt issuance costs
0—


0—

(1,177,390)
Proceeds from the exercise of warrants
0—


0—


4,247,065

Proceeds from the issuance of common stock

 

  0—




12,000,000

 

 

 

0—

 

Offering costs from the issuance of common stock
0—


(967,620)

0—

Net cash provided by financing activities

 

  14,736,252




9,532,380

 

 

 

20,234,275

 

Effect of exchange rate changes on cash and restricted cash

18,623


(2,783)

0—

Net (decrease) increase in cash and restricted cash

$

 (3,898,114

)
$

(6,315,188

)

 

$

2,288,539

Cash and restricted cash - beginning of period

 

  18,340,640




24,655,828

 

 

 

22,367,289

 

Cash and restricted cash - end of period

$

14,442,526


$

18,340,640

 

 

$

24,655,828

 

Cash paid for taxes

$

10,570



$

0—

 

 

$

0—

 

Cash paid for interest

$

507,941



$

150,000

 

 

$

0—

 













Supplemental disclosure of non-cash investing and financing activity:










Adjustments due to the adoption of ASC 606
0—


185,826


0—
Vesting of restricted stock units
42


15


0—
Settlement of convertible notes in common stock
11,610,586


327,273


0—
Stock-based compensation capitalized as software development
36,915


100,951


87,104
Acquisition of noncontrolling interest
0—


4,695,437


0—
Capitalized software included in accrued expenses
554,127


189,198


0—
Special voting preferred stock issued in business combination
0—


25,203,490


0—
Conversion of exchangeable shares to common stock
18,038,944


4,798,271


0—
Adjustment to Trellis purchase price allocation
0—


14,300


0—
      Settlement of liabilities with common stock
430,015


0—


0—
      Shares issued in connection with an asset purchase
8


0—


0—












Assets acquired and liabilities assumed in business combinations:










Cash
527,346


445,269


0—
Accounts receivable
1,041,912


917,205


77,505
Prepaid expenses and other current assets
408,973


596,233


27,860
Fixed assets
93,365


1,326,996


2,410
Intangible assets
16,933,000


3,795,000


8,010,000
Goodwill
19,451,464


25,805,615


20,254,309
Accounts payable and accrued liabilities
1,174,961


805,114


1,441,062
Deferred tax liabilities
2,949,586


0—


0—
Deferred revenue
4,301,514


549,311


31,220
Contingent consideration
6,300,000


604,000


1,387,000

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

 

F-7



AKERNA CORP.

Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

Consolidated Statements of Comprehensive Loss

 

  For the Years Ended
December 31,		 
  2023  2022 
Net loss $(11,578,169) $(79,057,610)
Other comprehensive (loss) income:        
Foreign currency translation  (72,100)  40,577 
Unrealized (loss) gain on convertible notes  (48,000)  245,000 
Comprehensive loss $(11,698,269) $(78,772,033)

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


Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

Consolidated Statements of Changes in Stockholders’ Deficit

  Convertible Redeemable
Preferred Stock		  Preferred Stock  Special Voting     Additional  

Accumulated

Other

Comprehensive

     

Total

Stockholders’

 
  Series A and B  Series C  Preferred Stock  Common Stock  Paid-In  Income  Accumulated  Equity 
  Shares  Amount  Shares  Amount  Shares  Amount  Shares  Amount  Capital  (Loss)  Deficit  (Deficit) 
Balance – December 31, 2021  —  $—   —  $—   309,286  $2,366,038   77,505  $8  $146,030,350  $61,523  $(88,508,236) $59,949,683 
Conversion of exchangeable shares to common stock  —   —   —   —   (23,614)  (180,647)  59   —   180,647   —   —   — 
Settlement of convertible notes  —   —   —   —   —   —   10,371   1   3,925,499   —   —   3,925,500 
Shares withheld for withholding taxes  —   —   —   —   —   —   (83)  —   (9,926)  —   —   (9,926)
Shares issued (returned) in connection with 365 Cannabis acquisition  —   —   —   —   —   —   (699)  —   (940,000)  —   —   (940,000)
Common shares and warrants issued in connection with unit offering, net of issue costs  —   —   —   —   —   —   108,696   11   9,178,950   —   —   9,178,961 
Stock-based compensation  —   —   —   —   —   —   —   —   843,693   —   —   843,693 
Shares issued in connection with the ATM offering program  —   —   —   —   —   —   32,148   3   1,854,562   —   —   1,854,565 
Issuance of Series A and B convertible redeemable preferred stock, net of issue costs  500,000   4,294,500   —   —   —   —   —   —   —   —   —   — 
Deemed dividends related to convertible redeemable preferred stock  —   955,500   —   —   —   —   —   —   (955,500)  —   —   (955,500)
Redemption of  convertible redeemable preferred stock  (500,000)  (5,250,000)  —   —   —   —   —   —   —   —   —   — 
Settlement of liabilities with shares  —   —   —   —   —   —   110   —   49,529   —   —   49,529 
Restricted stock vesting  —   —   —   —   —   —   1,014   —   50,000   —   —   50,000 
Fractional share adjustment from stock split  —   —   —   —   —   —   1,019   —   —   —   —   — 
Foreign currency translation adjustments  —   —   —   —   —   —   —   —   —   40,577   —   40,577 
Unrealized gains on convertible notes  —   —   —   —   —   —   —   —   —   245,000   —   245,000 
Net loss  —   —   —   —   —   —   —   —   —   —   (79,057,610)  (79,057,610)
Balance – December 31, 2022  —  $—   —  $—   285,672  $2,185,391   230,140  $23  $160,207,804  $347,100  $(167,565,846) $(4,825,528)
Conversion of exchangeable shares to common stock  —   —   —   —   (37,188)  (285,253)  93   —   285,253   —   —   — 
Settlement of convertible notes  —   —   —   —   —   —   237,213   24   3,187,077   —   —   3,187,101 
Common shares issued in a private placement offering  —   —   —   —   —   —   50,000   5   499,995   —   —   500,000 
Stock-based compensation  —   —   —   —   —   —   —   —   403,501   —   —   403,501 
Settlement of convertible notes for Series C preferred stock  —   —   3,422   3,422,000   —   —   —   —   —   —   —   3,422,000 
Restricted stock vesting  —   —   —   —   —   —   159   —   —   —   —   — 
Foreign currency translation adjustments  —   —   —   —   —   —   —   —   —   (72,100)  —   (72,100)
Unrealized losses on convertible notes  —   —   —   —   —   —   —   —   —   (48,000)  —   (48,000)
Net loss  —   —   —   —   —   —   —   —   —   —   (11,578,169)  (11,578,169)
Balance – December 31, 2023  —  $—   3,422  $3,422,000   248,484  $1,900,138   517,605  $52  $164,583,630  $227,000  $(179,144,015) $(9,011,195)

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


Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

Consolidated Statements of Cash Flows

  For the Years Ended
December 31,		 
  2023  2022 
Cash flows from operating activities      
Net loss $(11,578,169) $(79,057,610)
Adjustments to reconcile net loss to net cash used in operating activities:        
Gain on sale of discontinued operations, net  (212,601)  — 
Loss on sale of investment  —   221,101 
Bad debt expense  56,855   371,364 
Stock-based compensation expense  403,501   873,929 
Depreciation and amortization  918,898   7,834,712 
Amortization of deferred contract costs  39,285   337,350 
Non-cash interest expense  —   597,276 
Foreign currency gain  (22,506)  (14,553)
Impairment of long-lived assets  3,065,365   61,778,605 
Change in fair value of convertible notes  370,457   2,884,273 
Change in fair value of derivative liability  —   (63,178)
Change in fair value of contingent consideration  —   (4,016,194)
Changes in operating assets and liabilities:        
Accounts receivable, net  8,295   197,647 
Prepaid expenses and other current assets  602,216   257,555 
Other assets  —   9,700 
Accounts payable, accrued expenses and other current liabilities  870,152   (324,166)
Deferred income tax liabilities  —   (675,291)
Deferred revenue  (410,100)  (2,113,249)
Net cash used in operating activities  (5,888,352)  (10,900,729)
Cash flows from investing activities        
Developed software additions  —   (4,345,260)
Fixed asset additions  —   (31,884)
Cash paid for business combinations and working capital settlement, net of cash acquired  —   400,000 
Proceeds received from sale of discontinued operations, net  1,237,362   — 
Proceeds received from sale of investment  —   5,000 
Net cash provided by (used in) investing activities  1,237,362   (3,972,144)
Cash flows from financing activities        
Value of shares withheld related to tax withholdings  (49)  (9,926)
Proceeds from unit and pre-funded unit offering, net  —   9,178,960 
Proceeds from the exercise of pre-funded warrants  —   1 
Proceeds from private placement offering of common stock  500,000   — 
Proceeds from the ATM offering program, net  —   1,854,565 
Proceeds from the issuance of secured promissory note  1,650,000   — 
Principal payments of convertible notes  (4,917,356)  (1,432,273)
Proceeds from the issuance of convertible redeemable preferred stock, net  —   4,294,500 
Redemption of convertible redeemable preferred stock  —   (5,250,000)
Net cash (used in) provided by financing activities  (2,767,405)  8,635,827 
Effect of exchange rate changes on cash and restricted cash  3,601   (22,225)
Net decrease in cash and restricted cash  (7,414,794)  (6,259,271)
Cash and restricted cash of continuing operations - beginning of period $7,877,844  $12,937,554 
Cash and restricted cash of discontinued operations - beginning of period  305,411   1,504,972 
Cash and restricted cash - beginning of period  8,183,255   14,442,526 
Cash and restricted cash of continuing operations - end of period  768,461   7,877,844 
Cash and restricted cash of discontinued operations - end of period  —   305,411 
Cash and restricted cash - end of period $768,461  $8,183,255 
Cash paid for income taxes, net of refunds received $—  $15,684 
Cash paid for interest, net $787,187  $256,440 
         
Supplemental disclosure of non-cash investing and financing activity:        
Vesting of restricted stock units $—  $50,000 
Settlement of convertible notes in common stock $3,187,101  $3,925,500 
Settlement of convertible notes in preferred stock $3,422,000  $— 
Stock-based compensation capitalized as software development $—  $19,764 
Capitalized software included in accrued expenses $—  $17,974 
Conversion of exchangeable shares to common stock $285,253  $180,647 
Settlement of liabilities with common stock $—  $49,529 
Shares returned in connection with acquisition $—  $940,000 
Termination of contingent consideration obligation in connection with sale of discontinued operations $2,283,806  $— 
Reduction to accrued expenses from an acquisition-related working capital settlement $—  $160,000 

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


Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

Notes to Consolidated Financial Statements

December 31, 2021


Note 1 -– Description of Business Liquidity, and Capital Resources

 

DescriptionGryphon Digital Mining, Inc. (“Gryphon”), which originally began operations as Ivy Crypto, Inc., was incorporated under the provisions and by the virtue of Business

the provisions of the General Corporation Law of the State of Delaware on October 22, 2020, with its office located in Las Vegas, Nevada. Gryphon operates a digital asset (commonly referred to as cryptocurrency) mining operation using specialized computers equipped with application-specific integrated circuit (ASIC) chips (known as “miners”) to solve complex cryptographic algorithms in support of the Bitcoin blockchain (in a process known as “solving a block”) in exchange for cryptocurrency rewards (primarily Bitcoin). Gryphon became a publicly held entity in February 2024 upon the completion of a reverse merger transaction (the “Merger”) with Akerna Corp., herein referred to as we, us, our, the Company or Akerna. These consolidated financial statements and notes thereto, including disclosures for certain activities up to and including the effective date (the “Effective Date”) of the Merger, or February 9, 2024, are exclusively attributable to the operations of Akerna. 

Akerna through our wholly-owned subsidiarieswas formed upon completion of the mergers between MTech Acquisition Corp. (“MTech”) and MJ Freeway, LLC or(“MJF”) on June 17, 2019 as contemplated by the Merger Agreement dated October 10, 2018, as amended (the “Formation Mergers”). Akerna provided software as a service (“SaaS”) solutions within the cannabis industry that enabled regulatory compliance and inventory management through several wholly-owned subsidiaries including MJF, Trellis Solutions, Inc. (“Trellis”), or Trellis, Ample Organics, Inc, or Ample, Inc. (“Ample”), Last Call Analytics (“LCA”), solo sciences, inc. (“Solo”), or Solo, Viridian Sciences, Inc. (“Viridian”), or Viridian, and The NAV People, Inc. d.b.a. 365 Cannabis or(“365 Cannabis”). Our common stock, $0.0001 par value (“Common Stock”) was traded on the Nasdaq Capital Market (the “Nasdaq”) under the symbol “KERN” through February 9, 2024.

During the fourth quarter of 2022, we committed to a number of significant actions that collectively represented a strategic shift in our business strategy and a complete exit from the SaaS business serving the cannabis industry. The shift was effectuated in a two-part exit strategy whereby we (i) disposed of our component SaaS business units in advance of (ii) the Merger with Gryphon, an entity unaffiliated with the SaaS and cannabis industries (see below and Note 4).

Prior to the aforementioned shift in strategy, we implemented a restructuring initiative (the “Restructuring”) in May 2022 whereby we reduced our headcount by 59 employees and incurred and paid $0.6 million of associated costs in an effort to minimize costs and streamline the organization. There were no remaining obligations under the Restructuring after December 31, 2022.

During 2023, we disposed of 365 Cannabis, provides enterprise software solutionsLCA and Ample (the “Disposal Group”) through a series of sale transactions. As a result of these transactions, the Disposal Group met the criteria to be considered “discontinued operations” as that enable regulatory complianceterm is defined in accounting principles generally accepted in the United States (“GAAP”). Accordingly, the assets and inventory management. Our proprietary, broadliabilities of these entities are classified and growing suitereflected on our consolidated balance sheet as of solutionsDecember 31, 2022 as attributable to “discontinued operations” and their results of operations are adaptableclassified as “discontinued operations” in the consolidated statements of operations for industriesthe years ended December 31, 2023 and 2022, respectively. Certain financial disclosures including major components of the assets and liabilities and results of operations of the Disposal Group are provided in which interfacingNote 15. We effectively abandoned our operations for Trellis, Solo and Viridian during the year ended December 31, 2023 after all contractual commitments were satisfied with government regulatory agenciesthe customers and vendors of those businesses. The results of operations of these business units are reflected in these consolidated financial statements for compliance purposes isall periods presented as a component of continuing operations. We committed to the sale of MJF (the “Sale Transaction”) during 2023; however, the required or wherestockholder approval and certain other consents required to complete the trackingSale Transaction were not obtained until January of organic materials from seed or plant to end products is desired. We develop products intended to assist states2024. Accordingly, the assets and liabilities and results of operations of MJF are reflected in monitoring licensed businesses’ compliancethese consolidated financial statements for all periods presented as a component of continuing operations. The Sale Transaction closed on February 9, 2024 (see Note 4).

On January 27, 2023, we entered into an agreement and plan of merger, as amended on April 28, 2023 and June 14, 2023 (the “Merger Agreement”) with state regulationsGryphon and to help state-licensed businesses operateAkerna Merger Co. (“Akerna Merger”). Required approval of the Merger Agreement by the stockholders of Akerna and Gryphon as well as approval by Nasdaq of the continued listing of Gryphon after the closing of the Merger was obtained in complianceJanuary 2024. On February 9, 2024, concurrent with such law. We provide our commercial software platform, MJ Platform®, Trellis®, Ample, Viridianthe closing of the Sale Transaction, Akerna Merger merged with and 365 Cannabis to state-licensed businesses,into Gryphon, with Gryphon surviving the Merger as a wholly-owned subsidiary of Akerna. Following the closing of the Merger, the former Gryphon and our regulatory software platform, Leaf Data Systems®, to state government regulatory agencies.Through Solo, we provide an innovative, next-generation solution for stateAkerna stockholders immediately before the Merger owned approximately 92.5 percent and national governments to securely track product and waste throughout7.5 percent, respectively, of the supply chain with solo*TAG™. The integration of MJ Platform® and solo*CODE™ results in technology for consumers and brands that brings a consumer-facing mark designed to highlight the authenticity and signify transparency. Our Viridian and 365 Cannabis offerings are considered enterprise offerings and all other solutions are considered non-enterprise offerings that meet the needs of our small and medium business customers.  

We consult with clientsoutstanding capital stock on a wide rangefully diluted basis which effectively resulted in a change in control of areasthe Company. Upon completion of the Merger, Akerna changed its name to help them successfully maintain complianceGryphon and its common stock began trading on the Nasdaq under the symbol “GRYP.”

Additional disclosures regarding the Merger and Sale Transaction and their impact on the results of operations for the year ended December 31, 2023 are more fully described in Note 4.


Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

 Notes to Consolidated Financial Statements

Note 2 – Basis of Presentation

The accompanying consolidated financial statements, which exclusively represent the operations of Akerna through December 31, 2023 and disclosures regarding certain activities up to and including the Effective Date, have been prepared in accordance with state laws and regulations. We provide project-focused consulting services to clients who are initiating or expanding their cannabis business operations or are interested in data consulting engagements with respect to the legal cannabis industry. Our advisory engagements include service offerings focused on compliance requirement assessments, readiness and best practices, compliance monitoring systems, application processes, inspection readiness, and business plan and compliance reviews. We typically provide our consulting services to clients in emerging markets that are seeking consultation on newly introduced licensing regimes and assistance with the regulatory compliant build-out of operations.GAAP. 


Going Concern and Management'sManagement’s Liquidity Plans

 

In accordance with the Financial Accounting Standards Board’s (“FASB”) standard on going concern, Accounting Standard Update, or ASU No. 2014-15, The Company assessesCodification (“ASC”) 205-40, Going Concern (“ASC 205-40”), we assess going concern uncertainty in itsour consolidated financial statements to determine if it haswe have sufficient cash, cash equivalents and working capital on hand including marketable equity securities, and any available borrowings on loans, to operate for a period of at least one year from the date the consolidated financial statements are issued, which is referred todefined as the “look-forward period” as defined by ASU No. 2014-15.in ASC 205-40. As part of this assessment, based on conditions that are known and reasonably knowable to The Company, itus, we will consider various scenarios, forecasts, projections, estimates and will make certain key assumptions, including the timing and nature of projected cash expenditures or programs, and itsour ability to delay or curtail expenditures or programs, if necessary, among other factors. Based on this assessment, as necessary or applicable, The Company makeswe make certain assumptions aroundregarding implementing curtailments or delays in the nature and timing of programs and expenditures to the extent The Company deemswe deem probable thosethat such implementations can be achieved and it haswe have the proper authority to execute them within the look-forward period in accordance with ASU No. 2014-15.ASC 205-40.


The accompanying consolidated financial statements have been prepared on the basis that weAkerna will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. However, since our inception in 2019 we have incurred recurring operating losses from operations, used cash from operations,operating activities and relied on capital raising transactionsactivities to continue ongoing operations. During the year ended December 31, 2021, six months ended December 31, 2020, and year ended June 30, 2020, we incurred a loss from operations of $33.4 million, $15.7 million, and $17.3 million, respectively, and used cash in operations of $8.2 million, $8.7 million, and $14.3 million, respectively. At December 31, 2021, the Company had a working capital deficit of $10.9 million with $13.9 million in cash available to fund future operations. TheseCollectively, these factors raise substantial doubt as defined by generally accepted accounting principles in the United States of America ("GAAP"), about theregarding our ability of the company to continue to operate as a going concern for the twelve months followingfrom the issuance of thesedate our consolidated financial statements. Thesestatements were issued in the absence of a significant capital transaction. The accompanying consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the CompanyAkerna be unable to continue as a going concern.


On July 23, 2021, we entered into an Equity Distribution AgreementIn connection with Oppenheimer & Co. Inc. and A.G.P./Alliance Global Partners ("ATM Program"). Pursuant to the termsclosing of the ATM Program, we may offerSale Transaction and sell from time to time, up to $25 millionMerger, substantially all of sharesthe assets and liabilities of the legacy Akerna business were disposed of such that after February 8, 2024, our common stock. Asassets and liabilities and capital structure reflected those of December 31,Gryphon immediately after the closing of those transactions. Since Gryphon began revenue generation in September 2021, we have raised gross proceeds of $1.9 millionmanagement has financed its operations through the issuance of 556,388 shares through the ATM program. While no assurance can be provided that we will be able to raise further capital under the program, we intend to use the net proceeds fromequity and debt financing and the sale of our shares of common stock,the digital assets earned through mining operations. Gryphon may incur additional losses from operations and negative cash outflows from operations in the foreseeable future. In the event Gryphon continues to incur losses, it may need to raise debt or equity financing to finance its operations until operations are cashflow positive. However, there can be no assurance that such financing will be available in sufficient amounts and on acceptable terms, when and if any, for general corporate purposes, including working capital, marketing, product development, capital expendituresneeded, or at all. The precise amount and merger and acquisition activities. 

F-8

AKERNA CORP.

Notes to Consolidated Financial Statements

December 31, 2021


On October 5, 2021, we entered into a securities purchase agreement with the two institutional investors that held the Company's convertible notes issued in June of 2020 (the "2020 Notes") to sell senior secured notes in a private placement (the "Senior Convertible Notes"). The Senior Convertible Notes have an aggregate principal amount of $20 million, an aggregate original issue discount of 10%, and rank senior to all our other outstanding and future indebtedness. Approximately $3.3 milliontiming of the proceeds fromfunding needs cannot be determined accurately at this time and will depend on several factors, including the Senior Convertible Notes were used to payoff the 2020 Notes, which were then to be cancelled. The net proceeds from the issuance of the Senior Convertible Notes was approximately $14.6 million, following the original issue discount and deductions for expenses and paydown of the 2020 Notes. These net proceeds will be used to support Akerna's ongoing growth initiatives and continued investment in current and future technology infrastructure. The Senior Convertible Notes are convertible into shares of common stock of Akerna at a conversionmarket price of $4.05 per share. The Senior Convertible Notes mature on October 5, 2024 and are to be repaid in monthly installments beginning on January 1, 2022. The Senior Convertible Notes can be repaid in common shares or cash.


Management’s plan for the Company to continue as a going concern includes raising additional capital from our ATM program, subject to certain effects on the Senior Convertible Notes should we utilize the program, including resetting the conversion price of the Senior Convertible Notes should we raise more than $5 million under the ATM program, settling our contingent consideration and Senior Convertible Notes in common stock rather than cash as it comes due, and implementing certain cost cutting strategies throughout the organization, while continuing to seek to grow our customer base and realize synergies as we continue to integrate our recent acquisitions. Ifunderlying commodity mined by the Company is unable to raise sufficient additional funds through the ATM Program, it will have to develop and implement a plan to extend payables, reduce expenditures, or scale back our business plan until sufficient additional capital is raised through other equity or debt offerings to support further operations. Such offerings may include the issuance of shares of common stock, warrants to purchase common stock, preferred stock, convertible debt or other instruments that may dilute our current stockholders.


The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplishprocure the required mining equipment and operate profitably. The aforementioned factors indicate that management’s plans described indo not alleviate the preceding paragraph and eventually secure other sources of financing and attain profitable operations. We will require additional financing in the second quarter of 2022 to meet our ongoing operational working capital requirements and continue to meet the financial covenants of the Senior Convertible Notes. As noted above, we plan to meet those requirements in part through the use of our ATM Facility, but there are no guarantees that the ATM Facility will permit us to raise sufficient cash to meet our ongoing requirements. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of the consolidated financial statements. If we are unable to raise sufficient capital we may have to reduce operations which could significantly affect our results of operations. If we fail to meet the financial covenants of the Senior Convertible Notes and cannot obtain a waiver from such provisions or otherwise come to an agreement with the holders of our debt, such holders may declare a default on the debt which could subject our assets to seizure and sale, negatively impacting our business. The accompanying consolidatedthese financial statements do not include any adjustments relating

Reclassifications

Certain prior year amounts have been reclassified to conform to the recoverabilitycurrent year presentation. In addition, and classification ofas described and disclosed in Notes 1 and 15, the assets and liabilities that might be necessary ifand results of operations of the Company is unableDisposal Group have been reclassified as discontinued operations for all period presented.


Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

 Notes to continue as a going concern.


Consolidated Financial Statements

Note 2 -3 – Summary of Significant Accounting Policies

 

Basis of Presentation


The accompanying consolidated financial statements have been prepared in accordance with GAAP. summary of significant accounting policies presented as follows represents those of the legacy Akerna business as applicable for the periods presented herein and through the Effective Date.


In September 2020, the Company changed its fiscal year from June 30 to December 31. As a result, this annual report on Form 10-K includes the consolidated financial statements as of December 31, 2021 and December 31, 2020 and for (i) the calendar year ended December 31, 2021, (ii) the transitional six months ended December 31, 2020; and (iii) the fiscal year ended June 30, 2020.  


Principles of Consolidation


Our accompanying consolidated financial statements include the accounts of Akerna and our wholly-owned subsidiaries and those entities in which we otherwise have a controlling financial interest.through the date of disposition where applicable. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

 

The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts included in the consolidated financial statements and accompanying notes thereto. Our most significant estimates and assumptions are related to the valuation of acquisition-related assets and liabilities, capitalization of internal costs associated with software development, fair value measurements, impairment assessments, loss contingencies and the valuation allowance associated with deferred tax assets, stock based compensation expenses, and useful lives of long-lived intangible assets. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results could differ from those estimates.  


Reclassifications


Certain prior year amounts have been reclassified to conform to the current year presentation.


F-9

AKERNA CORP. 

Notes to Consolidated Financial Statements
Foreign Currency

December 31, 2021


Foreign Currency


The functional currency of the Company'sCompany’s non-U.S. operations is the local currency. Monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars at exchange rates prevailing at the balance sheet dates. Non-monetary assets and liabilities are translated at the historical rates in effect when the assets were acquired or obligations incurred. Revenue and expenses are translated into U.S. dollars using the average rates of exchange prevailing during the period. Translation gains or losses are included as a component of accumulated other comprehensive loss in stockholders' equity.income (loss) within stockholders’ equity (deficit). Gains and losses resulting from foreign currency transactions are recognized as othera component of Other income (expense). in our consolidated statements of operations.

 

Cash and Cash Equivalents


We consider liquid instruments purchased with an original maturity of three months or less to be cash equivalents. There were no cash equivalents as of December 31, 2021, and 2020. We continually monitor our positions with, and the credit quality of, the financial institutions with which we invest. As of the balance sheet date, and periodically throughout the year, we have maintained balances in various operating accounts in excess of federally insured limits.


Restricted Cash


Restricted cash consists of funds that are contractually or legally restricted as to usage or withdrawal and is presented separately from cash and cash equivalents on our consolidated balance sheets. Our restricted cash serves


Gryphon Digital Mining, Inc. (formerly known as collateral for a letter of credit.Akerna Corp.)


Notes to Consolidated Financial Statements

Accounts Receivable, Net

 

We maintain an allowance for doubtful accounts equal to the estimated uncollectible amountscurrent expected credit losses based on our historical collection experience, current conditions and reviewreasonable and supportable forecasts. We pool our accounts receivables into two groups: (i) government and government-affiliated customers and (ii) small and medium-sized businesses (“SMB”). The customers within these two groups share similar risk characteristics. The government-affiliated customers generally have a higher credit quality as they are bound by contracts generally backed by the faith and credit of the current status of traderelated governments. Accordingly, we assess the accounts receivable. Receivables are written-off and charged against the recorded allowance when we have exhausted collection efforts without success. The allowance for doubtful accounts was $0.3 million and $0.2 millionreceivable from this group as of December 31, 2021, and 2020, respectively.

The allowance for doubtful accounts consistsless risky than those of the following activity:SMB group, which is more diverse in size and financial strength.


Year Ended  December 31,


Six Months Ended

December 31,


2021

2020

Allowance for doubtful accounts, balance at beginning of period$153,500

$208,422
Bad debt expense
556,890


72,832
Write-off uncollectable accounts
(393,306)

(127,754)
Allowance for doubtful accounts, balance at end of period$317,084

$153,500


Concentrations of Credit Risk

 

We grant credit in the normal course of business to customers in the United States. We periodically perform credit analysis and monitor the financial condition of our customers to reduce credit risk.


During the year ended December 31, 2021, the six months ended December 31, 2020 and the year ended June 30, 2020, 1 government client accounted for 11%, 14% and 25% of total revenues, respectively. As of December 31, 2020, 2 government clients accounted for a total of 36% of net accounts receivable. 


F-10

AKERNA CORP.

Notes to Consolidated Financial Statements

December 31, 2021


Property and Equipment


Property and equipment are recorded at cost.cost, less accumulated depreciation. Expenditures for major additions and improvements are capitalized. DepreciationRepairs and amortizationmaintenance costs are expensed as incurred. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method.


The estimated useful lives for significant propertyour furniture and computer equipment categories are generally as follows:were 3 - 7 years.


Furniture and computer equipment

3 to 7 years

Leasehold improvements

Lesser of remaining lease term or useful life

 

RepairsSoftware Development Costs

Costs incurred during the application development stage of a newly developed application and costs we incur to enhance our existing platforms that meet certain criteria are subject to capitalization and subsequent amortization. Our software product development costs are primarily comprised of personnel costs such as payroll and benefits, vendor costs, and other costs directly attributable to the project. We capitalize costs only during the development phase. Any costs in connection to planning, design, and maintenance costssubsequent to release are expensed as incurred.


Warrant Liabilities We amortize software development costs over the expected useful life of the specific application, generally 2-5 years. We evaluate capitalized software development costs for impairment when there is an indication that the unamortized cost may not be recoverable. During the year ended December 31, 2022, we fully impaired our capitalized software development costs for our continuing operations. In addition, we recorded impairment charges attributable to certain capitalized software development costs of the Disposal Group during the year ended December 31, 2022 (see Note 15).

Company’s Private Warrants are not indexed to the Company’s common stock in the manner contemplated by ASC Section 815-40. As a result, these warrants are precluded from equity classification and are recorded as derivative liabilities. At the end of each reporting period, changes in fair value during the period are recognized within the condensed consolidated statements of operations and comprehensive loss. We will continue to adjust the warrant liability for changes in the fair value until the earlier of a) the exercise or expiration of the warrants or b) the redemption of the warrants, at which time the warrants will be reclassified to additional paid-in capital.


Investment

We hold an equity security in Zoltrain, Inc. (Zoltrain) for which the fair value is not readily determinable. Accordingly, we measure this investment at cost minus impairment, plus or minus changes resulting from observable price changes. When indicators of impairment exist, we estimate the fair value and record an impairment charge if the carrying value of the investment exceeds its estimated fair value. Any impairment charges are recorded in other (expense) income, net, in our consolidated statements of operations. Prior to the quarter ended September 30, 2021, we had determined we could exert significant influence over Zoltrain's operations through voting rights and representation on the board of directors and we accounted for our investment in Zoltrain using the equity method of accounting, recording our share in the investee’s earnings and losses in the consolidated statement of operations. 


Intangible Assets Acquired through Business Combinations


Intangible assets are amortized over their estimated useful lives. We evaluate the estimated remaining useful life of our intangible assets when events or changes in circumstances indicate an adjustment to the remaining amortization may be needed. We similarly evaluate the recoverability of these assets upon events or changes in circumstances indicate a potential impairment. Recoverability of these assets is measured by comparing the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate. If the undiscounted cash flows used in the test for recoverability are less than the carrying amount of these assets, the carrying amount of such assets is reduced to fair value. We recorded an impairment of $2.7 million duringDuring the six monthsyear ended December 31, 2020 related to the2022, we fully impaired our intangible assets acquired in the Solo transaction. There were no impairments offor our continuing operations. In addition, we recorded impairment charges attributable to certain intangible assets of the Disposal Group during the yearsyear ended December 31, 2021 or June 30, 2020. See2022 (see Note 6 – Goodwill and Intangible Assets, Net for further discussion on the impairment.15).


Goodwill Impairment Assessment


Goodwill represents the excess purchase consideration of an acquired business over the fair value of the net tangible and identifiable intangible assets. Goodwill is evaluated for impairment annually on October 31, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable.impaired. Triggering events that may indicate impairment include, but are not limited to, a significant adverse change in customer demand or business climate or a significant decrease in expected cash flows. An impairment loss is recognized to the extent that the carrying amount exceeds the reporting unit’s fair value, not to exceed the carrying amount of goodwill. The Company hasWe have the option to first assess qualitative factors to determine whether events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount and determine whether further action is needed. If, after assessing the totality of events or circumstances, the Company determineswe determine it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the quantitative impairment test is unnecessary. DueDuring the year ended December 31, 2022, we fully impaired our goodwill for our continuing operations. In addition, we recorded impairment charges attributable to a continued decline in market conditions and declines ingoodwill of the operating results of our non-enterprise reporting unit, we recognized an impairment to goodwill of $14.4 millionDisposal Group during the year ended December 31, 2021 and we recorded an impairment to goodwill of $4.2 million during the six months ended December 31, 2020. There were no impairments of goodwill during the year ended June 30, 2020. See2022 (see Note 6 – Goodwill and Intangible Assets, Net for further discussion on the impairment.


F-11

AKERNA CORP. 15).


Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

Notes to Consolidated Financial Statements

December 31, 2021


Software Development Costs


Costs incurred during the application development stage of a newly developed application and costs we incur to enhance our existing platforms that meet certain criteria are subject to capitalization and subsequent amortization. Capitalized software development costs were approximately $5.9 million during the year ended December 31, 2021, $2.1 million during the six months ended December 31, 2020, and $3.1 million during the year ended June 30, 2020. Product development costs are primarily comprised of personnel costs such as payroll and benefits, vendor costs, and other costs directly attributable to the project. We capitalize costs only during the development phase. Any costs in connection to planning, design, and maintenance subsequent to release are expensed as incurred. We amortize software development costs over the expected useful life of the specific application, generally 2-5 years. We evaluate capitalized software development costs for impairment when there is an indication that the unamortized cost may not be recoverable. 


Fair Value of Financial Instruments

GAAPASC 820, Fair Value Measurements and Disclosures (“ASC 820”) defines fair value as the price 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. Under this guidance, we are required to classify certain assets and liabilities based on the fair value hierarchy, which groups fair value-measured assets and liabilities based upon the following levels of inputs: 


●●Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

●Level 2 – Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability;

●Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).


The fair value of financial instruments is the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying values of financial instruments such as accounts receivable, accounts payable and accrued liabilities approximate fair value based on their short maturities. Please referdue to Note 13- Fair Value Measurements for additional information regarding the fair valueshort-term nature of financial instruments that we measure at fair value, including senior secured convertible notes and contingent consideration.these instruments.


Fair Value Option


The fair value option provides an election that allows a companyan entity to irrevocably elect to record certain financial assets and liabilities at fair value on an instrument-by-instrument basis at initial recognition. We have elected to apply the fair value option to certain convertible notesour 2021 Senior Secured Convertible Notes (the “Senior Convertible Notes”) due to the complexity of the various conversion and settlement options available to both the Note Holdersholders of such notes and Akerna.


The convertible notesSenior Convertible Notes accounted for under the fair value option election are each a debt host financial instrument containing embedded features that would otherwise be required to be bifurcated from the debt-host and recognized as separate derivative liabilities subject to initial and subsequent periodic estimated fair value measurements in accordance with GAAP. Notwithstanding, when the fair value option election is applied to financial liabilities, bifurcation of an embedded derivative is not required, and the financial liability is initially measured at its issue-date estimated fair value and then subsequently remeasured at estimated fair value on a recurring basis as of each reporting period date.


The portion of the change in fair value attributed to a change in the instrument-specific credit risk is recognized as a component of other comprehensive income (loss) within stockholders’ equity (deficit) and the remaining amount of the fair value adjustment is recognized as other income (expense) in our consolidated statement of operations. The estimated fair value adjustment is presented in a respective single line item within other income (expense) in the accompanying consolidated statement of operations because the change in fair value of the convertible notes was not attributable to instrument-specific credit risk.

Warrants

We evaluate warrants that we may issue from time to time under a two-step process provided in GAAP. The first step is intended to distinguish liabilities from equity. Warrants that could require cash settlement are generally classified as liabilities. For warrants that are considered outside the scope of liability classification, a second step evaluates warrants as either a derivative subject to derivative accounting and disclosures or as equity instruments based upon the specific terms of the underlying warrant agreement and certain other factors associated with our capital structure. Warrants that are indexed to our Common Stock while we meet certain other conditions with respect to our capital structure, including the ability to satisfy the warrant settlement obligations with a sufficient number of registered shares, do not qualify as derivatives and are classified as components of equity. Certain of the warrants sold by MTech in its initial public offering that were converted to Akerna warrants in connection with the Formation Mergers (the “Private Warrants”) are not indexed to our Common Stock in the manner contemplated as described herein. As a result, the Private Warrants are precluded from equity classification and are recorded as derivative liabilities. At the end of each reporting period, changes in fair value during the period are recognized within the condensed consolidated statements of operations. We will continue to adjust this derivative liability for changes in the fair value until the earlier of (a) the exercise or expiration of the Private Warrants or (b) the redemption of the Private Warrants, at which time they will be reclassified to Additional paid-in capital. As of December 31, 2023 and 2022, all of our other outstanding warrants, including certain other MTech warrants that were converted to Akerna warrants upon our formation (the “2019 Public Warrants”), are classified within stockholders’ equity (deficit).


 

Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

Notes to Consolidated Financial Statements

Revenue Recognition


See Note 3 for further  discussion of our revenue recognition policies.


F-12

AKERNA CORP. 

Notes to Consolidated Financial Statements

December 31, 2021


Cost of Revenue


    Cost of revenue consists primarily of costs related to providing subscription and other services to our customers, including employee compensation and related expenses for data center operations, customer support and professional services personnel, payments to outside technology service providers, security services, and other tools.


Product Development


               Product development expenses consist primarily of employee-related costs for the design and development of the Company's platform, contractor costs to supplement staff levels, third-party web services, consulting services, and allocated overhead. Product development expenses, other than software development costs qualifying for capitalization, are expensed as incurred.


Sales and Marketing Expenses


            Sales and marketing expenses consist primarily of personnel and related costs, including salaries, benefits, bonuses, commissions, travel, and stock-based compensation. Other costs included in this expense are marketing and promotional events, online marketing, product marketing, information technology costs, and facility costs.


General and Administrative Expenses

  General and administrative expenses consist primarily of personnel and related costs for our executive, finance, legal, human resources, and administrative personnel, including salaries, benefits, bonuses, and stock-based compensation; legal, accounting, and other professional service fees; other corporate expenses; information technology costs; restructuring charges such as lease termination costs; and facility costs.

Legal and Other Contingencies

From time to time, the Company may be a party to litigation and subject to claims incident to the ordinary course of business, including intellectual property claims, labor and employment claims, breach of contract claims and other asserted and unasserted claims. The Company investigates these claims as they arise and accrues estimates for resolution of legal and other contingencies when losses are probable and estimable.


Stock-Based Compensation

We measured stock-based compensation based on the fair value of the share-based awards on the date of grant and recognize the related costs on a straight-line basis over the requisite service period, which is generally the vesting period. 

Income Taxes 

Income taxes are accounted for using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of other assets and liabilities. We provide for income taxes at the current and future enacted tax rates and laws applicable in each taxing jurisdiction. We use a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and disclosures regarding uncertainties in income tax positions. We recognize interest and penalties related to income tax matters in selling, general and administrative expenses in the consolidated statement of operations.

 

We recognize deferred tax assets to the extent that its assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of its net recorded amount, we will make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. As of December 31, 2021, management has applied a valuation allowance to deferred tax assets when it is determined that the benefit from the deferred tax asset will not be able to be utilized in a future period. 


F-13

AKERNA CORP. 

Notes to Consolidated Financial Statements

December 31, 2021

Segments


Our chief operating decision maker reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance and information for different revenue streams is not evaluated separately. As such, the Company has one operating segment, and the decision-making group is the senior executive management team. In the following table, we disclose our long-lived assets by geographical location (in thousands):



 As of December 31,




 2021



 2020


Long-lived assets:



 

 



 

 


United States



$ 

         32,356



$ 

                        9,994


Canada



 

5,229



 

5,074


Total



$ 

         37,585



$ 

                        15,068


Subsequent Events


The Company performs a review of events subsequent to the balance sheet date through the date the consolidated financial statements were issued. If we determine there are events requiring recognition or disclosure in the consolidated financial statements., we disclose the subsequent event.


Recently Issued Accounting Pronouncements

ASU 2016-02


The Financial Accounting Standards Board, or the FASB, has issued new guidance related to the accounting for leases. The new standard establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. We have adopted this new standard on January 1, 2022 and due to the immaterial impact of applying this standard to our limited assets subject to operating leases, there was no impact to our results of operations.


ASU 2016-13


The FASB has issued guidance to introduce a new model for recognizing credit losses on financial instruments based on estimated current expected credit losses, or CECL. Under the new standard, an entity is required to estimate CECL on trade receivables at inception, based on historical information, current conditions, and reasonable and supportable forecasts. Following our change in fiscal year-end effective December 31, 2020, the new guidance is effective for us beginning on January 1, 2023. We are evaluating the impact of adoption of the new standard on our consolidated financial statements.


ASU 2018-15


The FASB has issued guidance to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The guidance (i) provides criteria for determining which implementation costs to capitalize as an asset related to the service contract and which costs to expense, (ii) requires an entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement and (iii) clarifies the presentation requirements for reporting such costs in the entity’s consolidated financial statements. We have adopted this standard effective December 15, 2021, and there is currently no impact to our consolidated financial statements as a result of this guidance.


F-14

AKERNA CORP.

Notes to Consolidated Financial Statements

December 31, 2021

ASU 2019-12

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which aims to reduce complexity in accounting standards by improving certain areas of U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) without compromising information provided to users of financial statements. ASU 2019-12 is effective for public entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. For all other entities, the standard is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company has adopted ASU 2019-12 effective December 15, 2021 and the adoption of this guidance did not have a significant effect on our consolidated financial statements.

ASU 2020-01


The FASB has issued guidance clarifying the interactions between various standards governing investments in equity securities. The new guidance addresses accounting for the transition into and out of the equity method and measurement of certain purchased options and forward contracts to acquire investments. The standard is effective for us for annual and interim periods beginning on January 1, 2022, with early adoption permitted. Adoption of the standard requires changes to be made prospectively. We do not anticipate a significant impact to our consolidated financial statements as a result of this new guidance.


ASU 2020-06

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options and Derivative and Hedging - Contracts in Entity’s Own Equity, which simplifies the accounting for convertible instruments. This guidance eliminates certain models that require separate accounting for embedded conversion features, in certain cases. Additionally, among other changes, the guidance eliminates certain of the conditions for equity classification for contracts in an entity’s own equity. The guidance also requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and include the effect of share settlement for instruments that may be settled in cash or shares, except for certain liability-classified share-based payment awards. This guidance is required to be adopted by us in the first quarter of 2023 and must be applied using either a modified or full retrospective approach. We are currently evaluating the impact this guidance will have on our consolidated financial statements.


ASU 2021-04


On May 3, 2021, FASB issued ASU 2021-04, Earnings Per Share (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): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Issuers should apply the new standard prospectively to modifications or exchanges occurring after the effective date of the new standard. We are currently evaluating the impact this guidance will have on our consolidated financial statements..


ASU 2021-08


In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends the accounting related to contract assets and liabilities acquired in business combinations. Under current GAAP, an entity generally recognizes assets and liabilities acquired in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU 2021-08 requires that entities recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and should be applied prospectively to businesses combinations occurring on or after the effective date of the amendment. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

F-15

AKERNA CORP.

Notes to Consolidated Financial Statements

December 31, 2021

Note 3 - Revenue


Financial Statement Impact of Adopting ASC 606, "Revenue from Contracts with Customers"

On July 1, 2020, we adopted ASC 606 using the modified retrospective transition method and applied this method to all contracts that were not complete as of the date of adoption. The reported results as of December 31, 2021 and December 31, 2020, and for the year ended December 31, 2021 and the six months ended December 31, 2020 in the accompanying consolidated financial statements are presented under ASC 606, while the year ended June 30, 2020 has not been adjusted and is reported in accordance with historical accounting guidance in effect for that period.

The most significant impacts of this standard relate to the timing of revenue recognition of fixed fees under our contracts, as well as the accounting for costs to obtain contracts. Under ASC 606, revenue recognition for subscription and implementation fees begins on the launch date and is recognized over time through the term of the contract. We then recognized the remaining balance of the fixed fees ratably over the remaining term of the contract. Additionally, under ASC 606, we now defer recognition of expense for sales commissions ("contract costs"). These contract costs are amortized to expense over the expected period of benefit. Before the adoption of ASC 606, we expensed these contract costs as incurred.

The adoption of ASC 606 under the modified retrospective transition method resulted in a net adjustment reducing the accumulated deficit by $0.2 million at July 1, 2020 and an increase to capitalized commissions, which  are included in prepaid expenses and other current assets on the  accompanying balance sheet. The adjustment consisted of $0.2 million related to the deferral of contract costs that were historically expensed as incurred


Revenue Recognition Policies for the year ended December 31, 2021 and the six months ended December 31, 2020  

In accordance with ASC 606, revenue is recognized when a customer obtains the benefit of promised services, in an amount that reflects the consideration the Company expectsthat we expect to be entitled to receive in exchange for those services. In determining the amount of revenue to be recognized, the Company performswe perform the following steps: (i) identification of the contract with a customer; (ii) identification of the promised services in the contract and determination of whether the promised services are performance obligations, including whether they are distinct in the context of the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) the Company satisfieswe satisfy each performance obligation. Sales taxes collected from customers and remitted to government authorities are excluded from revenue.


Software Revenue.Revenue. Our software revenue is generated from subscriptions and services related to the use of our commercial software platforms, MJ Platform®, Ample, Trellis, Viridian, 365 Cannabis, and our government regulatory platform, Leaf Data Systems, and the sale of business intelligence, data analytics and other software related services.Systems®. Software contracts are annual or multi-year contracts paid monthly in advance of service and typically cancellable upon 30 days’ notice after the end of the contract period. Leaf Data SystemsSystems® contracts are generally multi-year contracts payable annually or quarterly in advance of service. Commercial software and Leaf Data SystemsSystems® contracts generally may only be terminated early for breach of contract as defined in the respective agreements. Amounts that have been invoiced are initially recorded as deferred revenue or contract liabilities. Subscription revenue is recognized on a straight-line basis over the service term of the arrangement beginning on the date that our solution is made available to the customer and ending at the expiration of the subscription term. We typically invoice customers at the beginning of the term, in multi-year, annual, quarterly, or monthly installments. When a collection of fees occurs in advance of service delivery, revenue recognition is deferred until such services commence. Revenue for implementation fees is recognized ratably over the expected term of the contract, including expected renewals.


We include service level commitments to customers warranting certain levels of uptime reliability and performance and permitting those customers to receive credits if those levels are not met. In addition, customer contracts often include: specific obligations that require us to maintain the availability of the customer’s data through the service and that customer content is secured against unauthorized access or loss, and indemnity provisions whereby we indemnify customers from third-party claims asserted against them that result from our failure to maintain the availability of their content or securing the same from unauthorized access or loss. To date, we have not incurred any material costs as a result of such commitments. Any such credits or payments made to customers under these arrangements are recorded as a reduction of revenue.


Consulting Revenue. Consulting services revenue is generated by providing solutions for operators in the pre-application of licensures and pre-operational phases of development and consists of contracts with fixed terms and fee structures based upon the volume and activity or fixed-price contracts for consulting and strategic services. These services include application and business plan preparation as they seek licenses to be granted. Consulting projects completed duringrevenue contracts have an initial set of proprietary deliverables that are provided to clients upfront, which is considered a separate performance obligation. As such, 30 percent of the pre-application phase generally solidify uscontract value is recognized upfront when deliverables are provided, with the remaining recognized over the life of the contract as the software vendor of choice for subsequent operational phases once the operator is granted the license. As a result, our consulting revenue is driven as new emerging states pass legislation, and as our client-operators gain licenses. Accordingly, we expect our consulting services to continue to grow as more states emerge with legalization reform. Consulting services revenue  When these services are not combined with subscription revenues as a single unit of account, these revenues are recognized as services are rendered and accepted by the customer. 

F-16

AKERNA CORP.performed. 

Notes to Consolidated Financial Statements

December 31, 2021


Other Revenue.Our other revenue is derived primarily from point-of-sale hardware and other non-recurring revenue.We sell solo*TAG™ s and solo*CODE™s to customers by the roll of printed labels or as a digital code that allows customers to print directly their packing. When customers active a solo*TAG™ or solo*CODE™, we receive an activation fee, which is recognized upon activation by the customer. From time to time, we may purchase equipment for resale to customers. Such equipment is generally drop-shipped to our customers. We recognize revenue as these products are delivered.


Cost of Revenue. Cost of revenue consists primarily of costs related to providing subscription and other services to our customers, including employee compensation and related expenses for data center operations, customer support and professional services personnel, payments to outside technology service providers, security services, and other tools.


Unbilled Receivables. Unbilled receivables are booked when services are delivered to our customers but not yet invoiced. Once invoiced, the unbilled receivables are reclassified to accounts receivable.


Revenue Recognition Policies for the year ended June 30, 2020

 

We derive our revenues primarily from the following sources: software revenues, which are primarily comprised of subscription fees from government and commercial customers accessing our enterprise cloud computing services and from customers paying for additional support beyond the standard support that is included in the basic subscription fees; and consulting services provided to operators interested in integrating our platform into their respective operations, such services include: assessing compliance requirements, monitoring systems and readiness; assisting with the application process; and evaluating the operator’s inspection readiness and business plan.

We commence revenue recognition when there is persuasive evidence of an arrangement, the service has been or is being provided to the customer, the collection of the fees is reasonably assured, and the amount of fees to be paid by the customer is fixed or determinable.


Deferred Revenue

. Deferred revenue consists of payments received in advance of revenue recognition from subscription services. The deferred revenue balance is influenced by several factors, including seasonality, the compounding effects of renewals, contract duration, and invoice frequency. Deferred revenue that will be recognized during the succeeding twelve-month period is recorded as deferred revenue, which is a current liability on the accompanying consolidated balance sheets.



Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

Notes to Consolidated Financial Statements

Legal and Other Contingencies

Disaggregation

From time to time, we may be a party to litigation and subject to claims incident to the ordinary course of Revenuebusiness, including intellectual property claims, labor and employment claims, breach of contract claims and other asserted and unasserted claims. We investigate these claims as they arise and will accrue a liability for such matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. The accrual for a litigation loss contingency might include, for example, estimates of potential damages, outside legal fees and other directly related costs expected to be incurred.

Stock-Based Compensation

We measured stock-based compensation based on the fair value of the share-based awards on the date of grant and recognize the related costs on a straight-line basis over the requisite service period, which is generally the vesting period. Stock-based compensation expense is included in operating expenses and cost of sales of our continuing and discontinued operations in our consolidated statements of operations consistent with the allocation of other compensation arrangements. In addition, stock-based compensation costs attributable to certain employees engaged in developing software are capitalized in connection with other compensation costs to the extent the underlying projects meet the criteria for capitalized software development costs. During 2022, we capitalized less than $0.1 million of stock-based compensation and no amounts were capitalized during 2023.

 

Income Taxes 

Income taxes are accounted for using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of other assets and liabilities. We provide for income taxes at the current and future enacted tax rates and laws applicable in each taxing jurisdiction. We use a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and disclosures regarding uncertainties in income tax positions. We recognize interest and penalties related to income tax matters in selling, general and administrative expenses in the consolidated statement of operations.

We recognize deferred tax assets to the extent that our assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of its net recorded amount, we will make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. As of December 31, 2023 and 2022, management has applied a valuation allowance to deferred tax assets when it is determined that the benefit from the deferred tax asset will not be able to be utilized in a future period. 

Segments

We operate our business as one operating segment. Operating segments are defined as components of an enterprise about which separate financial information is evaluated by the chief operating decision maker (“CODM”), our Chief Executive Officer, for purposes of allocating resources and assessing financial performance. Our CODM allocates resources and assesses performance based upon discrete financial information at the consolidated level.


Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

Notes to Consolidated Financial Statements

Discontinued Operations

In accordance with GAAP, we assess our business units that we may, from time to time, consider for disposal by sale or other means (i.e., abandonment). Those business units, which may be in the form of legal entities, divisions, product lines or asset and liability groups, among others, for which cash flows can be reasonably identified, that meet certain criteria are considered discontinued operations. Accordingly, their results of operations are presented in our statements of operations as “discontinued operations” and their associated assets and liabilities are considered “discontinued,” as appropriate on our consolidated balance sheets.

Subsequent Events

Management has evaluated all of our activities through the issuance date of our consolidated financial statements and has concluded that, with the exception of the completion of the Sale Transaction and the Merger in February 2024, as disclosed in detail in Note 4, no other subsequent events have occurred that would require recognition and disclosure in our consolidated financial statements or disclosure in the notes thereto.

Adoption of Recent Accounting Pronouncements

The FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) which introduced a new model for recognizing credit losses on financial instruments based on estimated current expected credit losses, or CECL. ASU 2016-13 requires an entity to estimate CECL on trade receivables at inception, based on historical information, current conditions, and reasonable and supportable forecasts. We adopted ASU 2016-13 and subsequent amendments on January 1, 2023. The impact of the adoption of ASU 2016-13 on our consolidated financial statements was not material.

Note 4 – Change in Control

We effectuated a change in control with the closing of the Sale Transaction and the Merger on February 9, 2024. The following describes the transactions and related corporate actions that facilitated the completion of these transactions.

Sale Transaction

On January 27, 2023, we entered into a securities purchase agreement (the “Initial SPA”) with a third party to sell MJF and Ample for $4.0 million in cash. Subsequently, we received a superior offer from Alleaves Inc. (“Alleaves”), as described below, which was presented to the third party for an opportunity to match or exceed Alleaves’ offer in accordance with the Initial SPA. The third party ultimately declined to present a counter-offer and on April 5, 2023, we terminated the Initial SPA. As a result of the termination, Akerna paid a termination fee and reimbursement for expenses of $0.2 million in June 2023. These costs were included in the line item  “Other expense, net” in our consolidated statements of operations.


Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

Notes to Consolidated Financial Statements

On April 28, 2023, we entered into a securities purchase agreement (the “SPA”) with MJ Freeway Acquisition Co (“MJ Acquisition”), an affiliate of Alleaves. Upon the terms and subject to the satisfaction of the conditions described in the SPA, including approval of the transaction by Akerna’s stockholders, Akerna would sell MJF and Ample to MJ Acquisition for a purchase price of $5.0 million, consisting of $4.0 million in cash at closing and a loan by MJ Acquisition to Akerna in the principal amount of $1.0 million evidenced by a note (the “MJA Note”) and security documents with such note to be deemed paid in full upon closing. 

The SPA was amended on October 12, 2023, November 15, 2023 and December 28, 2023 to facilitate the following, among other administrative matters attributable to the Sale Transaction: (i) reduced the cash to be paid at closing to $1.85 million from the original $4.0 million, (ii) required Akerna to sell Ample in an unrelated transaction to an unaffiliated third party (see Note 15) with the sales proceeds from such sale, less an allowance for legal fees, to further reduce the proceeds to be received from MJ Acquisition upon closing of the Sale Transaction, (iii) provided for an additional $0.650 million from MJ Acquisition to Akerna for working capital purposes and (iv) amending the MJA Note (the “Amended and Restated Secured Promissory Note”) to increase the principal to $1.650 million and adjust for its settlement at closing such that in would be converted into a number of shares of Common Stock upon closing equivalent to $1.650 million divided by the 5-day volume weighted average price of Akerna’s Common Stock.

At a special meeting held on January 29, 2024 (the “Special Meeting”), the stockholders of Akerna approved the Sale Transaction.

In order to consummate the Merger and Sale Transaction, pursuant to the terms of the SPA, as amended, the Company derivesalso entered into a release and termination agreement dated February 8, 2024 (the “MJA Release and Termination Agreement”) with MJ Acquisition to obtain a release under and termination of the Second Amended and Restated Security and Pledge Agreement dated November 15, 2023 entered into by and among the Company, certain of its subsidiaries, and MJ Acquisition under the Second Amended and Restated Intellectual Property Security Agreement dated November 15, 2023 by and between the Company, certain of its subsidiaries and MJ Acquisition and under the Second Amended and Restated Guaranty dated November 15, 2023, by and between certain subsidiaries of the Company and MJ Acquisition (the “MJA Credit Agreements”). Pursuant to the MJA Release and Termination Agreement, MJ Acquisition released the Company and its subsidiaries from all of the security interests and guarantees set forth in the MJA Credit Agreements and agreed that, upon receipt by MJ Acquisition of the assignment of the membership interests of MJF and the shares of Common Stock to be issued to MJ Acquisition upon conversion of the Amended and Restated Secured Promissory Note held by MJ Acquisition into shares of Common Stock, the MJA Credit Agreements would terminate without any further action by MJ Acquisition.

On February 9, 2024, we closed the Sale Transaction pursuant to the SPA, as amended. Upon the terms and subject to the satisfaction of the conditions described therein, Akerna sold to MJ Acquisition all of the membership interests in MJF for an aggregate purchase price of approximately $1.284 million and conversion of the Amended and Restated Secured Promissory Note in the amount of $1.650 million which principal amount converted into shares of Common Stock of Akerna at closing of the Sale Transaction, with such Amended and Restated Secured Promissory Note deemed paid in full upon closing of the Sale Transaction.


Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.) 

Notes to Consolidated Financial Statements

Merger

On January 27, 2023, we entered into the Merger Agreement with Gryphon. Concurrent with the signing and in support of  the Merger, we and each of the holders of the Senior Convertible Notes entered into exchange agreements (the “Exchange Agreements”) whereby the holders would ultimately convert the principal amounts of each of their note holdings to a level that would represent 19.9 percent of the outstanding shares of Common Stock prior to the closing of the Sale Transaction and the Merger. Prior to the stockholder vote required for the closing of those transaction, the remaining Senior Convertible Notes outstanding would be converted into a special class of exchangeable preferred stock to facilitate the required stockholder vote and then be converted into shares of our Common Stock subject to the Merger. For a limited period, the conversion price of the Senior Convertible Notes was lowered to $24.00 per share from $95.00 per share. In accordance with the Exchange Agreements and upon the occurrence of an any additional capital raising transaction, the conversion price would be adjusted accordingly. In connection with an equity offering in June 2023 (see Note 11), the conversion price was further reduced to $10.00 per share. Through December 6, 2023, a total of $3.187 million in principal amount of the Senior Convertible Notes were exchanged for 237,213 shares of Common Stock in connection with the Exchange Agreements.

On December 14, 2023, we designated and authorized 3,244 shares of Series C Preferred Stock with a par value of $1,000 per share (“Series C Preferred Stock”). Each share of the Series C Preferred Stock would have voting power equivalent to 100 shares of Common Stock. On December 20, 2023, Akerna and the holders of the Senior Convertible Notes that were parties to the Exchange Agreements entered into an amendment no. 1 to each of their respective the Exchange Agreements (the “Amended Exchange Agreements”) to establish the initial closing at which time each of the holders of the Senior Convertible Notes received 1,711 shares of Series C Preferred Stock (3,422 shares in total) in exchange for $1.711 million in principal amount of the Senior Convertible Notes ($3.422 million on a combined basis).

At the Special Meeting, the stockholders of Akerna approved the Merger concurrent with approval by Gryphon’s stockholders. In addition, the stockholders of Akerna approved: (i) an amendment to the Company’s amended and restated certificate of incorporation, as amended, to effect a reverse stock split of the Company’s Common Stock, at a ratio of one (1) new share for every fifteen (15) to one hundred (100) shares of outstanding Common Stock, with the exact ratio and effective time of the reverse stock split of Akerna Common Stock to be determined by the Akerna board of directors, agreed to by Gryphon and publicly announced by press release, (ii) an increase to the number of authorized shares of Common Stock to facilitate the closing of the Merger, (iii) approval of an amendment to the amended and restated certificate of incorporation to change the corporate name from “Akerna Corp.” to “Gryphon Digital Mining, Inc.,” (iv) approval of the Akerna 2024 Omnibus Incentive Plan and (v)  approval of the issuance of Common Stock upon the conversion of $1.650 million in principal amount of the Amended and Restated Secured Promissory Note held by MJ Acquisition.

On February 8, 2024, we entered into amendment no. 2 (“Amendment No. 2”) to the Exchange Agreements. Pursuant to Amendment No. 2, the Company and the holders of the Senior Convertible Notes amended the terms of the Exchange Agreements to (i) set the “Final Closing Date” under the Exchange Agreement to conduct the “Final Exchange” to take place immediately following the Effective Date of the Merger, (ii) agree that the “Company Optional Redemption Price” of the Senior Convertible Notes in relation to the “Cash Sweep” was $nil, (iii) agree as to the principal amount of the Senior Convertible Note remaining outstanding held by each holder following the payment of portion of the Senior Convertible Note pursuant to the Cash Sweep and that such Senior Convertible Note will be exchanged at the Final Closing into shares of Common Stock based on a per share price of $4.60 (being $0.23, as adjusted to reflect the 1-for-20 reverse stock split to be effected immediately prior to the Final Closing), (iv) agree that such number of shares of Common Stock will not exceed the “Maximum Percentage” and therefore there will be no “Abeyance Shares”, and (v) the Final Exchange shall be consummated pursuant to Section 3(a)(9) of the Securities Act and the terms set forth in Amendment No. 2. Pursuant to the terms of Amendment No. 2, on February 9, 2024, the remaining principal amount of Senior Convertible Notes was exchanged for 824,977 shares of Common Stock. 

On February 8, 2024, we entered into certain exchange agreements under Section 3(a)(9) of the United States Securities Act of 1933, as amended (the “Securities Act”), in relation to the exchange of the Company’s issued and outstanding shares of Series C Preferred Stock  for shares of Common Stock (the “3(a)(9) Exchange Agreements”). Pursuant to the Section 3(a)(9) Exchange Agreements, on February 9, 2024, all 3,244 Series C Shares with a face value of $1,000 per share were exchanged for 756,746 shares of Common Stock. 


Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.) 

Notes to Consolidated Financial Statements

In order to consummate the Merger and the Sale Transaction, pursuant to the terms of the Exchange Agreements, we entered into a release and termination agreement dated February 8, 2024 (“Release and Termination Agreement”), to obtain a release under, and termination of, the Amended and Restated Security and Pledge Agreement dated October 5, 2021 entered into by and among the Company, certain of its subsidiaries, and the collateral agent named therein, the Amended and Restated Intellectual Property Security Agreement dated October 5, 2021 by and between the Company, certain of its subsidiaries and the collateral agent named therein, and the Amended and Restated Guaranty dated October 5, 2021 by and between certain subsidiaries of the Company and the collateral agent named therein (collectively, the “Credit Agreements”). Pursuant to the Release and Termination Agreement, the collateral agent released the Company and its subsidiaries from all of the security interests and guarantees set forth in the Credit Agreements and agreed that, upon receipt by the holders of the Senior Convertible Notes of (i) the shares of Common Stock to be issued pursuant to Amendment No. 2 and (ii) evidence of the receipt of assignment of a stated monetary interest in the Company’s Employee Retention Tax Credit (“ERTC”) to the holders of the Senior Convertible Notes (who were also holders of the Series C Shares), the Credit Agreements would terminate without any further action by the collateral agent or the holders of the Senior Convertible Notes. Further, we entered into a separate consent and agreement dated February 8, 2024 with each of the two institutions that hold the Senior Convertible Notes, pursuant to which each such holder separately consented to the Release and Termination Agreement (the “Noteholder Consents”).

On February 8, 2024, we entered into a ERTC & Liability Assignment Agreement (the “ERTC Agreement”) with Distributionco LLC, a Colorado limited liability company (“Distributionco”). Pursuant to the ERTC Agreement, in order to (i) induce the holders of the Senior Convertible Notes and Series C Shares to agree to the closing of the Merger and Sale Transaction, (ii) settle certain accounts payable to a third party service provider and (iii) settle certain amounts of compensation due and payable to officers of the Company, the Company agreed to the assignment of the Company ERTC credit anticipated to be approximately $2.1 million to Distributionco in exchange for Distributionco assuming the above liabilities of the Company totaling in the aggregate, $2.1 million of liabilities.

On February 8, 2024, we entered into share settlement agreements (the “Share Settlement Agreements”) with certain former officers of the Company (the “Purchasers”), pursuant to which the Purchasers were issued shares of Common Stock as satisfaction for outstanding compensation balances owed to the Purchasers. On February 9, 2024, an aggregate of 446,611 shares of Common Stock (the “Settlement Shares”) were issued to the Purchasers pursuant to the terms of the Share Settlement Agreements. 

In order to induce the Purchasers to execute and deliver the Share Settlement Agreements, we agreed to provide certain registration rights under the Securities Act and applicable state securities laws with respect to the Settlement Shares, pursuant to registration rights agreements (the “Registration Rights Agreements”), dated February 8, 2024, between the Company and each of the Purchasers.

In connection with the consummation of the Merger, all of Akerna’s special voting preferred stock and exchangeable shares and common stock warrants (see Note 11) as well as all unvested restricted stock awards (see Note 12) that remained outstanding immediately prior to the Merger were converted to Common Stock.

On February 9, 2024, the Company completed the transactions contemplated by the Merger Agreement, as amended. Under the terms of the Merger Agreement, Merger Sub merged with and into Gryphon, with Gryphon surviving as a wholly-owned subsidiary of Akerna. On the Effective Date of the Merger, each share of Gryphon’s common stock, par value $0.0001 per share (the “Gryphon Common Stock”), and Gryphon’s preferred stock, par value $0.0001 per share (the “Gryphon Preferred Stock,” collectively referred to herein with the Gryphon Common Stock as the “Gryphon Shares”), outstanding immediately prior to the Effective Date was converted into the right to receive approximately 1.7273744 shares of Gryphon Common Stock.  Each warrant to purchase common stock of Gryphon that was issued and outstanding at the Effective Date will remain issued and outstanding, and was assumed by the Company and is exercisable for shares of Common Stock pursuant to its existing terms and conditions as adjusted to reflect the ratio of exchange of Gryphon Shares for shares of Common Stock.  Immediately after giving effect to the Merger, the Company had 38,733,554 shares of Common Stock outstanding and warrants to purchase Common Stock outstanding and exercisable to acquire shares of Common Stock. On February 9, 2024, the Common Stock began trading on the Nasdaq under the symbol “GRYP.”


Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

Notes to Consolidated Financial Statements

Note 5 – Revenue and Contracts with Customers

   
Disaggregation of Revenue

We derive the majority of itsour revenue from subscription fees paid for access to and usage of itsour SaaS solutions for a specified period of time, typically one to three years. In addition to subscription fees, contracts with customers may include implementation fees for launch assistance and training. Fixed subscription and implementation fees are billed in advance of the subscription term and are due in accordance with contract terms, which generally provide for payment within 30 days. The Company'sOur contracts typically have a one to three year term. The Company'sOur contractual arrangements include performance, termination and cancellation provisions, but do not provide for refunds. Customers do not have the contractual right to take possession of the Company'sCompany’s software at any time.


Sales taxes collected from customers and remitted to government authorities are excluded from revenue.


F-17

AKERNA CORP.

Notes to Consolidated Financial Statements

December 31, 2021


The following table summarizes our revenue disaggregation by productcustomer type for the following periods (in thousands):periods:


 For the Years Ended
December 31,  		 

Year Ended December 31, 2021

Six Months Ended December 31,  2020

 


Year Ended June 30, 2020 (1)
 2023  2022   

Government

$

3,258

 

$

1,939

 

$4,906
  $2,564,846  $3,357,978 

Non-government

17,427

 

5,886

 


7,667
   4,271,598   7,100,192 

$

20,685

 

$

7,825

 

$12,573
  $6,836,444  $10,458,170 

                  (1) As noted above, prior periods have not been adjusted

Accounts Receivable from Customers

Our accounts receivable from customers, net of an allowance for expected credit losses, were $147,855 and $429,949 as of December 31, 2023 and 2022 including $219,912, or 51 percent, as of December 31, 2022 attributable to two government clients. There were no amounts receivable from government clients as of December 31, 2023.

The allowance for expected credit losses was comprised of the adoption of ASC 606 and are presented in accordance with historical accounting guidance in effect for those periods.following activity:


 

Year Ended December 31, 2021

 

Six Months Ended December 31, 2020

 


Year Ended June 30, 2020 

United States

$

15,800

 

$

5,212

 

$12,573

Canada

4,885

 

2,613

 


0—

 

$

20,685

 

$

7,825

 

$12,573
  

For the Years Ended

December 31,

 
  2023  2022 
Allowance for expected credit losses at beginning of period $331,262  $305,517 
Bad debt expense (1)  63,358   415,009 
Write-off uncollectable accounts  (377,148)  (389,264)
Allowance for expected credit losses at end of period $17,472  $331,262 


(1)Bad debt expense is recognized as a component of General and administrative expenses. Includes amounts attributable to unbilled accounts receivable (see Note 7).

Contracts with Multiple Performance Obligations

  

Customers may elect to purchase a subscription to multiple modules, multiple modules with multiple service levels, or, for certain of the Company'sour solutions. We evaluate such contracts to determine whether the services to be provided are distinct and accordingly should be accounted for as separate performance obligations. If we determine that a contract has multiple performance obligations, the transaction price, which is the total price of the contract, is allocated to each performance obligation based on a relative standalone selling price method. We estimate standalone selling price based on observable prices in past transactions for which the product offering subject to the performance obligation has been sold separately. As the performance obligations are satisfied, revenue is recognized as discussed above in the product descriptions.


 

Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)


F-18

AKERNA CORP.

Notes to Consolidated Financial Statements

December 31, 2021

Transaction Price Allocated to Future Performance Obligations

 

ASC 606 provides certain practical expedients that limit the required disclosure of the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied. As many of the contracts the Company haswe have entered into with customers are for a twelve-monthtwelve-month subscription term, a significant portion of performance obligations that have not yet been satisfied as of December 31, 20212023 are part of a contract that has an original expected duration of one year or less. For contracts with an original expected duration of greater than one year, for which the practical expedient does not apply, the aggregate transaction price allocated to the unsatisfied performance obligations was $16.6$2.5 million as of December 31, 2021,2023, of which $11.1$2.4 million is expected to be recognized as revenue over the next twelve months.   

Deferred Revenue 

 

Deferred revenue represents the unearned portion of subscription and implementation fees. Deferred revenue is recorded when cash payments are received in advance of performance. Deferred amounts are generally recognized within one year. Deferred revenue is included in the accompanying consolidated balance sheets under Total current liabilities, net of any long-term portion that is included in Other long-termnoncurrent liabilities. The following table summarizes deferred revenue activity for the year ended December 31, 2021 (in thousands):2023:  


 

As of

January 1, 2021

 

Net additions

 

Revenue recognized

 

As of

December 31, 2021

Deferred revenue

$

844

  

12,657

 

9,375

$

4,126
  Beginning of
Period		  Net
additions		  Revenue
recognized		  End of
Period		 
Deferred revenue - 2023 $730,574   2,802,913   3,133,835  $399,652 
Deferred revenue - 2022  1,040,010   5,446,403   5,755,839   730,574 

 

Of the $20.7$6.8 million and $10.5 million of revenue recognized during the yearyears ended December 31, 2021, $0.72023 and 2022, $0.5 million and $1.2 million was included in deferred revenue as of December 31, 2020.2022 and 2021, respectively.

Costs to Obtain Contracts

 

In accordance with ASC 606, weWe capitalize sales commissions that are directly related to obtaining customer contracts and that would not have been incurred if the contract had not been obtained. These costs are included in the accompanying consolidated balance sheets and are classified as a component of Prepaid expenses and other current assets. Deferred contract costs are amortized to salesSales and marketing expense over the expected period of benefit, which we have determined to be one year based on the estimated customer relationship period. The following table summarizes deferred contract cost activity for the year ended December 31, 2021 (in thousand):  2023:  


  Beginning of
Period		  Additions  Amortized
costs (1)		  End of
Period		 
Deferred contract costs - 2023 $36,465   —   36,465  $— 
Deferred contract costs - 2022  142,930   124,690   231,155   36,465 

(1)Includes contract costs amortized to Sales and marketing expense during the period.

 

As of

January 1, 2021

 

Additions

 

Amortized costs (1)

 

As of

December 31, 2021

Deferred contract costs

$

228

 

512

 

(479

)

$

261

(1) Includes contract costs amortized to sales and marketing expense during the period.



F-19

AKERNA CORP.

Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

Notes to Consolidated Financial Statements

December 31, 2021

Note 46 – AcquisitionsFixed Assets, net and Other Noncurrent Assets

2021 Acquisitions


Viridian Sciences 

 

On April 1, 2021, we completedFixed assets consisted of the acquisition of Viridian, a cannabis business management software provider that is built on SAP Business One. We acquired Viridian in exchange for 1.0 million shares of our common stock valued at approximately $6.0 million. In addition to the stock consideration, the agreement provides for contingent consideration of up to $1.0 million, payable in additional common stock, if Viridian meets certain revenue criteria. The contingent consideration will be recorded as the estimated fair value on the acquisition date and adjusted to estimated fair value in each subsequent reporting period until settlement.following:

 

 

Preliminary
Fair Value

 

Shares issued

 

$

6,186

 

Contingent consideration

2
Total preliminary fair value of consideration transferred
$6,188
  As of December 31, 
  2023  2022 
Furniture and computer equipment $80,759  $154,137 
Less: accumulated depreciation  (59,070)  (105,257)
Fixed assets, net $21,689  $48,880 

 

The following table summarizes the preliminary fair values ofDepreciation expense related to our fixed assets acquired and liabilities assumed as of the date of acquisition (in thousands): 

 

 

Preliminary
Fair Value

 

Accounts receivable

 

 

556

 

Prepaid expenses and other current assets

 

 

148

 

Capitalized software

423

Acquired technology

 

 

470

 

Customer relationships

820
Acquired trade name

20
Goodwill

5,408

Accounts payable and accrued expenses

 

 

(350

)
Deferred tax liabilities

(307)

Deferred revenue

 

 

(1,000

)

Net assets acquired

 

$

6,188

 

The excess of purchase consideration over the fair value of assets acquired and liabilities assumed was recorded as goodwill, which is primarily attributed to the assembled workforce and expanded market opportunities, for which there is no basis for U.S. income tax purposes. The fair values assigned to identifiable assets acquired and liabilities assumed are based on management’s estimates and assumptions. We expect to finalize the valuation as soon as practicable, but no later than one year from the acquisition date.


The amounts of Viridian's revenue and net income included in our consolidated statement of operations from the acquisition date of April 1, 2021, to December 31, 2021 were $2.4 million and $0.3 million, respectively.   


F-20

AKERNA CORP.
Notes to Consolidated Financial Statements
December 31, 2021


365 Cannabis

On October 1, 2021, we acquired all the issued and outstanding shares of 365 Cannabis. Under the terms of the Agreement, the aggregate consideration for the 365 Cannabis shares consists of (1) $5,000,000 in cash, (2) $12,000,000 in stock, which was settled by issuing 3.6 million shares of our common stock, and (3) contingent value rights to be issued pursuant to a rights indenture entitling the holders thereof to receive, subject to certain adjustments as set forth in the Agreement, an aggregate of up to $8,000,000 in stock, in the event that NAV achieves certain revenue targets as specified in the Agreement. These rights are accounted for as contingent consideration and are currently recorded at preliminary fair value which will be updated upon finalization of purchase accounting. 

 

 

Preliminary
Fair Value

 

Shares issued

 

$

12,000

 

Cash

5,542
Contingent consideration

6,300
Total preliminary fair value of consideration transferred
$23,842

The following table summarizes the preliminary fair values of assets acquired and liabilities assumed as of the date of acquisition (in thousands): 

 

 

Preliminary
Fair Value

 

Cash

527
Accounts receivable

 

 

486

 

Prepaid expenses and other current asset

261
Fixed Assets

93
Non-compete agreement

80

Acquired technology

 

 

1,040

 

Customer relationships

13,810
Acquired trade name

270
Goodwill

14,043

Accounts payable and accrued expenses

 

 

(826

)
Deferred tax liabilities

(2,642)

Deferred revenue

 

 

(3,300

)

Net assets acquired

 

$

23,842

 

The excess of purchase consideration over the fair value of assets acquired and liabilities assumed was recorded as goodwill, which is primarily attributed to the assembled workforce and expanded market opportunities, for which there is no basis for U.S. income tax purposes. The fair values assigned to identifiable assets acquired and liabilities assumed are based on management’s estimates and assumptions. We expect to finalize the valuation as soon as practicable, but no later than one year from the acquisition date. 


The amounts of 365 Cannabis' revenue and net loss included in our consolidated statement of operations from the acquisition date of October 1, 2021, to December 31, 2021 were $2.4 million and $0.4 million, respectively.   


F-21

AKERNA CORP.

Notes to Consolidated Financial Statements

December 31, 2021

2020 Acquisitions


Trellis Solutions, Inc. 

On April 8, 2020, we acquired Trellis, acannabis cultivation management and compliance software company in an all-stock transaction. Our estimated acquisition date fair value of the consideration transferred for Trellis was as follows (in thousands): 

Common shares issued$2,531
Contingent consideration
998
Total estimated fair value of consideration$3,529

We incurred $0.1 million of transaction costs directly related to the acquisition that is reflected in general and administrative expenses in our consolidated statement of operations during the year ended June 30, 2020. 


We issued 349,650shares of our common stock valued at $7.24per share, the closing price of a share of our common stock on the date of acquisition in exchange for 100% of the outstanding stock of Trellis. We have also agreed to pay additional consideration calculated as annualized revenue derived from previously identified customers for the month of September 2020 multiplied by five. The contingent consideration is payable in shares based on the 20-day volume-weighted average price, or VWAP. At June 30, 2020, we estimated the fair value of the contingent consideration to be $0 and recorded a gain of $1.0 million on the change in the fair value of contingent consideration included in general and administrative expenses in the consolidated statement of operations during the year ended June 30, 2020.


 The following table summarizes our estimated fair values of assets acquired and liabilities assumed as of the date of acquisition (in thousands):

Cash $21 
Accounts receivable, net  91 
Other assets

6
Acquired technology  210
 
Acquired trade name

80
Customer relationships

220
Goodwill

3,216
Accounts payable and accrued expenses  (284)
Deferred revenue

(31)
Net assets acquired $3,529 


The excess of purchase consideration over the fair value of net tangible and intangible assets acquired was recorded as goodwill, which is primarily attributed to the assembled workforce and expanded market opportunities, for which there is no basis for U.S. income tax purposes. During the six monthsyears ended December 31, 2020, we recorded net adjustments to assets2023 and liabilities acquired of $14.3 thousand. The amounts of Trellis’s revenue2022, was $27,883 and net loss included in our consolidated statement of operations from the acquisition date of April 10, 2020 to June 30, 2020 were $216.0 thousand and $17.0 thousand, $44,841, respectively.


solo sciences, inc.


On January 15, 2020, we closed on a stock purchase agreement with substantially all of the shareholders of Solo pursuant to which we acquired all right, title, and interest in 80.4% of the issued and outstanding capital stock of Solo, calculated on a fully diluted basis. As a result of our initial investment, Solo became a controlled subsidiary and we commenced consolidation of Solo on January 15, 2020.The estimated acquisition date fair value of the consideration transferred for Solo was$17.9 million. During the year ended June 30, 2020, we completed the preliminary valuation of the contingent consideration and recorded a measurement periodadjustment to reflect this liability on our balance sheet. The estimated fair value of consideration recorded consisted of the following (in thousands):


F-22

AKERNA CORP.

Notes to Consolidated Financial Statements

December 31, 2021


Common shares issued$17,550
Contingent consideration
389
Total estimated fair value of consideration$17,939

We incurred $0.3 million of transaction costs directly related to the acquisition, which is reflected in general and administrative expenses in our consolidated statement of operations during the year ended June 30, 2020. 

We exchanged 1,950,000 shares of our common stock, valued at $9.00 per share, the closing price of a share of our common stock on the date of acquisition. In addition to the stock consideration, we agreed to pay contingent consideration in the form of fees payable to the legacy Solo shareholders equal to the lesser of (i) $0.01 per solo*TAG™ and solo*CODE™ sold or (ii) 7% of net revenue. The fees were to be paid annually until the earlier of: (1) our shares trading above $12 per share for any consecutive 20 trading days in a 30-day period; (b) upon our no longer owning a majority stake in Solo; or (c) upon expiration of the patents related to solo*TAG™ and solo*CODE™, which is December 1, 2029. This fee represents contingent consideration and was recorded at fair value as of the date of acquisition. Contingent consideration is adjusted to fair value each period with changes in fair value being recognized in earnings at each reporting period. 

We also acquired an option to acquire the noncontrolling interests in Solo during the 12 months following the close for either cash or shares. Beginning with the expiration of our option, the noncontrolling interests in Solo have a 3-month option to acquire between 40% and 55% of Solo back from us for cash. On July 31, 2020, we entered into an amendment to the stock purchase agreement to exercise our option to acquire the noncontrolling interests in Solo, for 800,000 shares of our common stock, this transaction will be recorded as an equity transaction, with no effect to the value of the assets acquired or liabilities assumed. In connection with the amendment, the selling shareholders agreed to cancel the contingent consideration in the future and waived a right to any amount that would have been earned prior to the amendment. We recorded a gain on settlement of the contingent consideration liability during the six months ended December 31, 2020 in general and administrative expenses in our consolidated statement of operations.

During the year ended June 30, 2020, we obtained additional information regarding the valuation of the assets acquired and liabilities assumed. We have recorded a measurement period adjustment to allocate the acquisition price to intangible assets, goodwill, accrued liabilities, and the fair value of noncontrolling interests. The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of the date of acquisition (in thousands):

Cash $101 

Prepaid expenses and other assets

  22 
Furniture, fixtures, and equipment  2 
Acquired technology  7,160 

Acquired trade name



340
Goodwill  17,025
Accounts payable and accrued liabilities

(1,158)
Fair value of noncontrolling interests  (5,553)
Net assets acquired $17,939 

The excess of purchase consideration over the fair value of net tangible and intangible assets acquired was recorded as goodwill, which is primarily attributed to expanded market opportunities, for which there is no basis for U.S. income tax purposes. The amounts of Solo’s revenue and net loss included in our consolidated statement of operations from the acquisition date of January 15, 2020 to June 30, 2020 were $23.0thousand and $1.5 million, respectively. 


During the six months ended December 31, 2020, the Company recorded an impairment2023, we disposed of $2.7 million related to Solo’s developed technology. See Note 6 – Goodwill and Intangible Assets, Net for further discussion of the intangible asset impairment.


F-23

AKERNA CORP.

Notes to Consolidated Financial Statements

December 31, 2021

Ample Organics

On July 7, 2020, we completed the acquisition of Ample Organics (“Ample”), Ample provides a seed-to-sale platform to clients in Canada, which offers tracking, reporting, and compliance tools to cannabis cultivators, processors, sellers, and clinics. We acquired 100% of the stock of Ample Organics for 3.3 million exchangeable shares of one of our wholly-owned subsidiaries. The exchangeable shares may be exchanged, at the option of the holder, for shares of Akerna common stock on a one-for-one basis, therefore the exchangeable shares issuedcertain fixed assets that were valued at $7.65 per share, the closing price of an equivalent share of Akerna common stock, $30.7 million was the aggregate value of the exchangeable shares. In addition to the stock consideration, we paid $5.5 million in cash, which was used to settle all of Ample's then outstanding debt. In addition to the stock and cash consideration, the agreement provides for contingent consideration of up to CAD$10,000,000, payable in exchangeable shares, payable if Ample's Recurring Revenue recognized during the 12 months after the acquisition date is CAD$9,000,000 or more. The contingent consideration amount is reduced by an amount equal to the product of CAD$6.67 multiplied by the difference between CAD$9,000,000 and the amount of Recurring Revenue realized during the 12 months following the acquisition. The contingent consideration will be recorded as the estimated fair value on the acquisition date and adjusted to estimated fair value in each subsequent reporting period until settlement.


 


Preliminary
Fair Value

 

Exchangeable shares issued

$

25,203

 

Cash


5,724

 

Contingent consideration


604

 

Total estimated fair value of consideration transferred

$

31,531

 

We incurred $2.9 million of total transaction costs directly related to the acquisition of Ample that is reflected in general and administrative expenses in our consolidated statements of operations, of which $1.1 million and $1.8 million was recognized during the six months ended December 31, 2020 and the year ended June 30, 2020, respectively.


The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of the date of acquisition (in thousands): 

 

Preliminary
Fair Value

 

Cash

$

445

 

Accounts receivable

 

917

 

Prepaid expenses and other current assets

 

595

 

Acquired technology

 

850

 

Customer relationships

 

2,660

 

Acquired trade name

 

285

 

Goodwill

 

25,806

 

Furniture, fixtures and equipment

 

1,327

 

Accounts payable and accrued expenses

 

(805

)

Deferred revenue

 

(549

)

Net assets acquired

$

31,531

 

The excess of purchase consideration over the preliminary fair value of assets acquired and liabilities assumed was recorded as goodwill, which is primarily attributed to the assembled workforce and expanded market opportunities, for which there is no basis for U.S. income tax purposes.  


F-24

AKERNA CORP.

Notes to Consolidated Financial Statements

December 31, 2021

During the six months ended December 31, 2020, the Company recorded an impairment to goodwill for $4.2 million related to Ample. See Note 6 – Goodwill and Intangible Assets, Net for further discussion of the goodwill impairment.
fully depreciated.

 

The amounts of Ample’s revenue and net income included in our consolidated statement of operations from the acquisition date of July 7, 2020, to December 31, 2020 were $2.6 million and $0.1 million, respectively.


Pro Forma Financial InformationOther Noncurrent Assets


The following unaudited pro forma consolidated operating results give effect to the Viridian and 365 Cannabis acquisitions as if they had been completed as of January 1, 2020 (in thousands):


 

Year Ended

December 31,





2021

Revenue
$28,847

Net loss
$(31,423)


The following unaudited pro forma consolidated operating results give effect to the Viridian and 365 Cannabis acquisitions, as if they had been completed as of January 1, 2020, and the Trellis, Solo and Ample acquisitions, as if they had been completed as of July 1, 2019 (in thousands):


 
Six Months Ended December 31,


Year Ended

June 30,




2020

2020

Revenue
$14,026

$27,523
Net loss
$(17,650)
$(20,250)


The pro forma financial information for all periods presented above has been calculated after adjusting the results of Solo, Trellis, Ample, Viridian, and 365 Cannabis to reflect the business combination accounting effects resulting from this acquisition, including the amortization expense from acquired intangible assets as though the acquisition occurred as ofAt the beginning of the periods indicated above. The pro forma financial information is for informational purposes only2022, we had $28.7 million of noncurrent assets attributable to our continuing operations including capitalized software of $6.1 million, intangible assets of $3.9 million and is not indicativegoodwill of the results$18.7 million. During 2022, incurred $2.2 million of operations that would have been achieved if the acquisition had taken place at the beginningcapitalized software additions and recorded amortization of the years indicated above.


Special Voting Preferred Stock$4.4 million of which $0.7 million was attributable to capitalized software and Exchangeable Shares

$3.7 million was attributable to intangible assets. In connection with the Ample acquisition,our strategic shift during 2022, we entered into agreements with our wholly-owned subsidiaryincurred impairment charges of $26.5 million of which $4.6 million was attributable to capitalized software, $3.2 million to intangible assets and the Ample shareholder representative that resulted in the issuance of a single share of our special voting preferred stock, for the purpose of ensuring that each Exchangeable Share is substantially the economic$18.7 million to goodwill. Of this total, $3.0 million was attributable to MJF, $2.1 million to Trellis, $14.4 million to Solo and voting equivalent of a share of Akerna common stock, and, following the registration of the Akerna shares issuable upon exchange of the Exchangeable Shares under the Securities Act of$7.0 million to Viridian. 1933, ensuring that each Exchangeable Share is exchangeable on a one-for-one

 basis for a share of Akerna common stock, subject to certain limitations. As a result of these agreements and the issuance of the special voting preferred stock, each holder of Exchangeable Shares effectively has the ability to cast votes along with holders of Akerna common stock. Additionally, these agreements grant exchange rights to the holders of exchangeable shares upon the event of our liquidation, dissolution or winding up.


The special voting preferred stock has a par value of $0.0001 per share and a preference in liquidation of $1.00. The special voting preferred stock entitles the holder to an aggregate number of votes equal to the number of the exchangeable shares issued and outstanding from time to time and which we do not own. The holder of the special voting preferred stock and the holders of shares of Akerna common stock will both together as a single class on all matters submitted to a vote of our shareholders. At such time as the special voting preferred stock has not votes attached to it, the share shall be automatically cancelled. The exchangeable shares do not have a par value. 


On September 1, 2020, several Ample shareholders exchanged a total of 627,225 exchangeable shares with a value of $4,798,271 for the same number of shares of Akerna common stock.The exchange was accounted for as an equity transaction and we did not recognize a gain or loss on this transaction. As of December 31, 2021, there were a total of 309,286 Exchangeable Shares issued and outstanding.


F-25

AKERNA CORP. 

Notes to Consolidated Financial Statements

December 31, 2021

Note 5 -7 – Supplemental Balance Sheet Disclosures


Prepaid expenses and other current assets consisted of the following:







 As of December 31,


2021

2020

 As of December 31, 



 2023 2022 
Software and technology
$687,740
$480,651
 $27,518  $309,466 
Professional services, dues and subscriptions
546,126
826,195
  4,723   18,268 
Insurance

264,097
243,222
  —   168,935 
Deferred contract costs
260,899
227,718
  —   36,465 
Unbilled receivable

506,984

612,446
  370,326   534,925 
Other

117,918
                68,495 
  17,515   53,704 
Total prepaid expenses and other current assets
$2,383,764
$2,458,727
 $420,082  $1,121,763 


Accounts payable, accrued expenses and other current liabilities consisted of the following:

 



As of December 31,
 As of December 31, 

 

2021

 

 

2020

 

 2023  2022 

Accounts payable


$1,943,457

$513,610
 $2,165,342  $1,417,835 

Professional fees

319,590

 

 


233,667

 

  1,041,699   143,749 

Sales taxes

 

 

360,361

 

 

 

216,367

 

  107,923   63,983 

Compensation

 

 

1,123,467

 

 

 

311,379

 

  397,754   334,514 

Contractors

 

 

1,288,730

 

 

 

538,618

 

  160,739   521,145 
Settlements and legal

681,045


831,232
  248,031   934,396 
Interest  699,142   597,873 

Other

 

 

346,870

 

 

 

543,703

 

  —   9,688 

Total accounts payable, accrued expenses and other current liabilities

 

$

6,063,520

 

 

$

3,188,576

 

 $4,820,630  $4,023,183 

 

F-26


AKERNA CORP. 

Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

Notes to Consolidated Financial Statements

Note 8 – Long Term Debt

December 31, 2021

Note 6 - Goodwill and Intangible Assets, Net


Goodwill
The following table reflects the changes in the carrying amount of goodwill:
Balance as of June 30, 2020
$20,254,309
Adjustments to Trellis' goodwill

(14,300)
Additions due to acquisition of Ample

25,806,518
Goodwill impairment 

(4,172,000)
Balance as of December 31, 2020
$41,874,527
Additions due to acquisition of Viridian

5,408,884
Additions due to acquisition of 365 Cannabis

14,042,580
Goodwill impairment

(14,383,310)
Balance as of December 31, 2021
$46,942,681
Impairment
   Based on our qualitative assessment of goodwill, we determined it was necessary to perform a quantitative valuation of goodwill as of December 31, 2021. We determined there were two reporting units: the enterprise reporting unit which is comprised of the enterprise software offerings and the non-enterprise reporting unit which is comprised of the non-enterprise software offerings. The valuation of our goodwill was determined with the assistance of an independent valuation firm using the income approach (discounted cash flows method) and the market approach (guideline public company method). Our significant assumptions in these analyses include, but are not limited to, future cash flow projections, the weighted average cost of capital, the discount rate, the implied control premium, the terminal growth rate, and the tax rate. The Company’s estimates of future cash flows are based on current regulatory and economic climates, recent operating results, and planned business strategies. These estimates could be negatively affected by changes in federal, state, or local regulations or economic downturns. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from the Company’s estimates. If the Company’s ongoing estimates of future cash flows are not met, the Company may have to record additional impairment charges in future periods. The Company also uses the Guideline Public Company Method, a form of the market approach (utilizing Level 3 unobservable inputs), which is derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography, and diversity of products and services. As such, we believe the current assumptions and estimates utilized are both reasonable and appropriate. During the six months ended December 31, 2020, primarily as a result of delays in executing on strategic initiatives related to acquisitions completed in 2020, we recorded a $4.2 million impairment to goodwill.
Enterprise Reporting Unit
          For the year ended December 31, 2021, no impairment to goodwill was recorded for our enterprise reporting unit as the fair value exceeded the carrying value as of December 31, 2021. To perform our analysis, we applied a 50% weighting to the market approach and 50% weighted to the income approach. 

Non-Enterprise Reporting Unit  

            For the year ended December 31, 2021, primarily due to a continued decline in market valuation and a flattening in the operating results of our non-enterprise reporting unit compared to acquisition assumption, we recorded an impairment expense of $14.4 million related to our non-enterprise reporting unit. To perform our analysis, we applied a 25% weighting to the income approach and a 75% weighting to the market approach.  
Finite-lived Intangible Assets, Net
We performed a two step impairment test for the asset groups that had indicators of impairment in the current year under ASC 360 and as a result of this analysis we did not identify any impairment. For the six months ended December 31, 2020, we determined that the carrying value of Solo’s developed technology and trade name exceeded it’s fair value, resulting in an impairment of $2.7 million.
F-27

AKERNA CORP.

Notes to Consolidated Financial Statements

December 31, 2021

Intangible assets as of December 31, 2021 consistLong-term debt consisted of the following:
 Weighted average remaining amortization period (in years)

Gross carrying amount


Accumulated
amortization



Impairment

Net carrying
amount


Acquired developed technology
3.35
$7,138,080

$(2,815,158)
$0—
$4,322,922
Acquired trade names
3.09

871,920


(286,799)

0—

585,121
Customer relationships
10.18

17,510,000


(878,250)

0—


16,631,750
Non-compete agreement1.7580,000(10,000)0—70,000
Total Intangible assets


$25,600,000

$(3,990,207)
$0—
$21,609,793



















Capitalized software - In-service
2.02

8,807,843


(4,423,887)

0—


4,383,956
Capitalized software - Work in Progress

N/A



3,224,203


0—


(296,483)


2,927,720
Total Capitalized Software



12,032,046


(4,423,887)

(296,483)


7,311,676
Total finite-lived intangible assets


$37,632,046

$(8,414,094)
$(296,483)
$28,921,469

Intangible assets as of December 31, 2020 consist of the following:

 

Weighted average
remaining amortization
period (in years)

 

Gross carrying amount

 


Accumulated
amortization

 





Impairment



Net carrying
amount

 

Acquired developed technology


3.77

 

$

8,220,000

 


$

(1,434,155

)


$(2,591,920)

$

4,193,925

 

Acquired trade names


5.12

 

 

705,000

 


 

(97,676

)



(123,080)

 

484,244

 

Customer relationships


13.04

 

 

2,880,000

 


 

(169,374

)



0—

 

2,710,626

 

Total Intangible assets


 

 

$

11,805,000

 


$

(1,701,205

)


$(2,715,000)

$

7,388,795

 

 


 

 

 

 

 


 

 

 






 

 

 

Capitalized software - In-service


1.62

 

 

4,593,512

 


 

(1,401,953

)



0—

 

3,191,559

 

Capitalized software - Work in Progress


N/A

 

 

734,180

 


 

0—

 


0—


 

734,180

 

Total Capitalized Software


 

 

 

5,327,692

 


 

(1,401,953

)


0—


 

3,925,739

 

Total finite-lived intangible assets


 

 

$

17,132,692

 


$

(3,103,158

)


$(2,715,000)

$

11,314,534

 


We record amortization expense associated with acquired developed technology, acquired trade names, and customer relationships. The amortization expense of all finite-lived intangible assets, which includes capitalized software was $5.6 million, $1.8 million, and $1.3 million for the year ended December 31, 2021, six months ended December 31, 2020, and year ended June 30, 2020, respectively.  The amortization expense for the year ended December 31, 2021 includes $0.3 million of capitalized software write offs. 

As of December 31, 2021, expected amortization expense relating to in-service capitalized software and purchased intangible assets for each of the next five years and thereafter is as follows: 

F-28

AKERNA CORP.

 Notes to Consolidated Financial Statements

  As of December 31, 
  2023  2022 
Total long-term debt $5,149,000  $14,607,000 
Less: current maturities  (5,149,000)  (13,200,000)
Total long-term debt, less current portion $—  $1,407,000 

December 31, 2021


 Acquired Intangible Assets


Capitalized Software- In-service
2022$3,445,741
$2,722,663
2023
3,131,575

1,144,351
2024
2,801,991

275,884
2025
1,973,934

110,215
2026
1,851,434

59,112
Thereafter
8,405,118

71,731
Total$21,609,793
$4,383,956

 

Note 7 – Fixed assets, net


Fixed assets consisted of the following:




As of
December 31,


As of
December 31,


 2021

 


2020




 


 


Furniture and computer equipment


$

          235,042

 

$

131,300


Leasehold improvements



        14,064

 


1,175,556


 



        249,106

 


1,306,856


Less: accumulated depreciation



(95,955

)

(113,423

)

Fixed assets, net


$

153,151

 

$

1,193,433



Depreciation expense related to our fixed assets for the year ended December 31, 2021, six months ended December 31, 2020, and year ended June 30, 2020 was $127,731, $240,742, and $27,951, respectively. During the year ended December 31, 2021, we terminated our office lease in Toronto, Canada and wrote off $1.2 million of fixed assets. During the six months ended December 31, 2020, we sold furniture and computer equipment for $25,561 with a cost of $191,389 and accumulated depreciation of $106,555 resulting in a $59,273 loss in the consolidated statements of operations for the six months ended December 31, 2020 related to these disposals. 


Note 8- Investments


Investment in and License Agreement with Zol Solutions, Inc.Senior Convertible Notes 

 

On October 7, 2019,5, 2021, we participatedentered into a securities purchase agreement (the “2021 SPA”) resulting in the issuance of the Senior Convertible Notes to two institutional investors in a private placement transaction. The Senior Convertible Notes were issued for an aggregate principal amount of $20.0 million for $18.0 million reflecting an original issue discount of 10 percent or $2.0 million. The net proceeds from the issuance of the Senior Convertible Notes were used to pay off and retire convertible notes that were issued in 2020 and fund acquisitions and continued investment in our technology infrastructure. The Senior Convertible Notes rank senior to all our other and future indebtedness. The Senior Convertible Notes had a maturity date of October 4, 2024 and could be repaid in shares of Common Stock or cash. The Senior Convertible Notes were convertible into shares of Common Stock at a conversion price of $95.00 per share effective October 4, 2022 which represented an adjustment, as required by the 2021 SPA, from $124.20 per share as a result of the offering of convertible redeemable preferred stock of Zol Solutions, Inc. (“ZolTrain”) alongon that date (see Note 11). In connection with other investorsthe Exchange Agreements that were entered into in which we purchased 203,000 shares of Series Seed Preferred Stock (the “ZolTrain Preferred”) for a purchaseJanuary 2023, the conversion price of $250,000,the Senior Convertible Notes was lowered to $24.00 from $95.00 per share through June 14, 2023 at which representstime it was further reduced to $10.00 per share due to the offering of Common Stock in connection with a noncontrolling interest in ZolTrain.private placement transaction (see Note 11).

 

The ZolTrain Preferred is convertible into shares of common stock of ZolTrain at a conversion rate of $1.232 per share at the option of the holder and contains certain anti-dilution protection in the event of certain future issuances of securities by ZolTrain. We are entitled to vote the number of common shares in which the ZolTrain Preferred is convertible into at any meeting of the ZolTrain stockholders.


F-29

AKERNA CORP.

Notes to Consolidated Financial Statements

December 31, 2021


The ZolTrain Preferred also provides us with rights of first refusal with respect to newly issued securities of ZolTrain as well as issued and outstanding securities of ZolTrain that are offered to third parties. In connection with the agreement, one of Akerna's executives was appointed as one of three members of ZolTrain’s board of directors. At that time, we had determined that ZolTrain is a VIE for accounting purposes, given we could exercise significant influence, however we were not required to consolidate ZolTrain in our consolidated financial statements because we are not ZolTrain’s primary beneficiary. We had concluded that the ZolTrain Preferred was in-substance common stock because the liquidation preference provided was not substantive, and the equity method of accounting is applicable to in-substance common stock. As a result of our representation on the board of directors, we determined that we can exert significant influence over the day to day operations of ZolTrain and therefore; we account for this investment using the equity method of accounting, which required us to recognize our share of the ZolTrain operations in our results of operations. For year ended December 31, 2021 we recognized equity in loss of investee of $12,641 which represents our share of ZolTrain's losses since our investment


During the third quarter of 2021, following the loss of our seat on the Board, we concluded that we should no longer apply the equity method of accounting for the investment in ZolTrain. We determined that we hold an equity security in ZolTrain for which the fair value is not readily determinable. Accordingly, starting in the third quarter we elected to measure the investment at cost minus impairment, plus or minus changes resulting from observable price changes. When indicators of impairment exist, we estimate the fair value and record an impairment charge if the carrying value of the investment exceeds its estimated fair value. Any impairment charges are recorded in other (expense) income, net, in our consolidated statements of operations. The carrying amount of our investment in ZolTrain was $226,101 as of December 31, 2021 and we did not recognize any impairment on the investment during the current year.

Subsequent to our initial investment, we entered into a nonexclusive license/reseller agreement with ZolTrain, effective October 24, 2019, to provide ZolTrain’s online cannabis training platform as a co-branded integration option into our MJ Platform and Leaf Data Systems, which was a related party transaction in the prior year. Under the term of the agreement we entered into, ZolTrain will share subscription-based revenue generated from our customers with us. The amount of the share of the revenue for each of us and ZolTrain will depend on both (a) the number of training modules accessed by a customer and (b) which party created the accessed content. In addition to the revenue sharing arrangement, the license/reseller agreement provides us with the right to receive additional consideration from ZolTrain in the form of an equity earnout if certain revenue milestones are achieved during 2020, 2021, and 2022. Our ability to recognize revenue from the additional earnout consideration in the future will mainly depend on whether it becomes probable that such revenue milestones will be achieved. For the year ended December 31, 2021, the six months ended December 31, 2021, and the year ended June 30, 2020, we recognized $25.9 thousand, $0, and $0 of revenue from this agreement. 


Note 9 - Long Term Debt


              Long-term debt consisted of the following at December 31, 2021:


Convertible notes (at fair value)

 $17,305,000 
Less: current maturities  13,200,000
Total long-term debt, less current portion $4,105,000 


Senior Secured Convertible Notes - 2020


On June 8, 2020, we entered into a Securities Purchase Agreement, or SPA, with two institutional investors (the "2020 Note Holders"), to sell a new series of senior secured convertible notes (the "2020 Notes"), of Akerna in a private placement to the 2020 Note Holders, in the aggregate principal amount of $17.0 million having an aggregate original issue discount of 12%, and ranking senior to all outstanding and future indebtedness of Akerna. The 2020 Notes were sold on June 9, 2020, with an original issue discount pursuant to which the Note Holders paid $880 per each $1,000 in principal amount of the 2020 Notes. The 2020 Notes do not bear interest except upon the occurrence of an event of default, in which event the applicable rate will be 15.00% per annum.


Pursuant to the SPA and the 2020Senior Convertible Notes, we and certain of itsour subsidiaries will enterentered into a Security and Pledge Agreement (the “Security Agreement”)the Credit Agreements with the lead investor, in its capacity as collateral agent (in such capacity, the “Collateral Agent”) for all holders of the Senior Convertible Notes. The Security Agreement createsCredit Agreements created a first priority security interest in all of the personal property of the Company and certain of its subsidiaries of every kind and description, tangible or intangible, whether currently owned and existing or created or acquired in the future (the “Collateral”).future. 

In order to consummate the Merger and the Sale Transaction, we entered into the Release and Termination Agreement, to obtain a release under, and termination of the Credit Agreements. The Company and its subsidiaries were released from the Credit Agreements on February 9, 2024 upon receipt by the holders of the Senior Convertible Notes of (i) the shares of Common Stock issued pursuant to Amendment No. 2 to the Exchange Agreements and (ii) assignment of interests by the holders of the Senior Convertible Notes (who were also holders of the Series C Shares) in the Company’s ERTC. At that time, the Credit Agreements were deemed terminated and the Senior Convertible Notes were deemed settled in full.

 

F-30



AKERNA CORP. 

Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

Notes to Consolidated Financial Statements

December 31, 2021


UnderMethod of Accounting and Activity During the Security Agreement we agree to certain conditions on its maintenance and use ofPeriods for the Collateral, including but not limited to the location of equipment and inventory, the condition of equipment, the payment of taxes and prevention of liens or encumbrances, the maintenance of insurance, the protection of intellectual property rights, and limitations on transfers and sales.Senior Convertible Notes

 

Upon the occurrence ofdate that they were issued, we made an “Event of Default” under the Security Agreement, the Collateral Agent will have certain rights under the Security Agreement including taking control of the Collateral and, in certain circumstances, selling the Collateralirrevocable election to cover obligations owed to the holders of the 2020 Notes pursuant to its terms. “Event of Default” under the Security Agreement means (i) any defined event of default under any one or more of the transaction documents (including the 2020 Notes), in each instance, after giving effect to any notice, grace, or cure periods provided for in the applicable document, (ii) the failure by us to pay any amounts when due under the 2020 Notes or any other transaction document, or (iii) the breach of any representation, warranty or covenant by the Company under the Security Agreement.

The 2020 Notes mature on June 1, 2023, are payable in installments beginning on October 1, 2020, and may not be prepaid. The 2020 Notes are convertible at any time, at the election of the Holders and subject to certain limitations, into shares of common stock at a rate equal to the amount of principal, interest, if any, and unpaid late charges, if any, divided by a conversion price of $11.50.

In connection with the occurrence of an event of default, the Holders of the 2020 Notes will be entitled to convert all or any portion of the 2020 Notes at an alternate conversion price equal to the lower of (i) the conversion price then in effect, or (ii) 80% of the lower of (x) the volume-weighted average price, or VWAP, of the common stock as of the trading day immediately preceding the applicable date of determination, or (y) the quotient of (A) the sum of the VWAP of the common stock for each of the two trading days with the lowest VWAP of the common stock during the ten (10) consecutive trading day period ending and including the trading day immediately prior to the applicable date of determination, divided by (B) two, but not less than $1.92.


We elected to useapply the fair value option to account for the 2020Senior Convertible Notes. TheDisclosures, including assumptions used to determine the fair value of the 2020 Notes on issuance was recorded as $15.0 million. values, are provided in Note 13.

During the year ended June 30, 2020,December 31, 2023 we made $11.5 million in principal settlements on the Senior Convertible Notes, of which $4.9 million was settled in cash, $3.2 million was settled in 237,213 shares of Common Stock and the remaining $3.4 million was settled in 3,422 shares of Series C Preferred Stock. During the year ended December 31, 2022, we made $5.3 million in principal settlements on the Senior Convertible Notes, of which $1.4 million was settled in cash and the remaining $3.9 million was settled in 10,371 shares of Common Stock. During the year ended December 31, 2023, the fair value of the 2020Senior Convertible Notes decreasedincreased by $0.8$0.4 million. Of the adjustment, an increase of less than $0.1 million resulted from instrument-specific credit risk and was recognized as other comprehensive loss and accumulated in stockholders’ equity (deficit) and an increase of $0.4 million was recognized in our consolidated statement of operations as a change in fair value of convertible notes. During the year ended December 31, 2022, the fair value of the Senior Convertible Notes increased by $2.7 million. Of the adjustment, a decrease of $0.1$0.2 million resulted from instrument-specific credit risk and was recognized as other comprehensive income and accumulated in stockholders’ equity (deficit) and a decreasean increase of $0.7$2.9 million was recognized as current period other expense in our consolidated statement of operations. 


During the six months ended December 31, 2020, we made $1.8 millionoperations as a change in principal payments on the 2020 Notes, of which $1.5 million was settled in cash and the remaining $0.3 million was settled in common stock. During the six months ended December 31, 2020, the fair value of the 2020 Notes increased by $1.0 million. Of the adjustment, an increase of $0.1 million resulted from instrument-specific credit risk and was recognized as other comprehensive income and accumulated in equity and an increase of $0.9 million was recognized as current period other expense in our consolidated statement of operations.convertible notes. As of December 31, 2020,2023 and 2022, the fair valuevalues of the 2020Senior Convertible Notes on our consolidated balance sheet was $13.4 million.


During the year ended December 31, 2021, up until the date the 2020 Notes were paid in full$3.5 million and replaced by the 2021 Senior Convertible Notes, we made $15.2$14.6 million, in principal payments on our convertible notes, of which $5.1 million was settled in cash and the remaining $10.1 million was settled in common stock. During the year ended December 31, 2021, the fair value of the Convertible Notes increased by $2.0 million. Of the adjustment, an increase of $0.02 million resulted from instrument-specific credit risk and was recognized as other comprehensive income and accumulated in equity and an increase of $2.0 million was recognized as current period other expense in our consolidated statement of operations. On October 5, 2021, we recognized a gain of $0.2 million in connection with the payoff of the 2020 Notes.


Amendmentrespectively.

 

On December 23, 2020, we entered into waivers with the Holders of the 2020 Notes, pursuant to which weAmended and the Holders, separately and not jointly, agreed to waive certain terms and conditions of the 2020 Notes as follows: 

F-31

AKERNA CORP. 

Notes to Consolidated Financial Statements

December 31, 2021


The Holders irrevocably waived the last sentence of Section 8(a) of the Notes requiring that all installment amounts payable under the 2020 Notes prior to April 1, 2021 be paid in cash pursuant to installment redemptions. We may now elect, in its sole discretion, to pay installment amounts under the 2020 Notes prior to April 1, 2021, by issuing shares of common stock pursuant to installment conversions or by paying cash pursuant to installment redemptions, in each case in accordance with the existing terms of the Convertible Notes. 

We irrevocably waived the prohibition on acceleration of installment amounts in Section 8(e) of the 2020 Notes solely in relation to the Installment Amount for January 4, 2020, to permit the Holders to accelerate the January 4, 2021 installment amount, in whole or in part, to one or more acceleration dates from December 24, 2020 through to and including January 4, 2021, as elected by each Holder.

We and the Holders agreed that we may irrevocably waive the installment scheduled principal amount for any installment date by setting forth in the installment notice for that installment date an installment amount greater than the installment scheduled principal amount due and payable on the next installment date. Each Holder may then consent to all or a portion of such increased installment amount for such installment date on the trading day immediately prior to such installment date. Any increased amount for an installment amount above the installment scheduled principal amount for such installment date will reduce the principal amount under the 2020 Notes.  

In relation to the January 4, 2021 installment amount, the Company delivered installment notices to the Holders increasing the installment amount for January 4, 2021, in the aggregate, by $2,062,500.


SeniorRestated Secured Convertible Notes - 2021


On October 5, 2021, we entered into a securities purchase agreement with the two institutional investors that held the Company's 2020 Notes to sell senior secured notes in a private placement (the "Senior Convertible Notes"). The Senior Convertible Notes have an aggregate principal amount of $20.0 million, an aggregate original issue discount of 10%, and rank senior to all our other outstanding and future indebtedness. Approximately $3.3 million of the proceeds from the Senior Convertible Notes were used to payoff the 2020 Notes, which were then to be cancelled. The net proceeds from the issuance of the Senior Convertible Notes was approximately $14.6 million, following the original issue discount and deductions for expenses and paydown of the 2020 Notes. These net proceeds will be used to support Akerna's ongoing growth initiatives and continued investment in current and future technology infrastructure. The Senior Convertible Notes are convertible into shares of common stock of Akerna at a conversion price of $4.05 per share. The Senior Convertible Notes mature on October 5, 2024 and are to be repaid in monthly installments beginning on January 1, 2022. The Senior Convertible Notes can be repaid in common shares or cash.


In connection with the occurrence of an event of default, the Holders of the Senior Convertible Notes will be entitled to convert all or any portion of the Senior Convertible Notes at an alternate conversion price equal to the lower of

(i) the conversion price then in effect, or (ii) 80% of the lower of (x) the volume-weighted average price, or VWAP, of the common stock as of the trading day immediately preceding the applicable date of determination, or (y) the quotient of (A) the sum of the VWAP of the common stock for each of the two trading days with the lowest VWAP of the common stock during the ten (10) consecutive trading day period ending and including the trading day immediately prior to the applicable date of determination, divided by (B) two, but not less than $0.54.

.

F-32

AKERNA CORP. 

Notes to Consolidated Financial Statements

December 31, 2021


We have elected to use the fair value option to account for the Senior Convertible Notes. The fair value of the Senior Convertible Notes on issuance was recorded as $18.0 million. During the year ended December 31, 2021, the fair value of the Senior Convertible Notes decreased by $0.7 million. Of the adjustment, a decrease of $0.03 million resulted from instrument-specific credit risk and was recognized as other comprehensive income and accumulated in equity and a decrease of $0.7 million was recognized as current period other expense in our consolidated statement of operations. As of December 31, 2020, the fair value of the Senior Convertible Notes on our consolidated balance sheet was $17.3 million. During the year ended December 31, 2021, we made no principal payments on our Senior Convertible Notes. 


Paycheck Protection Program LoanPromissory Note

 

On March 27, 2020, former President Trump signedMay 3, 2023, we received $1.0 million of proceeds from MJ Acquisition in connection with the Coronavirus Aid, Relief and Economic Security (the “CARES Act”), which, among other things, outlined the provisionsissuance of the Paycheck Protection Program (the “PPP”). On April 24, 2020,MJA Note which, after receipt of an additional $0.650 million in proceeds in connection with certain amendments, was restated in the Paycheck Protection Program and Health Care Enhancement Act, was signed into law increasing funding provided by the CARES Act and on June 5, 2020, the Paycheck Protection Program Flexibility Act extended the program until December 31, 2020. Under the termsform of the CARES Act, PPP loan recipients can applyAmended and Restated Secured Promissory Note. The Amended and Restated Secured Promissory Note provided for and be granted forgiveness for all, or a portion of loan granted under the program. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities.


On April 21, 2020, the Company issued a promissory note to KeyBank National Association (“KeyBank”) in the principal aggregate amount of $2,204,600 (the “PPP Loan”) pursuant to the Paycheck Protection Program under the CARES Act. The PPP Loan had a two-year term bearingsimple interest at athe rate of 1%ten percent (10%) per annum with principal and interest payments of $92,818 to be paid monthly on the 12th of the month beginning 7 months from the date of issuance through the PPP Loan. The PPP Loan provides for prepayment of 20% or lesscompletion of the unpaidSale Transaction. Upon closing of the Sale Transaction, the Amended and Restated Secured Promissory Note was required to be converted into a number of shares of Common Stock with value equivalent to the principal balance at any time. If more than 20% is prepaid, thenamount outstanding. We have elected not to apply the fair value option to this note.

In connection with the Amended and Restated Secured Promissory Note, we entered into the MJA Credit Agreements that, among other items, provided for the security and pledge of certain collateral and the guarantee by certain subsidiaries of the Company for obligations under the Amended and Restated Secured Promissory Note. Furthermore, we, MJ Acquisition, the Collateral Agent for the Senior Convertible Notes and the holders of the Senior Convertible Notes entered into certain subordination and intercreditor agreements that provided for the issuance of the Amended and Restated Secured Promissory Note and its priority as junior to the Senior Convertible Notes with respect to security and ultimate settlements.

Upon completion of the Merger and the Sale Transaction, the MJA Release and Termination Agreement released the Company and its subsidiaries from all of the security interests and guarantees set forth in the MJA Credit Agreements and on February 9, 2024, the entire $1.650 million principal amount was converted into shares of Common Stock and all accrued interest must also be paid.was forgiven with such Amended and Restated Secured Promissory Note being deemed paid in full.


In August 2021, the Company submitted its application for 100% loan forgiveness and on September 3, 2021, the loan was 100% forgiven by the Small Business Administration. As a result, the Company recorded a gain on the forgiveness of the loan in the amount of $2,234,730.


Maturities of Debt


Maturities of our debt as of December 31, 20212023 are presented below.   

Maturities due for the Senior Convertible Notes during 2024 $3,136,271 
Maturities due for the Amended and Restated Secured Promissory Note during 2024  1,650,000 
Original issue discount of the Senior Convertible Notes  (2,000,000)
Cumulative unrealized change in fair value of the Senior Convertible Notes  2,362,729 
Total debt outstanding $5,149,000 


Year ending December 31:

    

  2022

 $13,200,000 

  2023

  6,800,000 
 Aggregate maturities 
20,000,000 
Original issue discount on Convertible Notes

(2,000,000)
Unrealized change in fair value of Convertible Notes 

(695,000)
Total debt outstanding as of December 31, 2021
$17,305,000
Current portion

13,200,000
Noncurrent portion

4,105,000

 

F-33

AKERNA CORP. 

Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.) 

Notes to Consolidated Financial Statements

Note 9 – Income Taxes

The following table sets forth the expense or (benefit) for income taxes:

  Year Ended December 31, 
  2023  2022 
Current income tax expense (benefit)      
U.S. federal $—  $(50,000)
U.S. state  —   2,826 
Foreign  —   — 
Total current income taxes  —   (47,174)
Deferred income tax benefit        
U.S. federal $—  $(653,945)
U.S. state  —   — 
Total deferred income benefit  —   (653,945)
Total income tax benefit $—  $(701,119)

The following table sets forth reconciliations of the income tax expense at the statutory federal income tax rate to actual expense based on our loss before income taxes:

  Year Ended December 31, 
  2023  2022 
Income tax expense (benefit) attributable to:      
Federal $(2,406,564) $(16,749,778)
State, net of federal benefit  (252,836)  (853,392)
Foreign tax rate differential  (76,018)  (11,543)
Transaction costs  167,137   — 
Other permanent differences  207,525   472,270 
Goodwill impairment  358,744   9,172,756 
Rate changes  (51,003)  (992)
Changes in valuation allowance  (3,591,436)  7,501,917 
Provision to return adjustment  486,727   62,788 
Deferred impact of subsidiary sales  5,157,724   (247,839)
Other adjustments  —   (47,306)
Effective income tax expense (benefit) $—  $(701,119)


Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

Notes to Consolidated Financial Statements

The following table sets forth our deferred income tax assets and liabilities:

  As of December 31, 
  2023  2022 
Noncurrent deferred tax assets:      
Employee compensation $63,091  $136,154 
Debt issuance costs  —   39,381 
Revenue recognition  —   64,662 
Settlement accrual  49,575   178,549 
Fixed assets  171,268   774,936 
Section 174 capitalization  1,219,926   1,121,311 
Federal and state net operating loss  14,226,635   13,860,338 
Foreign net operating loss  56,739   4,641,293 
Other  4,718   280,430 
Total deferred tax assets $15,791,952  $21,097,054 
         
Noncurrent deferred tax liabilities:        
Intangible assets  —   (1,713,666)
Total deferred tax liabilities $—  $(1,713,666)
Valuation allowance  (15,791,952)  (19,383,388)
Deferred tax asset (liability), net after valuation allowance $—  $— 

During the year ended December 31, 20212023, valuation allowances on deferred tax assets that are not anticipated to be realized decreased by $3.6 million which was recorded to deferred expense. During the year ended December 31, 2022, valuation allowances on deferred tax assets that were not anticipated to be realized increased by $7.5 million, substantially all of which was recorded to deferred expense while an insignificant portion was recorded in final purchase accounting.


Note 10 - Stockholders’ Equity

 

CommonOur deferred tax valuation allowances are primarily the result of uncertainties regarding the future realization of recorded tax benefits on tax losses. The measurement of deferred tax assets is reduced by a valuation allowance if, based upon available evidence, it is more likely than not that the deferred tax assets will not be realized. We have evaluated the realizability of our deferred tax assets in each jurisdiction by assessing the adequacy of expected taxable income, including the reversal of existing temporary differences, historical and Preferred Stockprojected operating results, and the availability of prudent and feasible tax planning strategies. Based on this analysis, we have determined that the valuation allowances recorded as of December 31, 2023 and December 31, 2022 are appropriate.

 

We have1single class deferred tax assets related to U.S. federal tax and state tax carryforwards for net operating losses (“NOL”) in the amount of common stock$59.5 million. The majority of U.S. federal NOL carryforwards are carried forward indefinitely. Federal NOLs generated after 2017 have an indefinite carryforward and75,000,000authorized shares are only available to offset 80 percent of common stock, par value $0.0001per share.


We also have 5,000,000 authorized shares of preferred stock, $0.0001 par value per share,taxable income beginning in 2021. U.S. state NOL carryforwards expire at various dates of which NaN are issued and outstanding. The holders of common stock are entitledthe majority begin to one vote per share on all matters submittedexpire in 2039. We have deferred tax assets related to a vote of stockholders of the Company. Subjectforeign NOL carryforwards, which begin to the prior rights of all classes or series of stock at the time outstanding having prior rights as to dividends or other distributions, all stockholders are entitled to share equallyexpire in dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available. Subject to the prior rights of creditors of the Corporation and the holders of all classes or series of stock at the time outstanding having prior rights as to distributions upon liquidation, dissolution, or winding up of the Corporation,2034, in the eventamount of liquidation, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of all liabilities. The stockholders do not have cumulative, preemptive rights, or subscription rights.


On October 30, 2020, we issued 5,000,000 shares, at a price of $2.40 per share, of Akerna common stock in a public offering for gross proceeds of $12.0 million, offset by offering costs of approximately $1.0 million for net proceeds $11.0 million dollars.

Warrants


In connection with MTech Acquisition Corp.'s ("MTech") initial public offering, MTech sold 5,750,000 units at a purchase price of $10.00 per unit, inclusive of 750,000 units sold to the underwriters on February 8, 2018, upon the DD’ election to fully exercise their over-allotment option. Each unit consisted of one share of MTech’s common stock and one warrant of MTech (“MTech Public Warrant”). Each Mtech Public Warrant entitled the holder to purchase one share of MTech’s common stock at an exercise price of $11.50. Upon the Mergers, the Public Warrants were converted to those of Akerna at the exchange ratio of one-for-one. 


A summary of our common stock warrants is presented in the following table: 

 

 

Shares Issuable
Under Warrants

 

 

Weighted-average
Exercise Price

 

 

Weighted Average
Remaining Life

 

 

Aggregate Intrinsic Value

  

Outstanding at June 30, 2020

 

 

5,813,804

 

 

$

11.50

 

 

 

3.97

 

 

 $

0—

  

Issued

 

 

0—

 

 


0—

 

 

 

  0—

 

 

 

  0—

  

Exercised

 

 

0—

 


  0—

 

 

 

  0—

 

 

 

  0—

  

Expired/canceled

 

 

0—

 

 


 0—

  

 

 

 0—

 

 

 

  0—

  

Outstanding at December 31, 2020

 

 

5,813,804

 

 

$

11.50

 

 

 

3.37

 

 

$

0—

  

Issued

0—


0—


0—


0—
Exercised

0—


0—


0—


0—
Expired/canceled

0—


0—


0—


0—
Outstanding at December 31, 2021

5,813,804

$11.50


2.97

$0—


There was 0 aggregate intrinsic value for the warrants outstanding as of December 31, 2021 and December 31, 2020.


F-34

AKERNA CORP. 

Notes to Consolidated Financial Statements

December 31, 2021

Note 11 - Stock-Based Compensation

Restricted Shares and Restricted Stock Units


On June 17, 2019, our stockholders considered and approved the2019Long Term Incentive Plan, or the Equity Incentive Plan, and reserved1,040,038shares of common stock for issuance thereunder. The Equity Incentive Plan was previously approved, subject to stockholder approval, by the board of directors ofAkernaon January 23, 2019.The Equity Incentive Plan became effective immediately upon the Closing of the Mergers. On June 26, 2020, the stockholders approved an amendment to the Equity Incentive Plan and increased the shares authorized for issuance thereunder by 525,000 to 1,565,038. 


We grant restricted stock units, or RSUs, that are subject to time-based vesting and require continuous employment, typically over a period of four years from the grant date or the first day of the service period.


Prior to the Mergers, MJF had Profit Interest Incentive Plan in place whereby it could grant Profits Interest Units, or PIUs, to employees or consultants and other independent advisors of the Company. PIUs granted under the Profits Interest Plan would generally vest once a year over four years commencing on the date granted or based on specified performance targets. MJF had the right, but not the obligation, to repurchase vested PIUs from holders upon their termination of employment. Unvested PIUs were to be forfeited upon termination of employment. If the holder was terminated for cause, as defined, all vested and unvested units would be forfeited. PIUs repurchased or canceled or forfeited by the award recipient were available for reissuance. Upon completion of the Mergers, the non-vested PIUs were exchanged for and became subject to restricted stock agreements, or Restricted Shares, with varying vesting terms that reflect the vesting conditions applicable to the individual PIUs at the time of the merger.$0.2 million.

 

We determinedare not currently under examination for any of the PIUs represented a profit-sharing compensation arrangement that had value only upon a defined liquidating event. Accordingly, no value was accrued for the PIUs priormajor jurisdictions where we conduct business as of December 31, 2023; however, all of our tax years remain subject to the Mergers on June 17, 2019, which met the definition of a liquidating event. Asexamination. Our management does not believe there are significant uncertain tax positions in 2023 and as a result we recorded a one-time charge of approximately $3.4 million, which represented the charge associated with issuing fully vested shares of common stock in exchange for the PIUs.


A summary of our unvested Restricted Shares and RSUs activity is presenteddo not expect any cash payments in the table below: 

next 12 months. A reserve for potential penalties for $0.1 million that was established in 2021 was reversed in 2022 as a result of the Internal Revenue Service’s dismissal of the matters. There was no interest related to uncertain tax positions in 2023 or 2022.

 

 

Restricted Shares

 

Restricted Stock Units

 

Total

 

Weighted Average Grant Date Fair Value


Unvested as of June 30, 2020



72,313



534,302



606,615


$

6.56


Granted



0—


 

429,974

 

 

429,974

 

 

4.88


Vested

 

 

(8,024

)

 

(157,350

)

 

(165,374

)

 

  5.08


Forfeited

 

 

0—

 

(43,906

)

 

(43,906

)

 

  6.83


Unvested as of December 31, 2020

 

 

64,289

 

 

763,020

 

 

827,309

 

$

6.77


Granted

0—

447,642

447,642

04.05
Vested

(30,559)
(427,711)
(458,270)
05.55
Forfeited

(1,336)
(99,184)
(100,520)
04.51
Unvested as of December 31, 2021


32,394

683,767

716,161

05.47

 

ForWe did not pay any income taxes during the year ended December 31, 2021, six months ended December 31, 2020,2023 and year ended June 30, 2020 we recognized stock-based compensation expense related to the ratable amortizationpaid less than $0.1 million for income taxes, net of the unvested Restricted Sharesrefunds received, in certain state and RSUs of $2.0 million, $2.0 million, and $1.3 million, respectively. Stock-based compensation expense is included in operating expenses and cost of sales on our consolidated statements of operations consistent with the allocation of other compensation arrangements. Duringnational jurisdictions during the year ended December 31, 2021, six months ended December 31, 2020,2022. and year ended June 30, 2020, we capitalized $0.04 million, $0.2 million and $0.1 million, respectively, in stock-based compensation costs as software development cost. The $3.7 million of unrecognized costs as of December 31, 2021 related to Restricted Shares and RSUs will be ratably recognized over an estimated weighted average remaining vesting period of 2.41 years.

 

F-35



AKERNA CORP. 

Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.) 

Notes to Consolidated Financial Statements

December 31, 2021


Note 12 - Loss Per Share


During the year ended December 31, 2021, we used the two-class method to compute net loss per share because we issued securities other than common stock that is economically equivalent to a common share in that the class of stock has the right to participate in dividends should a dividend be declared payable to holders of Akerna common stock. These participating securities were the Exchangeable Shares issued by our wholly owned subsidiary in exchange for interest in Ample. The two-class method requires earnings for the period to be allocated between common stock and participating securities based on their respective rights to receive distributed and undistributed earnings. Under the two-class method, for periods with net income, basic net income per common share is computed by dividing the net income attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Net income attributable to common stockholders is computed by subtracting from net income the portion of current period earnings that the participating securities would have been entitled to receive pursuant to their dividend rights had all of the period's earnings been distributed. No such adjustment to earnings is made during periods with a net loss, as the holders of the Exchangeable Shares have no obligation to fund losses. 


Diluted net loss per common share is calculated under the two-class method by giving effect to all potentially dilutive common stock, including warrants, restricted stock awards, restricted stock units, and shares of common stock issuable upon conversion of our Convertible Notes. We analyzed the potential dilutive effect of any outstanding convertible securities under the "if-converted" method, in which it is assumed that the outstanding Exchangeable Shares and Convertible Notes are converted to shares of common stock at the beginning of the period or date of issuance, if later. We report the more dilutive of the approaches (two-class or "if-converted) as the diluted net loss per share during the period. The dilutive effect of unvested restricted stock awards and restricted stock units is reflected in diluted loss per share by application of the treasury stock method and is excluded when the effect would be anti-dilutive. 

The weighted-average number of shares outstanding used in the computation of diluted earnings per share does not include the effect of potential outstanding common shares that would have been anti-dilutive for the period. The table below details potentially outstanding shares on a fully diluted basis that were not included in the calculation of diluted earnings per share:




December 31, 2021

December 31, 2020

Shares issuable upon exchange of Exchangeable Shares

309,286

2,667,349
Warrants

5,813,804

5,813,804
Restricted Stock Units

683,767

694,512
Restricted Stock Awards

32,394

64,289
Shares of common stock issuable in upon conversion of Convertible Notes

12,484,395

1,319,368
Total

19,323,646

10,559,322

Note 13 - Fair Value


Contingent Consideration 

                   Solo

In connection with our acquisition of Solo, the Solo selling shareholders have the potential to earn the contingent consideration, which is calculated as the lesser of (i) $0.01 per solo*TAGTM and solo*CODETM sold or (ii) 7% of net revenue. The fees were to be paid annually until the earlier of: (1) our shares trading above $12 per share for any consecutive 20 trading days in a 30-day period; (b) upon our no longer owning a majority stake in Solo; or (c) upon expiration of the patents related to solo*TAGTM and solo*CODETM, which is December 1, 2029.


F-36

AKERNA CORP. 

Notes to Consolidated Financial Statements

December 31, 2021

We record the fair value of the liability in the consolidated balance sheets under the caption “current contingent consideration” and recognize changes to the liability against earnings or loss each reporting period until settlement. The fair value of the contingent consideration on the date of the acquisition of Solo was $389,000. In connection with our exercise of the option to acquire the remaining interest in Solo, the selling shareholders agreed to retrospectively and prospectively relieve the contingent consideration obligation. Therefore, the settled value of the contingent consideration was $0. We have recorded a gain of $389,000 on settlement of the contingent consideration liability during the six months ended December 31, 2020 in general and administrative expenses in our consolidated statement of operations.

Trellis

In connection with our acquisition of Trellis, the Trellis selling shareholders have the potential to earn contingent consideration, which is calculated as five times the annualized revenue of certain customers generated in September 2020. The fair value of the contingent consideration on the date of acquisition of Trellis was $998,000. The carrying amount at the fair value of the liability for the contingent consideration recorded on our consolidated balance sheet as of June 30, 2020 was $0. As such, we recorded a gain of $998,000 due the change in the fair value of the contingent consideration during the year ended June 30, 2020 in general and administrative expenses in our consolidated statement of operations.


Ample


In addition to the stock and cash consideration, the agreement provides for contingent consideration of up to CAD$10,000,000, payable in exchangeable shares, payable if Ample's Recurring Revenue recognized during the 12 months after the acquisition date is CAD$9,000,000 or more. The contingent consideration amount is reduced by an amount equal to the product of CAD$6.67 multiplied by the difference between CAD$9,000,000and the amount of Recurring Revenue realized during the twelve months following the acquisition.


We record the fair value of the liability in the consolidated balance sheets as contingent consideration payable and recognize changes to the liability against earnings or loss in general and administrative expenses in the consolidated statements of operations. The fair value of the contingent consideration on the date of the acquisition of Ample was $604,000. The carrying amount at fair value of the aggregate liability for the contingent consideration recorded on the consolidated balance sheet as of December 31, 2020, is $0. We have recorded a gain of $604,000 due the change in the fair value of the contingent consideration during the six months ended December 31, 2020 in general and administrative expenses in our consolidated statement of operations.

Viridian

In connection with our acquisition of Viridian, the Viridian selling shareholders have the potential to earn contingent consideration payable in common stock if Viridian meets certain revenue criteria. The fair value of the contingent consideration on the date of acquisition of Viridian was $2,000. The carrying amount at the fair value of the liability for the contingent consideration recorded on our consolidated balance sheet as of December 31, 2021 was unchanged at $2,000. 

F-37

AKERNA CORP. 

Notes to Consolidated Financial Statements

December 31, 2021


365 Cannabis

In connection with our acquisition of 365 Cannabis, the 365 Cannabis selling shareholders have the potential to earn contingent consideration payable in common stock if certain revenue criteria is met. The fair value of the contingent consideration on the date of acquisition of 365 Cannabis was $6,300,000. The carrying amount at the fair value of the liability for the contingent consideration recorded on our consolidated balance sheet as of December 31, 2021 was unchanged at $6,300,000. 


We valued the contingent consideration using a probability-weighted discounted cash flow model, which incorporates inputs that are not observable in the market and thus represents a Level 3 measurement as defined in GAAP. The unobservable inputs utilized for measuring the fair value of the contingent consideration reflect management's own assumptions about the assumptions that market participants would use in valuing the contingent consideration as of the valuation date, as well as our knowledge of specific transactions that effect the calculation.

Fair Value Option Election – Convertible Notes

We issued Convertible Notes with a principal amount of $17.0 million at a purchase price of $15.0 million on June 9, 2020. We elected to account for the Convertible Notes using the fair value option. Under the fair value option, the financial liability is initially measured at its issue-date estimated fair value and subsequentlyremeasuredat estimated fair value on a recurring basis at each reporting period date. The remaining estimated fair value adjustment is presented as a single line item within other income (expense) in our consolidated statement of operations under the caption, change in fair value of convertible notes. 

For the 2020 Notes, which are measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair values from June 30, 2020 to October 5, 2021:


Beginning fair value balance on June 30, 2020

 

$

14,131,000

 

Payments on Convertible Notes

(1,827,273)
Change in fair value reported in the statements of operations

961,273

Change in fair value reported in other comprehensive income

 

 

133,000

Ending fair value balance - December 31, 2020

 

$

13,398,000

 

Payments on Convertible Notes

(15,172,727)
Change in fair value reported in the statements of operations

2,030,904
Change in fair value reported in other comprehensive income

(70,000)
Gain on extinguishment of debt reported on the statement of operations

(186,177)
Ending fair value balance - October 5, 2021
$0—


We issued the Senior Secured Notes with a principal amount of $20.0 million at a purchase price of $18.0 million on October 5, 2021. We have elected to account for the Senior Secured Notes using the fair value option. Under the fair value option, the financial liability is initially measured at its issue-date estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date. The change in estimated fair value resulting from changes in instrument specific credit risk is recorded in other comprehensive income as a component of equity. The remaining estimated fair value adjustment is presented as a single line item within other income (expense) in our consolidated statement of operations under the caption, change in fair value of convertible notes.  


For the Senior Secured Notes, which are measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair values from October 5, 2021 to December 31, 2021:

Beginning fair value balance on October 5, 2021

 

$

18,000,000

 

Payments on Convertible Notes

0—
Change in fair value reported in the statements of operations

(665,000)
Change in fair value reported in other comprehensive income 

(30,000)
Ending fair value balance - December 31, 2021 
$17,305,000


F-38

AKERNA CORP. 

Notes to Consolidated Financial Statements

December 31, 2021


The estimated fair value of the Convertible Notes as of December 31, 2021, and December 31, 2020 was computed using a Monte Carlo simulation, which incorporates significant inputs that are not observable in the market, and thus represents a Level 3 measurement as defined by GAAP.  The unobservable inputs utilized for measuring the fair value of the Convertible Notes reflects our assumptions about the assumptions that market participants would use in valuing the Convertible Notes as of the issuance date and subsequent reporting period. 


We determined the fair value by using the following key inputs to the Monte Carlo Simulation Model:






Fair Value Assumptions - Convertible Notes


December 31, 2021

 


December 31, 2020

 

Face value principal payable


$20,000,000

  


$

15,172,272

  

Original conversion price


$4.05

 


$

11.5

 

Value of Common Stock


$1.75

 


$

3.24

 

Expected term (years)



2.8

 


 

2.3

 

Volatility



75

%


 

77

%

Market yield (range)



37.1

%


 

27.1 to 27.2

%

Risk free rate



1.0

 %


 

0.1

%

Issue date

October 5, 2021


June 9, 2020
Maturity date

October 5, 2024


June 1, 2023

Fair Value Measurement – Warrants

In connection with MTech Acquisition Corp.'s ("MTech") initial public offering, MTech sold 5,750,000 units at a purchase price of $10.00 per unit, inclusive of 750,000 units sold to the underwriters on February 8, 2018, upon the underwriters’ election to fully exercise their over-allotment option. Each unit consisted of 1 share of MTech’s common stock and 1 warrant of MTech (“MTech Public Warrant”). Each MTech Public Warrant entitled the holder to purchase 1 share of MTech’s common stock at an exercise price of $11.50. Concurrently with MTech’s initial public offering, MTech sold 243,750 units at a purchase price of $10.00 per unit on a private offering basis. Each unit consisted of 1 share of MTech’s common stock and 1 warrant of MTech (“MTech Private Warrant”). Each MTech Private Warrant entitled the holder to purchase 1 share of MTech’s common stock at an exercise price of $11.50.

Upon completion of the mergers between MTech and MJF on June 17, 2019, as contemplated by the Merger Agreement dated October 10, 2018, as amended ("Mergers"), the MTech Public Warrants and the MTech Private Warrants were converted, respectively, at an exchange ratio of one-for-one to a warrant to purchase 1 share of Akerna’s common stock with identical terms and conditions as the MTech Public Warrants (“Public Warrant”) and the MTech Private Warrants (“Private Warrant”, collectively with the Public Warrants, “Warrants”) In connection with the completion of the Mergers, we also issued 189,365 common stock purchase warrants upon the cashless exercise of a unit purchase option, which warrants have identical terms to the Public Warrants and are included in references to Public Warrants and Warrants herein.

For the Private Warrants classified as derivative liabilities, which are measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair values for the year ended December 31, 2021 and December 31, 2020:  



Year Ended December 31,

2021

2020

Fair value balance at beginning of period

$

311,376



$688,187

Change in fair value reported in the statements of operations

 

(248,198

)

(376,811)

Fair value balance at end of period

$

63,178



$311,376


We utilized a binomial lattice model, which incorporates significant inputs, specifically the expected volatility, that are not observable in the market, and thus represents a Level 3 measurement as defined in GAAP. The unobservable inputs utilized for measuring the fair value of the Private Warrants reflect our estimates regarding the assumptions that market participants would use in valuing the Warrants as of the end of the reporting periods.

F-39

AKERNA CORP. 

Notes to Consolidated Financial Statements

December 31, 2021


We record the fair value of the Private Warrants in the consolidated balance sheets under the caption “derivative liability” and recognize changes to the liability against earnings or loss each reporting period. Upon exercise of the Private Warrants, holders will receive a delivery of Akerna shares on a net or gross share basis per the terms of the Private Warrants and any exercise will reclassify the Private Warrants, at the time of exercise, to shareholder’s equity to reflect the equity transaction.  There are no periodic settlements prior to the holder exercising the Private Warrants. There were no transfers in or out of Level 3 from other levels for the fair value hierarchy.   

 

We estimated the fair value by using the following key inputs:  


Fair Value Assumptions - Private Warrants

 

December 31, 2021

 

 

December 31, 2020

 

Number of Private Warrants

  


225,635

  

  


225,635

  

Original conversion price

 

$

11.50

 

 

$

11.50

 

Value of Common Stock

 

$

1.75

 

 

$

3.24

 

Expected term (years)

 

 

2.46

 

 

 

3.46

 

Volatility

 

 

85.8

%

 

 

102.3

%

Risk free rate

 

 

0.8

%

 

 

0.2

%


Note 14 -10 – Commitments and Contingencies

 

Operating Leases

                As of December 31, 2021, we had one facility under a non-cancelable operating leases in Las Vegas. Rent expense for the year ended December 31, 2021, six months ended December 31, 2020 and the year ended June 30, 2020 was $157,593, $552,861, and $299,629 respectively.

Future minimum lease payments under these leases are as follows: 

2022

$

252,525

2023

 

260,100

2024

 

110,480

Total

$

623,105

During the third quarter of 2021, we reached an agreement to terminate our office lease in Toronto, Canada for a termination fee of approximately $980,000, which is included within the General and Administrative expense line item on the condensed consolidated statement of operations and was paid in full during the year ended December 31, 2021. In connection with the lease termination, we also wrote off certain assets, primarily leasehold improvements, and the resulting loss of $1,045,209 was also recorded in the General and Administrative expense line item on the condensed consolidated statement of operations.


During the four quarter of 2020, we reached an agreement to terminate our office lease in Denver, CO. The lease termination agreement included the forfeiture of our $41,250 security deposit and a termination fee of $402,480. The lease termination fee was settled in the first quarter of 2021 by issuing 113,375 shares of common stock, calculated using a VWAP of $3.55/share. 


Letter-of-Credit

                 As of December 31, 2021 and December 31, 2020, we had a standby letter-of-credit with a bank in the amount of $500,000. The standby letter of credit is collateralized by $500,000 of cash, which is classified as restricted cash on our consolidated balance sheets. The beneficiary of the letter-of-credit is an insurance company.

F-40


AKERNA CORP.

Notes to Consolidated Financial Statements

December 31, 2021

Litigation

 

On December 4, 2020, TechMagic USA LLCMay 15 and May 23, 2023, Akerna and all its directors were named in two derivative lawsuits (McCaffrey v. Akerna et al. and Caller v. Akerna et al., Nos. 1:23-cv-01213-PAB and 1:23-cv-01300-KLM, respectively) filed suit against our wholly-owned subsidiary, Solo, in Massachusetts Superiorthe United States District Court Department Business Litigation, seeking recoveryfor the District of up to approximately $1.07 million for unpaid invoices pursuant to a Master Services Agreement dated February 5, 2018Colorado by stockholders Albert McCaffrey and between TechMagicIsrael Caller, respectively, alleging that the disclosures made regarding the transactions with Gryphon and Solo. The invoices set forth services that TechMagic USA LLC purports to have provided to Solo regarding development of mobile software applications for MJFMJ Acquisition violated Sections 14(a) and Solo between March and November 2020 totaling approximately $787,000. The suit seeks continued fees under the Master Services Agreement through the end of January 2021. Akerna provided a notice of termination20(a) of the Master Services AgreementSecurities and Exchange Act of 1934. The lawsuits contended that the disclosures omitted material information regarding the transactions and seek injunctive relief and attorneys’ fees. The two actions were dismissed without prejudice on November 23, 2020October 3, 2023 (Caller) and October 11, 2023 (McCaffrey).

On January 13, 2023, Courier Plus Inc. d/b/a Dutchie (“Dutchie”) filed a complaint in the Court of Common Pleas, Dauphin County, Commonwealth of Pennsylvania against Akerna and MJF alleging unfair competition, tortious interference, and unjust enrichment with respect to MJF’s exclusive government contract with the Commonwealth of Pennsylvania. We filed a preliminary objection alleging serious defects, such as jurisdiction. The parties attended a hearing in July 2023. In October 2023, the courts dismissed the case but left some items available in the complaint for an appeal. Dutchie has amended its complaint and filed again. We filed another preliminary objection to their amended complaint. A hearing on A hearing on our preliminary objections is scheduled for April 9, 2024. Before and throughout this dispute, we have worked with the effective dateCommonwealth of the termination. Solo disputes the validity of the invoices, in whole or in part, and intendsPennsylvania to ensure continued compliance with our contract. We intend to continue to defend our position vigorously and, at this time, do not believe an estimate of potential loss, if any, is appropriate. While this suit is attributable to the suit vigorously. Mr. Ashesh Shah, formerly the presidentoperations of Solo and currently the holder of less than 5% of our issued and outstanding shares of common stock is,MJF, Gryphon, as successor to our knowledge, the founder and one of the principal managers of TechMagic USA LLC. As of December 31, 2021 and December 31, 2020, we recognized a loss contingency of $0.5 million and $0.6 million, respectively.Akerna, remains contingently liable as Akerna has been named in addition to MJF.


On April 2, 2021, TreCom Systems Group, Inc. (“TreCom”) filed suit against Akerna and our wholly-owned subsidiary, MJ Freeway, LLC,MJF in federal District Court for the Eastern District of Pennsylvania, seeking recovery of up to approximately $2$2.0 million for services allegedly provided pursuant to a Subcontractor Agreement between MJ FreewayMJF and TreCom. MJ FreewayMJF provided a notice of termination of the operative Subcontractor Agreement on August 4, 2020. MJ FreewayMJF disputes the validity of TreCom’s invoices and the enforceability of the alleged agreement that TreCom submitted to the court. Akerna filed counterclaims against TreCom for breach of contract, a declaratory judgment, commercial disparagement, and defamation. TreCom failed to return Akerna’s intellectual property and issued numerous disparaging statements to one of Akerna’s clients. TreCom subsequently filed a motion to dismiss these counterclaims, which was denied by the court.court. Akerna intends to vigorously defend against TreCom’s claims, and pursue its own claims. claims. Both parties recently filed motions for summary judgment with respect to the validity of each parties’ claims.  The court has not advised the parties if it will hold a hearing on the motions or when an order is expected.  As most of December 31, 2021 and December 31, 2020,the material facts at issue are disputed by the parties, the court may deny both motions, in which case the matter will move towards trial. With respect to the TreCom matter, we recognizedestablished a loss contingency of $0.2 million and $0, respectively.


On May 21,in 2021 our wholly-owned subsidiary, Solo, filedon the books of MJF which remains outstanding as of December 31, 2023. While this suit against twois attributable to the operations of Solo’s former directors, Ashesh Shah and Palle Pedersen.  Solo seeks recovery for Mr. Shah’s intentional interference with contractual relations, and the defendants’ breaches of various fiduciary duties owedMJF, Gryphon, as successor to Solo.  Defendant Shah engaged in improper communications with Solo’s customers with the intent that those customers cease their contractual relations with Solo.  The defendants also entered into an improper contract with a contractual counter party that the defendants had a conflict of interest with.  The defendants have not asserted any counterclaims, and we therefore have not recognized a loss contingency.


From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. We will accrue a liability for such matters when it is probable that a liabilityAkerna, remains contingently liable as Akerna has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amountnamed in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. The accrual for a litigation loss contingency might include, for example, estimates of potential damages, outside legal fees and other directly related costs expectedaddition to be incurred. MJF.

As of December 31, 2021,2023, and through the date these consolidated financial statements were issued, there were no other legal proceedings requiring recognition or disclosure in the consolidated financial statements.

 

Other

On January 10, 2024, Akerna received an inquiry in the form of a civil investigation demand from the United States Department of Justice (“DOJ”) with respect to the Paycheck Protection Loan (“PPP Loan”) that the Company received in connection with the CARES Act. On January 25, 2024, Akerna received a similar request from the United States Small Business Administration (“SBAJ”) in the form of a notification of loan review and request for documents. The PPP Loan was received for $2.2 million on April 21, 2020. In August 2021, we submitted our application for forgiveness and on September 2, 2021, the PPP Loan was forgiven in full by the SBA. With respect to the DOJ and SBA inquiries, we are cooperating fully and look forward to addressing the matter and uncertainties, if any, in an expeditious manner.

In connection with the Sale Transaction and the Merger, we had a commitment to compensate our financial advisor for up to 3 percent of the transaction value in success fees, subject to a minimum of $1.5 million. As of December 31, 2023, a total of $0.650 million was accrued for the advisor. The ultimate disposition of this obligation has been assumed by Gryphon in connection with their plans for a post-Merger offering of securities.  In addition, we were party to arrangements with our executive officers and certain other administrative employees pursuant to their employment agreements and transaction success agreements that resulted in cash payments in February 2024 for transaction success bonuses and other benefits for a total of approximately $0.2 million (collectively and not individually). Certain other costs, including the value of  accelerated vesting of equity awards held by those officers, were addressed in connection with the Share Settlement Agreements (see Note 4).


Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.) 

Notes to Consolidated Financial Statements

Note 11 – Stockholders’ Equity (Deficit)

Common and Preferred Stock

We had one single class of Common Stock of which 150,000,000 shares were authorized through December 31, 2023 with a par value of $0.0001 per share. The holders of Common Stock were entitled to one vote per share on all matters submitted to a vote of stockholders of the Company. Subject to the prior rights of all classes or series of stock at the time outstanding having prior rights as to dividends or other distributions, all stockholders were entitled to share equally in dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available. Subject to the prior rights of our creditors and the holders of all classes or series of stock at the time outstanding having prior rights as to distributions upon liquidation, dissolution, or winding up of the Corporation, in the event of liquidation, the holders of Common Stock were entitled to share ratably in all assets remaining after payment of all liabilities. The stockholders did not have cumulative, preemptive rights, or subscription rights. 

We also had 5,000,000 authorized shares of preferred stock, $0.0001 par value per share, of which one share of special voting preferred stock (the “Special Voting Preferred Stock”) was issued and outstanding (see below).

On June 14, 2023, we entered into a transaction for a private placement in our public equity (the “PIPE Investment”) whereby 50,000 shares of Common Stock were issued to an affiliate of Alleaves at $10.00 per share for total cash proceeds of $0.5 million. The proceeds from the PIPE Investment were used to finance the termination fee and related expenses of $0.2 million to a third party in accordance with the Initial SPA (see Note 4) and the remainder was allocated for ongoing operating expenses.

Convertible Redeemable Preferred Stock

On October 4, 2022, we completed an offering 400,000 of shares of the Company’s Series A Convertible Redeemable Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), and 100,000 shares of the Company’s Series B Convertible Redeemable Preferred Stock, par value $0.0001 per share (the “Series B Preferred Stock,” and together with the Series A Preferred Stock, the “Convertible Redeemable Preferred Stock”), at an offering price of $9.50 per share, representing a 5 percent original issue discount to the stated value of $10.00 per share, for gross proceeds of approximately $4.75 million in the aggregate, before the deduction of $0.4 million for fees and offering expenses of our financial advisor. We also incurred and paid approximately $0.1 million of other issue costs attributable to third-party professional and legal fees. The aggregate net proceeds (after deducting the fees and expenses of our financial advisor) together with the additional amount to provide for the 105 percent redemption premium, or $0.5 million, on the Convertible Redeemable Preferred Stock was deposited in an account with an escrow agent. The shares of the Convertible Redeemable Preferred Stock were convertible, at a conversion price of $5.00 per share (subject in certain circumstances to adjustments), into shares of our Common Stock, at the option of the holders and, in certain circumstances, by the Company.

On November 7, 2022, we held a special meeting of stockholders to consider an amendment (the “Amendment”) to our Amended and Restated Certificate of Incorporation (the “Charter”), to effect a reverse stock split of 20-for1 (the “Reverse Stock Split”) as determined by our Board of Directors. The holders of the Convertible Redeemable Preferred Stock agreed to not transfer, offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of the shares of the Convertible Redeemable Preferred Stock until the Reverse Stock Split, voted the shares of the Series A Preferred Stock purchased in the offering in favor of the Amendment and voted the shares of the Series B Preferred Stock purchased in the offering in a manner that “mirrored” the proportions on which the shares of Common Stock (excluding any shares of Common Stock that did not vote), the Company’s Special Voting Preferred Stock (excluding any proportion of the Special Voting Preferred Stock that did not vote) and Series A Preferred Stock voted on the Reverse Stock Split. The Reverse Stock Split required the approval of the majority of the issued and outstanding shares entitled to vote on the matter. Because the Series B Preferred Stock was automatically and without further action of the holder voted in a manner that “mirrored” the proportions on which the shares of Common Stock (excluding any shares of Common Stock that were not voted), the Company’s Special Voting Preferred Stock (excluding any proportion of the Special Voting Preferred Stock  that was not voted) and Series A Preferred Stock voted on the Reverse Stock Split, abstentions by common stockholders did not have any effect on the votes cast by the holders of the Series B Preferred Stock. The Amendment was approved on November 7, 2022 and the Reverse Stock Split was effectuated at 12:01 a.m. Eastern Standard Time on November 8, 2022.  

The holders of all of the Convertible Redeemable Preferred Stock redeemed their shares for cash at 105 percent of the stated value, or $10.50 per share, of such shares on November 9, 2022. Accordingly, we directed the escrow agent to pay $5.25 million on November 10, 2022 to the holders from the escrow account established upon the date of the Convertible Redeemable Preferred Stock offering. The amounts paid over the offering price upon redemption are considered “deemed” dividends and reported as a reduction of Additional paid-in capital in the consolidated statement of changes in stockholders’ equity (deficit). 


Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

 Notes to Consolidated Financial Statements

Series C Preferred Stock

On December 14, 2023, the Company designated and authorized 3,244 shares of Series C Preferred Stock with a par value of $1,000 per share. Each share of the Series C Preferred Stock would have voting power equivalent to 2,000 shares of Common Stock. On December 20, 2023, each of the holders of the Senior Convertible Notes received 1,711 shares of Series C Preferred Stock (3,422 shares in total) in exchange for $1.711 million in principal amount of the Senior Convertible Notes ($3.422 million on a combined basis). In connection with the closing of the Merger and pursuant to the Section 3(a)(9) Exchange Agreements, on February 9, 2024, all 3,244 shares of Series C Preferred Stock were exchanged for 756,746 shares of Common Stock. 

Special Voting Preferred Stock and Exchangeable Shares 

In connection with a transaction in July 2020 in which we acquired Ample in exchange for 3,294,574 shares of exchangeable shares (the “Exchangeable Shares”), we issued a single share of our Special Voting Preferred Stock for the purpose of ensuring that each Exchangeable Share is substantially the economic and voting equivalent of 1/400 of a share of Akerna Common Stock and that each Exchangeable Share was exchangeable on a 400-for-one basis for a share of Akerna Common Stock, subject to certain limitations and adjustments, including adjustments to reflect the Reverse Stock Split. Each holder of Exchangeable Shares effectively had the ability to cast votes along with holders of Akerna Common Stock. The Exchangeable Shares did not have a par value. The Special Voting Preferred Stock had a par value of $0.0001 per share and a preference in liquidation of $1.00. The Special Voting Preferred Stock entitled the holder to an aggregate number of votes equal to 1/400 of the number of the Exchangeable Shares issued and outstanding from time to time. The holder of the Special Voting Preferred Stock and the holders of shares of Akerna Common Stock would both vote together as a single class on all matters submitted to a vote of our stockholders. 

During the years ended December 31, 2023 and 2022, several Ample shareholders exchanged a total of 37,188 and 23,614 Exchangeable Shares with values of $0.3million and $0.2 million for 93 and 59 shares of Akerna Common Stock, respectively. The exchanges were accounted for as equity transactions and we did not recognize a gain or loss on these transactions. As of December 31, 2023, there were a total of 248,484 exchangeable shares remaining as issued and outstanding which could be exchanged for 621 shares of Akerna Common Stock. Upon completion of the Merger on February 9, 2024, the Special Voting Preferred Stock was cancelled and the Exchangeable Shares were converted to shares of Common Stock of Gryphon.

ATM Program

In 2021, we entered into an Equity Distribution Agreement with Oppenheimer & Co. Inc. (“Oppenheimer”) and A.G.P./Alliance Global Partners (“AGP”) pursuant to which we could offer and sell from time to time, up to $25 million of shares of our Common Stock through an “at the market” equity offering program (the “2021 ATM Program”). From its inception through September 23, 2022, a total of 5,931 shares of Common Stock with an aggregate gross purchase price of $2.7 million, including 4,540 shares with an aggregate gross purchase price of $0.8 million sold during 2022, were sold under the 2021 ATM Program. On September 23, 2022, we, Oppenheimer and AGP mutually agreed to terminate the 2021 ATM Program.  

On September 28, 2022, we entered into a new agreement with AGP pursuant to which we may offer and sell up to $20.0 million of shares of our Common Stock (the “2022 ATM Program”) from time to time through AGP as the sales agent for which they will receive a commission of 3.0% of the gross proceeds. Through December 31, 2022, we sold a total of 27,607 shares of Common Stock with an aggregate gross purchase price of $1.1 million under the 2022 ATM Program. The 2022 ATM Program was not available to us during 2023 due to certain restrictions imposed by the registration statement underlying the offering (the “Baby Shelf Limitation”). Under the Baby Shelf Limitation, we were not able to offer Common Stock under the registration statement with a value of more than one-third of the aggregate market value of our Common Stock held by non-affiliates in any twelve-month period, so long as the aggregate market value of our Common Stock held by non-affiliates is less than $75.0 million. 


Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

Notes to Consolidated Financial Statements

2022 Unit Offering

On July 5, 2022, we completed the 2022 Unit Offering which was comprised of an aggregate of (i) 29,382,861 units consisting of 73,457 shares of Common Stock together with Common Stock warrants (the “Common Warrants”) to purchase up to 73,457 shares of Common Stock (together, the “Units”) and (ii) 14,095,400 pre-funded units, consisting of 14,095,400 pre-funded warrants (“Pre-funded Warrants”) to purchase 35,239 shares of Common Stock, together with Common Warrants to purchase up to 35,239 shares of Common Stock (together, the “Pre-funded Units”). The Units were sold at a public offering price of $92.00 per unit and the Pre-funded Units were sold at a public offering price of $91.96 per pre-funded unit. The Pre-Funded Warrants were exercised immediately thereafter at their nominal exercise price of $0.04 per share. The Common Warrants accompanying each of the Units and Pre-funded Units were issued separately and were immediately tradeable separately upon issuance. The Common Warrants have an exercise price of $92.00 per share subject to certain adjustments, were immediately exercisable and will expire five years from the date of issuance. In connection with the Convertible Redeemable Preferred Stock offering, the exercise price of the Common Warrants was reduced to $70.36 per share effective October 5, 2022.

We granted the Underwriter a 45-day option from the effective date of the 2022 Unit Offering to purchase from us (i) additional shares of Common Stock and/or (ii) Common Warrants and/or (iii) Pre-Funded Warrants, in any combination thereof solely to cover over-allotments(the “Over-allotment Option”); however, the Over-allotment Option expired unexercised on August 14, 2022. In addition, we issued to the Underwriter warrants to purchase additional shares of Common Stock (the “Underwriter Warrants”). Upon the expiration of the Over-allotment Option, the Underwriter Warrants provided for the purchase of up to 5,435 shares of Common Stock. The Underwriter Warrants are exercisable at any time and from time to time, in whole or in part, commencing from six months after June 29, 2022 (the “Effective Date”) and ending five years from the Effective Date, at a price per share equal to $92.00, subject to certain adjustments. In connection with the Convertible Redeemable Preferred Stock offering, the exercise price of the Underwriter Warrants was reduced to $70.36 per share effective October 5, 2022. The Underwriter Warrants may be transferred by the Underwriter without restriction during the same period. 

The Unit Offering closed on July 5, 2022 and we received net proceeds of approximately $9.2 million after deducting underwriting discounts and commissions and related expenses including legal and other professional fees. In connection with the Convertible Notes Amendment, a total of $7.0 million of the proceeds were deposited into restricted cash accounts. We used the remaining net proceeds from the 2022 Unit Offering for general corporate purposes, including working capital, marketing, product development and capital expenditures. As of December 31, 2023, a total of 45,652,174 warrants exercisable for 114,130 shares of Common Stock remain outstanding from the 2022 Unit Offering including 43,478,261 Common Warrants exercisable for 108,696 shares of Common Stock and 108,696 Underwriter Warrants exercisable for 5,435 shares of Common Stock. In accordance with our policy, we assessed the warrants issued in connection with the 2022 Unit Offering and determined that there are no instances outside of the Company’s control that could require cash settlement. In addition, we determined that the warrants issued in connection with the 2022 Unit Offering do not meet the definition of a derivative as they are indexed to the Company’s Common Stock and they satisfy all of the additional qualifications to be classified within equity. Accordingly, the net proceeds of $9.2 million were recorded as: (i) an increase to Common Stock of $11 representing the issuance of 73,457 shares of Common Stock attributable to the Units and the issuance of 35,239 shares of Common Stock from the exercise of the Pre-funded Warrants, both at their par value of $0.0001 per share and (ii) an increase to Additional Paid-In Capital of $9.2 million for the amounts received over par value less the underwriting discounts and commissions and related expenses including legal and other professional fees.

2019 Warrants

In connection with MTech’s initial public offering, MTech sold units consisting of one share of MTech’s common stock and one warrant of MTech (“MTech Public Warrant”). Each MTech Public Warrant entitled the holder to purchase one share of MTech’s common stock. Concurrently with MTech’s initial public offering, MTech sold additional units on a private offering basis. Each of these units consisted of one share of MTech’s common stock and one warrant of MTech (“MTech Private Warrant”). Each MTech Private Warrant entitled the holder to purchase one share of MTech’s common stock.   


Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

Notes to Consolidated Financial Statements

Upon completion of the Mergers between MTech and MJF on June 17, 2019, the MTech Public Warrants and the MTech Private Warrants were converted to the 2019 Public Warrants and the Private Warrants, respectively, at an exchange ratio of one-for-one to a warrant to purchase one share of Akerna’s Common Stock with identical terms and conditions. Concurrent with the Reverse Stock Split, the exchange ratio of the 2019 Public Warrants and the Private Warrants was changed to 400 warrants for one share of Common Stock. The Private Warrants have contingent exercise provisions such that when the Private Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by the Company. Accordingly, the requirements for accounting for the Private Warrants as equity are not satisfied and the Private Warrants have been reflected on our consolidated balance sheets as a derivative liability and are not included the summary of outstanding warrants presented below.

Outstanding Warrants

The following table summarizes our warrants outstanding as of the dates presented:

  Exercise
Price		  Expiration
Date		  As of
December 31,
2022		  Issued  Exercised  Expired  As of
December 31,
2023		 
2019 Public Warrants (1) $4,600.00   6/19/2024   5,813,804     —      —     —   5,813,804 
2022 Unit Offering                            
Common Warrants (2) $70.36   6/29/2027   43,478,261   —   —   —   43,478,261 
Underwriter Warrants (2) $70.36   6/29/2027   2,173,913   —   —   —   2,173,913 
           51,465,978   —   —   —   51,465,978 

(1)The 2019 Public Warrants are exercisable for 14,535 shares of Common Stock at $4,600.00 per share or a ratio of 400 warrants for one share of Common Stock.

(2)The Common Warrants and Underwriter Warrants are exercisable for a combined amount of 114,130 shares of Common Stock at $70.36 per share or a ratio of 400 warrants for one share of Common Stock.

Upon completion of the Merger on February 9, 2024, each of the outstanding warrants to purchase Common Stock referenced in the table above were cancelled and were converted to shares of Common Stock of Gryphon.


Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

Notes to Consolidated Financial Statements

Note 12 –  Stock-Based Compensation and Other Benefit Plans

On June 17, 2019, our stockholders considered and approved the 2019 Long Term Incentive Plan, or the Equity Incentive Plan, and reserved an initial 1,040,038 shares of Akerna Common Stock for issuance thereunder. In June 2020 and May 2022, our stockholders approved amendments to the Equity Incentive Plan increasing the number of shares authorized for issuance thereunder by 525,000 and 2,934,962, respectively. Subsequent to these amendments, the total number of shares authorized for issuance thereunder was 4,500,000 prior to the Reverse Stock Split. After giving effect to the Reverse Stock Split and further for the reverse stock split in connection with the Merger, the adjusted number of shares authorized for issuance was 11,250. As of December 31, 2023, there were 8,714 authorized shares remaining available for issuance. 

The Equity Incentive Plan is administered by the compensation committee of our Board of Directors and provides for the offering of awards to employees, officers, directors and consultants in the form of restricted stock, restricted stock units, or RSUs, options, stock appreciation rights, or SARs, and other stock-based awards. Since the Formation Mergers, we have only granted RSUs that are subject to time-based vesting and require continuous employment, typically over a period of four years from the grant date or the first day of the service period. We have not granted any restricted stock, options, SARs or other stock-based awards since the Formation Mergers. Certain awards granted by MJF prior to the Formation Mergers were exchanged for and became subject to restricted stock agreements, or Restricted Shares, with varying vesting terms that reflect the vesting conditions applicable to the predecessor awards at the time of the Formation Mergers.  

A summary of our unvested Restricted Shares and RSUs activity is presented in the table below: 

  Restricted
Shares		  Restricted
Stock Units		  Total  Weighted
Average
Grant Date
Fair Value		 
Unvested as of December 31, 2021  81   1,709   1,790  $2,188.00 
Granted  —   707   707   270.80 
Vested  (64)  (1,124)  (1,188)  1,081.20 
Forfeited  —   (739)  (739)  2,248.20 
Unvested as of December 31, 2022  17   553   570  $1,793.20 
Granted  —   —   —   — 
Vested  (17)  (259)  (276)  2,045.80 
Forfeited  —   (113)  (113)  1,372.40 
Unvested as of December 31, 2023  —   181   181  $1,801.00 

For the years ended December 31, 2023 and 2022 we recognized stock-based compensation expense related to the ratable amortization of the unvested Restricted Shares and RSUs of $0.4 million, and $0.9 million, respectively. During the year ended December 31, 2022, we capitalized less than $0.1 million in stock-based compensation costs as software development cost and no amounts were capitalized during the year ended December 31, 2023. A total of $0.3 million of unrecognized costs as of December 31, 2023 related to RSUs will be ratably recognized over an estimated weighted average remaining vesting period of 0.87 years.

Employee Benefit Plan

 

We have a 401(k) Plan (the “Plan”“401(k) Plan”) to provide retirement benefits for our employees. Employees may contribute up to a portion of their annual compensation to the 401(k) Plan, limited to a maximum annual amount as updated annually by the IRS.Internal Revenue Service. We do not offer a match of employee contributions nor any discretionary contributions. 


F-41


AKERNA CORP. 

Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

Notes to Consolidated Financial Statements

December 31, 2021

Note 15- Income Taxes13 – Fair Value

 

Since June 17, 2019, we have been the sole owner of MJF, which is a disregarded entity for federal income taxes. Prior to June 17, 2019 MJF was treated as a partnership for U.S income tax purposes. Accordingly, prior to the business combination, our taxable income and losses were reported on the income tax returns of MJF’s members. Therefore, no income tax is provided prior to June 17, 2019.Fair Value Measurement – Contingent Consideration

 

On March 27, 2020In connection with our acquisition of 365 Cannabis in October 2021, the Coronavirus Aid, Relief and Economic Security Act,365 Cannabis selling shareholders had the potential to earn contingent consideration payable in Common Stock or cash if certain revenue criteria were met (the “Earn-out Obligation”). The fair value of the CARES Act,Earn-out Obligation, on the date of acquisition of 365 Cannabis was enacted$6.3 million. The Earn-out Obligation was reduced by $3.0 million in responseSeptember 2022 in connection with the finalization of the purchase accounting associated with the acquisition of 365 Cannabis. The carrying amount of the Earn-out Obligation was further reduced to the COVID-19 pandemic. It was determined the CARES Act did not materially impact our tax provision asits fair value of $2.3 million on December 31, 2021 and December 31, 2020.

The accounting for2022 in connection with the business combinationssale of Viridian and 365 Cannabis that was completed in January 2023. The corresponding adjustments have been reflected in the accompanying consolidated financial statements is preliminary and is based upon estimates and assumptions that are subject to change within the measurement period (up to one yearloss from the acquisition date). The measurement period remains open pending the completion of valuation procedures related to the acquired assets and assumed liabilities, intangible assets and income taxes.

In April 2020, we were granted a loan, or the PPP Loan, from a lender in the aggregate amount of $2.2 million pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, which we obtained debt forgiveness on duringdiscontinued operations for the year ended December 31, 2021.2023 (see Note 15).

 

We value contingent consideration using a probability-weighted discounted cash flow model, which incorporates inputs that are not observable in the market and thus represents a Level 3 measurement as defined in GAAP. The following table sets forthunobservable inputs utilized for measuring the expense or benefit for income taxes:fair value of the contingent consideration reflect management’s own assumptions about the assumptions that market participants would use in valuing the contingent consideration as of the valuation date, as well as our knowledge of specific transactions that effect the calculation.

Fair Value Option Election – Convertible Notes

 

We elected to account for the Senior Convertible Notes by applying the fair value option. Under the fair value option, the financial liability is initially measured at its issue-date estimated fair value and subsequently remeasured at its estimated fair value on a recurring basis at each reporting period date. The change in estimated fair value resulting from changes in instrument-specific credit risk is recorded in Other comprehensive income as a component of stockholders’ equity (deficit). The remaining estimated fair value adjustment is presented as a single line item within Other income (expense) in our consolidated statement of operations under the caption, Change in fair value of convertible notes. 

For the Senior Secured Notes, which are measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair value from January 1, 2022 to December 31, 2023:

Senior Convertible Notes   
Beginning fair value balance - January 1, 2022 $17,305,000 
Principal payments in cash and Common Stock  (5,337,273)
Change in fair value reported in the statements of operations  2,884,273 
Change in fair value reported in other comprehensive income  (245,000)
Ending fair value balance - December 31, 2022 $14,607,000 
Principal payments in cash and Common Stock  (11,526,457)
Change in fair value reported in the statements of operations  370,457 
Change in fair value reported in other comprehensive income  48,000 
Ending fair value balance - December 31, 2023 $3,499,000 


 


Year Ended December 31,

 


Six Months Ended December 31,





Year Ended June 30,


 


2021

 


2020


 


2020

Income tax 





 


 

         


 





Current income taxes





 


 

 


 





U.S. federal


$0—

 


$

0—


 


$30,985
U.S. state

5,800



200



0—

Foreign



6,270

 


 

0—


 





Total current income taxes


$12,070

 


$

200


 


$30,985

 



Year Ended December 31,

Six Months Ended December 31,



Year Ended June 30,

 


2021

2020

 



2020

Deferred income tax








 






U.S. federal


$(2,274,295)
$0—

 



$0—

U.S. state



0—


0—

 




0—

Total deferred income tax benefit


$(2,274,295)
$0—

 



$0—

The following table sets forth reconciliations of the income tax expense at the statutory federal income tax rate to actual expense based on income or loss before income taxes:Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

 


Year Ended December 31,
Six Months Ended December 31,

June 30,

 


2021

2020

 


2020

Income tax expense (benefit) attributable to: 





 

 





Federal


$(6,692,267)

$

(3,560,998

)
$(3,255,706)

State, net of federal benefit



(672,148)

 

(553,871

)

(862,690)
Foreign tax rate differential

(138,292)

29,617

(2,645)
Permanent differences

2,428,631


1,263,151


312,525
Rate change

54,295


60,220


0—

Changes in valuation allowance



3,361,603

 

2,762,081

 



3,884,440
Provision to return adjustment

273,489


0—

(45,134)

Losses from flow-through entity not subject to tax



0—

 

0—

 



0—
Deferred True-Ups

(928,743)

0—


0—

Other adjustments



51,207

 

0—



195
Effective income tax expense (benefit)
$(2,262,225)
$200

$30,985
F-42

AKERNA CORP. 

Notes to Consolidated Financial Statements

The estimated fair value of the Senior Convertible Notes was computed using Monte Carlo simulations, which incorporates significant inputs that are not observable in the market, and thus represents a Level 3 measurement as defined by GAAP.  The unobservable inputs utilized for measuring the fair value of the Senior Convertible Notes reflect our assumptions about the assumptions that market participants would use in valuing the Senior Convertible Notes as of the issuance date and subsequent reporting periods. 

We determined the fair value of the Senior Convertible Notes by using the following key inputs to the Monte Carlo Simulation Model:

  As of December 31, 
Fair Value Assumptions - Senior Convertible Notes 2023  2022 
Face value principal payable $3,136,271  $14,662,727 
Conversion prices, as adjusted for the Reverse Stock Split and certain securities offerings $95.00  $95.00 
Value of Common Stock on measurement date $8.80  $13.80 
Expected term (years)  0.8   1.8 
Volatility  96%  77%
Market yield (range)  38.2 to 38.4 %  43.9 to 44.3%
Risk free rate  4.1%  4.4%
Issue date  October 5, 2021   October 5, 2021 
Maturity date  October 5, 2024   October 5, 2024 

Fair Value Measurement – Private Warrants

For the Private Warrants, which are classified as derivative liabilities on our consolidated balance sheets and measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair values for the years ended December 31, 20212023 and December 31, 2022:  


  Year Ended December 31, 
  2023  2022 
Fair value balance at beginning of period $—  $63,178 
Change in fair value reported in the statements of operations  —   (63,178)
Fair value balance at end of period $—  $— 


 


December 31,

 

December 31,

 


2021

 

2020

 

Noncurrent deferred tax assets: 




 

 

 

Employee compensation


$820,410

 

$

679,106

 

Debt issuance costs

138,778


343,612
Revenue recognition

105,735


0—
Settlement accrual

146,604


182,896
Fixed assets

242,006


831,196

Federal and state net operating loss



10,673,908

 

 

6,337,897

 

Foreign net operating loss

4,904,857


2,586,671

Other



225,340

 

 

27,410

 

Total deferred tax assets


$17,257,638

 

$

10,988,788

 










Noncurrent deferred tax liabilities:







Fixed assets

0—


0—
Intangibles

(6,051,459)

(2,717,717)
Deferred tax liabilities
$(6,051,459)
$(2,717,717)

Valuation allowance



(11,881,470)

 

 

(8,271,071

)

Deferred taxes after valuation allowance


$(675,291)

 

$

0—

 

Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

Notes to Consolidated Financial Statements

We utilized a binomial lattice model, which incorporates significant inputs, specifically the expected volatility, that are not observable in the market, and thus represents a Level 3 measurement as defined in GAAP. The unobservable inputs utilized for measuring the fair value of the Private Warrants reflect our estimates regarding the assumptions that market participants would use in valuing the 2019 Public Warrants as of the end of the reporting periods.

We recognize changes to the derivative liability against earnings or loss each reporting period. Upon exercise of the Private Warrants, holders will receive a delivery of Akerna shares on a net or gross share basis per the terms of the Private Warrants and any exercise will reclassify the Private Warrants, at the time of exercise, to stockholders’ equity to reflect the equity transaction.  There are no periodic settlements prior to the holder exercising the Private Warrants. There were no transfers in or out of Level 3 from other levels for the fair value hierarchy. 

We estimated the fair value by using the following key inputs: 

  As of December 31, 
Fair Value Assumptions - Private Warrants 2023  2022   
Number of Private Warrants  225,635   225,635 
Exercise price, as adjusted for the Reverse Stock Split $4,600.00  $4,600.00 
Value of Common Stock on measurement date $8.80  $13.80 
Expected term (years)  0.46   1.46 
Volatility  NM%  NM 
Risk free rate  NM%  NM 

Fair Value Measurement – 2022 Unit Offering Common and Underwriter Warrants

The fair value of the Common Warrants and Underwriter Warrants issued in connection with the 2022 Unit Offering represent a measurement within Level 3 of the fair value hierarchy and were estimated based on the following key inputs as of the date of the 2022 Unit Offering: 

Fair Value Assumptions - 2022 Common and Underwriter Warrants July 5, 2022 
Exercise price as adjusted for the Reverse Stock Split $70.36 
Expected term (years)  5.0 
Volatility  136.9%

We utilized a Black-Scholes-Merton option pricing model, which incorporates significant inputs, specifically the expected volatility, that are not observable in the market, and thus represents a Level 3 measurement as defined in GAAP. The unobservable inputs utilized for measuring the fair value of the Common and Underwriter Warrants reflect our estimates regarding the assumptions that market participants would have used in valuing the Warrants as of the date of the 2022 Unit Offering or July 5, 2022. The fair value of the Common Warrants and Underwriter Warrants was recorded in equity as a component of the net proceeds received from the 2022 Unit Offering (see Note 13).  


Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

Notes to Consolidated Financial Statements

Note 14 – Loss Per Share

  

During the year ended December 31, 2021, valuation allowances on deferred tax assets2023, we used the “two-class” method to compute net loss per share because we issued securities other than common shares that are not anticipatedeconomically equivalent to a common share in that the class of stock has the right to participate in dividends should a dividend be declared payable to holders of Common Stock. These participating securities were the Exchangeable Shares issued by our wholly owned subsidiary in exchange for interests in Ample. The two-class method requires earnings for the period to be realized increasedallocated between common shares and participating securities based on their respective rights to receive distributed and undistributed earnings. Under the two-class method, for periods with net income, basic net income per common share is computed by $3.6 million dividing the net income attributable to common stockholders by the weighted average number of which $0.2 million was recorded in purchase accounting andshares of common stock outstanding during the remainderperiod. Net income attributable to common stockholders is computed by subtracting from net income the portion of $3.4 million was recorded to deferred expense. During the six months ended December 31, 2020, valuation allowances on deferred tax assets that are not anticipated to be realized increased by $5.5 million of which $2.7 million was recorded in purchase accounting and the remainder of $2.8 million was recorded to deferred expense.  


Our deferred tax valuation allowances are primarily the result of uncertainties regarding the future realization of recorded tax benefits on tax losses. The measurement of deferred tax assets is reduced by a valuation allowance if based upon available evidence, it is more likely than notcurrent period earnings that the deferred tax assets willparticipating securities would have been entitled to receive pursuant to their dividend rights had all of the period’s earnings been distributed. No such adjustment to earnings is made during periods with a net loss, as the holders of the Exchangeable Shares have no obligation to fund losses. The Amended and Restated Secured Promissory Note is convertible into Common Stock upon the upon the closing of the Sale Transaction; however, this contingency was not be realized. We have evaluated the realizability of our deferred tax assets in each jurisdiction by assessing the adequacy of expected taxable income, including the reversal of existing temporary differences, historical and projected operating results, and the availability of prudent and feasible tax planning strategies. Based on this analysis, we have determined that the valuation allowances recordedmet as of December 31, 20212023 and, accordingly, the conversion feature is not considered a common stock equivalent as of December 31, 20202023.

Diluted net loss per common share is calculated under the two-class method by giving effect to all potentially dilutive common shares, including warrants, restricted stock, RSUs and shares of common stock issuable upon conversion of our Senior Convertible Notes. We analyzed the potential dilutive effect of any outstanding convertible securities under the “if-converted” method, in which it is assumed that the outstanding Exchangeable Shares and Senior Convertible Notes are appropriate.converted to shares of Akerna Common Stock at the beginning of the period or date of issuance, if later. We report the more dilutive of the approaches (two-class or if-converted) as the diluted net loss per share during the period. The dilutive effect of unvested restricted stock and RSUs is reflected in diluted loss per share by application of the treasury stock method and is excluded when the effect would be anti-dilutive. 

The weighted-average number of shares outstanding used in the computation of diluted earnings per share does not include the effect of potential outstanding common shares that would have been anti-dilutive for the period. The table below details potentially outstanding shares on a fully diluted basis that were not included in the calculation of diluted earnings per share: 

  Year Ended December 31, 
  2023  2022 
Shares issuable upon the exchange of Exchangeable Shares  621   714 
Warrants:        
2019 Public Warrants  14,535   14,535 
2022 Unit Offering - Common Warrants  108,696   108,696 
2022 Unit Offering - Underwriter Warrants  5,435   5,435 
Unvested RSUs  182   554 
Unvested restricted stock awards  —   17 
Shares issuable upon conversion of the Senior Convertible Notes  33,014   154,345 
Total  162,483   284,296 


Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

Notes to Consolidated Financial Statements

Note 15 – Discontinued Operations

As discussed in Notes 1 and 4, we committed to a strategic shift in our business strategy and a complete exit from the SaaS business serving the cannabis industry. In support of that effort, we disposed of the Disposal Group through a series of sale transactions during 2023. We also effectively abandoned the Trellis, Solo and Viridian business units during 2023. Finally, we committed to the sale of MJF which closed in February 2024 in connection with the Sale Transaction and the Merger.

 

We have deferred tax assets relatedsold 365 Cannabis in January 2023 for cash proceeds of $0.5 million and the termination and release of the Earn-out Obligation. In accordance with the agreement to U.S. federal taxsell 365 Cannabis, which was entered into in 2022, we and state tax carryforwards for net operating lossesthe buyers agreed that the value of the Earn-out Obligation was $2.3 million, a reduction of $4.0 million from the original estimate. The gain associated with the reduction in estimate was recognized in the amountresults of $44.5 million. The majority of U.S. federal net operating loss carryforwards are carried forward indefinitely. Federal net operating losses generated after 2017 have an indefinite carryforward and are only available to offset 80% taxable income beginning in 2021. U.S. state net operating loss carryforwards expire at various dates of whichdiscontinued operations for the majority begin to expire in 2039. We have deferred tax assets related to foreign net operating loss carryforward, which begin to expire in 2034,year ended December 31, 2022 in the amounttable below. The Earn-out Obligation was reflected as Contingent consideration payable on our consolidated balance sheet as of $18.5 million.December 31, 2022. We also sold LCA for cash proceeds of $0.1 million in January 2023. In connection with the sales of 365 Cannabis and LCA, we recognized a gain on the sale of discontinued operations of $0.2 million during the year ended December 31, 2023. The gain was primarily attributable to changes in the value of 365 Cannabis’ and LCA’s working capital from December 31, 2022 through the date that these transactions closed. As disclosed below, impairments of long-lived assets were recorded for 365 Cannabis and LCA during the year ended December 31, 2022 prior to the commitments to sell these business units.

 

We are not currently under examinationIn December 2023, we sold Ample for anycash proceeds of $0.638 million. Prior to our commitment to the major jurisdictions wheresale, we conduct business asrecorded an impairment of December 31, 2021, however, allAmple’s goodwill during the third quarter of our tax years remain subject to examination. Our management does not believe there are significant uncertain tax positions in 20212023 and, as a result we do not expect any cash payments in the next 12 months, however, uncertain tax positions related to potential penalties in the amounts of $30,000 and $50,000 have been recorded in connection with the sale in the fourth quarter of 2023, we recorded impairments as disclosed below, to Ample’s goodwill and intangible assets in order to adjust the value of the business combinations duringunit to its fair value. In accordance with the years ended December 31, 2021agreement to sell Ample, the buyer is permitted to seek post-closing adjustments for certain working capital items. The Company has 30 days to dispute any adjustments sought by the buyer and, Juneif necessary, an additional 30 2020, respectively. Theredays to resolve any disputes. The maximum exposure for such adjustments is no interest related to uncertain tax positions in 2021 or 2020.

F-43

AKERNA CORP. approximately $0.1 million.

Subsequent to their sales, we will have no future involvement or relationships with these businesses. As a result of these actions, the assets and liabilities and results of operations of the Disposal Group have been classified as being attributable to discontinued operations, respectively, for all periods presented.

The following table presents the major classes of assets and liabilities of the Disposal Group: 

  As of December 31, 
  2023  2022 
Cash and restricted cash $—  $305,411 
Accounts receivable, net  —   357,121 
Prepaid expenses & other current assets  —   666,252 
Fixed assets  —   63,764 
Capitalized software, net  —   1,483,111 
Intangible assets, net  —   5,406,094 
Goodwill  —   1,708,303 
Total assets $—  $9,990,056 
         
Accounts payable, accrued expenses and other current liabilities $—  $1,437,661 
Deferred revenue  —   994,713 
Deferred revenue, noncurrent  —   217,083 
Total liabilities $—  $2,649,457 
         
Current assets of discontinued operations $—  $1,328,784 
Noncurrent assets of discontinued operations  —   8,661,272 
Total assets of discontinued operations $—  $9,990,056 
         
Current liabilities of discontinued operations $—  $2,432,374 
Noncurrent liabilities of discontinued operations  —   217,083 
Total liabilities of discontinued operations $—  $2,649,457 


Gryphon Digital Mining, Inc. (formerly known as Akerna Corp.)

Notes to Consolidated Financial Statements

The following table summarizes the results of operations of the Disposal Group:

  For the Years Ended
December 31,		 
  2023  2022 
Revenue $2,412,534  $12,640,170 
Cost of revenue  575,246   2,919,208 
Gross profit  1,837,288   9,720,962 
Research and development  527,301   2,409,740 
Sales and marketing  421,049   4,646,997 
General and administrative  118,133   798,837 
Depreciation and amortization  891,708   3,412,717 
Impairment of long-lived assets  3,065,365   35,249,975 
Changes in fair value of contingent consideration  —   (4,016,194)
Other expense, net  1,833   — 
Interest expense  —   746 
Loss from discontinued operations before income taxes  (3,188,101)  (32,781,856)
Income tax benefit  —   2,117 
Loss from discontinued operations, net of tax  (3,188,101)  (32,779,739)
Gain on sale of discontinued operations, net of tax  212,601   — 
Net loss from discontinued operations, net of tax $(2,975,500) $(32,779,739)

The $3.1 million charge for impairments of long-lived assets for the year ended December 31, 2021


Note 16 – Revisions2023 are related to goodwill ($1.7 million) and intangible assets ($1.4 million), both of Previously Issued Financial Statements


On June 17, 2019, we completedwhich were attributable to Ample. The $35.2 million charge for impairments of long-lived assets for the Mergers with MTech. Prioryear ended December 31, 2022 are related to goodwill ($25.0 million), intangible assets ($9.9 million) and capitalized software ($0.3 million). Of this total, the amounts were attributed as follows: (i) $22.2 million to 365 Cannabis, (ii) $12.4 million to Ample, and (iii) $0.6 million to LCA. The Disposal Group incurred capital expenditures for capitalized software assets of $1.7 million for the year ended December 31, 2022 and no amounts were capitalized during the year ended December 31, 2023. There were no material non-cash investing and financing activities attributable to the Mergers, MTech was a special purposeDisposal Group for the year ended December 31, 2023. During the year ended December 31, 2022, there were two material non-cash investing and financing activities attributable to the original acquisition company and had completed an initial public offering in October 2018, which includedof 365 Cannabis. In connection with the issuancesfinalization of the MTech Private Warrantspurchase accounting for 365 Cannabis in 2022, a simultaneous private placement transaction. The MTech Private Warrantstotal of 13,988 shares of Common Stock were exchangedreturned to us for our Private Warrants as part of the Mergers and our Private Warrants remain outstanding as of December 31, 2021. We initially accounted for these outstanding Private Warrants as components of equity rather than as derivative liabilities. In light of the Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”) issued by the staff of the SEC on April 12, 2021 (the “SEC Staff Statement”), the Company’s management further evaluated our outstanding warrants under Accounting Standards Codification 815-40, Contracts in Entity’s Own Equity (“ASC 815-40”), which addresses equity versus liability treatment and classification of equity-linked financial instruments, including warrants, and states that a warrant may be classified as a component of equity only if, among other things, the warrant is indexed to the issuer’s common stock.


Based on management’s evaluation and in consultation with the Audit Committee, we concluded that the Company’s Private Warrants are not indexed to the Company’s common stock in the manner contemplated by ASC Section 815-40. As a result, these warrants are precluded from equity classification and should be recorded as derivative liabilities remeasured to fair value at each reporting period. We assessed the materiality of these errors on prior periods’ consolidated financial statements and concluded that the errors were not material to any prior annual or interim periods. However, we have revised the prior period financial information included in these consolidated financial statements to reclassify the Private Warrants as derivative liabilities measured at their estimated fair values at the end of each reporting period and recognized changes in the estimated fair value of the derivative instruments from the prior period$0.9 million and we recorded a non-cash reduction of $0.2 million in the Company’s operating results.accrued expenses in connection with a working capital settlement.

 


The Company's change in accounting for the Private Warrants from components of equity to derivative liabilities has no impact on the Company's current or previously reported cash position. 


The tables below disclose the effects on the consolidated financial statements included in this Annual Report on Form 10-K: 




Year Ended June 30, 2020



As reported

Adjustment


As revised
Consolidated Statements of Operations









Change in fair value of derivative liability


0—

1,962,034
1,962,034
Net loss attributable to Akerna shareholders

(15,534,345)

1,962,034

(13,572,311)
Net loss per share

(1.31)

0—
(1.14)




Six Months Ended December 31, 2020



As reportedAdjustmentAs revised
Condensed Consolidated Statements of Operations









Change in fair value of derivative liability

 

 

0—
746,852
746,852
Net loss attributable to Akerna shareholders

 


(16,957,334)

746,852

(16,210,482)
Net loss per share


(1.01)
0—
(1.01)


iso4217:USD xbrli:shares


As of December 31, 2020



As reportedAdjustmentAs revised
Consolidated Balance Sheet










Derivative liability

 

 

0—
(311,376)
(311,376)
Total liabilities

(19,635,076)

(311,376)

(19,946,452)
Additional paid-in capital


95,090,833
(1,004,450)
94,086,433
Accumulated deficit

 


(57,872,599)
693,074
(57,179,525)


F-44