Gryphon Digital Mining(US:GRYP)2023-03-21 00:09Financial Performance - The company reported net losses of $79.1 million and $31.3 million for the years ended December 31, 2022, and 2021, respectively, due to substantial investments in developing monitoring and compliance platforms[147]. - The company has substantial doubt about its ability to continue as a going concern, which could limit its ability to raise additional funds through equity or debt securities[145]. - The company anticipates continuing to incur losses in the near term, although at lower levels due to restructuring actions taken in 2022[147]. - Government contracts for Leaf Data Systems® accounted for 22% and 18% of revenue in 2022 and 2021, respectively[171]. Strategic Alternatives and Mergers - Akerna plans to sell its membership interests in MJ Freeway and Ample Organics for a total purchase price of $4.0 million[47]. - The company aims to enhance shareholder value through strategic alternatives, including mergers and acquisitions[42]. - Akerna is currently in the process of a proposed merger with Gryphon, which is subject to various closing conditions, including stockholder approval[111]. - If the merger with Gryphon does not complete, Akerna's board will evaluate other strategic alternatives, which may not be as favorable to stockholders[112]. - The company is committed to a Sale Transaction to exit the SaaS industry and a Merger as the most favorable strategic alternative for stockholders[145]. - The company may incur costs related to the Sale Transaction, including legal, accounting, and financial advisory fees, even if the transaction is not completed[139]. Market and Industry Trends - The U.S. legal cannabis sales surpassed $25 billion in 2021, representing a 40% growth from $18 billion in 2020, with forecasts predicting sales to reach $46 billion by 2026, a CAGR of 14%[60]. - Global cannabis sales reached nearly $29 billion in 2021, an increase of 45% over 2020, with projections to grow to $61 billion by 2026, reflecting a CAGR of over 16%[60]. - The global CBD market was valued at USD 2.8 billion in 2020, expected to expand at a CAGR of 21.2% from 2021 to 2028[62]. - The anti-counterfeit packaging market is projected to grow from $105.9 billion in 2018 to $182.2 billion by 2023, at a CAGR of 11.5%[63]. Compliance and Regulatory Risks - The cannabis industry faces risks such as federal illegality and changing regulatory environments, which could adversely affect demand for the company's products[154][155]. - The company is exposed to racketeering laws due to receipt of funds from clients involved in cannabis operations, which could result in significant penalties[159]. - The Appropriations Rider, which protects state medical marijuana laws, is set to expire on September 30, 2023, increasing federal enforcement risks if not extended[157]. - Legislative developments beneficial to the cannabis industry are uncertain, with potential opposition from established businesses in other sectors[163]. - The company relies on clients obtaining and retaining various licenses, with no assurance that these will be granted or renewed[167]. Operational Challenges - The COVID-19 pandemic has created extensive disruptions that may adversely impact the company's operations and financial results[152]. - Cybersecurity threats pose a significant risk to the company's IT systems, potentially leading to operational disruptions and reputational damage[175]. - Changes in marijuana laws and regulations could require substantial compliance costs and adversely affect client operations[165]. - The evolving nature of the cannabis industry necessitates adaptability to changing market dynamics for sustained growth[170]. Financial Instruments and Shareholder Impact - The company has $14.7 million in Senior Convertible Notes convertible at $4.75 per share, potentially resulting in the issuance of 3,086,890 shares upon full conversion[197]. - Up to 26,562,911 shares of Common Stock could be issued at the floor price upon conversion of the Senior Convertible Notes, leading to significant dilution for stockholders[198]. - The market price of the Common Stock is highly volatile, with significant fluctuations expected due to factors such as trading volume and market conditions[209]. - The company may face additional risks due to material weaknesses in internal control over financial reporting, potentially leading to regulatory actions and negative impacts on stock price[208]. - The company has not paid dividends in the past and does not expect to pay dividends for the foreseeable future, intending to retain future earnings for business development and expansion[212]. Employee and Operational Structure - As of December 31, 2022, Akerna employed 112 full-time employees, with a majority in engineering and technical roles[107]. - The company is classified as an "emerging growth company" under the JOBS Act, allowing it to utilize extended transition periods for compliance with new accounting standards[108]. - Attracting and retaining qualified personnel is critical for the company's growth, with intense competition in the cannabis industry for talent[179]. Legal and Compliance Costs - The company is subject to increased legal and financial compliance costs due to being a public company, which may divert management's attention from business operations[215]. - The company identified material weaknesses in internal controls over financial reporting as of December 31, 2022, which could result in material misstatements in financial statements if not remediated[214].