10-Q: Gryphon Digital Mining Q2: Merger Advances, Revenue Plunges

Gryphon Digital Mining reports a significant revenue decline in Q2 2025, driven by Bitcoin halving and increased hashrate, while advancing its merger with American Bitcoin Corp.

Summary

• Net loss improved to $(11.5) million for the six months ended June 30, 2025, from $(15.8) million for the same period in 2024.
• Mining revenues decreased significantly by 77.4% to $2.935 million for the six months ended June 30, 2025, compared to $13.005 million in the prior year.
• Bitcoin mined dropped from 225.64 in the first half of 2024 to 31.13 in the first half of 2025.
• The cost to mine one Bitcoin surged to $117,636 in the first half of 2025 from $38,291 in the first half of 2024.
• Entered into a merger agreement with American Bitcoin Corp. (ABTC) on May 9, 2025, which is expected to result in ABTC stockholders owning approximately 98.0% of the outstanding equity interests of the Combined Company.
• Canceled several potential acquisitions (Giga Caddo, Captus Energy, RepairBit, Erikson National Energy), expensing associated deposits and costs totaling over $2.3 million.
• Suspended mining operations with Blockfusion USA, Inc. on April 15, 2025, due to high industry hash rates and energy costs.
• Regained compliance with Nasdaq listing rules for minimum bid price and market value on June 6, 2025.
• Identified a material weakness in internal control over financial reporting due to insufficient personnel staffing in the accounting and financial reporting department.

Sentiment

Score: 3

Explanation: The company faces significant operational headwinds, evidenced by a sharp decline in mining revenue and a substantial increase in the cost to mine Bitcoin, leading to increased cash burn from operations and a worsening stockholders' deficit. While the net loss improved, this was largely due to non-operating items. The proposed merger with ABTC is a major strategic shift, but it comes with significant dilution for existing shareholders and inherent integration risks. The identified material weakness in internal controls adds to the concerns.

Positives

• Net loss improved by $4.216 million (26.8%) to $(11.537) million for the six months ended June 30, 2025, compared to $(15.753) million in the prior year.
• Regained compliance with Nasdaq listing rules for minimum bid price and market value on June 6, 2025.
• Settled the Sphere 3D litigation on March 7, 2025, resulting in a $449,000 gain on settlement of accounts payable.
• The average value of Bitcoin mined increased by 63.0% to $94,000 for the first half of 2025 from $58,000 for the first half of 2024.
• Successfully raised approximately $2.82 million in gross proceeds from a registered direct offering in January 2025 and approximately $3.758 million in net proceeds from an At-The-Market (ATM) program for the six months ended June 30, 2025.

Negatives

• Mining revenues decreased by $10.07 million (77.4%) to $2.935 million for the six months ended June 30, 2025, compared to $13.005 million in the prior year.
• Bitcoin mined decreased significantly from 225.64 in the first half of 2024 to 31.13 in the first half of 2025.
• The cost to mine one Bitcoin surged to $117,636 in the first half of 2025 from $38,291 in the first half of 2024, driven by increased global hashrate and higher energy costs.
• Loss from operations worsened by $272,000 (3.7%) to $(7.698) million for the six months ended June 30, 2025.
• Net cash used in operating activities increased to $(4.098) million for the six months ended June 30, 2025, from $(782,000) for the same period in 2024, indicating increased cash burn.
• Total liabilities increased to $17.188 million as of June 30, 2025, from $14.642 million as of December 31, 2024.
• Stockholders deficit worsened to $(10.991) million as of June 30, 2025, from $(7.010) million as of December 31, 2024.
• Canceled four potential acquisitions (Giga Caddo, Captus Energy, RepairBit, Erikson National Energy), expensing approximately $2.3 million in associated costs.
• Suspended mining operations with Blockfusion USA, Inc. on April 15, 2025, due to high industry hash rates and energy costs.

Risks

• Uncertainty regarding the completion of the ABTC merger, which is subject to various conditions and stockholder approvals.
• Potential for substantial disruptions and uncertainty to businesses due to merger efforts, diverting management attention and affecting relationships with stakeholders.
• Significant ownership and voting power dilution for current Gryphon stockholders, with ABTC stockholders expected to own 98.0% of the Combined Company and Hut 8 approximately 64.37% (80.00% voting power).
• Risk that the intended strategic and financial benefits of the Mergers may not be realized, or may take longer than expected.
• Potential requirement to pay ABTC a termination fee of $5,000,000 plus out-of-pocket expenses if the merger is not completed under certain circumstances.
• Regulatory authorities (HSR Act) may impose conditions that could adversely affect the Combined Company or delay/prevent the merger.
• Certain officers and directors have interests in the merger that may differ from general stockholder interests, including severance payments and accelerated vesting of equity awards.
• Contractual restrictions during the merger pendency may prevent Gryphon from pursuing attractive business opportunities.
• Market price of Gryphon Common Stock may decline due to merger announcement and pendency.
• If the merger is not completed, the Board may decide to pursue dissolution and liquidation, potentially leading to significant loss for stockholders.
• Ongoing legal proceedings related to the PPP Loan (SBA/DOJ inquiry) and former CEO litigation (wrongful termination claim).
• Material weakness in internal control over financial reporting due to insufficient personnel staffing, leading to inadequate segregation of duties and review.

Future Outlook

The company anticipates requiring additional capital resources to fund its operations and meet obligations for at least the next 12 months, potentially through further equity or debt financing. The primary strategic focus is the completion and integration of the merger with American Bitcoin Corp., which is expected to transform the company's business. Management is also committed to enhancing internal controls.

Management Comments

• Management has suspended the use of third-party consultants for investor and public relations services given the pending merger with ABTC.
• The company believes that its current levels of cash will not be sufficient to meet its anticipated cash needs for its operations for at least the next 12 months.
• The company will require additional capital resources to fund its operations and pay its obligations as they come due over the next twelve months.
• The company may sell additional equity or debt securities or enter into a credit facility to satisfy its capital requirements.
• Management has commenced actions to enhance internal resources in technical accounting, financial reporting, and internal controls, potentially including hiring a full-time person dedicated to internal controls, to remediate identified material weaknesses.

Industry Context

The cryptocurrency mining industry experienced significant changes, including the Bitcoin halving event in April 2024, which reduced block rewards by 50%. Concurrently, the average daily global hashrate increased by 45%, and electricity costs rose, leading to a substantial increase in the cost to mine one Bitcoin and fewer bitcoins mined for the same energy consumption.

Comparison to Industry Standards

• The company's breakeven analysis for Bitcoin mining is presented as an operational metric to allow comparison with other Bitcoin mining companies, similar to how the gold industry reports gold-equivalent ounces.
• The significant increase in the cost to mine one Bitcoin ($117,636 in H1 2025 vs. $38,291 in H1 2024) reflects the challenging industry environment with increased global hashrate and higher energy costs, impacting profitability relative to peers.

Management Changes

Corporate Governance

Legal Proceedings

• The SBA is reviewing the forgiveness of the $2.2 million PPP Loan for potential reversal, and the Company received a civil investigative demand from the DOJ seeking information and documents about the loan.
• Ongoing litigation with former CEO Robby Chang in the Ontario Superior Court of Justice in Canada, alleging wrongful termination; mediation was unsuccessful.

Related Party Transactions

• The January 2025 registered direct offering included participation from certain directors and officers of the Company and their affiliated parties.
• The restructuring of the Anchorage Loan in October 2024 involved the issuance of common stock and warrants to Anchorage, and a director specified by the Lender was added to the board of directors.

Stakeholder Impact

• Shareholders face significant ownership and voting power dilution from the ABTC merger (current Gryphon shareholders expected to own 2.0% of Combined Company) and potential further dilution from ongoing capital raises.
• Employees are impacted by management changes, restricted stock awards, and the integration efforts related to the ABTC merger.
• Creditors are affected by the restructuring of the note payable and the company's ongoing efforts to raise capital to meet its obligations.
• Regulatory bodies are involved in the ongoing SBA/DOJ inquiry into the PPP Loan and the company's compliance with Nasdaq listing rules.

Next Steps

• Complete the merger with American Bitcoin Corp. (ABTC).
• Seek stockholder approval for the conversion options related to the restructured note payable.
• Continue to evaluate and improve internal control over financial reporting, including potentially hiring a full-time person dedicated to internal controls and utilizing external third-party firms.
• Raise additional capital through equity or debt financing to fund operations and obligations.

Key Dates

Recommendation

While Gryphon Digital Mining faces severe operational challenges, including a drastic revenue decline and soaring mining costs, the pending merger with American Bitcoin Corp. represents a significant strategic pivot. This merger, if completed, will fundamentally transform the company's structure and operations, potentially offering new growth avenues and scale. However, the substantial dilution for existing shareholders and the inherent risks associated with integrating two companies warrant caution. Investors should hold to observe the outcome and integration of the ABTC merger, as its success or failure will be the primary determinant of future value, rather than the current standalone operational performance.

Keywords

Bitcoin mining, cryptocurrency, digital assets, SEC filing, 10-Q, Gryphon Digital Mining, ABTC, merger, financial results, Nasdaq, hashrate, halving, capital raise