UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1-K
ANNUAL REPORT
PURSUANT TO REGULATION A OF THE SECURITIES ACT OF 1933
For the fiscal year ended December 31, 2023
Gryphon Online Safety, Inc.
(Exact name of issuer as specified in its charter)
| Delaware | 47-1246855 | |
| (State or other jurisdiction of incorporation or | (I.R.S. Employer Identification No.) | |
| organization) |
| 10265 Prairie Springs Road | 92127 | |
| San Diego, CA | ||
| (Address of principal executive offices) | (Zip Code) |
(858) 775-8331
Issuer’s telephone number, including area code
Series A Preferred Stock
Common Stock
(Title of each class of securities issued pursuant to Regulation A)
In this Annual Report, references to “Gryphon” or “the company” mean Gryphon Online Safety, Inc., a Delaware corporation, and its consolidated subsidiaries.
THIS ANNUAL REPORT MAY CONTAIN FORWARD-LOOKING STATEMENTS AND INFORMATION RELATING TO, AMONG OTHER THINGS, THE COMPANY, ITS BUSINESS PLAN AND STRATEGY, AND ITS INDUSTRY. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON THE BELIEFS OF, ASSUMPTIONS MADE BY, AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY’S MANAGEMENT. WHEN USED IN THE OFFERING MATERIALS, THE WORDS “ESTIMATE,” “PROJECT,” “BELIEVE,” “ANTICIPATE,” “INTEND,” “EXPECT” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS REFLECT MANAGEMENT’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE THE COMPANY’S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN THE FORWARD-LOOKING STATEMENTS. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE ON WHICH THEY ARE MADE.
Item 1. BUSINESS
Overview
Gryphon offers a patented cloud managed, network-based, protection service platform that’s powerful yet simple. The platform involves a family of elegant, high performance WiFi router systems, a simple to use App, and machine learning that will continuously improve over time and usage.
Powered by cutting-edge mesh WiFi technology and an advanced network protection software platform using machine learning, Gryphon’s family of routers deliver wall-to-wall, high-speed Internet to every connected device in a customer’s home or office. Customers may combine two or more for seamless mesh WiFi coverage throughout larger homes with no dead spots. The network protection platform helps to protect today’s connected smart homes and small businesses.
Many parents today are frustrated with the battle to protect their children from the dangers of being exposed to inappropriate online content, excessive screen time, and social media addiction. The Gryphon Parental Control Router puts the control back in parents’ hands. Using the Gryphon Connect App, customers can manage their children’s online activities and ensure healthy amounts of screen time from anywhere they go. Parents can filter inappropriate content, view their children’s browsing history, set bedtimes and homework times, suspend the internet and enforce Safe Search in search engines. The platform also functions as an internet security system for every device connected to a Gryphon home or office WiFi network from vulnerabilities, dangerous hackers, and malware.
Additionally, the Gryphon HomeBound® mobile app grants our customers the same safety and security features they enjoy at home when they are connected to cellular or public WiFi hotspots. With the HomeBound® app installed on a child’s smartphone, customers can manage them as if they never left the house. The HomeBound® app automatically and securely routes all traffic on a mobile device back through the customer’s Gryphon Mesh Router for filtering before it hits the internet.
The platform is simple to setup and use because there is no additional software that needs to be installed on the end devices. The protection works at the network layer to block unwanted content, malware, and intrusions for any connected device on the network.
Gryphon is not only suitable for families, but also for small businesses by protecting their valuable data from cyber-attacks and preserving productivity through blocking inappropriate content while at work. Because the solution can be set up in just minutes without an IT manager or expensive and complicated hardware, small businesses can now afford enterprise level protection for their network.
Business Plan
Gryphon’s business model is network protection as a service. In the short term, revenue is expected through product sales and monthly/annual subscriptions. Primary sales channels will be online distribution via Amazon and Gryphon’s website. Long term, the Gryphon network security service platform software can be licensed to hardware manufacturers or network operators. We also feel that the IP we generate can be a source of revenue as it applies to networks outside of homes or small businesses.
Principal Products and Services
| Product/Service | Description | Current Market |
| Family of Secure mesh WiFi routers Advanced Network Protection Service HomeBound™ Mobile Device Protection | Gryphon is a secure WiFi router using AI based learning to make the Internet a safer place for our kids and all our connected devices. All security is built into the router so there is nothing to install on each device. Gryphon comes with an app for real time management of all your connected devices and allows you to collaborate with other parents on website approval ratings. | Consumers with children. Small and medium businesses. Network equipment manufacturers and broadband service operators. |
Our Competitive Edge
The markets for the Company’s products and services are highly competitive and the Company is confronted by aggressive competition in all areas of its business. However, we believe our cloud software platform and the data intelligence that we generate across tens of thousands of our networks will help us maintain a technological advantage over our competitors. We believe we are one of the first with an innovative solution for this underserved market and building a brand in this market with thousands of positive customer reviews and millions of media impressions. We have also filed patents with 11 patents issued and others pending.
Supplier Network and Manufacturing
The Company relies on its Original Design Manufacturers (ODM) in Taiwan to manufacture the products which are designed in the USA. The ODMs source the components from various countries where they are manufactured. The industry has been impacted by shortages of materials, specifically silicon chips. Increased shipping times are impacting many industries’ ability to receive products in a timely manner. In addition, political instability could impact the Company’s suppliers.
Target Customer
The Company’s customers are primarily consumer families with children as well as small and medium size businesses and schools.
Employees and Contractors
The Company currently has 2 full time employees and 24 part-time independent contractors, 21 of whom are located overseas.
Government Regulation
We are required to obtain radio transmission safety approvals by the Federal Communications Commission in the United States and the Conformite Europeenne in the European Union. As of the date of this Offering Circular, the Company has received the necessary licenses from the FCC and the European Commission and has maintained compliance with those requirements.
Intellectual Property
The Company has filed applications or received registrations for the following intellectual property:
Trademarks
| Application or Registration # | Goods / Services | Mark | File Date | Grant Date | Country |
| 5331039 | Computer application software for mobile phones, namely, software for managing wireless routers; Wireless routers. | GRYPHON | September 14, 2016 | November 7, 2017 | United States |
| 5981858 | Downloadable and recorded computer software and downloadable mobile application for managing mobile devices for the purposes of managing access to online content and restricting internet and application usage, for protecting against malware, and for protection against intrusions. | HOMEBOUND | July 15, 2019 | February 11, 2020 | United States |
| 6240888 | Secure wireless router for networking and cyber protection and its related software application for the management of the wireless router. | GRYPHON GUARDIAN | September 27, 2019 | January 5, 2021 | United States |
Issued Patents
| Application # | Title | File Date/Filing Receipt Date | Grant Date | Country |
| 10,212,167 | METHOD AND SYSTEM TO ENABLE CONTROLLED SAFE INTERNET BROWSING | February 27, 2017 | February 19, 2019 | United States |
| 10,440,025 | REMOTELY CONTROLLING ACCESS TO ONLINE CONTENT | June 7, 2016 | October 8, 2019 | United States |
| 10,771,487 | METHOD FOR PROTECTING IOT DEVICES FROM INTRUSIONS BY PERFORMING STATISTICAL ANALYSIS | December 12, 2017 | September 8, 2020 | United States |
| 10,805,303 | METHOD AND SYSTEM TO ENABLE CONTROLLED SAFE INTERNET BROWSING | January 3, 2019 | October 13, 2020 | United States |
| 10,776,499 | REMOTELY CONTROLLING ACCESS TO ONLINE CONTENT | September 4, 2019 | September 15, 2020 | United States |
| 11,178,165 | METHOD FOR PROTECTING IOT DEVICES FROM INTRUSION BY PERFORMING STATISTICAL ANALYSIS | June 29, 2020 | November 16, 2021 | United States |
| 11,301,572 | REMOTELY CONTROLLING ACCESS TO ONLINE CONTENT | August 11, 2020 | April 12, 2022 | United States |
| 11,405,399 | METHOD OF PROTECTING MOBILE DEVICES FROM VULNERABILITIES LIKE MALWARE, ENABLING CONTENT FILTERING, SCREEN TIME RESTRICTIONS AND OTHER PARENTAL CONTROL RULES WHILE ON PUBLIC NETWORK BY FORWARDING THE INTERNET TRAFFIC TO A SMART, SECURED HOME ROUTER | June 26, 2020 | August 2, 2022 | United States |
| 11,558,386 | METHOD AND SYSTEM TO ENABLE CONTROLLED SAFE INTERNET BROWSING | June 22, 2020 | January 17, 2023 | United States |
| 11,743,264 | Method of protecting mobile devices from vulnerabilities like malware, enabling content filtering, screen time restrictions and other parental control rules while on public network by forwarding the internet traffic to a smart, secured home router | June 21, 2022 | August 29, 2023 | United States |
11,848,950
| Method of protecting mobile devices from vulnerabilities like malware, enabling content filtering, screen time restrictions and other parental control rules while on public network by forwarding the internet traffic to a smart, secured home router | October 18, 2021 | December 19,2023 | United States
|
Patent Applications:
| Application Number | Title | Filing Date | Country |
| US-20230370276-A1 | Method of implementing Blockchain network utilizing always connected Internet Gateways (Routers) as nodes for offering the decentralized secured storage and other services. | 11/16/2023 | United States |
| US-20220337592-A1 | Remotely Controlling Access to Online Content | 10/20/2022 | United States |
| US-20220329601-A1 | METHOD OF PROTECTING MOBILE DEVICES FROM VULNERABILITIES LIKE MALWARE, ENABLING CONTENT FILTERING, SCREEN TIME RESTRICTIONS AND OTHER PARENTAL CONTROL RULES WHILE ON PUBLIC NETWORK BY FORWARDING THE INTERNET TRAFFIC TO A SMART, SECURED HOME ROUTER | 10/13/2022 | United States |
| US-20220038484-A1 | METHOD FOR PROTECTING IOT DEVICES FROM INTRUSIONS BY PERFORMING STATISTICAL ANALYSIS | 2/3/2022 | United States |
| US-20220021675-A1 | METHOD OF USING DHCP HOST NAME TO IDENTIFY A UNIQUE DEVICE IN ABSENSE OF UNIQUE MAC ADDRESS IN ORDER TO APPLY NETWORK FIREWALL OR ACCESS CONTROL RULES | 1/20/2022 | United States |
| US-20210099452-A9 | METHOD OF PROTECTING MOBILE DEVICES FROM VULNERABILITIES LIKE MALWARE, ENABLING CONTENT FILTERING, SCREEN TIME RESTRICTIONS AND OTHER PARENTAL CONTROL RULES WHILE ON PUBLIC NETWORK BY FORWARDING THE INTERNET TRAFFIC TO A SMART, SECURED HOME ROUTER | 4/1/2021 | United States |
| US-20200372161-A1 | Remotely Controlling Access to Online Content | 11/26/2020 | United States |
| US-20200329065-A1 | METHOD FOR PROTECTING IOT DEVICES FROM INTRUSIONS BY PERFORMING STATISTICAL ANALYSIS | 10/15/2020 | United States |
| US-20200329048-A1 | METHOD OF PROTECTING MOBILE DEVICES FROM VULNERABILITIES LIKE MALWARE, ENABLING CONTENT FILTERING, SCREEN TIME RESTRICTIONS AND OTHER PARENTAL CONTROL RULES WHILE ON PUBLIC NETWORK BY FORWARDING THE INTERNET TRAFFIC TO A SMART, SECURED HOME ROUTER | 10/15/2020 | United States |
| US-20200322340-A1 | Method and System to Enable Controlled Safe Internet Browsing | 10/8/2020 | United States |
| US-20190394202-A1 | Remotely Controlling Access to Online Content | 12/26/2019 | United States |
| US-20190182278-A1 | METHOD FOR PROTECTING IOT DEVICES FROM INTRUSIONS BY PERFORMING STATISTICAL ANALYSIS | 6/13/2019 | United States |
| US-20190141044-A1 | Method and System to Enable Controlled Safe Internet Browsing | 5/9/2019 | United States |
| US-20170353463-A1 | Remotely Controlling Access to Online Content | 12/7/2017 | United States |
| US-20170250989-A1 | Method and System to Enable Controlled Safe Internet Browsing | 8/31/2017 | United States |
| US-20150365379-A1 | SYSTEM AND METHOD FOR MANAGING, CONTROLLING AND CONFIGURING AN INTELLIGENT PARENTAL CONTROL FILTER | 12/17/2015 | United States |
* Filing a provisional or non-provisional patent application only indicates that we are pursuing protection, but the scope of protection, or whether a patent will be granted, is still undetermined.
Legal Proceedings
On December 30, 2019, a complaint was filed by Kajeet, Inc., a Delaware corporation (“Kajeet”), in the United States District Court for the District of Delaware. Kajeet alleges in its complaint that our products infringe on two patents held by Kajeet. We filed a motion to dismiss based on our belief that the claim is baseless. One of the asserted patents was the subject of inter partes review at the Patent Trial and Appeal Board (PTAB) and as of December 2022, the PTAB had determined all but one of the claims to be invalid. As of February 2024, the case of Kajeet Inc. vs Gryphon Online Safety, Inc. was closed without prejudice.
Other than the pending litigation described above, we know of no existing or pending legal proceedings against us, nor are we involved as a plaintiff in any proceeding or pending litigation. There are no proceedings in which any of our directors, officers or any of their respective affiliates, or any beneficial stockholder, is an adverse party or has a material interest adverse to our interest. We are not involved as a plaintiff in any proceeding or pending litigation or otherwise subject to any bankruptcy, receivership or similar proceeding.
THE COMPANY’S Property
Our principal offices are located at 10265 Prairie Springs Road, San Diego, CA 92127. The Company also maintains a mailing address at 10531 4S Commons Dr. #635, San Diego, CA 92127.
We do not currently lease or own any real property. We believe that all our properties have been adequately maintained, are generally in good condition, and are suitable and adequate for our business.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes included in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.
General
Gryphon Online Security, Inc. was formed in January 2014 and is a Delaware corporation headquartered in San Diego, California. The Company primarily derives revenue from the sale of its WiFi routers and licenses to use its security software. The Company enters into contracts with customers that include promises to transfer products and services, which are generally distinct and can be accounted for as separate performance obligations. Revenue is recognized when the promised goods or services are transferred to the customer, in amounts that reflect the consideration allocated to the various performance obligations. Certain products, such as routers, may be sold with a software license included. The revenue component related to hardware is recognized when the product, such as a router, is shipped to the customer. Revenue attributable to the use of the security software is deferred and recognized on a monthly basis as the performance obligation is satisfied. Amounts received for prepayments of additional terms of use of the security software and for extended warranty services are recorded as deferred revenue and recognized as revenue on a monthly basis over the term of the contract.
Results of Operations
The following summarizes the results of our operations in 2023 as compared to 2022:
| Year ended December 31, | ||||||||||||
| 2023 | 2022 | $ change | ||||||||||
| Revenue | $ | 1,932,463 | $ | 2,146,155 | $ | 213,692 | ||||||
| Cost of Revenue | (1,135,887 | ) | (1,370,464 | ) | (234,577 | ) | ||||||
| Gross Profit | 796,576 | 775,691 | (20,885 | ) | ||||||||
| Operating Expenses | 2,210,520 | 3,380,935 | 1,170,415 | |||||||||
| Loss from Ops | (1,413,944 | ) | (2,605,244 | ) | (1,191,300 | ) | ||||||
| Other | (668,877 | ) | (569,074 | ) | 99,803 | |||||||
| Net Loss | (2,082,821 | ) | (3,174,318 | ) | (1,091,497 | ) | ||||||
| Tax | - | - | - | |||||||||
| Net Loss | $ | (2,082,821 | ) | $ | (3,174,318 | ) | $ | (1,091,497 | ) | |||
Revenues
Our revenues in 2023 were $1,932,463, which represented a decrease of $213,692, or 10%, from the revenues in 2022. The following are the major components of our revenues in 2023 and 2022:
| · | Hardware Sales of the Gryphon mesh router; and |
| · | Software service sales of the network protection service and other software licensing activities. |
The decrease in total revenues in 2023 as compared to 2022 is primarily due to reduced marketing efforts to preserve cash. Market changes, including fewer people working from home, fewer people attending school from home and fewer people shopping online have contributed to a decrease in sales.
Cost of Revenues
Our cost of revenues in 2023 were $1,135,887, which represented a decrease of $234,577, or 17%, from the amounts in 2022. Overall, cost of revenues decreased due to a decrease in sales during 2023. Our gross profit percentage in 2023 amounted to 41.2%, which represents an improvement compared to the gross profit in 2022 of 36.1%. This is a result of an increase in higher margin subscription revenue in 2023 compared to 2022, partially offset by decreases to sale prices for our older generation products.
Cost of revenues consist of material and production costs, freight costs, and software licensing costs. There are no significant effects on cost of revenues due to volume purchases of materials or size of production runs. We expect future profit margins will increase when our software sales make up a greater percentage of total sales. Overall profit margins will fluctuate as our product mix changes with the introduction of new products and older products are offered at promotional prices.
Operating Expenses
Our total operating expenses in 2023 amounted to $2,210,520, which represents a decrease of $1,170,415, or 35%, from the expenses in 2022. The decrease in operating expenses is primarily due to a decrease of $675,859 in sales and marketing expenses and $253,807 in research and development expenses.
Other Income (expense)
Total other income (expense) in 2023 amounted to a loss of $668,877, which represented an increase of $99,803 from the loss in 2022. The increase in loss from other income is due primarily to an increase of $89,236 in the amortization expenses incurred during 2023.
Liquidity and Capital Resources
As of December 31, 2023, we had cash of $82,149. To date, our activities have been funded from the sale of preferred stock, short-term loans, and revenues generated from our operations. During the year ended December 31, 2023, the company received proceeds of $644,830 from convertible equity instruments. During the year ended December 31, 2022, the company received proceeds of $517,289 from convertible equity instruments and $350,000 from additional borrowings from the SBA. We are currently running another capital raise campaign through a Reg CF offering which has raised over $130,000 to date. As of December 31, 2023, we have $41,472 of short-term loans outstanding.
We currently have no material commitments for capital expenditures.
Networking Capital
We have significantly limited financial resources and our plan to expand our business cannot be funded with our existing resources. We believe these cumulative factors raise doubt about our ability to continue as a going concern. We expect to incur significantly higher costs and our resources are insufficient to cover those expected costs without raising capital. We do not consider our available cash and current assets to be sufficient to meet our future business plans without addition sources of liquidity. Without additional revenues, working capital loans, or equity investment, there is substantial doubt as to our ability to continue operations.
We believe that our capital resources are insufficient for ongoing operations, with minimal current cash reserves, particularly given the resources necessary to expand our business. We will likely require considerable amounts of financing to make any significant advancement in our business strategy. There is presently no agreement in place that will guarantee financing for us, and we cannot assure you that we will be able to raise any additional funds, or that such funds will be available on acceptable terms. Funds raised through future equity financing will likely be substantially dilutive to current shareholders. Lack of additional funds will materially affect our business and may cause us to substantially curtail or even cease operations. Consequently, you could incur a loss of your entire investment in our business.
Going Concern
Our continuation as a going concern is dependent on our ability to generate sufficient cash flows from operations to meet our obligations, and/or obtaining additional financing from our shareholders or other sources, as may be required.
The Company has incurred losses from inception of $12,042,100 which raises substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon management's ability to raise additional capital from the issuance of debt or the sale of stock, its ability to commence profitable sales of its flagship product, and its ability to generate positive operational cash flow. We believe we will be able to continue sustaining the company as a going concern through the cash flow resulting from sales of our products, as well as seeking funds from private investors, as we have done in the past, as well as from the proceeds of offerings under Regulation A.
Cash Flows
As of December 31, 2023, we had cash of $82,149, as compared to $299,314 as of December 31, 2022. The following summarizes our cash flow activities for 2023 and 2022:
| SCF | 2023 | 2022 | $ change | ||||||||||
| Operations | (322,515 | ) | (1,145,795 | ) | (823,280 | ) | |||||||
| Investing | (380,277 | ) | (858,500 | ) | (478,223 | ) | |||||||
| Financing | 485,627 | 926,944 | (441,317 | ) | |||||||||
Cash used in operating activities was $322,515 in 2023, as compared to $1,145,795 in 2022. The lower cash used in operations was primarily due to the Company’s build-up of inventory in prior years in anticipation of supply chain challenges and an increase in accounts payable.
Cash used by investing activities was $380,277 in 2023, as compared to $858,500 in 2022. The decrease in 2023 is due to a decrease in payments for the purchase of intangible assets.
Cash provided by financing activities was $485,627 in 2023, as compared to $926,944 in 2022. In 2023 we had proceeds from the issuance of convertible notes of $644,830 and repaid $203,415 of short-term notes payable. In 2022, we had proceeds of $517,289 from the sale of convertible notes and $350,000 from additional borrowings from the SBA.
12-Month Plan of Operation
Our key planned activities and milestones to achieve our 12-month plan of operation includes the following:
| · | Launch new Gryphon that supports the latest mesh WiFi technology | |
| · | Continue to drive higher subscriptions | |
| · | Commercially launch Gryphon protection software on 3rd party hardware to generate software licensing revenue | |
| · | Continue to innovate edge network protection with new IP, with a focus on using AI technology to make protection of the home or small business network simple |
Item 3. DIRECTORS, EXECUTIVE OFFICERS, AND SIGNIFICANT EMPLOYEES
| Name | Position | Age | Term of Office | Approximate hours per week for part-time employees | ||||||||||
| Executive Officers: | ||||||||||||||
| John Wu | Chief Executive Officer | 52 | From June 19, 2014 | FT | ||||||||||
| Arup Bhattacharya | Chief Technology Officer | 63 | From April 1, 2015 | FT | ||||||||||
| Directors: | ||||||||||||||
| John Wu | Director | 52 | From June 19, 2014 | |||||||||||
| Arup Bhattacharya | Director | 63 | From April 1, 2015 | |||||||||||
| Sanjeev Kumar | Director | 58 | From October 28, 2019 | 1 | ||||||||||
| Fleming Shi | Director | 50 | From September 1, 2023 | 1 | ||||||||||
Executive Officers and Directors
John Wu, Chief Executive Officer (CEO)
John is the Chief Executive Officer and Co-Founder of Gryphon Online Safety. With over 20 years of experience in the Wireless and IoT industry, John launched his career in mobile communications at Motorola. There, he headed a multinational team of digital signal processing developers in the development of the CDMA chipset. Prior to Gryphon, John led MiFi Labs as VP of Advanced Engineering in the creation of mobile hotspot technology. Products his team developed shipped over four million units annually and generated over $400 million in revenue. John has a B.S in electrical engineering and a M.S in DSP and Image Processing from the University of Illinois at Urbana-Champaign. Successes include the CES Award for Connected Devices, PC Magazine Editors’ Choice Award, and 25 patents.
Arup Bhattacharya, Chief Technology Officer (CTO)
Arup is the Co-Founder and CTO of Gryphon Online Safety, and was integral in designing the mesh WiFi security router and the parental control system. For over 30 years, Arup held executive positions in multiple companies to lead the creation of advanced technologies and products. He led the MiFi software team to develop multiple generations of 2G/3G/LTE data products for leading operators and led the engineering team at PortalPlayer to design the media chips for the first six generations of Apple’s iconic iPods. Arup holds a B.E in Electronics and Communications Engineering from IIEST, Shibpur and a M.Tech in Control and Automation from Indian Institute of Technology, Kharagpur.
Sanjeev Kumar, Director
Sanjeev sits on Gryphon Online Safety’s board of directors, bringing decades of expertise in software engineering and management, along with experience in corporate and intellectual property law. Prior to sitting on Gryphon’s board of directors and practicing law, Sanjeev spent years at several large enterprises. Some accomplishments include leading the software division for the Personal Computer Business Unit, which introduced the first one-inch thin personal computer to the market. He also served as COO of PortalPlayer before Nvidia acquired the company. Received a B. Tech in Electrical Engineering from the Indian Institute of Technology, Kanpur, a M.S in Electrical Engineering from Tulane University, and a JD from St. Mary’s University School of Law.
Fleming Shi, Director
Fleming sits on Gryphon’s board of directors. He is currently CTO of Nitel. Fleming was formerly the CTO of Barracuda Networks, a global cybersecurity company. He brings years of expertise from the cybersecurity business and his technical acumen in product development and innovation. Fleming has a Computer Science degree from UCSD.
Compensation Of Directors and Executive Officers
For the fiscal year ended December 31, 2023 we compensated our two officers and our directors as follows:
| Name | Capacities in which compensation was received | Cash compensation | Other compensation | Total compensation | |||||||||||||
| John Wu | CEO | $ | 72,000 | 95,000 | options | $ | 72,000 | ||||||||||
| Arup Bhattacharya | CTO | $ | 120,000 | 75,000 | options | $ | 120,000 | ||||||||||
| Sanjeev Kumar | Director | $ | - | 15,000 | options | $ | - | ||||||||||
| Fleming Shi | Director | $ | - | - | - | $ | - | ||||||||||
For the fiscal year ended December 31, 2023, we did not pay our directors in their capacity as directors. There are four directors in this group.
Item 4. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS
The tables below show, as of December 31, 2023, the security ownership of the company’s directors, executive officers owning 10% or more of the company’s voting securities and other investors who own 10% or more of the company’s voting securities.
| Name and address of beneficial owner (1) | Title of class | Amount and nature of beneficial ownership | Amount and nature of beneficial ownership acquirable | Percent of class; Percent of total stock |
| John Wu | Common Stock; Series Seed Preferred Stock; Options | 4,700,000 shares of Common Stock, 197,423 shares of Series Seed Preferred Stock | 325,000 options to purchase shares of Common Stock | 43.69% of Common Stock, 2.16% of Series Seed Preferred Stock |
| Arup Bhattacharya | Common Stock; Series Seed Preferred Stock; Options | 4,400,000 shares of Common Stock, 98,312 shares of Series Seed Preferred Stock | 305,000 options to purchase shares of Common Stock | 40.91% of Common Stock, 1.08% of Series Seed Preferred Stock |
| (1) | The address for all the executive officers and directors is c/o 10265 Prairie Springs Road, San Diego, CA 92127. |
Item 5. INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
During the years ended December 31, 2023 and 2022, the Company issued options for the purchase of common stock of 185,000 and 60,000, respectively to members of the Company’s Board of Directors. In addition, for the years ended December 31, 2023 and 2022, the Company paid $12,104 and $79,480, respectively for legal counsel to a firm in which one of the directors is a partner. From time to time in the future the Company may engage in transactions with related persons. Related persons are defined as any manager, director, or officer of the Company; any person who is the beneficial owner of 10 percent or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power; any promoter of the Company; any immediate family member of any of the foregoing persons or an entity controlled by any such person or persons.
Item 6. OTHER INFORMATION
We have no information to disclose that was required to be in a report on Form 1-U.
Item 7. FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED DECEMBER 31, 2023 AND DECEMBER 31, 2022
 | |
INDEPENDENT AUDITORS’ REPORT
| |
 | To the Board of Directors and Management of San Diego, California |
 | Opinion
We have audited the financial statements of Gryphon Online Safety, Inc. (“the Company”) (a Delaware corporation), which comprise the balance sheets as of December 31, 2023 and 2022 and the related statements of operations, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes to the financial statements.
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of Gryphon Online Safety, Inc. as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of Gryphon Online Safety, Inc. and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Substantial Doubt About the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 13 to the financial statements, the Company has yet to achieve positive cash flows from operations and has incurred losses from inception and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 13. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about Gryphon Online Safety, Inc.’s ability to continue as a going concern within one year after the date that the financial statements are available to be issued. |
| F-1 |
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements, including omissions, are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with generally accepted auditing standards, we:
| · | Exercise professional judgment and maintain professional skepticism throughout the audit. |
| · | Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. |
| · | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Gryphon Online Safety, Inc.’s internal control. Accordingly, no such opinion is expressed. |
| · | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. |
| · | Conclude, whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Gryphon Online Safety, Inc.’s ability to continue as a going concern for a reasonable period of time. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.
Spokane, Washington
April 29, 2024
AICPA 2024
| F-2 |
Gryphon Online Safety, Inc.
Balance Sheets
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 82,149 | $ | 299,314 | ||||
| Inventory, net | 285,130 | 857,085 | ||||||
| Prepaid expenses | 2,193 | 55,371 | ||||||
| Deposits | 94,665 | 142,912 | ||||||
| Other receivables | 147,082 | 148,313 | ||||||
| Total current assets | 611,219 | 1,502,995 | ||||||
| Intangible assets, net | 1,797,159 | 1,978,022 | ||||||
| Total assets | $ | 2,408,378 | $ | 3,481,017 | ||||
| Liabilities and Stockholders' Equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 1,293,548 | $ | 1,058,301 | ||||
| Deferred revenue and customer deposits | 541,080 | 519,561 | ||||||
| Short term notes payable | 41,472 | 140,887 | ||||||
| Accrued Interest - long term notes | 11,977 | 25,428 | ||||||
| Convertible equity instruments, net of discount | 517,289 | 449,595 | ||||||
| Total current liabilities | 2,405,366 | 2,193,772 | ||||||
| Long Term notes payable | 500,000 | 500,000 | ||||||
| SAFE Notes, net of discount | 585,042 | - | ||||||
| Total liabilities | 3,490,408 | 2,693,772 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders' equity | ||||||||
| Series Seed Preferred stock, 9,136,468 shares issued and outstanding at December 31, 2023 and 2022 | 914 | 914 | ||||||
| Series A-1 Preferred stock, 5,616,525 shares issued and outstanding at December 31, 2023 and 2022 | 562 | 562 | ||||||
| Series A-2 Preferred stock, 454,544 shares issued and outstanding at December 31, 2023 and 2022 | 45 | 45 | ||||||
| Common stock, 10,756,391 shares issued and outstanding at December 31, 2023 and 2022 | 1,076 | 1,076 | ||||||
| Additional paid-in capital | 10,957,473 | 10,743,927 | ||||||
| Accumulated deficit | (12,042,100 | ) | (9,959,279 | ) | ||||
| Total stockholders' equity | (1,082,030 | ) | 787,245 | |||||
| Total liabilities and stockholders' equity | $ | 2,408,378 | $ | 3,481,017 | ||||
See accompanying notes
| F-3 |
Gryphon Online Safety, Inc.
Statements of Operations
| For the years ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Net revenue | ||||||||
| Product | $ | 1,061,216 | $ | 1,460,657 | ||||
| Service and other | 871,247 | 685,498 | ||||||
| Total net revenue | 1,932,463 | 2,146,155 | ||||||
| Cost of goods sold | (1,135,887 | ) | (1,370,464 | ) | ||||
| Gross profit | 796,576 | 775,691 | ||||||
| Operating expenses | ||||||||
| Operations | 428,796 | 536,820 | ||||||
| Sales and marketing | 916,773 | 1,592,632 | ||||||
| General and administrative | 320,429 | 453,154 | ||||||
| Research and development | 544,522 | 798,329 | ||||||
| Total operating expenses | 2,210,520 | 3,380,935 | ||||||
| Loss from operations | (1,413,944 | ) | (2,605,244 | ) | ||||
| Other income (expense) | ||||||||
| Interest expense | (40,045 | ) | (29,581 | ) | ||||
| Interest income | 1 | 104 | ||||||
| Amortization | (628,833 | ) | (539,597 | ) | ||||
| Total other income (expense) | (668,877 | ) | (569,074 | ) | ||||
| Net loss before income tax | (2,082,821 | ) | (3,174,318 | ) | ||||
| Provision for income tax | - | - | ||||||
| Net loss | $ | (2,082,821 | ) | $ | (3,174,318 | ) | ||
See accompanying notes
| F-4 |
Gryphon Online Safety, Inc.
Statements of Changes in Stockholders' Equity
| Series Seed Preferred Stock | Series A-1 Preferred Stock | Series A-2 Preferred Stock | Common Stock | Additional | Accumulated | Total Stockholders' | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Paid-In Capital | Deficit | Equity | ||||||||||||||||||||||||||||||||||
| Balance on December 31, 2021 | 9,136,468 | $ | 914 | 5,616,525 | $ | 562 | 454,544 | $ | 45 | 10,746,391 | $ | 1,075 | $ | 10,634,186 | $ | (6,784,961 | ) | $ | 3,851,821 | |||||||||||||||||||||||||
| Issuance of stock under employee stock plans | 10,000 | 1 | - | 1 | ||||||||||||||||||||||||||||||||||||||||
| Stock based compensation | - | - | - | - | - | - | - | - | 109,741 | - | 109,741 | |||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | - | - | - | - | - | - | (3,174,318 | ) | (3,174,318 | ) | |||||||||||||||||||||||||||||||
| Balance on December 31, 2022 | 9,136,468 | 914 | 5,616,525 | 562 | 454,544 | 45 | 10,756,391 | 1,076 | 10,743,927 | (9,959,279 | ) | 787,245 | ||||||||||||||||||||||||||||||||
| Stock based compensation | - | - | - | - | - | - | - | - | 213,546 | - | 213,546 | |||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | - | - | - | - | - | - | (2,082,821 | ) | (2,082,821 | ) | |||||||||||||||||||||||||||||||
| Balance on December 31, 2023 | 9,136,468 | $ | 914 | 5,616,525 | $ | 562 | 454,544 | $ | 45 | 10,756,391 | $ | 1,076 | $ | 10,957,473 | $ | (12,042,100 | ) | $ | (1,082,030 | ) | ||||||||||||||||||||||||
See accompanying notes
| F-5 |
Gryphon Online Safety, Inc.
Statements of Cash Flows
| Year ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (2,082,821 | ) | $ | (3,174,318 | ) | ||
| Adjustments to reconcile net loss to net cash used by operating activities: | ||||||||
| Amortization | 561,140 | 526,058 | ||||||
| Amortization of debt discount | 67,694 | 13,539 | ||||||
| Stock based compensation | 213,546 | 109,741 | ||||||
| Allowance for inventory loss | (17,656 | ) | 155,000 | |||||
| Changes in operating assets and liabilities: | ||||||||
| Inventory | 589,611 | 668,152 | ||||||
| Prepaid expenses | 53,178 | 20,373 | ||||||
| Deposits | 48,247 | 34,403 | ||||||
| Other receivables | 1,231 | (42,370 | ) | |||||
| Accounts payable and accrued expenses | 235,247 | 429,527 | ||||||
| Accrued interest | (13,451 | ) | 17,276 | |||||
| Deferred revenue and customer deposits | 21,519 | 96,824 | ||||||
| Net cash used by operating activities | (322,515 | ) | (1,145,795 | ) | ||||
| Cash flows from investing activities | ||||||||
| Payments for the purchase of intangible assets | (380,277 | ) | (858,500 | ) | ||||
| Net cash used by investing activities | (380,277 | ) | (858,500 | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuance of short term notes payable | 104,000 | 260,887 | ||||||
| Repayment of short term notes payable | (203,415 | ) | (120,000 | ) | ||||
| Proceeds from issuance of long term notes payable | - | 350,000 | ||||||
| Proceeds from exercise of stock options | - | 1 | ||||||
| Proceeds from issuance of convertible equity instruments | 644,830 | 517,289 | ||||||
| Payment of issuance costs for convertible equity instruments | (59,788 | ) | (81,233 | ) | ||||
| Net cash provided by financing activities | 485,627 | 926,944 | ||||||
| Net increase (decrease) in cash and cash equivalents | (217,165 | ) | (1,077,351 | ) | ||||
| Cash and cash equivalents, beginning of year | 299,314 | 1,376,665 | ||||||
| Cash and cash equivalents, end of year | $ | 82,149 | $ | 299,314 | ||||
| Supplemental Cash Flow Information: | ||||||||
| Cash paid for interest | $ | 53,496 | $ | 10,805 | ||||
| Cash paid for taxes | $ | - | $ | - | ||||
See accompanying notes
| F-6 |
Gryphon Online Safety, Inc.
NOTES TO THE FINANCIAL STATEMENTS
For the years ended December 31, 2023 and 2022
NOTE 1 – DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Gryphon Online Safety, Inc. (“the Company”) is a Delaware corporation headquartered in San Diego, California, that provides WiFi routers and software which utilize artificial intelligence-based learning to make the internet a safer place for children, and all connected devices. The router comes with a mobile application for real time management of all connected devices and allows collaboration with others.
Basis of Presentation
The accompanying financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are normal and recurring in nature. The Company’s fiscal year-end is December 31.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make certain judgments, estimates and assumptions that affect the amounts reported in the financial statements and the disclosures made in the accompanying notes. Despite the Company’s intention to establish accurate estimates and use reasonable assumptions, actual results may differ from the estimates.
Revenue Recognition and Deferred Revenue
The Company accounts for revenue arising from contracts with customers pursuant to ASC Topic 606, which outlines the following five-step process for revenue recognition:
| · | Identification of the contract with a customer; | |
| · | Identification of the performance obligations in the contract; | |
| · | Determination of the transaction price; | |
| · | Allocation of the transaction price to the performance obligations in the contract; and | |
| · | Recognition of revenue when, or as, the Company satisfies the performance obligations. |
The Company primarily derives revenue from the sale of its WiFi routers and licenses to use its security software. The Company enters into contracts with customers that include promises to transfer products and services, which are generally distinct and can be accounted for as separate performance obligations. Revenue is recognized when the promised goods or services are transferred to the customer, in amounts that reflect the consideration allocated to the various performance obligations. Certain products are sold with a software license included. The revenue component related to hardware is recognized when the product is shipped to the customer. Revenue attributable to the use of the security software is deferred and recognized on a monthly basis as the performance obligation is satisfied. Amounts received for prepayments of additional terms of use of the security software and for extended warranty services are recorded as deferred revenue and recognized as revenue on a monthly basis over the term of the contract.
| F-7 |
Gryphon Online Safety, Inc.
NOTES TO THE FINANCIAL STATEMENTS
For the years ended December 31, 2023 and 2022
Freight and Shipping Costs
Freight and shipping costs are expensed as incurred.
Inventory
Inventory is stated at the lower of cost or net realizable value and is accounted for using the first-in-first-out method (“FIFO”). The Company analyzes inventory for any potential obsolescence or shrinkage, and records impairment and obsolescence reserve against inventory as deemed necessary. At December 31, 2023 and 2022, the Company determined that allowances of $197,344 and $215,000, respectively were necessary. The reserve at December 31, 2023 includes $150,000 for parts that one of the Company’s suppliers expects to scrap as a result of previous years’ supply chain issues. Certain ordered inventory units will not be built as the Company has begun selling newer products.
Returns are recognized on the date the returned inventory is received by the Company or its sales channel partners.
At December 31, 2023 and 2022, inventory consisted of completed hardware units.
Intangibles
Intangible assets purchased or developed by the Company are recorded at cost. Amortization is recognized over the estimated useful life of the asset using the straight-line method for financial statement purposes. The Company reviews the recoverability of intangible assets, including the related useful lives, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. No impairment was considered necessary at December 31, 2023 or 2022.
Costs for internally developed software to be marketed to outside users are recorded pursuant to ASC Section 985 Software. Research and development costs prior to attaining ‘technological feasibility’ are expensed as incurred. Costs incurred thereafter to develop final products are capitalized and amortized over an estimated useful life of the asset using the straight-line method for financial statement purposes. The Company reviews the recoverability of internally-developed software assets, including the useful lives, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. No impairment was considered necessary at December 31, 2023 or 2022.
| F-8 |
Gryphon Online Safety, Inc.
NOTES TO THE FINANCIAL STATEMENTS
For the years ended December 31, 2023 and 2022
Research and Development Costs
Research and development costs, including salaries, research material, and administrative costs are expensed as incurred. During the years ended December 31, 2023 and 2022, the Company recognized $544,522 and $798,329 in research and development costs, respectively.
Advertising costs
The Company’s advertising costs are expensed as incurred. During the years ended December 31, 2023 and 2022, the Company recognized $916,773 and $1,592,632 in advertising costs, respectively.
Income Taxes
Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax basis of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled as prescribed in Financial Accounting Standards Board (FASB) ASC 740. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
Current year taxable income (loss) varies from income (loss) before current year tax expense primarily due to the method of revenue recognition and the use of accelerated amortization for tax reporting purposes.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents. At December 31, 2023 and 2022, the Company had no items, other than bank deposits, that would be considered cash equivalents. The Company maintains its cash in bank deposit accounts, that may at times, exceed federal insured limits.
Accounts Receivable and Allowance for Uncollectible Accounts
Accounts receivable are recorded at the amount the Company expects to collect. The Company recognizes an allowance for losses on accounts receivable deemed to be uncollectible, in accordance with ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The allowance is based on an analysis of historical bad debt experience as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. The Company also considers any changes to the financial condition of its customers and any other external market factors that could impact the collectability of the receivables in the determination of the allowance for uncollectible accounts. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and credit to the allowance. At December 31, 2023 and 2022, the Company had no accounts receivable.
| F-9 |
Gryphon Online Safety, Inc.
NOTES TO THE FINANCIAL STATEMENTS
For the years ended December 31, 2023 and 2022
Stock-Based Compensation
The Company accounts for stock-based compensation issued to employees in accordance with FASB ASC Topic 718 Compensation – Stock Compensation. Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period, which is generally the option vesting period.
Concentrations
Approximately 80% and 82% of revenue for 2023 and 2022 respectively is generated through one online seller. In addition, approximately 82% and 58% of inventory at the year ended December 31, 2023 and 2022 respectively is held by this online seller. The loss of the ability to sell the Company’s products via this online seller would cause significant negative impact on the Company’s operations.
SAFE Notes
The Company began issuing Simple Agreement for Future Equity (“SAFE”) notes to investors during the year ended December 31, 2023. The SAFE notes provide the investors the right to certain shares of the Company’s capital stock upon a future equity financing. The SAFE notes include a provision allowing for the investors to receive a portion of the proceeds upon a change of control equal to the greater of their investment amount or the amount payable based upon a number of shares of common stock equal to the investment amount divided by the liquidity price. The SAFE notes are recorded as a long-term liability at their estimated fair value.
Recent Accounting Pronouncements
No recently issued accounting pronouncements are expected to have a significant impact on the Company’s financial statements.
Subsequent Events
The Company has evaluated subsequent events through April 29, 2024, the date these financial statements were available to be issued. Subsequent to December 31, 2023:
In February 2024, the Company entered into a Software License Agreement with a major telecommunications equipment provider to allow the use of the Company’s software on their hardware devices. Licensing fees will be paid quarterly based on the number of units subscribed to use the software.
The Company issued 152,500 stock options which vest over a four-year period, beginning in January 2023.
| F-10 |
Gryphon Online Safety, Inc.
NOTES TO THE FINANCIAL STATEMENTS
For the years ended December 31, 2023 and 2022
In March 2024, the Company received $60,000 of proceeds from a loan from a member of the company’s Board of Directors. The loan accrues interest at a rate of 15% per annum and matures in December 2024.
The Company continues to sell the remaining approved Series A-1 Preferred Stock under a Reg CF offering or to accredited investors or institutions. An additional 114,378 shares have been sold, generating $130,462 in net proceeds.
| F-11 |
Gryphon Online Safety, Inc.
NOTES TO THE FINANCIAL STATEMENTS
For the years ended December 31, 2023 and 2022
NOTE 2 – FAIR VALUE MEASUREMENTS
Financial Accounting Standards Board (“FASB”) guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active).
Level 3 - Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable.
The carrying amounts reported in the balance sheets approximate their fair value. Fair value of stock options issued during the years ended December 31, 2023 and 2022 were determined using level 3 inputs.
NOTE 3 – INTANGIBLE ASSETS (NET)
Intangible assets consist of the following at December 31:
| December 31, 2023 | December 31, 2022 | |||||||
| Software | $ | 4,035,347 | $ | 3,655,070 | ||||
| Other Intangible Assets | 447 | 447 | ||||||
| 4,035,794 | 3,655,517 | |||||||
| Accumulated Amortization | (2,238,635 | ) | (1,677,495 | ) | ||||
| $ | 1,797,159 | $ | 1,978,022 | |||||
Amortization expense for the years ended December 31, 2023 and 2022, was $561,140 and $526,058, respectively.
| F-12 |
Gryphon Online Safety, Inc.
NOTES TO THE FINANCIAL STATEMENTS
For the years ended December 31, 2023 and 2022
NOTE 4 – OTHER RECEIVABLES
Other Receivables consist of the following at December 31:
| December 31, 2023 | December 31, 2022 | |||||||
| Sales channel partner holdbacks | $ | 135,160 | $ | 95,725 | ||||
| Other | 11,922 | 52,588 | ||||||
| $ | 147,082 | $ | 148,313 | |||||
Sales channel partner holdbacks are an accumulation of payments from customers that have not yet transferred to the Company’s bank account.
NOTE 5 – SHORT TERM AND LONG TERM DEBT
SHORT TERM DEBT
In August 2022, the Company received $150,000 of proceeds from a commercial loan. The loan accrues interest at a rate of 15.77% per annum and matures in January 2024. During the During the year ended December 31, 2023, the Company incurred $13,274 of interest expense on this short-term loan.
In May 2023, the Company received $55,000 of proceeds from an advance against future receivables from a sales channel partner to provide working capital. The fixed fee for the advance was $6,325. Payments approximating 15% of sales through this channel are due periodically until the advance is repaid. At December 31, 2023, $2,239 remained outstanding on this advance. It was paid in full in January 2024.
In August 2023, the Company received $49,000 of proceeds from a commercial loan. The loan accrues interest at a rate of 9.49% per annum and matures in May 2024. During the year ended December 31, 2023, the Company incurred $1,298 of interest expense on this short-term loan.
LONG TERM DEBT
In 2021 and 2022, the Company received proceeds from an SBA loan totaling $500,000. The SBA loan is secured by substantially all of the Company’s assets and accrues interest at 3.75% per annum. The loan matures in June 2050. During the year ended December 31, 2023, the Company incurred $18,750 of interest expense on this long-term loan.
| F-13 |
Gryphon Online Safety, Inc.
NOTES TO THE FINANCIAL STATEMENTS
For the years ended December 31, 2023 and 2022
Following is a summary of long-term minimum debt payments required over the next 5 years:
| 2024 | $ | 41,472 | ||
| 2025 | 7,896 | |||
| 2026 | 11,466 | |||
| 2027 | 11,904 | |||
| 2028 | 12,309 | |||
| Thereafter | 456,425 | |||
| $ | 541,472 |
NOTE 6 – CONVERTIBLE EQUITY INSTRUMENTS
During the year ended December 31, 2022, the Company received $517,289 of proceeds from the issuance of convertible equity instruments that mature in December 2023. These instruments do not bear interest and may convert to 419,502 shares of preferred stock upon the following:
| 1. | Upon the Company receiving cash of a specified amount ($2,000,000 – $5,000,000) for the sale of the Company’s shares (“Qualified Financing”), the purchase amount will be automatically converted into shares of Company preferred stock at a price of the lower of 80% of the price paid for the shares as part of the Qualified Financing, or the quotient of the valuation cap and the fully diluted capitalization of the Company, as defined in the agreement. |
| 2. | Holders may elect to convert outstanding principal into a number of common shares of the Company at a price equal to the quotient of the valuation cap and the fully diluted capitalization of the Company, as defined in the agreement. |
| 3. | Upon maturity, outstanding principal must be converted into a number of common shares of the Company at a price equal to the quotient of the valuation cap and the fully diluted capitalization of the Company, as defined in the agreement. |
The Company incurred $81,233 of costs associated with the issue of these instruments. Amortization expense for the years ended December 31, 2023 and 2022 included $67,694 and $13,539 respectively of amortization of expense related to the issue of the convertible equity instruments.
NOTE 7 – SAFE NOTES
The Company began issuing Simple Agreement for Future Equity (“SAFE”) notes to investors during the year ended December 31, 2023, receiving $644,830 in proceeds from the sale of these notes. These notes do not bear interest and will convert to shares of Company stock upon the following:
| 1. | Upon the Company completing an Equity Financing, at which time the SAFE will automatically convert into shares of Company preferred stock at a price defined in the agreement. |
| F-14 |
Gryphon Online Safety, Inc.
NOTES TO THE FINANCIAL STATEMENTS
For the years ended December 31, 2023 and 2022
| 2. | Upon a Liquidity Event, SAFE holders will receive the greater of cash equal to the purchase amount or shares of common stock equal to the purchase amount divided by the liquidity price, as defined in the agreement. |
The Company incurred $59,788 of costs associated with the issue of these notes. Amortization of these costs will begin in 2024.
NOTE 8 - PREFERRED STOCK
The Company has 19,137,353 $0.0001 par value shares of Preferred Stock authorized at December 31, 2023 and 2022. At December 31, 2023 and 2022, there were issued and outstanding preferred shares of 15,207,537.
At December 31, 2023 and 2022, the authorized Preferred Stock consists of 9,582,809 shares designated Series Seed, 9,100,000 shares designated Series A-1 and 454,544 shares designated Series A-2.
The holders of all classes of Preferred Stock have the following rights and preferences: The holders of Preferred Stock are entitled to vote, together with the holders of common stock as a single class, on all matters submitted to stockholders for a vote and have the right to vote the number of shares equal to the number of shares of common stock into which each share of Preferred Stock could convert on the record date for determination of stockholders entitled to vote. Holders of Preferred Stock are entitled to dividends before any other Preferred Stock or Common Stock holders. Preferred stock maintains liquidation preferences at the original issue price, plus any declared but unpaid dividends. Preferred stock is convertible at any time into common stock at the conversion price. Preferred Stock holders owning 300,000 or more shares have the right of first refusal to purchase newly issued securities, in amounts sufficient to maintain their current overall ownership percentage.
NOTE 9 – COMMON STOCK
The Company has 40,000,000, $0.0001 par value shares of common stock authorized at December 31, 2023 and 2022.
During the year ended December 31, 2023, the Company issued 380,000 stock options to employees for services. In addition, stock options issued in prior years continued to vest during the current year. The Company recognized $213,546 of stock compensation expense related to stock options during the year ended December 31, 2023. During the year ended December 31, 2022, the Company issued 470,000 stock options for services and recognized $109,741 of stock compensation expense.
During the year ended December 31, 2023, the Company issued no shares of common stock from exercised stock options. During the year ended December 31, 2022, the Company issued 10,000 shares of common stock at an average price of $0.0001 per share, for cash proceeds of $1 from exercised stock options.
| F-15 |
Gryphon Online Safety, Inc.
NOTES TO THE FINANCIAL STATEMENTS
For the years ended December 31, 2023 and 2022
A summary of option activity for the periods is as follows:
| Weighted Average | Weighted Average | |||||||||||
| Share Equivalents | Exercise Price | Remaining Term | ||||||||||
| Outstanding December 31, 2021 | 1,055,500 | $ | 0.22 | 7.7 | ||||||||
| Granted | 470,000 | 0.46 | 10.0 | |||||||||
| Exercised | (10,000 | ) | - | - | ||||||||
| Expired/Forfeited | (123,000 | ) | 0.40 | - | ||||||||
| Outstanding December 31, 2022 | 1,392,500 | 0.29 | 7.5 | |||||||||
| Granted | 380,000 | 0.47 | 10.0 | |||||||||
| Exercised | - | - | - | |||||||||
| Expired/Forfeited | - | - | - | |||||||||
| Outstanding December 31, 2023 | 1,772,500 | 0.33 | 7.0 | |||||||||
Options exercisable at December 31, 2023 and 2022 are 1,179,792 and 838,177, respectively.
The options issued during 2023 and 2022 vest ratably over periods of one to four years. At December 31, 2023, there are 592,708 unvested stock options outstanding and approximately $65,637 of unrecognized stock-based compensation expense.
The Company estimates the fair value of stock options using the Black-Scholes option pricing model. The range of input assumptions used by the Company were as follows:
| December 31, | ||||||||||
| 2023 | 2022 | |||||||||
| Expected life (years) | 1-4 | 1-4 | ||||||||
| Risk-free interest rate | 4.06 | % | 2.64 - 3.46% | |||||||
| Expected volatility | 50 | % | 50 | % | ||||||
| Annual dividend yield | 0 | % | 0 | % | ||||||
| F-16 |
Gryphon Online Safety, Inc.
NOTES TO THE FINANCIAL STATEMENTS
For the years ended December 31, 2023 and 2022
NOTE 10 - WARRANTS
A summary of warrant activity for the years ended December 31, 2023 and 2022 is as follows:
| Warrants - Common | Weighted Average | Weighted Average | ||||||||||
| Share Equivalents | Exercise Price | Remaining Life | ||||||||||
| Outstanding December 31, 2021 | 446,341 | $ | 0.71 | 5.6 | ||||||||
| Granted | - | - | - | |||||||||
| Exercised | - | - | - | |||||||||
| Expired/Forfeited | - | - | - | |||||||||
| Outstanding December 31, 2022 | 446,341 | 0.71 | 4.6 | |||||||||
| Granted | - | - | - | |||||||||
| Exercised | - | - | - | |||||||||
| Expired/Forfeited | - | - | - | |||||||||
| Outstanding December 31, 2023 | 446,341 | 0.71 | 3.6 | |||||||||
These warrants were vested in full upon issue, valued using the Black Scholes Merton pricing model and stock compensation expense was recognized in the year of issue.
NOTE 11 – INCOME TAXES
Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. The differences relate primarily to amortizable assets using accelerated amortization methods for income tax purposes, stock-based compensation expense and net operating loss carryforwards. As of December 31, 2023 and 2022, the Company had net deferred tax assets before valuation allowance of $3,565,922 and $2,901,730, respectively. As of December 31, 2023, and 2022, the Company had net deferred tax liabilities before valuation allowance of $0 and $0, respectively. The following table presents the deferred tax assets and liabilities by source:
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carryforwards | $ | 3,492,209 | $ | 2,859,407 | ||||
| Deferred revenue timing difference | 6,241 | 28,079 | ||||||
| Stock-based compensation | 61,928 | 8,700 | ||||||
| Research and development tax credit carryforwards | 5,544 | 5,544 | ||||||
| Total deferred tax assets | 3,565,922 | 2,901,730 | ||||||
| Deferred tax liabilities: | ||||||||
| Total deferred tax liabilities | - | - | ||||||
| Valuation allowance | (3,565,922 | ) | (2,901,730 | ) | ||||
| Net deferred tax assets | $ | - | $ | - | ||||
| F-17 |
Gryphon Online Safety, Inc.
NOTES TO THE FINANCIAL STATEMENTS
For the years ended December 31, 2023 and 2022
The Company assessed the need for a valuation allowance against net deferred tax assets and determined a full valuation allowance is appropriate, due to taxable losses for the years ended December 31, 2023 and 2022 and no history of generating taxable income. Therefore, valuation allowances of $3,565,922 and $2,901,730 were recorded as of December 31, 2023 and 2022, respectively. Deferred tax assets and liabilities were calculated using the Company’s combined effective tax rate, which is estimated to be 29%. The effective rate is reduced to 0% due to the full valuation allowance on the net deferred tax assets.
NOTE 12 – COMMITMENTS AND CONTINGENCIES
The Company may be subject to pending legal proceedings and regulatory actions in the ordinary course of business. In December 2019, the Company was sued for patent infringement. One of the asserted patents was the subject of inter partes review at the Patent Trial and Appeal Board (PTAB) and as of December 2022, the PTAB had determined all but one of the claims to be invalid. As of February 2024, the case was closed without prejudice. The Company anticipates that there will be no financial impact arising out of this matter.
NOTE 13 - GOING CONCERN
The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business.
The Company has yet to achieve positive cash flow from operations and has incurred losses from inception of $12,042,100 which raises substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon management's ability to raise additional capital from the issuance of debt or the sale of stock, its ability to commence profitable sales of its flagship product, and its ability to generate positive operational cash flow. The accompanying financial statements do not include any adjustments that might be required should the Company be unable to continue as a going concern.
NOTE 14 – RELATED PARTIES
During the years ended December 31, 2023 and 2022, the Company paid $12,104 and $79,480 respectively for legal counsel to a firm in which one of the directors is a partner.
| F-18 |
Item 8. EXHIBITS
The documents listed in the Exhibit Index of this report are incorporated by reference or are filed with this report, in each case as indicated below.
SIGNATURES
Pursuant to the requirements of Regulation A, the issuer has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Gryphon Online Safety Inc.
| /s/ John Wu | |
| Chief Executive Officer | |
| Date: April 29, 2024 |
Pursuant to the requirements of Regulation A, this report has been signed below by the following persons on behalf of the issuer and in the capacities and on the dates indicated.
| /s/ John Wu | |
| Chief Executive Officer, Principal Financial Officer, Principal Accounting Officer, and Director | |
| Date: April 29, 2024 |