Akerna (KERN) - 2024 Q2 - Quarterly Report

Mining Performance - For the three months ended June 30, 2024, Gryphon mined approximately 84 bitcoins, a decrease of 55.1% compared to 187 bitcoins mined in the same period of 2023[124] - Gryphon's mining revenues for Q2 2024 were $5,515,000, representing a 10.9$4,963,000 in Q2 2023[126] - Mining revenues increased to $13,005,000 for the six months ended June 30, 2024, up from$9,803,000 in the same period of 2023, representing a growth of $3,202,000 or 32.7$5,515,000 for the three months ended June 30, 2024, up from $4,963,000 for the same period in 2023, representing an increase of$552,000 or 11.1%[156] Cost and Revenue Analysis - The cost to mine one bitcoin increased to $45,452 in Q2 2024, up from$15,096 in Q2 2023, reflecting a significant rise in operational costs[126] - Gryphon's breakeven cost of total BTC equivalent was $45,452 in Q2 2024, compared to$14,115 in Q2 2023, highlighting increased operational challenges[126] - Cost of revenues increased to $8,640,000 for the six months ended June 30, 2024, from$5,560,000 in 2023, marking a rise of $3,080,000 or 55.4$6,289,000 for the six months ended June 30, 2024, compared to $2,446,000 in 2023, an increase of$3,843,000 or 157.1%[140] - General and administrative expenses surged to $3,828,000 for the three months ended June 30, 2024, compared to$1,092,000 in 2023, marking a 250.5% increase[159] Bitcoin Value Trends - The average value of one mined bitcoin in Q2 2024 was $65,655, compared to$26,540 in Q2 2023, indicating a substantial increase in bitcoin prices[126] - The average value of Bitcoin rose to $59,000 for the six months ended June 30, 2024, compared to$26,000 in the prior year, an increase of $34,000 or 131$65,000 for the three months ended June 30, 2024, compared to $28,000 for the same period in 2023, an increase of$38,000 or 134%[156] Financial Position and Cash Flow - Cash and cash equivalents as of June 30, 2024, were $1,219,000, up from$915,000 as of December 31, 2023[171] - The Company had an accumulated deficit of approximately $62,189,000 as of June 30, 2024, compared to$47,175,000 as of December 31, 2023[171] - The Company anticipates that its current cash levels will not be sufficient to meet its operational needs for at least the next 12 months, indicating a need for additional capital[172] - Net cash used in operating activities for the six months ended June 30, 2024, was approximately $(782,000), compared to$2,676,000 in 2023, reflecting a decrease in cash proceeds from digital currency sales[176] - Net cash used in investing activities was approximately $(954,000) for the six months ended June 30, 2024, down from$(1,902,000) in 2023, primarily due to the purchase of mining equipment[177] - Net cash provided by financing activities was approximately $2,040,000 for the six months ended June 30, 2024, compared to$(63,000) in 2023, driven by cash proceeds from the issuance of common stock[177] Loss and Operational Challenges - Loss from operations was $7,426,000 for the six months ended June 30, 2024, compared to a loss of$4,231,000 in the same period of 2023, reflecting an increase in loss of $3,195,000 or 75.5$(15,753,000) for the six months ended June 30, 2024, compared to $(9,533,000) in 2023, indicating a worsening financial performance[195] - Adjusted EBITDA for the six months ended June 30, 2024, was$(1,079,000), a significant decline from $6,601,000 in 2023, highlighting operational challenges[195] Legal and Compliance Issues - The company was involved in litigation with Sphere 3D, alleging breach of contract, with claims seeking damages of$100 million[213] - The company successfully settled the Core Complaint, which had alleged breach of miner hosting agreements, resulting in the dismissal of claims against the company[213] - The company received a PPP Loan of $2.2 million, which was forgiven in full, but the SBA is reviewing this determination for potential reversal[215] - The company is cooperating with a DOJ inquiry regarding the PPP Loan, with no formal demands for repayment made yet[217] - A trial related to the TreCom litigation is set to commence on December 2, 2024, with the company establishing a loss contingency of$0.2 million[220] Internal Controls and Governance - As of June 30, 2024, the company's disclosure controls and procedures were deemed ineffective due to insufficient staffing in the accounting and financial reporting department[200] - The identified material weakness could lead to a reasonable possibility of material misstatements in financial statements not being prevented or detected timely[201] - The company plans to enhance internal resources for technical accounting and financial reporting, potentially hiring a full-time person dedicated to internal controls[201] - The company is utilizing external third-party audit firms to improve controls related to its material weaknesses[202] - The company is actively working to improve its internal control over financial reporting and will report progress to the Audit Committee periodically[203] Strategic Initiatives - Gryphon has deployed approximately 8,800 S19j Pro and S21 Antminers, focusing on creating a net carbon neutral bitcoin mining operation[122] - Gryphon's strategy includes working with power hosting partners committed to providing net carbon neutral energy, utilizing approximately 28 megawatts of space at its primary facility[123] - The Company plans to raise up to $70.0 million through an at-the-market issuance sales agreement to fund general corporate purposes and potential acquisitions[173] Market and Hashrate Trends - The global hashrate of the Bitcoin network increased sequentially by 9.1%, 21.6%, 19.0%, and 6.7% over the last four quarters ending June 30, 2024, impacting mining efficiency[130]