UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,
2024
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________
to ________________
Commission File No. 001-40849
Mawson Infrastructure Group Inc.
(Exact name of registrant as specified in its charter)
Delaware | | 88-0445167 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer
Identification No.) |
| | |
950 Railroad Avenue, Midland, Pennsylvania | | 15059 |
(Address of principal executive offices) | | (Zip code) |
Registrant’s telephone number, including
area code: 1-412-515-0896
Securities Registered pursuant to Section 12(b)
of the Act:
Title of each class | | Trading symbol(s) | | Name of each exchange on which registered |
Common Stock, par value $0.001 per share | | MIGI | | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions
of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | | Smaller reporting company | ☒ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant
to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 12, 2024, the issuer had a total of 17,518,483 shares of
common stock, par value $0.001 per share, outstanding.
MAWSON INFRASTRUCTURE GROUP INC.
FORM 10-Q
FOR THE QUARTER ENDED March 31, 2024
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MAWSON INFRASTRUCTURE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
| |
March 31, | | |
December 31, | |
| |
2024 | | |
2023 | |
| |
(unaudited) | | |
| |
ASSETS | |
| | |
| |
Current assets: | |
| | |
| |
Cash and cash equivalents | |
$ | 6,373,082 | | |
$ | 4,476,339 | |
Prepaid expenses | |
| 4,242,057 | | |
| 3,556,933 | |
Trade and other receivables | |
| 13,243,037 | | |
| 12,105,387 | |
Total current assets | |
| 23,858,176 | | |
| 20,138,659 | |
Property and equipment, net | |
| 36,369,878 | | |
| 57,740,291 | |
Derivative asset | |
| 5,744,241 | | |
| 4,058,088 | |
Investments, equity method | |
| 102,155 | | |
| 106,807 | |
Security deposits | |
| 415,651 | | |
| 415,000 | |
Operating lease right-of-use asset | |
| 1,219,943 | | |
| 2,307,399 | |
| |
| | | |
| | |
Total assets | |
$ | 67,710,044 | | |
$ | 84,766,244 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Trade and other payables | |
$ | 34,196,548 | | |
$ | 32,513,113 | |
Current portion of operating lease liability | |
| 888,637 | | |
| 1,416,310 | |
Current portion of finance lease liability | |
| 33,677 | | |
| 33,059 | |
Current portion of long-term borrowings | |
| 19,125,415 | | |
| 19,352,752 | |
Total current liabilities | |
| 54,244,277 | | |
| 53,315,234 | |
| |
| | | |
| | |
Operating lease liability, net of current portion | |
| 410,165 | | |
| 1,016,216 | |
Finance lease liability, net of current portion | |
| 41,510 | | |
| 50,164 | |
Total liabilities | |
| 54,695,952 | | |
| 54,381,614 | |
| |
| | | |
| | |
Commitments and Contingencies | |
| | | |
| | |
| |
| | | |
| | |
Stockholders’ equity: | |
| | | |
| | |
Series A preferred stock; 1,000,000 shares authorized, no shares issued and outstanding as of March 31, 2024 and December 31, 2023 | |
| - | | |
| - | |
Common stock, $0.001 par value per share; 90,000,000 shares authorized, 16,644,711 shares issued and outstanding as of March 31, 2024 and December 31, 2023 | |
| 16,645 | | |
| 16,645 | |
Additional paid-in capital | |
| 215,249,725 | | |
| 211,279,176 | |
Accumulated other comprehensive income | |
| 178,386 | | |
| 608,688 | |
Accumulated deficit | |
| (202,430,664 | ) | |
| (182,666,465 | ) |
Total Mawson Infrastructure Group, Inc. stockholders’ equity | |
| 13,014,092 | | |
| 29,238,044 | |
Non-controlling interest | |
| - | | |
| 1,146,586 | |
Total stockholders’ equity | |
| 13,014,092 | | |
| 30,384,630 | |
Total liabilities and stockholders’ equity | |
$ | 67,710,044 | | |
$ | 84,766,244 | |
See accompanying notes to unaudited consolidated
condensed financial statements.
MAWSON INFRASTRUCTURE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| |
For the three months ended | |
| |
March 31, | |
| |
2024 | | |
2023 | |
Revenues: | |
| | |
| |
Digital currency mining revenue | |
$ | 7,514,763 | | |
$ | 2,756,000 | |
Co-location revenue | |
| 8,234,041 | | |
| 4,322,553 | |
Net energy benefits | |
| 2,472,505 | | |
| 441,055 | |
Sale of equipment | |
| 550,000 | | |
| 150,997 | |
Total revenues | |
| 18,771,309 | | |
| 7,670,605 | |
Less: Cost of revenues (excluding depreciation) | |
| 11,786,168 | | |
| 4,678,002 | |
Gross profit | |
| 6,985,141 | | |
| 2,992,603 | |
Operating expenses: | |
| | | |
| | |
Selling, general and administrative | |
| 3,463,923 | | |
| 4,977,417 | |
Stock based compensation | |
| 4,901,484 | | |
| 1,068,288 | |
Depreciation and amortization | |
| 7,999,076 | | |
| 7,962,523 | |
Change in fair value of derivative asset | |
| (1,686,152 | ) | |
| 681,225 | |
Total operating expenses | |
| 14,678,331 | | |
| 14,689,453 | |
Loss from operations | |
| (7,693,190 | ) | |
| (11,696,850 | ) |
Non-operating income (expense): | |
| | | |
| | |
Gains (losses) on foreign currency transactions | |
| 169,638 | | |
| (418,216 | ) |
Interest expense | |
| (734,580 | ) | |
| (835,107 | ) |
Loss on write off property and equipment | |
| - | | |
| (118,933 | ) |
Profit on sale of site | |
| - | | |
| 790,847 | |
Gain on sale of marketable securities | |
| - | | |
| 1,437,230 | |
Other income | |
| 165,160 | | |
| 44,510 | |
Other expenses | |
| (9,792 | ) | |
| - | |
Loss on deconsolidation | |
| (11,925,908 | ) | |
| - | |
Share of net loss of equity method investments | |
| - | | |
| (36,356 | ) |
Total non-operating income (expense), net | |
| (12,335,482 | ) | |
| 863,975 | |
Loss before income taxes | |
| (20,028,672 | ) | |
| (10,832,875 | ) |
Income tax benefit (expense) | |
| 59,387 | | |
| (548,083 | ) |
Net Loss | |
| (19,969,285 | ) | |
| (11,380,958 | ) |
Less: Net loss attributable to non-controlling interests | |
| (205,086 | ) | |
| (278,933 | ) |
Net Loss attributed to Mawson Infrastructure Group stockholders | |
$ | (19,764,199 | ) | |
$ | (11,102,025 | ) |
Net Loss per share, basic & diluted | |
$ | (1.19 | ) | |
$ | (0.80 | ) |
Weighted average number of shares outstanding | |
| 16,644,711 | | |
| 13,953,308 | |
See accompanying notes to unaudited consolidated
condensed financial statements.
MAWSON INFRASTRUCTURE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE
LOSS
(Unaudited)
| |
For the three months Ended March 31, | |
| |
2024 | | |
2023 | |
Net Loss | |
$ | (19,969,285 | ) | |
$ | (11,380,958 | ) |
Other comprehensive income (loss) | |
| | | |
| | |
Foreign currency translation adjustment | |
| (482,143 | ) | |
| 131,733 | |
Comprehensive loss | |
| (20,451,428 | ) | |
| (11,249,225 | ) |
Less: Comprehensive loss attributable to non-controlling interests | |
| (205,086 | ) | |
| (278,933 | ) |
Comprehensive loss attributable to common stockholders | |
$ | (20,246,342 | ) | |
$ | (10,970,292 | ) |
See accompanying notes to unaudited consolidated
condensed financial statements.
MAWSON INFRASTRUCTURE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’
EQUITY
(Unaudited)
For the Three Months Ended March 31, 2024
| |
Common Stock (#) | | |
Common Stock ($) | | |
Additional Paid-in- Capital | | |
Accumulated Other Comprehensive Income/(Loss) | | |
Accumulated Deficit | | |
Total Mawson Stockholders’ Equity | | |
Non- controlling interest | | |
Total Equity | |
Balance as of December 31, 2023 | |
| 16,644,711 | | |
$ | 16,645 | | |
$ | 211,279,176 | | |
$ | 608,688 | | |
$ | (182,666,465 | ) | |
$ | 29,238,044 | | |
$ | 1,146,586 | | |
$ | 30,384,630 | |
Deconsolidation of MIG No.1 Pty Ltd | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (889,659 | ) | |
| (889,659 | ) |
Stock based compensation expense for RSU’s and stock options | |
| - | | |
| - | | |
| 3,970,549 | | |
| - | | |
| - | | |
| 3,970,549 | | |
| - | | |
| 3,970,549 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (19,764,199 | ) | |
| (19,764,199 | ) | |
| (205,086 | ) | |
| (19,969,285 | ) |
Other comprehensive loss | |
| - | | |
| - | | |
| - | | |
| (430,302 | ) | |
| - | | |
| (430,302 | ) | |
| (51,841 | ) | |
| (482,143 | ) |
Balance as of March 31, 2024 | |
| 16,644,711 | | |
$ | 16,645 | | |
$ | 215,249,725 | | |
$ | 178,386 | | |
$ | (202,430,664 | ) | |
$ | 13,014,092 | | |
$ | - | | |
$ | 13,014,092 | |
See accompanying notes to unaudited consolidated
condensed financial statements.
MAWSON INFRASTRUCTURE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’
EQUITY
(Unaudited)
For the Three Months Ended March 31, 2023
| |
Common Stock (#) | | |
Common Stock ($) | | |
Additional Paid-in- Capital | | |
Accumulated Other Comprehensive Income/(Loss) | | |
Accumulated Deficit | | |
Total Mawson Stockholders’ Equity | | |
Non- controlling interest | | |
Total Equity | |
Balance as of December 31, 2022 | |
| 13,625,882 | | |
$ | 13,626 | | |
$ | 194,294,559 | | |
$ | 5,021,467 | | |
$ | (122,257,628 | ) | |
$ | 77,072,024 | | |
$ | (905,904 | ) | |
$ | 76,166,120 | |
Issuance of common stock, share based compensation | |
| 216,460 | | |
| 216 | | |
| 647,757 | | |
| - | | |
| - | | |
| 647,973 | | |
| - | | |
| 647,973 | |
Issuance of warrants | |
| - | | |
| - | | |
| 500,500 | | |
| - | | |
| - | | |
| 500,500 | | |
| - | | |
| 500,500 | |
Exercising of RSU’s and stock options | |
| 113,104 | | |
| 113 | | |
| 196,661 | | |
| - | | |
| - | | |
| 196,774 | | |
| - | | |
| 196,774 | |
Issuance of common stock, net of offer costs | |
| 175,664 | | |
| 176 | | |
| 471,203 | | |
| - | | |
| - | | |
| 471,379 | | |
| - | | |
| 471,379 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (11,102,025 | ) | |
| (11,102,025 | ) | |
| (278,933 | ) | |
| (11,380,958 | ) |
Other comprehensive income | |
| - | | |
| - | | |
| - | | |
| 90,692 | | |
| - | | |
| 90,692 | | |
| 41,041 | | |
| 131,733 | |
Balance as of March 31, 2023 | |
| 14,131,110 | | |
$ | 14,131 | | |
$ | 196,110,680 | | |
$ | 5,112,159 | | |
$ | (133,359,653 | ) | |
$ | 67,877,317 | | |
$ | (1,143,796 | ) | |
$ | 66,733,521 | |
See accompanying notes to unaudited consolidated
condensed financial statements.
MAWSON INFRASTRUCTURE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| |
For the three months ended March 31, | |
| |
2024
| | |
2023
| |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | |
| |
Net loss | |
$ | (19,969,285 | ) | |
$ | (11,380,958 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 7,999,076 | | |
| 7,962,523 | |
Amortization of operating lease right-of-use asset | |
| 355,688 | | |
| 338,781 | |
Foreign exchange gain | |
| (89,450 | ) | |
| 386,952 | |
Stock based compensation | |
| 3,970,549 | | |
| 1,068,288 | |
Non-cash interest expense | |
| 669,183 | | |
| 439,635 | |
Unrealized (gain) loss on derivative asset | |
| (1,686,152 | ) | |
| 681,225 | |
Loss on deconsolidation | |
| 11,925,908 | | |
| - | |
Gain on sale of marketable securities | |
| - | | |
| (1,437,230 | ) |
Gain on lease termination | |
| (35,483 | ) | |
| - | |
Loss from equity method investments | |
| - | | |
| 36,122 | |
Loss (gain) on sale of property and equipment | |
| (51,185 | ) | |
| 77,603 | |
Loss on write off of property and equipment | |
| - | | |
| 118,933 | |
Changes in assets and liabilities: | |
| - | | |
| | |
Trade and other receivables | |
| (1,137,650 | ) | |
| 981,569 | |
Operating lease liabilities | |
| (364,965 | ) | |
| (340,156 | ) |
Other current assets | |
| (685,775 | ) | |
| 3,829,172 | |
Trade and other payables | |
| 975,188 | | |
| (1,445,868 | ) |
Net cash provided by operating activities | |
| 1,875,647 | | |
| 1,316,591 | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
Payment for the purchase of property and equipment | |
| (19,360 | ) | |
| (3,148,946 | ) |
Proceeds from sales of property and equipment | |
| 550,000 | | |
| 1,010,692 | |
Proceeds from sale of marketable securities | |
| - | | |
| 6,207,548 | |
Net cash provided by investing activities | |
| 530,640 | | |
| 4,069,294 | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Proceeds from common share issuances | |
| - | | |
| 471,379 | |
Repayment of finance lease liabilities | |
| (9,544 | ) | |
| (9,543 | ) |
Repayment of borrowings | |
| (500,000 | ) | |
| (5,397,550 | ) |
Net cash used in financing activities | |
| (509,544 | ) | |
| (4,935,714 | ) |
Effect of exchange rate changes on cash and cash equivalents | |
| - | | |
| (9,110 | ) |
Net increase in cash and cash equivalents | |
| 1,896,743 | | |
| 441,061 | |
Cash and cash equivalents at beginning of period | |
| 4,476,339 | | |
| 946,265 | |
Cash and cash equivalents at end of period | |
$ | 6,373,082 | | |
$ | 1,387,326 | |
Supplemental disclosure of cash flow information | |
| | | |
| | |
Cash paid for interest | |
$ | 65,397 | | |
$ | 395,472 | |
Cash paid for income taxes | |
$ | - | | |
$ | - | |
Non-cash transactions | |
| | | |
| | |
Recognition of right of use operating asset and lease liability | |
$ | - | | |
$ | 82,879 | |
Accrued interest on convertible notes settled in common stock | |
$ | - | | |
$ | 276,959 | |
See accompanying notes to unaudited consolidated
condensed financial statements.
MAWSON INFRASTRUCTURE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – GENERAL
Nature of Operations
Mawson Infrastructure Group Inc. (“Mawson,” the “Company,”
“we,” “us,” and “our”) is a digital infrastructure company headquartered in the United States.
Mawson is a corporation incorporated in Delaware in 2012. On March
9, 2021, the Company acquired the shares of Cosmos Capital Limited in a stock for stock exchange. This transaction has been accounted
for as a reverse asset acquisition. Mawson was previously known as Wize Pharma Inc, and changed its name on March 17, 2021. Shares of
Mawson’s common stock, par value $0.001 per share (“Common Stock”) have been listed on The Nasdaq Capital Market since
September 29, 2021.
The Company has 3 primary businesses – digital currency or Bitcoin
self-mining, co-location and related services, and energy markets.
Throughout this filing, we use the term Bitcoin
(with a capital “B”) to represent the overall concept of Bitcoin, including the technology, protocol, and the entire ecosystem.
The term bitcoin (with a lower case “b”) refers to the digital bitcoin currency or token.
The Company develops and operates digital infrastructure
for digital currency, such as bitcoin, mining activities on the Bitcoin blockchain network. The Company also provides digital infrastructure
services for its co-location customers that use computational machines to mine bitcoin through our data centers and the Company charges
for the use of its digital infrastructure and related services. The Company also has an energy markets program through which it can receive
net energy benefits in exchange for curtailing the power the Company utilizes from the grid in response to instances of high electricity
demand.
The Company may also transact in digital currency
mining, data center infrastructure and related equipment on a periodic basis, subject to prevailing market conditions. The Company designs,
develops, operates, and manages its digital infrastructure to responsibly support the Bitcoin network by contributing to the scale, structure,
and decentralization of the Bitcoin network and optimizing energy consumption. The Company helps contribute to the ecosystem and growth
of digital currencies and commodities as there continues to be a global transition to the new digital economy.
The Company strives to operate and invest in markets
and communities that offer low or zero carbon renewable energy sources and participate in energy management activities. We invest in the
communities in which we operate and also support our broader ecosystem.
The Company manages and operates data centers
delivering a current capacity of approximately 109 MW with its current operational sites in the United States of America.
The Company has previously reported through an
8-K filing on March 29, 2024 that the Company may seek to exit certain or all of its entities and holdings in Australia. The accompanying
consolidated condensed unaudited interim financial statements, including the results of a number of the Company’s Australian subsidiaries:
Cosmos Trading Pty Ltd, Cosmos Infrastructure LLC, Cosmos Manager LLC, MIG No.1 Pty Ltd (on March 19, 2024, an Australian entity MIG No.1
Pty Ltd was placed into a Australian court appointed liquidation and wind-up process, as disclosed in note 3), MIG No.1 LLC, Mawson AU
Pty Ltd (on April 23, 2024, an Australian entity Mawson AU Pty Ltd was placed into a Australian court appointed liquidation and wind-up
process, as disclosed in note 10 subsequent events), an Australian entity Mawson Services Pty Ltd (on April 29, 2024, Mawson Services
Pty Ltd was placed into a Australian court appointed liquidation and wind-up process, as disclosed in note 10 subsequent events), Luna
Squares LLC, Mawson Bellefonte LLC, Luna Squares Repairs LLC, Luna Squares Property LLC, Mawson Midland LLC, Mawson Hosting LLC, Mawson
Ohio LLC and Mawson Mining LLC (collectively referred to as the “Group”), have been prepared by the Company, pursuant to the
rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and in accordance with generally accepted accounting
principles in the United States (“GAAP”).
These consolidated, condensed unaudited interim financial statements
should be read in conjunction with the audited consolidated financial statements of the Group as of December 31, 2023, and the notes thereto,
included in the Company’s Annual Report on Form 10-K filed with SEC on April 1, 2024. Accordingly, they do not include all the information
and footnotes required by GAAP for complete financial statements. The results of the interim period are not necessarily indicative of
the results to be expected for the full year ending December 31, 2024. These consolidated, condensed unaudited interim financial statements
reflect all adjustments which, in the opinion of management, are necessary to present fairly the financial position, the results of operations
and cash flows of the Company for the periods presented.
Going Concern
The accompanying consolidated, condensed unaudited interim financial
statements have been prepared assuming the Company will continue as a going concern basis and in accordance with GAAP. The going concern
basis of presentation assumes that the Company will continue in operation one year after the date these financial statements are issued
and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.
Pursuant to the requirements of the Financial
Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 205-40, Disclosure of Uncertainties
about an Entity’s Ability to Continue as a Going Concern, management must evaluate whether there are conditions or events, considered
in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year from the
date these financial statements are issued. This evaluation does not take into consideration the potential mitigating effect of management’s
plans that have not been fully implemented or are not within control of the Company as of the date the financial statements are issued.
When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates
substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans,
however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that
the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or
events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that
the financial statements are issued.
For the three months ended March 31, 2024, the
Company incurred a loss after tax of $19.76 million, and as of March 31, 2024, had negative working capital of $30.39 million, had total
net assets of $13.01 million and had an accumulated deficit of $202.43 million. The Company’s cash position as of March 31, 2024,
was $6.37 million.
Bitcoin prices can be volatile and the difficulty
of earning bitcoin has typically trended higher over time, which means the Company typically earns less bitcoin for the same effort. In
addition, the rewards that bitcoin miners earn halved (not including transaction fees) during April 2024. These factors are outside the
Company’s direct control, and the Company may not be able to practically mitigate their impact. The Company cannot predict with
any certainty whether these trends will reverse or persist. In addition, the Company’s miners and other mining equipment will require
replacement over time as they come to the end of their useful lives to ensure that the Company can continue to competitively and efficiently
produce bitcoin.
The Customer Equipment Co-Location Agreement the
Company’s subsidiary, Luna Squares LLC (“Luna”), had with Celsius Mining LLC (the “Co-Location Agreement”),
expired on August 23, 2023. Celsius Mining LLC is currently in default on payments under the Co-Location Agreement to Luna. On July 13,
2022, Celsius Mining LLC and its other affiliated debtors (collectively here “Celsius”) filed for bankruptcy relief under
Chapter 11 in the United States Bankruptcy Court. Celsius has failed to pay approximately $6.95 million of unpaid co-location invoices,
but due to Celsius’s Ch. 11 bankruptcy, $1.84 million of that $6.95 million are considered pre-petition amounts, for which Luna
is a general unsecured creditor, and $5.11 million of that $6.95 million are considered post-petition amounts due and payable to Luna
for which Luna has filed a proof of claim. Celsius has commenced the process of making distributions under its plan approved by the Court
on January 31, 2024. Luna expects payment of its claims and continues to monitor the status of this matter.
In addition, Celsius and Luna have made certain allegations and counter-allegations
against each other claiming it is owed approximately $8 million under the promissory note and claiming entitlement to return of $15.33
million paid as deposit. Mawson denies that Celsius is entitled to the relief it seeks in the adversary proceeding and is actively defending
the matter. As of May 1, 2024 and pursuant to a court order dated April 22, 2024, the Celsius civil lawsuit against Luna and Mawson has
been dismissed pursuant to the Company’s successful motion to compete arbitration. Currently, no arbitration proceedings or further
appeals have been filed by either party.
A subsidiary of the Company, MIG No. 1 Pty Ltd (“MIG No.1”)
has a Secured Loan Facility Agreement with Marshall Investments GCP Pty Ltd ATF for the Marshall Investments MIG Trust (“Marshall”).
The loan matured in February 2024 and the total outstanding balance is $9.09 million as of March 31, 2024. MIG No. 1 Pty Ltd, an Australian
entity, has not made a principal and interest payment since May 2023. Marshall and MIG No. 1 Pty Ltd have each reserved their rights.
On March 18, 2024, MIG No.1 Pty Ltd was placed into a court appointed liquidation and wind-up process and was deconsolidated from the
group on this date, see Note 3.
The Company is the guarantor on a Secured Loan
Facility Agreement for working capital by Mawson Infrastructure Group Pty Ltd with W Capital Advisors Pty Ltd. As of March 31, 2024, AUD
$1.77 million (USD $1.13 million) has been drawn down from this facility. The Secured Loan Facility expired in March 2023. This Secured
Loan Facility Agreement was entered into with an Australian entity Mawson Infrastructure Group Pty Ltd, this company was placed into Australian
voluntary administration on October 30, 2023 and on November 3, 2023, W Capital Advisors appointed receivers and managers in Australia
under the terms of their security relating to their working capital facility.
The Company, or its subsidiaries, have not fulfilled
specific payment obligations related to the Celsius Promissory Note, Marshall loan and the W Capital Working Capital Loan mentioned above.
Consequently, the creditors associated with these debt facilities may initiate actions as allowed by relevant grace periods. This includes
the possibility of opting to expedite the repayment of the principal debt, pursuing legal action against the Company or its subsidiaries
for payment default, raising interest rates to the default or overdue rate, or taking appropriate measures concerning collateral (including
appointing a receiver), if applicable.
The Company has evaluated the above conditions
and concluded that these conditions raise substantial doubt regarding our ability to continue as a going concern for a period of at least
one year from the date of issuance of these consolidated financial statements.
To mitigate these conditions, the Company
has explored various avenues to enhance liquidity, fund the Company’s expenditures, and meet debt servicing requirements. These
strategies include, among others:
|
● |
Executing and implementing further new customer co-location service agreements; |
|
● |
Engaging in discussions with new and existing lenders, including related to refinancing debt, raising additional debt, or modifying terms of existing debt; |
|
● |
Considering equity issuances such as capital raises; |
|
● |
Assessing and evaluating corporate and strategic transactions including engagement of an investment bank; |
|
● |
Assessing and evaluating monetizing specific assets, including potential sales of mining infrastructure equipment, miners, operational sites, or expansion locations under consideration; and |
|
● |
Conducting assessments to identify and implement operational efficiencies, cost-cutting measures, and other actions aimed at enhancing revenue and optimizing expenses. |
Although the Company may have access to debt,
equity, and other sources of funding, these may require additional time and cost, may impose operational restrictions and other covenants
on the Company, may not be available on attractive terms, and may not be available at all. If the Company raises additional capital or
debt, this could cause additional dilution to the Company’s current stockholders. The terms of any future capital raise or debt
issuance and the costs of any financing are uncertain and may be unfavorable to the Company and the Company’s current stockholders.
Should the Company be unable to source sufficient funding, the Company may not be able to realize assets at their recognized values and
fulfill its liabilities in the normal course of business at the amounts stated in these consolidated financial statements.
As previously reported, the Company has engaged
Needham and Company, an investment bank, and is obtaining advice from outside legal counsel. It is important to note that strategic and
other initiatives may not lead to any transaction or other outcome.
These consolidated, condensed unaudited interim
financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities
and other commitments in the normal course of business. They do not include any adjustments relating to the recoverability and carrying
amounts of assets and the amounts of liabilities should the Company be unable to continue as a going concern and meet its obligations
and debts as and when they fall due.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Preparation
The accompanying unaudited consolidated condensed
financial statements of the Company include the accounts of the Company and its wholly or majority owned and controlled subsidiaries.
Intercompany investments, balances and transactions have been eliminated in consolidation. Non–controlling interests represent the
minority equity investment in the Company’s subsidiaries, plus the minority investors’ share of the net operating results
and other components of equity relating to the non–controlling interest.
Any change in the Company’s ownership interest
in a consolidated subsidiary, through additional equity issuances by the consolidated subsidiary or from the Company acquiring the shares
from existing stockholders, in which the Company maintains control is recognized as an equity transaction, with appropriate adjustments
to both the Company’s additional paid-in capital and the corresponding non-controlling interest.
Use of Estimates and Assumptions
The preparation of the financial statements in
conformity with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial
statements and accompanying notes. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of
income and expenses during the reporting periods. Actual results could differ from those estimates. The Company has considered the following
to be significant estimates made by management, including but not limited to, going concern assumptions, estimating the useful lives of
fixed assets, realization of long-lived assets, unrealized tax positions, valuing the derivative asset classified under Level 3 fair value
hierarchy, and the contingent obligation with respect to future revenues.
Revenue recognition
Digital currency mining revenue
The Company recognizes revenue under ASC 606,
Revenue from Contracts with Customers. The core principle of ASC 606 is that a company should recognize revenue to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in
exchange for those goods or services. Five steps are required to be followed in evaluating revenue recognition: (i) identify the contract
with the customer; (ii) identity the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the
transaction price; and (v) recognize revenue when or as the entity satisfies a performance obligation.
In order to identify the performance obligations
in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or
service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle
of goods or services) if both of the following criteria are met: the customer can benefit from the good or service either on its own or
together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct), and
the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract
(i.e., the promise to transfer the good or service is distinct within the context of the contract).
The Company has a contract with mining pools and
has undertaken the performance obligation of providing computing power in exchange for non-cash consideration in the form of digital currency.
The provision of computing power is the only performance obligation in the Company’s contract with its pool operators. Where the
consideration received is variable (for example, due to payment only being made upon successful mining), it is recognized when it is highly
probable that the variability is resolved, which is generally when the digital currency is received.
The Company measures the non-cash consideration
received at the fair market value of the digital currency received. Management estimates fair value on a daily basis, as the quantity
of digital currency received multiplied by the price quoted on the crypto exchange that the Company uses to dispose of digital currency.
Co-location revenue
Co-location customers pay for energy used in connection
with the customer co-location agreement on a pass-through basis, which may be on a fixed or variable basis calculated on the portion of
energy used by the customer on the site. The Company additionally charges co-location fees for the use of the facilities, and other related
fees. Revenue is typically received monthly from the customer based on the power usage at the rates outlined in each customer contract.
The customer contracts contain variable consideration
to be allocated to and recognized in the period to which the consideration relates. Usually this is when it is invoiced, rather than obtaining
an estimation of variable consideration at the beginning of the customer contracts.
Net energy benefits
In exchange for powering down the Company’s
digital infrastructure and curtailing power usage in response to instances of high electricity demand, the Company receives net energy
benefits from the grid.
Revenue for curtailing power is recognized over
the period that the services are being provided. The Company estimates the amount of curtailable power and the expected payment for that
curtailment and recognizes revenue based on the proportion of the service that has been provided. In this arrangement, the Company is
considered the principal and revenue is recognized on a gross basis.
Revenue through the Company’s power pricing
arrangement is recognized over the period that the services are being provided. The Company estimates the amount of energy available for
sale and the expected payment for that energy, and recognizes revenue based on the proportion of the service that has been provided. In
this arrangement, the Company is considered the principal and revenue is recognized on a gross basis.
Equipment sales
The Company had previously earned revenues from
the sale of earlier generation digital currency mining units, modular data centers or equipment that have been assembled or refurbished
for resale (collectively, “Hardware”). Revenue from the sale of Hardware is recognized upon transfer of control of the Hardware
to the customer. At the date of sale, the net book value is expensed in cost of revenues.
Property and equipment
Property and equipment are stated at cost, net
of accumulated depreciation. All other repair and maintenance costs are charged to operating expenses as incurred. The present value of
the expected cost for the decommissioning of an asset after its use is included in the cost of the respective asset if the recognition
criteria for a provision are met. Property and equipment transferred from customers is initially measured at the fair value at the date
on which control is obtained.
Property and equipment are depreciated on a straight-line
or declining balance basis based on the asset classification, over their useful lives to the economic entity commencing from the time
the assets arrive at their destination where they are ready for use. Low-cost assets are capitalized and immediately depreciated. Depreciation
is calculated over the following estimated useful lives:
Asset class |
|
Useful life |
|
Depreciation Method |
Fixtures |
|
5 years |
|
Straight-Line |
Plant and equipment |
|
10 years |
|
Straight-Line |
Modular data center |
|
5 years |
|
Declining |
Motor vehicles |
|
5 years |
|
Straight-Line |
Computer equipment |
|
3 years |
|
Straight-Line |
Computational and Processing machinery (Miners) |
|
2 years |
|
Straight-Line |
Transformers |
|
15 years |
|
Straight-Line |
Leasehold improvements |
|
Shorter of useful life or lease term |
|
Straight-Line |
Property and equipment are derecognized upon disposal
or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is included
in the consolidated statement of operations.
The residual values, useful lives and methods
of depreciation of property and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.
The Company’s long-lived assets are reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected
to be generated by the assets. If such an asset is considered to be impaired, the impairment to be recognized is measured by the amount
by which the carrying amount of the asset exceeds its fair value. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
Fair value of financial instruments:
The Company accounts for financial instruments
under ASC 820, Fair Value Measurements. This statement defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair value measurements. To increase consistency and comparability
in fair value measurements, ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value into three levels as follows:
Level 1 — quoted prices (unadjusted)
in active markets for identical assets or liabilities;
Level 2 — observable inputs other than Level
1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in
markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and
Level 3 — assets and liabilities whose significant
value drivers are unobservable. Observable inputs are based on market data obtained from independent sources, while unobservable inputs
are based on the Company’s market assumptions. Unobservable inputs require significant management judgment or estimation. In some
cases, the inputs used to measure an asset or liability may fall into different levels of the fair value hierarchy. In those instances,
the fair value measurement is required to be classified using the lowest level of input that is significant to the fair value measurement.
Such determination requires significant management judgment.
| |
Fair value measured as of March 31, 2024 | |
| |
Total | | |
Total
Level 1 | | |
Total Level 2 | | |
Total
Level 3 | |
Derivative asset | |
$ | 5,744,241 | | |
| - | | |
| - | | |
| 5,744,241 | |
| |
Fair value measured as of December 31, 2023 | |
| |
Total | | |
Total
Level 1 | | |
Total Level 2 | | |
Total
Level 3 | |
Derivative asset | |
$ | 4,058,088 | | |
| - | | |
| - | | |
| 4,058,088 | |
Level 3 Assets:
In June 2022, the Company entered into a Power
Supply Agreement with Energy Harbor LLC, the energy supplier to the Company’s Midland, Pennsylvania facility, to provide the delivery
of a fixed portion of the total amount of electricity for a fixed price through to December 2026. There were three amendments to the contract
with Energy Harbor LLC entered into in November 2023, December 2023, and January 2024, all the contracts were to purchase additional electricity
at a fixed price for the months of December 2023 and January 2024. If the Midland, Pennsylvania facility uses more electricity than contracted,
the cost of the excess is incurred at a new price quoted by Energy Harbor LLC.
While the Company manages operating costs at the
Midland, Pennsylvania facility in part by periodically selling unused or uneconomical power back to the market, the Company does not consider
such actions as trading activities. That is, the Company does not engage in speculation in the power market as part of its ordinary activities.
Because the sale of any electricity under a curtailment program allows for net settlement, the Company has determined the Power Supply
Agreement meets the definition of a derivative under ASC 815, Derivatives and Hedging. However, because the Company has the ability
to sell the power back to the grid rather than take physical delivery, physical delivery is not probable through the entirety of the contract
and therefore, the Company does not believe the normal purchases and normal sales scope exception applies to the Power Supply Agreement.
Accordingly, the Power Supply Agreement (the non-hedging derivative contract) is recorded at estimated fair value each reporting period
with the change in the fair value recorded in “change in fair value of derivative asset” in the consolidated statements of
operations.
The Power Supply Agreement was classified as a
derivative asset beginning in the quarter ended June 30, 2022, and measured at fair value on the date of Power Supply Agreement, with
changes in fair value recognized in the accompanying consolidated statements of operations. The estimated fair value of the Company’s
derivative asset is classified in Level 3 of the fair value hierarchy due to the significant unobservable inputs utilized in the valuation.
Specifically, the Company’s discounted cash flow estimation models contain quoted commodity exchange spot and forward prices and
are adjusted for basis spreads for load zone-to-hub differentials through the term of the Power Supply Agreement, which expires in December
2026. In addition, the Company adopted a discount rate of approximately 20% above the terminal value of the observable market inputs,
but also includes unobservable inputs based on qualitative judgment related to company-specific risk factors. The terms of the Power Supply
Agreement require pre-payment of collateral, calculated as forward cost based on the market cost rate of electricity versus the fixed
price stated in the contract.
Stock based compensation
The Company follows ASC 718-10, Compensation-Stock
Compensation. The Company expenses stock-based compensation to directors, employees, and non-employees over the requisite service
period based on the grant-date fair value of the awards. The Company determines the grant-date fair value of options using the Trinomial
Lattice Method. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and
involve inherent uncertainties and the application of management’s judgment. These assumptions are the expected stock volatility,
the risk–free interest rate, the expected life of the option, and the expected forfeiture rate. Expected volatility computes stock
price volatility over expected terms based on its historical common stock trading prices. Risk–free interest rates are calculated
based on the yield of a 5-year United States Treasury constant maturity bond.
Digital currencies
Digital currencies are included in current assets
in the consolidated balance sheets. Digital currencies are classified as indefinite-lived intangible assets in accordance with ASC 350,
Intangibles – Goodwill and Other, and are accounted for in connection with the Company’s revenue recognition policy
detailed above.
The following table presents the Company’s
digital currency (bitcoin) activities for the three month period ended March 31, 2024 and 2023:
| |
Three months to March 31, | |
| |
2024 | | |
2023 | |
| |
| | |
| |
Opening number of bitcoin held | |
| 0.00 | | |
| 0.00 | |
Number of bitcoin received | |
| 140.20 | | |
| 121.11 | |
Number of bitcoin sold | |
| (140.20 | ) | |
| (120.09 | ) |
Closing number of bitcoin held | |
| 0.00 | | |
| 1.02 | |
Digital currencies are not amortized but assessed
for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not
that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment,
the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment
exists. If it is determined that it is not likely that an impairment exists, a quantitative impairment test is not necessary. If the Company
concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss
establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.
The Company’s policy is to typically dispose
of bitcoin received from mining operations at the earliest opportunity, therefore the holding period is generally minimal, usually no
more than a few days. Due to the short period for which bitcoin is held prior to sale and the consequent small numbers held, the risk
of impairment is not material. No impairment charges have been recorded during the quarters ended March 31, 2024 and 2023.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements
are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies and adopted by the Company as of the specified
effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material
impact on the Company’s financial position or results of operations upon adoption.
In December 2023, the FASB issued ASU 2023-08,
Intangibles—Goodwill and Other—Crypto Assets (Topic 3580-60): Accounting for and Disclosure of Crypto Assets. Under the new
guidance, an entity would be required to subsequently measure certain crypto assets at fair value, with changes in fair value included
in net income in each reporting period. The proposed set of rules would also require presentation of crypto assets and related fair value
changes separately in the balance sheet and income statement and require various disclosures in interim and annual periods. The Company
does not expect the adoption of ASU 2023-08 to have a material impact on its consolidated financial statements since the Company’s
policy is to dispose of bitcoin received from mining operations at the earliest opportunity, therefore the holding period is minimal,
usually no more than a few days. ASU 2023-08 is effective for fiscal years beginning after December 15, 2024 and interim periods within
those fiscal years. The Company will adopt ASU 2023-08 on January 1, 2025 .
NOTE 3 – SUBSIDIARY DECONSOLIDATION
Liquidation and Deconsolidation of an Australian
entity MIG No.1
On March 19, 2024, the Company’s subsidiary
and an Australian entity, MIG No.1 was placed into an Australian court appointed liquidation due to it being deemed insolvent in Australia.
The liquidation of an insolvent company in Australia allows an independent registered Australian liquidator (the liquidator) to take control
of the Australian entity so its affairs can be wound up in an orderly and fair way and to benefit creditors. In the instance of MIG No.1,
it is an Australian court liquidation, where a liquidator is appointed by the Australian court to wind up a company following an application
(by a creditor of MIG No.1). As a result of this the Company ceded authority for managing this Australian entity to the Australian liquidator,
and the Company could not carry on MIG No.1’s activities in the ordinary course of business. For these reasons, it was concluded
that the Company had ceded control of MIG No.1, and no longer had significant influence over this Australian entity since the liquidator
was in control of this Australian entity. Therefore, MIG No.1 loss of control was effective when it was placed into Australian court appointed
liquidation on March 189, 2024, and was deconsolidated at this date, in accordance with ASC 810-10-15. In order to deconsolidate this
Australian entity, MIG No.1, the carrying values of the assets, liabilities and equity components previously recognized in accumulated
other comprehensive income of MIG No.1 were removed from the Company’s consolidated balance sheet as of March 19, 2024, in accordance
with ASC 810, Consolidation. The net impact of removing the assets and liabilities resulted in a loss on deconsolidation of $11.93
million being recorded in the condensed, consolidated statement of operations.
Investment in the Australian entity MIG No.1
The investment in this Australian entity, MIG
No.1, held by the Company was accounted for under ASC 321, Investments — Equity Securities as it was concluded the Company
did not have significant influence over MIG No.1 from March 19, 2024. The fair value of MIG No.1 was estimated to be $0, as at the time
of the deconsolidation.
Treatment of intercompany balances
The Company had total payables owed to MIG No.1
of $1.24 million. These payables have been treated as external payables from the date of liquidation, March 19, 2024.
MIG No.1 Secured Loan Facility Agreement
MIG No. 1 has a Secured Loan Facility Agreement with Marshall. The
loan matured in February 2024 and the total outstanding balance is $9.09 million as of March 31, 2024. The Company is a guarantor of this
loan.
NOTE 4 – BASIC AND DILUTED NET LOSS PER SHARE
Net loss per common share is calculated in accordance
with ASC 260, Earnings Per Share. Basic loss per share is computed by dividing net loss by the weighted average number of shares
of common stock outstanding during the period. The computation of diluted net loss per share does not include dilutive common stock equivalents
in the weighted average shares outstanding, as they would be anti-dilutive.
Securities that could potentially dilute loss
per share in the future that were not included in the computation of diluted loss per share as of March 31, 2024 and 2023, are as follows:
| |
As of March 31, | |
| |
2024 | | |
2023 | |
| |
| | |
| |
Warrants to purchase common stock | |
| 4,904,016 | | |
| 2,825,278 | |
Options to purchase common stock | |
| 1,750,417 | | |
| 417 | |
Restricted Stock-Units (“RSUs”) issued under equity incentive plan(s) | |
| 8,823,321 | | |
| 303,450 | |
| |
| 15,477,754 | | |
| 3,129,145 | |
NOTE 5 – LEASES
The Company’s operating leases are for mining
sites and its finance leases are primarily for related plant and equipment.
On February 2, 2024, the Company’s lease
for a non-operating property in Sharon, Pennsylvania was terminated, and the Company exited the facility, which was a non-operating site
for the Company.
The Company’s lease costs recognized in the consolidated condensed
statements of operations consist of the following:
| |
March 31, | |
| |
2024 | | |
2023 | |
| |
| | |
| |
Operating lease charges (1) | |
$ | 397,894 | | |
$ | 407,212 | |
Finance lease charges: | |
| | | |
| | |
Amortization of right-of-use assets | |
| 8,143 | | |
| 8,143 | |
Interest on lease obligations | |
| 1,507 | | |
| 2,080 | |
The following is a schedule of the Company’s lease liabilities
by contractual maturity as of March 31, 2024:
| |
Operating leases | | |
Finance leases | |
| |
| | |
| |
2024 | |
$ | 920,838 | | |
$ | 28,633 | |
2025 | |
| 325,554 | | |
| 38,176 | |
2026 | |
| 155,969 | | |
| 15,016 | |
Total undiscounted lease obligations | |
| 1,402,361 | | |
| 81,825 | |
Less: imputed interest | |
| (103,559 | ) | |
| (6,638 | ) |
Total present value of lease liabilities | |
| 1,298,802 | | |
| 75,187 | |
Less: current portion of lease liabilities | |
| 888,637 | | |
| 33,677 | |
Non-current lease liabilities | |
$ | 410,165 | | |
$ | 41,510 | |
Other lease information as of and for the period ended March 31, 2024:
| |
Operating leases | | |
Finance leases | |
| |
| | |
| |
Operating cash out flows from leases | |
$ | 258,879 | | |
$ | 9,544 | |
Weighted-average remaining lease term (years) | |
| 1.48 | | |
| 2.15 | |
Weighted-average discount rate (%) | |
| 10.00 | % | |
| 7.50 | % |
NOTE 6 – PROPERTY AND EQUIPMENT
Property and equipment, net, consisted of the
following:
| |
March 31,
2024 | | |
December 31, 2023 | |
| |
| | |
| |
Plant and equipment | |
$ | 4,960,188 | | |
$ | 4,973,191 | |
Computer equipment | |
| 125,695 | | |
| 125,695 | |
Processing machines (Miners) | |
| 77,447,520 | | |
| 102,984,186 | |
Modular data center | |
| 21,346,757 | | |
| 25,449,717 | |
Motor Vehicles | |
| 199,246 | | |
| 199,246 | |
Transformers | |
| 9,344,544 | | |
| 9,843,359 | |
Low-cost assets | |
| 976,717 | | |
| 998,815 | |
Assets under construction | |
| 4,764,051 | | |
| 4,764,051 | |
Leasehold improvements | |
| 487,527 | | |
| 487,527 | |
Total | |
| 119,652,245 | | |
| 149,825,787 | |
Less: Accumulated depreciation | |
| (83,282,367 | ) | |
| (92,085,496 | ) |
Property and equipment, net | |
$ | 36,369,878 | | |
$ | 57,740,291 | |
The Company incurred depreciation and amortization expense in the amounts
of $7.99 million and $7.96 million for the quarters ended March 31, 2024 and 2023, respectively. There were no impairment charges recognized
for property and equipment for either the quarter ended March 31, 2024, or 2023.
NOTE 7 – INCOME TAXES
The Company records income taxes using the asset
and liability method. Deferred income tax assets and liabilities are recognized for the future tax effects attributable to temporary differences
between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and operating
loss and tax credit carryforwards. The Company establishes a valuation allowance if management believes it is more likely than not that
the deferred tax assets will not be recovered based on an evaluation of objective verifiable evidence. Management has considered the Company’s
history of book and tax income and losses incurred since inception, and the other positive and negative evidence, and has concluded that
it is more likely than not that the Company will not realize the benefits of the net deferred tax assets as of March 31, 2024.
The Company recorded income tax expense of approximately
0.30% and 0.0% of loss before income tax expense for the three-month periods ended March 31, 2024 and 2023, respectively.
| |
For the three months ended
March 31, | |
| |
2024 | | |
2023 | |
| |
| | | |
| | |
Effective income tax rate | |
| 0.30 | % | |
| 0.00 | % |
As of March 31, 2024, the Company had no unrecognized tax benefits
and does not anticipate any significant change to the unrecognized tax benefit balance.
NOTE 8 – BORROWINGS
Marshall loan
In December 2021, the Company’s subsidiary
and an Australian entity, MIG No. 1 Pty Ltd entered into a Secured Loan Facility Agreement with Marshall Investments MIG Pty Ltd. The
loan matured in February 2024 and bears interest at a rate of 12% per annum (with an overdue rate provision of an additional 500bps),
payable monthly with interest payments commencing that commenced in December 2021. This loan facility is secured by direct assets of MIG
No.1 Pty Ltd and a general security agreement given by the Company. Principal repayments began during November 2022. The outstanding balance
including interest is $9.09 million as of March 31, 2024, all of which is classified as a current liability. MIG No. 1 Pty Ltd has not
made a principal and interest payment since May 2023. Marshall and MIG No. 1 Pty Ltd have each reserved their rights. On March 19, 2024,
the Company’s subsidiary and Australian entity Mig No.1 Pty Ltd was placed into an Australian court appointed liquidation and wind-up
process and was deconsolidated for the Group from this date, refer to note 3. On March 19, 2024, Marshall appointed receivers and managers
in Australia under the terms of their security relating to their secured loan facility. The direct assets that secure this loan include
5,372 miners and 8 modular data centers (“MDCs”), these assets are held by the MIG No.1 and therefore were included in the
deconsolidation. The receiver’s statutory duty includes the obligation to sell the secured assets at market value or, if market
value is not known, at the best price reasonably obtainable to maximize the prospects of there being sufficient proceeds available to
satisfy the balance of the outstanding secured debt. It is therefore expected that this loan balance will be offset in the future by the
amount received from the sale of these miners and MDCs.
Celsius loan
On February 23, 2022, Luna entered into a Co-Location
Agreement with Celsius Mining LLC. In connection with this agreement, Celsius Mining LLC loaned Luna a principal amount of $20 million,
for the purpose of funding the infrastructure required to meet the obligations of the Co-Location Agreement, for which Luna issued a Secured
Promissory Note for repayment of such amount. The Secured Promissory Note accrues interest daily at a rate of 12% per annum (with an overdue
rate provision of an additional 200bps). Luna is required to amortize the loan at a rate of 15% per quarter, principal repayments began
at the end of September 2022. The Secured Promissory Note has a maturity date of August 23, 2023, the outstanding balance including interest
is $8.82 million as of March 31, 2024, all of which is classified as a current liability. Celsius Mining LLC transferred the benefit of
the promissory note to Celsius Network Ltd. Celsius Mining LLC and Celsius Network Ltd filed for Chapter 11 bankruptcy protection on July
13, 2022. Under the Co-location Agreement, Celsius Mining LLC advanced $15.33 million to Luna that were held as a deposit. Whether that
amount has been forfeited or must be returned to Celsius Mining LLC is the subject of a dispute between the parties. As of May 1, 2024
and pursuant to a court order dated April 22, 2024, the Celsius civil lawsuit against Luna and Mawson has been dismissed pursuant to the
Company’s successful motion to compel arbitration. Currently, no arbitration proceedings or further appeals have been filed by either
party.
W Capital loan
The Company is the guarantor on a Secured Loan Facility Agreement for
working capital by Mawson Infrastructure Group Pty Ltd with W Capital Advisors Pty Ltd. As of March 31, 2024, AUD $1.77 million (USD $1.13
million) has been drawn down from this facility, all of which is classified as a current liability. The Secured Loan Facility accrues
interest daily at a rate of 12% per annum (with an overdue rate provision of an additional 800bps) and is paid monthly. Principal repayments
are paid ad hoc in line with the loan facility agreement. The Secured Loan Facility expired in March 2023. This Secured Loan facility
Agreement was originally with Mawson Infrastructure Group Pty Ltd and this Australian entity was placed into Australian voluntary administration
on October 30, 2023 and on November 3, 2023, W Capital Advisors appointed receivers and managers in Australia under the terms of their
security relating to their working capital facility.
Convertible notes
On July 8, 2022, the Company issued secured convertible
promissory notes to investors in exchange for cash. The outstanding balance relates to the interest on the convertible note which has
been accrued from July 2022 onwards and therefore the outstanding balance is $0.91 million as of March 31, 2024, all of which is classified
as a current liability.
NOTE 9 – STOCKHOLDERS’ EQUITY
Common Stock
During the quarter ended March 31, 2024, there was no movement in common
stock.
Common Stock Warrants
The Company’s outstanding stock warrants have not changed during
the three months ended March 31, 2024. The outstanding stock warrants as of March 31, 2024 are 4,904,016 with a weighted average remaining
contractual life (in years) of 3.40 and a weighted average exercise price of $11.07, all of which are exercisable.
Stock-Based Compensation:
Equity plans
Under the 2018 Equity Plan, the number of shares
issuable under the Plan on the first day of each fiscal year increase by an amount equal to the lower of (i) 100,000 shares (after a later
10 for 1 stock split) or (ii) 5% of the outstanding shares on the last day of the immediately preceding fiscal year. At the Company’s
annual meeting on May 17, 2023, the stockholders approved an amendment to the 2021 Equity Plan that, amongst other things, increased the
number of the shares available under the 2021 Equity Plan to 10,000,000 shares, and the shares available under the 2021 Equity Plan increased
by 1,000,000 shares on January 1, 2024 to 11,000,000. Upon review of the previously granted shares in previous years and the availability
of shares, on April 9, 2024, the Board of Directors approved the 2024 Omnibus Equity Plan which will provide an initial 10,000,000 shares
of common stock available for grant per the terms of the 2024 Plan and provides alignment with long-term stockholder value creation. The
2024 Omnibus Equity Plan as approved by the Board of Directors has subsequently been presented to the stockholders for adoption and approval
at the Company’s annual general meeting to be held on June 12, 2024.
The Company recognized stock-based compensation expense during the
three months ended March 31, 2024 and 2023, as follows:
| |
Three months ended
March, | |
| |
2024 | | |
2023 | |
Performance-based restricted stock awards | |
$ | 55,983 | | |
$ | 166,779 | |
Service-based restricted stock awards | |
| 6,180,528 | | |
| 29,995 | |
Stock issued to consultants | |
| - | | |
| 371,014 | |
Warrant expense | |
| - | | |
| 500,500 | |
Option expense* | |
| (1,335,027 | ) | |
| - | |
Total stock-based compensation** | |
$ | 4,901,484 | | |
$ | 1,068,288 | |
Performance-based awards
Performance-based awards generally vest over a three-year performance
period upon the successful completion of specified market and performance conditions.
The Company’s outstanding performance-based restricted stock
awards have not changed during the three months ending March 31, 2024. The outstanding performance-based restricted stock awards as of
March 31, 2024 are 75,545, with a weighted average remaining contractual life (in years) of 8.33. Of these awards 44,327 are exercisable
as of March 31, 2024 and have a weighted average remaining contractual life (in years) of 4.45.
As of March 31, 2024, there was approximately $0.06 million of unrecognized
compensation cost related to the performance-based awards, which is expected to be recognized over a remaining weighted-average vesting
period of approximately four months.
Service-based restricted stock awards
Service-based awards generally vest over a specified time period and
as determined by the Compensation Committee of the Board of Directors and/or as specified in the award agreements or employment agreements.
The following table presents a summary of the Company’s service-based
awards activity:
| |
Number of shares | | |
Weighted Average Remaining Contractual Life (in years) | |
Outstanding as of December 31, 2023 | |
| 5,242,393 | | |
| 2.28 | |
Issued | |
| 3,505,383 | | |
| - | |
Outstanding as of March 31, 2024 | |
| 8,747,776 | | |
| 1.43 | |
Exercisable as of March 31, 2024 | |
| 1,499,030 | | |
| 0.02 | |
As of March 31, 2024, there was approximately
$2.88 million of unrecognized compensation cost related to the service-based restricted stock awards, which is expected to be recognized
over a remaining weighted-average vesting period of approximately eleven months.
Stock options awards
Stock options awards vest upon the successful completion of specified
stock price threshold conditions.
The following table presents a summary of the Company’s Stock
options awards activity:
| |
Number of shares | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual Life (in years) | | |
Aggregate Intrinsic Value | |
Outstanding as of December 31, 2023 | |
| 3,500,417 | | |
$ | 1.23 | | |
| 9.70 | | |
$ | 6,923,000 | |
Cancelled | |
| (1,750,000 | ) | |
| 0.94 | | |
| - | | |
| - | |
Outstanding as of March 31, 2024 | |
| 1,750,417 | | |
$ | 0.56 | | |
| 9.65 | | |
$ | 1,708,000 | |
Exercisable as of March 31, 2024 | |
| 417 | | |
$ | 0.01 | | |
| - | | |
$ | - | |
As of March 31, 2024, there was approximately
$0.54 million of unrecognized compensation cost related to the stock options awards, which is expected to be recognized over a remaining
weighted-average vesting period of approximately eight months.
NOTE 10 – SUBSEQUENT EVENTS
On April 23, 2024, the Company’s subsidiary and an Australian
entity Mawson AU Pty Ltd was placed into an Australian court appointed liquidation and wind-up process.
On April 29, 2024, the Company’s subsidiary and an Australian
entity Mawson Services Pty Ltd was placed into an Australian court appointed liquidation and wind-up process.
On April 19, 2024, a civil suit entitled “Blockware Solutions,
LLC v. Mawson Bellefonte LLC and Mawson Infrastructure Group, Inc.” was filed in the US District Court, Southern District of New
York under Civil Action No. 1:24-cv-02976 with the plaintiff claiming alleged merchandise price and incidental damages of $115,500, alleged
consequential damages due to lost profits of $358,689, and other alleged non-specified damages, for alleged claims of non-payment. Mawson
Bellefonte, LLC is a Delaware subsidiary of the Company. Mawson Bellefonte and the Company intend to defend against these alleged claims
made related to this matter.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Management’s Discussion and Analysis of
Financial Condition and Results of Operations analyzes the major elements of our balance sheets, statements of operations and cash flows.
The following discussion and analysis of our financial condition and results of operations should be read together with the interim condensed
consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated
financial statements and related notes as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. All
amounts are in U.S. dollars.
Throughout this report, unless otherwise designated,
the terms “we,” “us,” “our,” the “Company,” “Mawson,” “our company”
and the “combined company” refer to Mawson Infrastructure Group Inc., a Delaware corporation, Cosmos Trading Pty Ltd, Cosmos
Infrastructure LLC, Cosmos Manager LLC, MIG No.1 Pty Ltd (on March 19, 2024, MIG No.1 Pty Ltd was placed into a court appointed liquidation
and wind-up process), MIG No.1 LLC, Mawson AU Pty Limited (on April 23, 2024, Mawson AU Pty Ltd was placed into a court appointed liquidation
and wind-up process), Mawson Services Pty Ltd (on April 29, 2024, Mawson Services Pty Ltd was placed into a court appointed liquidation
and wind-up process), Mawson Bellefonte LLC, Luna Squares LLC, Luna Squares Repairs LLC, Luna Squares Property LLC, Mawson Midland LLC,
Mawson Ohio LLC, Mawson Hosting LLC and Mawson Mining LLC.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking
statements, about our expectations, beliefs or intentions regarding, among other things, our product development efforts, business, financial
condition, results of operations, strategies or prospects. Forward-looking statements can be identified by the use of forward-looking
words such as “believe”, “expect”, “intend”, “plan”, “may”, “should”,
“could” or “anticipate” or their negatives or other variations of these words or other comparable words or by
the fact that these statements do not relate strictly to historical or current matters. These forward-looking statements may be included
in, but are not limited to, various filings made by us with the United States Securities and Exchange Commission (the “SEC”),
press releases or oral statements made by or with the approval of one of our authorized executive officers. Forward-looking statements
relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements
relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our
actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could
cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements,
including, but not limited to, the factors summarized below.
This report identifies important
factors which could cause our actual results to differ materially from those indicated by the forward-looking statements, particularly
those set forth under Item 1A. “Risk Factors” below.
The risk factors included in this Quarterly Report
on Form 10-Q are not necessarily all of the important factors that could cause actual results to differ materially from those expressed
in any of our forward-looking statements. Given these uncertainties, you are cautioned not to place undue reliance on such forward-looking
statements. The following important factors, among others, could affect future results and events, causing those results and events to
differ materially from those expressed or implied in our forward-looking statements:
|
- |
continued evolution and uncertainty related to growth in blockchain and bitcoin usage; |
|
|
|
|
- |
high volatility in bitcoin and other digital assets’ prices and in value attributable to our business; |
|
|
|
|
- |
our need to, and difficulty in, raising additional debt or equity capital and the availability of financing opportunities; |
|
- |
failure to maintain required compliance to remain eligible for the most cost-effective forms of raising additional equity capital; |
|
|
|
|
- |
impact of the bitcoin halving event; |
|
|
|
|
- |
downturns in the cryptocurrency industry; |
|
|
|
|
- |
inflation; |
|
|
|
|
- |
increased interest rates; |
|
- |
the inability to procure needed hardware; |
|
- |
the failure or breakdown of mining equipment, or internet connection failure; |
|
|
|
|
- |
access to reliable and reasonably priced electricity sources; |
|
|
|
|
- |
our reliance on key management personnel and employees; |
|
|
|
|
- |
cyber-security threats; |
|
- |
operational, maintenance, repair, safety, and construction risks; |
|
|
|
|
- |
our ability to obtain proper insurance; |
|
-
|
banks and other financial institutions ceasing to provide services
to our industry; |
|
|
|
|
- |
adverse actions by creditors, debt providers, or other parties; |
|
- |
changes to the Bitcoin network’s protocols and software; |
|
- |
the decrease in the incentive or increased difficulty to mine Bitcoin; |
|
- |
the increase of transaction fees related to digital assets: |
|
- |
the fraud or security failures of large digital asset exchanges; |
|
- |
future digital asset, technological and digital currency development; |
|
|
|
|
- |
our ability to develop and execute on our business strategy and plans; |
|
|
|
|
- |
the regulation and taxation of digital assets like Bitcoin; |
|
- |
our ability to timely and effectively implement controls and procedures required by Section 404 of the Sarbanes-Oxley Act of 2002; and |
|
- |
material litigation, investigations, or enforcement actions, including by regulators and governmental authorities. |
Factors that could cause our actual results to
differ materially from those expressed or implied in such forward-looking statements include, but are not limited to, the risk factors
set out in Item 1A. Risk Factors.
All forward-looking statements
attributable to us or persons acting on our behalf speak only as of the date of this report and are expressly qualified in their entirety
by the cautionary statements included in this report. We undertake no obligation to update or revise forward-looking statements to reflect
events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. In evaluating forward-looking
statements, you should consider these risks and uncertainties.
Company Overview
Mawson Infrastructure Group
Inc. (“Mawson,” the “Company,” “we,” “us,” and “our”) is a digital infrastructure
company headquartered in the United States.
Mawson is a corporation incorporated
in Delaware in 2012. On March 9, 2021, the Company acquired the shares of Cosmos Capital Limited in a stock for stock exchange. This transaction
has been accounted for as a reverse asset acquisition. Mawson was previously known as Wize Pharma Inc, and changed its name on March 17,
2021. Shares of Mawson’s common stock, par value $0.001 per share (“Common Stock”) have been listed on The Nasdaq Capital
Market since September 29, 2021.
The Company has 3 primary
businesses – digital currency or Bitcoin self-mining, co-location and related services, and energy markets.
The Company develops and operates
digital infrastructure for digital currency, such as bitcoin, mining activities on the Bitcoin blockchain network. The Company also provides
digital infrastructure services for its co-location customers that use computational machines to mine bitcoin through our data centers
and the Company charges for the use of its digital infrastructure and related services. The Company also has an energy markets program
through which it can receive net energy benefits in exchange for curtailing the power the Company utilizes from the grid in response to
instances of high electricity demand.
The Company may also transact
in digital currency mining, data center infrastructure and related equipment on a periodic basis, subject to prevailing market conditions.
The Company designs, develops, operates, and manages its digital infrastructure to responsibly support the Bitcoin network by contributing
to the scale, structure, and decentralization of the Bitcoin network and optimizing energy consumption. The Company helps contribute to
the ecosystem and growth of digital currencies and commodities as there continues to be a global transition to the new digital economy.
The Company strives to operate
and invest in markets and communities that offer low or zero carbon renewable energy sources and participate in energy management activities.
The Company invests in the communities in which the Company operates and also support our broader ecosystem.
The Company seeks to power our operations
and facilities with renewable or sustainable power to further support our sustainability priorities.
The Company may also operate
in related and adjacent businesses, including transacting in new and used crypto-currency mining and modular data centers (“MDCs”)
or other equipment on a periodic basis, subject to prevailing market conditions and any surplus the Company may be experiencing.
Recent Developments
On February 2, 2024, the Company’s
lease for a non-operational site in Sharon, Pennsylvania was terminated, and the Company exited the facility, which was a non-operating
site.
Mr. James Manning, a former
director and executive of the Company, who stepped down as Chief Executive Officer of the Company effective May 22, 2023, had entered
into an agreement with Mawson AU that he would be issued 1.35 million restricted stock units (“RSUs”) and his other RSU agreements
and entitlements would be cancelled, as set forth in the Company’s Current Report on Form 8-K filed May 25, 2023. The Company’s
Audit Committee (“Audit Committee”) of the Board of Directors (“Board”) commenced an investigation in the third
quarter of 2023 into potential related party transactions involving Mr. Manning, including but not limited to Mr. Manning’s failure
to appropriately and fully disclose certain related party transactions, late or incomplete disclosure of certain transactions, and a failure
to confirm to the Company’s satisfaction that the disclosures made about related party transactions were complete. Following the
investigation, the Audit Committee reported its initial findings to the Board on February 15, 2024. Based on the information obtained
to date and Mr. Manning’s repeated refusal to either provide a full and complete disclosure of his related party transactions (or
confirm the accuracy of prior related party disclosures provided to the Company), the Audit Committee determined that there is a prima
facie basis to conclude that Mr. Manning did not fully and properly disclose his related party transactions to the Company. Based on this
determination, the Board resolved on February 19, 2024, that certain RSUs, payments, and other equity grants provided for in Mr. Manning’s
May 2023 Separation Agreement should not be issued by the Company.
On March 19, 2024, an Australian
entity and subsidiary of the Company, Mig No.1 Pty Ltd, was placed into an Australian court appointed liquidation and wind-up process.
On March 29, 2024, the Company
released an 8-K that the Company may seek to exit certain or all of its entities and holdings in Australia.
On April 15, 2024, the Company
announced that the Board had appointed Ryan Costello, a former U.S. Congressman, as the Chair of the Company’s Board of Directors
effective April 9, 2024.
On April 23, 2024, an Australian
entity and subsidiary of the Company, Mawson AU Pty Ltd, was placed into an Australian court appointed liquidation and wind-up process.
On April 29, 2024, an Australian
entity and subsidiary of the Company, Mawson Services Pty Ltd, was placed into an Australian court appointed liquidation and wind-up process.
On April 19, 2024, a civil
suit entitled “Blockware Solutions, LLC v. Mawson Bellefonte LLC and Mawson Infrastructure Group, Inc.” was filed in the US
District Court, Southern District of New York under Civil Action No. 1:24-cv-02976 with the Plaintiff claiming alleged merchandise price
and incidental damages of $115,500, alleged consequential damages due to lost profits of $358,689, and other alleged, non-specified damages,
for alleged claims of non-payment. Mawson Bellefonte, LLC is a Delaware subsidiary of the Company. Mawson Bellefonte and the Company intend
to defend against alleged claims made related to this matter.
Results of Operations – Three months Ended March 31, 2024
compared to the three months ended March 31, 2023
| |
For the three months ended | |
| |
March 31, | |
| |
2024 | | |
2023 | |
Revenues: | |
| | |
| |
Digital currency mining revenue | |
$ | 7,514,763 | | |
$ | 2,756,000 | |
Co-location revenue | |
| 8,234,041 | | |
| 4,322,553 | |
Net energy benefits | |
| 2,472,505 | | |
| 441,055 | |
Sale of equipment | |
| 550,000 | | |
| 150,997 | |
Total revenues | |
| 18,771,309 | | |
| 7,670,605 | |
Less: Cost of revenues (excluding depreciation) | |
| 11,786,168 | | |
| 4,678,002 | |
Gross profit | |
| 6,985,141 | | |
| 2,992,603 | |
Operating expenses: | |
| | | |
| | |
Selling, general and administrative | |
| 3,463,923 | | |
| 4,977,417 | |
Stock based compensation | |
| 4,901,484 | | |
| 1,068,288 | |
Depreciation and amortization | |
| 7,999,076 | | |
| 7,962,523 | |
Change in fair value of derivative asset | |
| (1,686,152 | ) | |
| 681,225 | |
Total operating expenses | |
| 14,678,331 | | |
| 14,689,453 | |
Loss from operations | |
| (7,693,190 | ) | |
| (11,696,850 | ) |
Non-operating income (expense): | |
| | | |
| | |
Gains (losses) on foreign currency transactions | |
| 169,638 | | |
| (418,216 | ) |
Interest expense | |
| (734,580 | ) | |
| (835,107 | ) |
Loss on write off property and equipment | |
| - | | |
| (118,933 | ) |
Profit on sale of site | |
| - | | |
| 790,847 | |
Gain on sale of marketable securities | |
| - | | |
| 1,437,230 | |
Other income | |
| 165,160 | | |
| 44,510 | |
Other expenses | |
| (9,792 | ) | |
| - | |
Loss on deconsolidation | |
| (11,925,908 | ) | |
| - | |
Share of net loss of equity method investments | |
| - | | |
| (36,356 | ) |
Total non-operating income (expense), net | |
| (12,335,482 | ) | |
| 863,975 | |
Loss before income taxes | |
| (20,028,672 | ) | |
| (10,832,875 | ) |
Income tax benefit (expense) | |
| 59,387 | | |
| (548,083 | ) |
Net Loss | |
| (19,969,285 | ) | |
| (11,380,958 | ) |
Less: Net loss attributable to non-controlling interests | |
| (205,086 | ) | |
| (278,933 | ) |
Net Loss attributed to Mawson Infrastructure Group stockholders | |
$ | (19,764,199 | ) | |
$ | (11,102,025 | ) |
Net Loss per share, basic & diluted | |
$ | (1.19 | ) | |
$ | (0.80 | ) |
Weighted average number of shares outstanding | |
| 16,644,711 | | |
| 13,953,308 | |
Revenues
Digital currency mining revenues from production
of bitcoin for the three months ended March 31, 2024, and 2023, were $7.51 million and $2.76 million, respectively. This represented an
increase of $4.75 million or 172%. The increase for the 3 months ended March 31, 2024 was due in part to the Company transitioning from
its self- mining operations at its Georgia facilities to its Pennsylvania facilities during 2023, which it had completed in 2024. The
increase in mining revenue for the period was also driven by the average price of bitcoin increasing. During the quarter ended March 31,
2023, the average price of Bitcoin was $22,721, whereas the average price of bitcoin during the quarter ended March 31, 2024, was $54,468,
a 140% increase in the average price, that was offset by a higher network difficulty rate in 2024. In addition, the increase in mining
revenue is also partially due to the total bitcoin produced in the 2024 period versus the 2023 period. Bitcoin produced totaled 140.20
in the 2024 period compared with 121.11 in the 2023 period, an increase of 16% of bitcoin produced over the respective period.
Co-location
services revenues for three months ended March 31, 2024 and 2023, were $8.23 million and $4.32 million, respectively. The increase in
revenue was due to the number of miners we co-located during 2024, during
the 2024 quarter the Company provided co-location services to multiple co-location customers, whereas in the 2023 quarter the Company
only provided co-location services to one customer.
Net energy benefits revenues for the three months
ended March 31, 2024 and 2023, were $2.47 million and $0.44 million, respectively. This represented an increase of $2.03 million or a
461% increase. This increase is due to the Company participating more in the energy programs in the 2024 period than in the 2023 period
due to higher power costs in the current period.
Sales of digital mining equipment for the three
months ended March 31, 2024 and 2023, were $0.55 million and $0.15 million, respectively.
Operating Cost and Expenses
Our operating costs and expenses
include cost of revenues; selling, general and administrative expenses; stock-based compensation; change in fair value of derivative asset;
and depreciation and amortization.
Cost of revenue
Our cost of revenue consists
primarily of direct power costs related to digital currency mining and co-location services and cost of mining equipment sold.
Cost of revenue for the three months ended March
31, 2024 and 2023, were $11.79 million and $4.68 million, respectively. The increase in cost of revenue was primarily attributable to
an increase in power costs related to the energy used to operate the Company mining equipment and co-located mining equipment within our
facilities.
Selling, general and administrative
Our selling, general and administrative
expenses consist primarily of professional and management fees relating to: employee compensation, audit; legal; equipment repairs; marketing;
freight; insurance; consultant fees; lease amortization, general and other expenses.
Selling, general and administrative expenses for
the three months ended March 31, 2024 and 2023 were $3.46 million and $4.98 million, respectively, which is a reduction of $1.52 million
from period to period. The decrease in these expenses is primarily attributable to payroll costs decreasing by $0.24 million; property
tax decreasing by $0.32 million; freight decreasing by $0.13 million; marketing expense decreasing by $0.21 million; rent costs decreasing
by $0.16 million and contract labor decreasing by $0.14 million, due to cost reduction and optimization actions that the Company had previously
undertaken.
Stock based compensation
Stock based compensation expenses for the three
months ended March 31, 2024 and 2023 were $3.46 million and $1.07 million, respectively. In the three months ended March 31, 2024, stock
based compensation was attributable to costs recognized in relation to long-term incentives for the Company’s directors, management,
and employees and to align incentives with long-term stockholder value creation. Whereas in the three months ended March 31, 2023, share
based payments were largely attributable to costs recognized for warrants issued to Celsius Mining LLC amounting to $0.50 million, shares
issued to W Capital Advisors Pty Ltd amounting to $0.31 million and $0.20 million in relation to long-term incentives for the Company’s
directors and management.
Depreciation and amortization
Depreciation consists primarily of depreciation
of digital currency mining hardware and MDC equipment.
Depreciation and amortization for the three months
ended March 31, 2024 and 2023, were $7.99 million and $7.96 million, respectively.
Change in fair value of derivative asset
During the three months ended March 31, 2024 and
2023, there was a gain on the fair value of the derivative asset by $1.69 million and a loss of $0.68 million, respectively, in relation
to our power supply arrangements. The gain on the derivative asset was due to the increase in the price of energy costs in 2024.
Non-operating expenses
Non-operating expenses consist primarily of interest
expenses, loss on deconsolidation and other expenses.
Interest expenses for the three months ended March
31, 2024 and 2023, were $0.73 million and $0.84 million, respectively. This decrease of $0.11 million was attributable to the paydown
of debt during 2023 and 2024.
During the three months ended
March 31, 2024, the Company recognized a deconsolidation loss of $11.93 million. This loss was as a result of an Australian entity and
subsidiary, MIG No.1 Pty Ltd, going into Australian court appointed liquidation and accordingly this subsidiary was deconsolidated. The
deconsolidation loss recorded was due to the removal the net assets and certain liabilities of this subsidiary from the condensed consolidated
financial statements. See Note 3 - Subsidiary Deconsolidation to the Consolidated Condensed Financial Statements (Unaudited) in Item 1.
Financial Statements, for further discussion.
Non-operating income
Non-operating income consists primarily of gain
on foreign currency transactions and other income.
During the three months ended
March 31, 2024 and 2023, the realized and unrealized gain on foreign currency transactions was $0.17 million and a loss of $0.42 million,
respectively. This difference was due mostly to the movement in foreign exchange rates.
Net loss attributable to Mawson Infrastructure Group, Inc. stockholders
As a result of the foregoing, the Company recognized
a net loss of $19.76 million for the three months ended March 31, 2024, compared to a net loss of $11.10 million for the three months
ended March 31, 2023.
Liquidity and Capital Resources
General
Liquidity is the ability of
a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing
basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts
payable and capital expenditure. For the three-month period ended March 31, 2024, we financed our operations primarily through net cash
provided by operating activities of $1.88 million and other cash reserves. During the three months ending March 31, 2024, the Company
repaid $0.50 million of principal payments against previous facilities provided by W Capital Advisors Pty Ltd.
On May 27, 2022, the Company
entered an At the Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC (“Wainwright”),
and filed a prospectus supplement, to sell shares of our Common Stock through an “at the market offering” program as defined
in Rule 415 promulgated under the Securities Act of 1933, as amended. Effective May 4, 2023, the Company filed a prospectus supplement
to amend, supplement and supersede certain information contained in the earlier prospectus and prospectus supplement, which reduced the
number of shares of Common Stock the Company may offer and sell under the ATM Agreement to an aggregate offering price of up to $9 million
from time to time. Sales of shares of Common Stock pursuant to the ATM Agreement are currently inactive, have been inactive since May
3, 2023, and are not currently expected until at the earliest August 2024, when the Company is expected to have eligibility to use Form
S-3 registration statements. After the Company has eligibility to use Form S-3 registration statements, the Company still expects limitations
related to General Instruction I.B.6 of Form S-3, which is referred to as the “baby shelf” rules.
We believe our near-term working
capital requirements will continue to be funded through a combination of the cash we expect to generate from future operations, our existing
funds, external debt facilities that may be available to us, further issuances of shares, and other potential sources of capital, monetization,
or funds. We believe a combination of these opportunities are expected to be adequate to fund our longer-term operations needed over the
next twelve months. For our business growth, it is expected we may continue investing in expanding our infrastructure, expanding and/or
upgrading our miners, and/or other equipment and will require additional working capital in the short-term and long-term. As of March
31, 2024, we had an aggregate of $19.13 million of debt all of which is overdue for repayment unless we refinance or renegotiate the terms.
In addition, the Celsius deposit of $15.33 million is the subject of an ongoing legal dispute.
Please see our Risk Factor entitled “We will
need to raise substantial additional capital to continue our operations and execute our business strategy, meet our debt service obligations
and execute our business strategy, and we may not be able to raise adequate capital on a timely basis, on favorable terms, or at all.
Our inability to raise sufficient capital would have a material adverse effect on our financial condition and business.” in our
Annual Report on Form 10-K for the year ended December 31, 2023.
Working Capital and Cash Flows
As of March 31, 2024 and December
31, 2023, we had a cash and cash equivalent balance of $6.37 million and $4.48 million, respectively. As of March 31, 2024 and December
31, 2023, the trade receivables balance was $13.24 million and $12.11 million, respectively. As of March 31, 2024, we had $19.13 million
of outstanding short-term borrowings, and as of December 31, 2023, we had $19.35 million of short-term borrowings. The short-term borrowings
as of March 31, 2024, relate to Celsius Mining LLC, W Capital Advisors Pty Ltd, the secured convertible promissory notes issued to investors
and Marshall Investments MIG Pty Ltd (these loans are currently in default, refer to Material Cash Requirements section below for more
information). As of March 31, 2024 and December 31, 2023, we had negative working capital of $30.39 million and $33.18 million,
respectively.
The following table presents
the major components of net cash flows (used in) provided by operating, investing and financing activities for the years ending March
31, 2024 and 2023:
| |
Three Months Ended March 31, | |
| |
2024 | | |
2023 | |
| |
| | |
| |
Net cash provided by operating activities | |
$ | 1,875,647 | | |
$ | 1,316,592 | |
Net cash provided by investing activities | |
$ | 530,640 | | |
$ | 4,069,294 | |
Net cash used in financing activities | |
$ | (509,544 | ) | |
$ | (4,935,714 | ) |
For the three months ended
March 31, 2024, net cash provided by operating activities was $1.88 million and for the three months ended March 31, 2023, net cash provided
by operating activities was $1.32 million. The increase in net cash provided by operating activities was attributable to operations and
timing differences in trade and other receivables and trade and other payables amongst other factors.
For the three months ended
March 31, 2024, net cash provided by investing activities was $0.53 million and for the three months ended March 31, 2023, net cash provided
by investing activities was $4.07 million. The net cash provided by investing activities during the year ended March 31, 2024, was primarily
attributable to the proceeds from sale of certain non-utilized equipment. The net cash provided by investing activities during the year
ended March 31, 2023, was primarily attributable to the proceeds from the sale of CleanSpark, Inc. shares held offset by the purchase
of equipment.
For the three months ended
March 31, 2024, net cash used in financing activities was $0.51 million and for the three months ended March 31, 2023, net cash used in
financing activities was $4.94 million. The cash used in financing activities during the three months ended March 31, 2024, was primarily
attributable to the repayment of borrowings.
Material Cash Requirements
The following discussion summarizes
our material cash requirements from contractual and other obligations.
In December 2021, the Company’s
subsidiary and Australian entity MIG No. 1 Pty Ltd entered into a Secured Loan Facility Agreement with Marshall Investments MIG Pty Ltd
(“Marshall”). The loan matured in February 2024 and bears interest at a rate of 12% per annum (with an overdue rate provision
of an additional 500bps), payable monthly with interest payments that commenced in December 2021. This loan facility is secured by direct
assets of MIG No.1 Pty Ltd and a general security agreement given by the Company. Principal repayments began during November 2022. The
outstanding balance includes interest of $9.09 million as of March 31, 2024, all of which is classified as a current liability. MIG No.
1 Pty Ltd has not made a principal and interest payment since May 2023. Marshall and MIG No. 1 Pty Ltd have each reserved their rights.
On March 19, 2024, Mig No.1 Pty Ltd, which is an Australian entity, was placed into an Australian court appointed liquidation and wind-up
process and was from the Company’s group as of this date. See Note 3 - Subsidiary Deconsolidation to the Consolidated Condensed
Financial Statements (Unaudited) in Item 1. Financial Statements, for further discussion. On March 19, 2024, Marshall appointed receivers
and managers in Australia under the terms of their security relating to their secured loan facility. The assets securing this loan include
5,372 miners and 8 modular data centers (“MDCs”) these assets are held by the MIG No.1 and therefore were included in the
deconsolidation. The receiver’s statutory duty includes the obligation to sell the secured assets at market value or, if market
value is not known, at the best price reasonably obtainable to maximize the prospects of there being sufficient proceeds available to
satisfy the balance of the outstanding secured debt. It is therefore expected that this loan balance will be offset in the future by the
amount received from the sale of the miners and MDCs.
On February 23, 2022, the
Company’s subsidiary Luna Squares LLC entered into a Co-Location Agreement with Celsius Mining LLC. In connection with this agreement,
Celsius Mining LLC loaned Luna Squares LLC a principal amount of $20 million, for the purpose of funding the infrastructure required to
meet the obligations of the Co-Location Agreement, for which Luna Squares LLC issued a Secured Promissory Note for repayment of such amount.
The Secured Promissory Note accrues interest daily at a rate of 12% per annum (with an overdue rate provision of an additional 200bps).
Luna Squares LLC is required to amortize the loan at a rate of 15% per quarter, principal repayments began at the end of September 2022.
The Secured Promissory Note has a maturity date of August 23, 2023, and the outstanding balance including interest is $8.82 million as
of March 31, 2024, all of which is classified as a current liability. Celsius Mining LLC transferred the benefit of the promissory note
to Celsius Network Ltd. Celsius Mining LLC and Celsius Network Ltd filed for Chapter 11 bankruptcy protection on July 13, 2022. Under
the Co-location Agreement, Celsius Mining LLC advanced $15.33 million to Luna Squares LLC that was held as a deposit. Whether that amount
has been forfeited or must be returned to Celsius Mining LLC is the subject of a dispute between the parties. As of May 1, 2024 and pursuant
to a court order dated April 22, 2024, the Celsius civil lawsuit against Luna Squares and Mawson has been dismissed pursuant to the Company’s
successful motion to compel arbitration. Currently, no arbitration proceedings or further appeals have been filed by either party.
The Company is the guarantor
of a Secured Loan Facility Agreement for working capital by the Company’s subsidiary Mawson Infrastructure Group Pty Ltd with W
Capital Advisors Pty Ltd. As of March 31, 2024, AUD $1.77 million (USD $1.13 million) has been drawn down from this facility, all of which
is classified as a current liability. The Secured Loan Facility accrues interest daily at a rate of 12% per annum (with an overdue rate
provision of an additional 800bps) and is paid monthly. Principal repayments are paid ad hoc in line with the loan facility agreement.
The Secured Loan Facility expired in March 2023. On October 30, 2023 Mawson Infrastructure Group Pty Ltd, which is an Australian entity,
was placed into voluntary administration in Australia, and on November 3, 2023, W Capital Advisors appointed receivers and managers in
Australia under the terms of their security relating to their working capital facility.
On July 8, 2022, the Company
issued secured convertible promissory notes to investors in exchange for cash. The outstanding balance relates to the interest on the
convertible note which has been accrued from July onwards and therefore the outstanding balance is $0.91 million as of March 31, 2024,
all of which is classified as a current liability.
Financial condition
As of March 31, 2024, and
December 31, 2023, we had net current liabilities of $30.39 million and $33.18 million, respectively. As of March 31, 2024, and December
31, 2023, we had net assets of $13.01 million and $30.38 million, respectively. As of March 31, 2024, we had an accumulated deficit of
$202.43 million compared to $182.67 million as of December 31, 2023. Our cash position of March 31, 2024, was $6.37 million in comparison
to $4.48 million as of December 31, 2023. For the three-month period ended March 31, 2024 and 2023 the Company incurred a loss after tax
of $19.97 million and $11.38 million, respectively. Included in trade and other receivables is a $2 million payment due and pending from
CleanSpark, Inc. for the sale of the Georgia facility. CleanSpark, Inc has disputed the obligation to make this payment. On December 22,
2023, the Company made formal demand on CleanSpark Inc. and CSRE Properties Sandersville, LLC for at least $2 million for breach of contract
on the debtors’ obligation to pay for an energy earnout provision contained in a Purchase and Sale Agreement dated October 1, 2022,
between the parties. Subsequently, on January 12, 2024, Mawson and Luna filed notice of its claim for formal arbitration before the American
Arbitration Association. On February 5, 2024, CleanSpark and CSRE filed a motion objecting to jurisdiction of the arbitration proceedings.
An arbitrator was appointed to hear the matter and on May 1, 2024, ruled that the arbitration proceedings be dismissed for lack of jurisdiction
on the grounds of conflicting language contained in the purchase and sale agreement. The ruling did not address the merits of the Company’s
claims, and the Company intends to pursue its claims against Cleanspark, Inc. by civil lawsuit through a filing with the court.
Our primary requirements for
liquidity and capital are working capital, capital expenditures, public company costs and general corporate needs. In particular, we have
large power usage costs, and other significant costs include our lease, operational, general costs and employee costs. We expect these
capital and liquidity needs to continue as we further develop and grow our business. Our principal sources of liquidity have been and
are expected to be our cash and cash equivalents, external debt facilities available to us and further issuances of shares.
We require additional capital
to respond to near-term debt repayment obligations, competitive pressure, market dynamics, new technologies, customer demands, business
opportunities, challenges, potential acquisitions or unforeseen circumstances, and we will likely need to determine to engage in equity
or debt financings in the short term. If we are unable to obtain adequate financing on terms satisfactory to us when we require it, our
ability to continue to fund, grow or support our business model and to respond to business challenges could be significantly limited,
our business, financial condition and results of operations could be adversely affected, and this may result in bankruptcy or our ceasing
operations.
The Company continues to take
steps to preserve cash by optimizing costs and negotiating with its suppliers to improve or extend their terms of trade. The Company has
been improving its revenue generation by improving the efficiency of its operations and adding multiple, institutional co-location services
customers. The Company will continue to seek to optimize its cashflows through these and other initiatives.
Non-GAAP Financial Measures
The Company utilizes a number
of different financial measures, both GAAP and non-GAAP, in analyzing and assessing its overall business performance, for making operating
decisions and for forecasting and planning future periods. The Company considers the use of non-GAAP financial measures helpful in assessing
its current financial performance, ongoing operations, and prospects for the future. While the Company uses non-GAAP financial measures
as a tool to enhance its understanding of certain aspects of its financial performance, the Company does not consider these measures to
be a substitute for, or superior to, the information provided by GAAP financial measures. Consistent with this approach, the Company believes
that disclosing non-GAAP financial measures to the readers of its financial information provides such readers with useful supplemental
data that, while not a substitute for GAAP financial measures, allows for greater transparency in the review of its financial and operational
performance. Investors are cautioned that there are inherent limitations associated with the use of non-GAAP financial measures as an
analytical tool. In particular, non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles and
many of the adjustments to the GAAP financial measures reflect the exclusion of items that are recurring and will be reflected in the
company’s financial results for the foreseeable future. In addition, other companies, including other companies in the Company’s
industry, may calculate non-GAAP financial measures differently than the Company does, limiting their usefulness as a comparative tool.
The Company is providing supplemental
financial measures for (i) non-GAAP adjusted earnings before interest, taxes, depreciation and amortization, or (“adjusted EBITDA”)
that excludes the impact of interest, income tax, depreciation, amortization, stock-based compensation expense, change in fair value of
derivative asset, impairment of financial assets, unrealized gains/losses, share of net loss of equity method investments, loss on deconsolidation
and certain non-recurring expenses. We believe that adjusted EBITDA is useful to investors in comparing our performance across reporting
periods on a consistent basis where one-time, or non-recurring gains or losses or expenses unrelated to operating activities would otherwise
mask the Company’s operating performance.
| |
For the three month period ended | |
| |
2024 | | |
2023 | |
Reconciliation of non-GAAP adjusted EBITDA: | |
| | |
| |
Net loss: | |
$ | (19,969,285 | ) | |
$ | (11,380,958 | ) |
Share of net loss of equity method investments | |
| - | | |
| 36,356 | |
Depreciation and amortization | |
| 7,999,076 | | |
| 7,962,523 | |
Stock based compensation | |
| 4,901,484 | | |
| 1,068,288 | |
(Gain) loss on foreign currency transactions | |
| (169,638 | ) | |
| 418,216 | |
Other non-operating income | |
| (165,160 | ) | |
| (44,510 | ) |
Other non-operating expenses | |
| 744,372 | | |
| 954,040 | |
Change in fair value of derivative asset | |
| (1,686,152 | ) | |
| 681,225 | |
Income tax | |
| (59,387 | ) | |
| 548,083 | |
Loss on deconsolidation | |
| 11,925,908 | | |
| - | |
EBITDA (non-GAAP) | |
$ | 3,521,218 | | |
$ | 243,263 | |
Critical accounting estimates
The preparation of the financial statements in
conformity with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial
statements and accompanying notes. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of
income and expenses during the reporting periods. Actual results could differ from those estimates. There have been no material changes
to our critical accounting policies and estimates as set forth in Item 7, Management’s Discussion and Analysis of Financial Condition
and Results of Operations, included in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, the Company has
elected not to provide the disclosure required by this item.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
Our Board of Directors, the Board Committee(s)
and management team, including our Chief Executive Officer and President (principal executive officer) and Chief Financial Officer (principal
financial officer), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a- 15(e)) and 15d-
15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this
Quarterly Report. Our Board of Directors and management recognizes that any controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the
cost benefit relationship of possible controls and procedures. Based on this evaluation, our Chief Executive Officer and President and
Chief Financial Officer have concluded that our disclosure controls and procedures were not effective at the reasonable assurance level
as of March 31, 2024, including the material weaknesses in our internal control over financial reporting described below. Management’s
assessment of the effectiveness of our disclosure controls and procedures is expressed at a level of reasonable assurance because management
recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving
their objectives.
Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
A material weakness is a deficiency, or a combination
of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement
of our annual or interim financial statements will not be prevented or detected on a timely basis.
Whilst remediation actions are ongoing and controls
have been implemented across all business processes, the material weaknesses in our internal control over financial reporting and information
technology will not be considered remediated, until controls have operated for a sufficient period of time and have been tested for and
concluded to be operating effectively. As operating effectiveness testing has not been concluded as of the date of this report, we continue
to disclose the following material weaknesses.
Significant Reliance on Certain Individuals. There
is inadequate segregation of duties in place related to our financial reporting and other review and oversight procedures due to the lack
of sufficient accounting and other personnel. This is not inconsistent with similar sized and small organizations. This gives rise to
the risk of lack of ability to react in a timely manner to operations issues and to fully meet the requirements of the SEC, GAAP, and
the Sarbanes-Oxley Act of 2002. In addition, this poses the risk that compliance and other reporting obligations are not dealt with in
an adequate manner.
Controls over the financial statement close
and reporting process. Controls were not adequately designed or implemented in the financial statement close and reporting process.
This includes controls related to complex and judgmental accounting transactions including business acquisitions and divestures, derivatives,
manual journal entries, account reconciliations and financial statement policies and disclosures.
Information and Technology
Controls. There are control deficiencies related to information technology (“IT”) general controls that in
the aggregate constitute a material weakness. Deficiencies identified include lack of controls over access to programs and data, program
changes, program development and general IT controls.
Data from third parties. The Company
does not have the resources and personnel to fully execute its designed controls to ensure that data received from third parties was validated,
complete and accurate. Such data is relied on by the Company in determining amounts pertaining to mining and co-location revenue, net
energy benefits, and digital currency assets.
Fixed asset verification. The Company
does not have the resources and personnel to fully execute its designed controls around physical asset verification. Together with system
limitations, restricting tracking of fixed asset movements, there is a risk around the existence of fixed assets.
Notwithstanding the identified material weaknesses
and management’s assessment that our disclosure controls and procedures were not effective as of March 31, 2024, management believes
that the consolidated condensed financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects,
our financial condition, results of operations and cash flows as of and for the periods presented in accordance with generally accepted
accounting principles. We rely on the assistance of outside advisors with expertise in these matters in preparing the financial statements.
Remediation
Our Board of Directors and management take internal
control over financial reporting and the integrity of our financial statements seriously. Our management continues to work to find ways
to improve its controls related to our material weaknesses. With the oversight of the Board of Directors, the Board Committee(s) and management,
the Company plans to continue to progress the remediation of the underlying causes of the identified material weaknesses, primarily through
the performance of a risk assessment process; the development and implementation of formal, documented policies and procedures, improved
processes and control activities (including an assessment of the segregation of duties); as well as the hiring of additional finance and
other personnel for specific roles including financial reporting.
Whilst controls have been implemented across all
business processes and are operating, the material weaknesses in our internal control over financial reporting and information technology
will not be considered remediated until controls have operated for a sufficient period of time and have been tested for and concluded
on for effectiveness. As operating effectiveness testing has not been concluded as of the date of this report, we continue to disclose
the material weaknesses.
Remediation efforts for upcoming quarters will
be focused on progressing the implementation of the remainder of controls, refining existing controls and validating the effectiveness
of implemented controls using criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control. We cannot provide any assurance that our remediation efforts will be successful or that our internal control over financial reporting
and other business processes will be effective as a result of these efforts. In addition, as we continue to evaluate and work to improve
our internal control over financial reporting related to the identified material weaknesses, management may determine to take additional
measures to address control deficiencies or determine to modify or update the remediation plan described above.
Changes in internal control over financial
reporting
Except for the remedial measures described above,
there have been no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange
Act) that occurred during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures and Internal
Control over Financial Reporting
In designing and evaluating the disclosure controls
and procedures and internal control over financial reporting, the Board of Directors and management recognizes that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition,
the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource
constraints, and that the Board of Directors and management is required to apply judgment in evaluating the benefits of possible controls
and procedures relative to their costs.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We have been made a defendant
in certain legal proceedings which may have in the future or have had in the recent past significant effects on our financial position
or profitability. On July 13, 2022, Celsius Mining LLC and Celsius Network LLC and other related entities (collectively, “Celsius”),
filed for bankruptcy relief under Chapter 11 in the United States Bankruptcy Court for the Southern District of New York (the “Court”),
Case No. 22-10964. In that matter, on November 23, 2023, Celsius filed an adversary proceeding against Mawson, its subsidiaries Luna Squares
LLC and Cosmos Infrastructure LLC, asserting various claims related to the alleged breach of a Co-Location Agreement and Secured Promissory
Note. Adv. Case No. 23-01202, claiming it is owed approximately $8 million under the promissory note and claiming entitlement to return
of $15.33 million paid as deposit. Mawson denied that Celsius is entitled to the relief it seeks in the adversary proceeding and is actively
defending the matter. Many of the related claims and disputes between Celsius and Mawson have been disclosed in more detail in Mawson’s
previous filings with the SEC. As part of its defense, Mawson sought to have the matter removed from the adversary proceeding to arbitration
based on the arbitration clause contained in one of the transaction’s agreements. Celsius opposed the removal and the matter was
heard before the Court. On February 27, 2024, the Court ruled in part that the claims regarding the Co-Location Agreement could be arbitrated,
but the claims for the promissory note would stay before the Court. The Court appointed a litigation administrator to handle the claims
arising out of the promissory note. Mawson appealed this decision to the District Court for the Southern District of New York and ultimately
prevailed. As of May 1, 2024, and pursuant to a court order dated April 22, 2024, the Celsius civil lawsuit against Luna Squares and Mawson
has been dismissed pursuant to the Company’s successful motion to compel arbitration. Currently, no arbitration proceedings or further
appeals have been filed by either party.
On December 22, 2023, Mawson
Infrastructure Group Inc. and Luna Squares LLC made formal demand on CleanSpark Inc. and CSRE Properties Sandersville, LLC for $2,000,000
for breach of contract for failing to pay for an energy earnout provision contained in the Purchase and Sale Agreement dated September
8, 2022, between the parties. Subsequently, on January 12, 2024, Mawson and Luna filed notice of its claim for formal arbitration before
the American Arbitration Association. On February 5, 2024, CleanSpark and CSRE filed a motion objecting to jurisdiction of the arbitration
proceedings. An arbitrator was appointed to hear the matter and on May 1, 2024 ruled that the arbitration proceedings be dismissed for
lack of jurisdiction on the grounds of conflicting language contained in the purchase and sale agreement. The ruling did not address the
merits of the Company’s claims, and the Company intends to pursue its claims by civil lawsuit through a court filing.
On March 28, 2024, the Company
was made a defendant in a civil suit before the Supreme Court of NSW in Sydney Australia, in the matter entitled “W Capital Advisors
Pty Ltd in its capacity as trustee for the W Capital Advisors Fund v. Mawson Infrastructure Group, Inc.”, Docket No. 2024/00117331,
alleging a claim to seek US$166,219 as unpaid interest under a convertible note after the Company paid in full the principal of $500,000,
and AUD$298,926 under a loan deed, plus interest and costs for sums due claiming corporate guarantee by the Company for a “Variation
Deed to Loan Deed” dated September 29, 2022, executed by its Australian entity, Mawson Infrastructure Group Pty Ltd. As noted previously
in the Company’s Current Report on Form 8-K filed on March 29, 2024, the Company, pursuant to Australian law, on March 28, 2024,
sent a preliminary discovery notice to W Capital to obtain documents and to investigate and ascertain if W Capital is a related party
to Mr. James Manning, the Company’s former director and executive, and to investigate and ascertain if transactions between W Capital
Advisors Pty Ltd and the Company were related party transactions.
The Company and some of its
subsidiaries, including Australian entities, are currently in disputes, as outlined below. These disputes may be in or may lead to litigation.
On January 8, 2024, a commercial
demand was made Flynt ICS Pty Ltd to the Company’s subsidiary and an Australian entity, MIG No. 1 Pty Ltd, for $129,930, for alleged
claimed sums due under a service agreement. As determined by the Audit Committee’s investigation into Mr. James Manning, Flynt ICS
Pty Ltd is a party related to Mr. James Manning, a former director and executive of the Company. On March 19, 2024, MIG No.1 Pty Ltd was
placed into an Australian court appointed liquidation and wind-up process. See Note 3 - Subsidiary Deconsolidation to the Consolidated
Condensed Financial Statements (Unaudited) in Item 1. Financial Statements, for further discussion.
On February 1, 2024, a former
independent contractor, Noam Danenberg, through his professional company, N. Danenberg Holding (2000) Ltd, apparently filed a civil suit
in Tel Aviv Israel against the Company for an alleged $90,000 in fees and other benefits. The Company has never been formally served nor
has it submitted to jurisdiction in Israel.
On October 30, 2023, the directors
of the Company’s Australian subsidiary, Mawson Infrastructure Group Pty Ltd (“Mawson AU”) appointed voluntary administrators
in Australia to Mawson AU. Voluntary administration is a process under Australian corporate law where an external administrator is appointed
to take control of the relevant entity, investigate and report to creditors about the relevant entity’s business, property, affairs
and financial circumstances, and report on the options available to creditors. It is not a court process. On November 3, 2023, W Capital
Advisors appointed receivers and managers in Australia under the terms of their security relating to their working capital facility.
On January 3, 2024,
W Capital put Mawson on notice of its intent to collect what it asserts are past due amounts for the following claims as of December 31,
2023: (a) principal and interest payable on the Loan Amount advanced to Mawson under a variation deed, amounting to $1.30 million (AU
$1.90 million); (b) the principal amount advanced under convertible note, amounting to $0.50 million; and (c) interest payable on the
principal amount advanced under a convertible note, amounting to $0.07 million. W Capital is also claiming issuance of an alleged 1,500,000
shares of the Company. The Company paid to W Capital $0.50 million on March 6, 2024, and is reserving all of its rights and remedies as
they pertain to W Capital’s alleged claims for additional AU$1.30 million and 1,500,000 shares which the Company disputes. On March
28, 2024, the Company was made a defendant in a civil suit before the Supreme Court of NSW, in Sydney Australia, in the matter entitled
“W Capital Advisors Pty Ltd in its capacity as trustee for the W Capital Advisors Fund v. Mawson Infrastructure Group, Inc.”,
Docket No. 2024/00117331, alleging a claim to seek US$166,219 as alleged unpaid interest under a convertible note after the Company paid
in full the principal of $500,000, and an alleged AUD$298,926 under a loan deed, plus interest and costs for sums allegedly due claiming
corporate guarantee by the Company for a “Variation Deed to Loan Deed” dated September 29, 2022, executed by Australian entity,
Mawson Infrastructure Group Pty Ltd. As noted previously in the Company’s Current Report on Form 8-K filed on March 29, 2024, the
Company, pursuant to Australian law, on March 28, 2024, sent a preliminary discovery notice to W Capital to obtain documents and materials
to investigate and ascertain if W Capital is a related party to Mr. James Manning, the Company’s former director and executive,
and to investigate and ascertain if transactions between W Capital Advisors Pty Ltd and the Company were related party transactions.
On April 19, 2024, a civil suit entitled “Blockware
Solutions, LLC v. Mawson Bellefonte LLC and Mawson Infrastructure Group, Inc.” was filed in the US District Court, Southern District
of New York under Civil Action No. 1:24-cv-02976 with the plaintiff, Blockware Solutions, LLC, claiming alleged merchandise price and
incidental damages of $115,500, alleged consequential damages due to lost profits of $358,689, and other alleged non-specified damages,
for alleged claims of non-payment. Mawson Bellefonte, LLC is a Delaware subsidiary of the Company. Mawson Bellefonte and the Company intend
to defend against these alleged claims made related to this matter.
On April 23, 2024, the Company’s
subsidiary and an Australian entity, Mawson AU Pty Ltd, was placed into an Australian court appointed liquidation and wind-up process.
On April 29, 2024, the Company’s
subsidiary and an Australian entity, Mawson Services Pty Ltd, was placed into an Australian court appointed liquidation and wind-up process.
The Company and its subsidiaries
have been in the past, and from time to time in the future, may be involved in certain litigation related to our businesses. For example,
the Company and its subsidiaries receive letters of demand for payments from time to time which could lead to legal proceedings.
Item 1A. Risk Factors
The Company’s risk factors were disclosed
in (i) Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed on April 1, 2024 and (ii)
as disclosed in our 8-K filing on March 29, 2024. In addition, the Company is subject to risks related to:
The impact of the Bitcoin halving, which took place in April
2024 has introduced uncertainly that could materially impact our self-mining revenue or our co-location services customers businesses
The bitcoin block reward halved on April 19, 2024, reducing the number
of bitcoins earned for each block mined from 6.25 to 3.125. If the bitcoin price does not appreciate sufficiently to offset this 50% reduction
in mining rewards, our and/or our co-location services customers revenues, cash flows, and operating results could be materially and adversely
impacted. There can be no assurance that the market price of bitcoin will increase in the near term nor that our operating costs will
decrease proportionally to mitigate the halving’s adverse impact on our self-mining profitability. As a result, the halving has introduced
significant uncertainty to our near-term financial prospects and could require us to modify our operating plans and growth strategies.
Item 2. Use of Proceeds, and Issuer Purchases of Equity Securities
None
Item 3. Defaults Upon Senior Securities
Celsius Mining LLC loaned
$20 million to Luna Squares LLC, through a Secured Promissory Note (the “Celsius Promissory Note”), which had a maturity date
of August 23, 2023, and a total outstanding balance as of March 31, 2024, of $8.82 million. Luna Squares LLC has not repaid the loan as
required on the maturity date and is therefore in default. Celsius Mining LLC transferred to benefit of the Celsius Promissory Note to
Celsius Network Ltd. Celsius Network Ltd has notified Luna Squares the default interest is payable. On November 23, 2023, Celsius
filed an adversary proceeding against Mawson, its subsidiaries Luna Squares LLC and Cosmos Infrastructure LLC, asserting various claims
related to the alleged breach of a Co-Location Agreement and Secured Promissory Note. Adv. Case No. 23-01202, claiming it is owed approximately
$8 million under the promissory note and claiming entitlement to return of $15.33 million paid as deposit. Mawson denied that Celsius
is entitled to the relief it seeks in the adversary proceeding and is actively defending the matter. Many of the related claims and disputes
between Celsius and Mawson have been disclosed in more detail in Mawson’s previous filings with the SEC. As part of its defense,
Mawson sought to have the matter removed from the adversary proceeding to arbitration based on the arbitration clause contained in one
of the transaction’s agreements. Celsius opposed the removal and the matter was heard before the Court. On February 27, 2024, the
Court ruled in part that the claims regarding the Co-Location Agreement could be arbitrated, but the claims for the promissory note would
stay before the Court. The Court appointed a litigation administrator to handle the claims arising out of the promissory note. Mawson
appealed this decision to the District Court for the Southern District of New York and ultimately prevailed. As of May 1, 2024, and pursuant
to a court order dated April 22, 2024, the Celsius civil lawsuit against Luna Squares and Mawson has been dismissed pursuant to the Company’s
successful motion to compel arbitration. Currently, no arbitration proceedings or further appeals have been filed by either party.
The Company has a Secured
Loan Facility Agreement with Marshall Investments GCP Pty Ltd ATF for the Marshall Investments MIG Trust (“Marshall”). The
loan matures in February 2024 and the total outstanding balance is $9.09 million as of March 31, 2024. MIG No. 1 Pty Ltd, an Australian
entity, has not made a principal and interest payment since May 2023, despite such payments falling due, and is therefore in default.
MIG No. 1 Pty Ltd is also in default of a number of other covenants under the terms of the loan. On March 19, 2024, Mig No.1 Pty Ltd was
placed into an Australian court appointed liquidation and wind-up process and was deconsolidated for the group from this date. On March
19, 2024, Marshall appointed receivers and managers in Australia relating to their secured loan facility.
The Company is the guarantor
on a Secured Loan Facility Agreement for working capital by Mawson Infrastructure Group Pty Ltd with W Capital Advisors Pty Ltd. As of
March 31, 2024, AUD $1.77 million (USD $1.13 million) has been drawn down from this facility. The Secured Loan Facility expired in March
2023 and the Company did not extend the maturity date, and has not repaid the loan amount, and is therefore in default. This Secured Loan
facility Agreement was originally with Mawson Infrastructure Group Pty Ltd, an Australian entity which was placed into voluntary administration
under Australian law on October 30, 2023 and on November 3, 2023, W Capital Advisors appointed receivers and managers in Australia under
the terms of their security relating to their working capital facility.
The Company has a
Secured Convertible Promissory Note with W Capital Advisors Pty Ltd with an outstanding balance of $0.91 million as of March 31,
2024. The Convertible Note matured in July 2023. W Capital Advisors did not convert the note, and the Company has repaid the
principal balance of the note Convertible Note, however there is outstanding interest claimed which is in default. On January 3,
2024, W Capital put Mawson on notice of its intent to collect what it asserts are past due amounts for the following claims as of
December 31, 2023: (a) principal and interest payable on the Loan Amount advanced to Mawson under a variation deed, amounting to
$1.30 million (AU $1.90 million); (b) the principal amount advanced under convertible note, amounting to $0.50 million; and (c)
interest payable on the principal amount advanced under a convertible note, amounting to $0.07 million. W Capital is also claiming
issuance of an alleged 1,500,000 shares of the Company. The Company paid to W Capital $0.50 million on March 6, 2024, and is
reserving all of its rights and remedies as they pertain to W Capital’s alleged claims for additional AU$1.30 million and
1,500,000 shares which the Company disputes. On March 28, 2024, the Company was made a defendant in a civil suit before the Supreme
Court of NSW, in Sydney Australia, in the matter entitled “W Capital Advisors Pty Ltd in its capacity as trustee for the W
Capital Advisors Fund v. Mawson Infrastructure Group, Inc.”, Docket No. 2024/00117331, alleging a claim to seek US$166,219 as
alleged unpaid interest under a convertible note after the Company paid in full the principal of $500,000, and an alleged
AUD$298,926 under a loan deed, plus interest and costs for sums allegedly due claiming corporate guarantee by the Company for a
“Variation Deed to Loan Deed” dated September 29, 2022, executed by Australian entity, Mawson Infrastructure Group Pty
Ltd. As noted previously in the Company’s Current Report on Form 8-K filed on March 29, 2024, the Company, pursuant to
Australian law, on March 28, 2024, sent a preliminary discovery notice to W Capital to obtain documents and materials to investigate
and ascertain if W Capital is a related party to Mr. James Manning, the Company’s former director and executive, and to
investigate and ascertain if transactions between W Capital Advisors Pty Ltd and the Company were related party transactions.
The Company, or its subsidiaries,
have not fulfilled specific payment obligations related to the Celsius Promissory Note, Marshall loan, the W Capital Working Capital Loan
and Secured Convertible Promissory Note mentioned above. Consequently, the creditors associated with these debt facilities may initiate
actions as allowed by relevant grace periods. This includes the possibility of opting to expedite the repayment of the principal debt,
pursuing legal action against the Company for payment default, raising interest rates to the default or overdue rate, or taking appropriate
measures concerning collateral (including appointing a receiver), if applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the fiscal quarter ended March
31, 2024, no director or officer (as defined in Rule 16a-1(f) promulgated under the Exchange Act) of the Company adopted or terminated
any (i) “Rule 10b5-1 trading arrangement” as defined in Regulation S-K § 229.408(a)(1)(i), or (ii) “non-Rule 10b5-1
trading arrangement” as defined in Regulation S-K § 229.408(c).
On May 9, 2024, the Company received
notice of termination of its ground lease on unimproved property located in Perry County, Ohio. The Company is in discussions about potential
options related to the notice and the unimproved property, including options to terminate, retain, modify or extend the ground lease on
the unimproved property.
Item 6. Exhibits
3.1 |
|
Certificate of Incorporation (Incorporated by reference to Company’s Current Report on Form 8-K filed with the SEC on April 5, 2012) |
3.2 |
|
Certificate of Amendment to Certificate of Incorporation (Incorporated by reference to Company’s Current Report on Form 8-K filed with the SEC on July 18, 2013) |
3.3 |
|
Certificate of Amendment to Certificate of Incorporation dated November 15, 2017 (Incorporated by reference to Company’s Current Report on Form 8-K filed with the SEC on November 21, 2017) |
3.4 |
|
Certificate of Amendment to Certificate of Incorporation dated March 1, 2018 (Incorporated by reference to Company’s Current Report on Form 8-K filed with the SEC on March 5, 2018) |
3.5 |
|
Certificate of Amendment to Certificate of Incorporation dated March 17, 2021 (Incorporated by reference to Company’s Current Report on Form 8-K filed with the SEC on March 23, 2021) |
3.6 |
|
Certificate of Amendment to Certificate of Incorporation dated June 9, 2021 (Incorporated by reference to Company’s Current Report on Form 8-K filed with the SEC on June 14, 2021) |
3.7 |
|
Certificate of Amendment to Certificate of Incorporation dated August 11, 2021 (Incorporated by reference to Company’s Current Report on Form 8-K filed with the SEC on August 16, 2021) |
3.8* |
|
Certificate of Amendment to Certificate of Incorporation dated February 6, 2023 |
3.9 |
|
Certificate of Registration of a Company of Cosmos Capital Limited ACN 636 458 912 (Incorporated by reference to the Company’s Registration Statement on Form S-1 (File No. 333-256947) filed with the SEC on June 9, 2021) |
3.10 |
|
Constitution of Cosmos Capital Limited (Incorporated by reference to the Company’s Registration Statement on Form S-1 (File No. 333-256947) filed with the SEC on June 9, 2021) |
3.11 |
|
Bylaws (Incorporated by reference to Company’s Current Report on Form 8-K filed with the SEC on May 10, 2013) |
4.1 |
|
Form of Common Warrant (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on May 8, 2023) |
4.2 |
|
Form of Pre-Funded Warrant (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on May 8, 2023) |
4.3 |
|
Form of Placement Agent Warrant (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on May 8, 2023) |
4.4 |
|
Form of Warrant Amendment Agreement dated May 3, 2023 (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on May 8, 2023) |
10.1* |
|
Customer Service Addendum dated March 25, 2024, to the Customer Service Framework Agreement with Consensus Technology Group LLC dated October 12, 2023 |
31.1* |
|
Certification of Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2* |
|
Certification of Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. |
32** |
|
Certifications of Principal Executive Officer and Principal Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002. |
101 |
|
The following materials from
the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, formatted in Inline XBRL (eXtensible Business
Reporting Language) includes: (i) Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023, (ii) Consolidated Statements
of Operations for the three ended March 31, 2024 and 2023, (iii) Consolidated Statements of Comprehensive Loss for the three ended
March 31, 2024 and 2023, (iv) Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023, (v) Consolidated
Statements of Stockholders’ Equity for the three months ended March 31, 2024 and 2023, and (vi) Notes to Consolidated Financial
Statements |
104 |
|
Cover Page Interactive Data
File (formatted as Inline XBRL and contained in Exhibit 101) |
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
Mawson Infrastructure Group Inc. |
|
|
|
Date: May 15, 2024 |
By: |
/s/ Rahul Mewawalla |
|
|
Rahul Mewawalla
Chief Executive Officer and President |
|
|
(Principal Executive Officer) |
Date: May 15, 2024 |
By: |
/s/ William Harrison |
|
|
William Harrison
Chief Financial Officer |
|
|
(Principal Financial and Accounting Officer) |
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Mawson Infrastructure Group Inc. (the
“Corporation”), a corporation organized and existing under and by virtue of the General Corporation Law of the State of
Delaware (the “DGCL”), DOES HEREBY CERTIFY AS FOLLOWS:
“(i) The total number of shares of stock which the
Corporation shall have authority to issue is 90,000,000 shares of common stock, par value $.001 per share, and 1,000,000 shares of preferred
stock, par value $.001 per share.”
(ii) Upon the filing and effectiveness (the “Effective
Time”) pursuant to the Delaware General Corporation Law of this Certificate of Amendment , each six (6) shares of Common Stock issued
and outstanding immediately prior to the Effective Time shall be and hereby are automatically reclassified and changed (without any further
act) into one (1) fully paid and nonassessable share of Common Stock, provided that in the event a stockholder would otherwise be entitled
to a fraction of a share, such stockholder shall receive one whole share of Common Stock in lieu of such fractional share and no fractional
shares shall be issued.”
IN WITNESS WHEREOF, the Corporation has caused this Certificate
of Amendment to be signed this 6th day of February, 2023.
This is a Service Order under the Service Framework Agreement
dated October 12, 2023 (the “Service Framework Agreement”) between Consensus Colocation PA LLC (“CTG”)
and Mawson Hosting LLC (“Service Provider”). Unless otherwise specified, capitalized terms used herein shall
have the same meaning as those defined in the Service Framework Agreement. The effective date of this Service Order is March 25, 2024.
This Service Order is corresponding
to the Information Memorandum of Data Center Facility submitted by the Service Provider on or about March 25, 2024, attached hereto as
EXHIBIT A (the “Information Memo”) as well as the Data Center Facility as described in the Information Memo located
at 950 Railroad Avenue, Midland, PA 15059.
Service Provider shall cooperate with
CTG to on-rack and/or de-rack of the Co-location Servers, power on additional Co-location Servers as applicable, and adjust the amount
of the Prepayment in accordance with the calculation methods provided in the Agreement. In the event where there is a decrease in the
Prepayment, Service Provider shall return the difference in accordance with Article 3.5(b) of this Agreement.
Service Provider may pass through to CTG any actual sales
or use taxes on power as charged by Service Provider’s power provider.
CTG may only utilize Low Power Mode for up to 30% of the time
available in any Quarter.
For the purposes of this Service Order,
Section 5.5 (a) shall be deleted in its entirely and replaced with the following, “CTG will receive 50% of the revenue Service Provider
receives from the CSP net of all fees, commissions, and other charges for the reduction of power utilized by the Co-location Servers and
the MDC Infrastructure at the time of curtailment (“CTG Curtailment Revenue”).”
The Parties agree that CTG shall be
entitled to make payments via the foregoing methods in its sole discretion. In the event that Service Provider fails to provide or update
(if applicable) the correct and the latest valid payment information of Service Provider, Service Provider shall not suspend provision
of Services, terminate the Service Framework Agreement or this Service Order, or hold CTG liable for any breach of contract for failure
of CTG to make payment due thereto.
CTG shall make payment(s) to Service
Provider to settle the outstanding amount in the invoice for the unpaid Billing Period(s) in accordance with Article 3.6 of the Service
Framework Agreement (if applicable).
In the event of any discrepancy between the provision of this
Service Order and the Service Framework Agreement, the provision in this Service Order shall prevail.
In connection with the Quarterly Report on Form
10-Q of Mawson Infrastructure Group Inc. (the “Company”) for the period ended March 31, 2024, as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), the undersigned, Rahul Mewawalla, Chief Executive Officer of the
Company, and William Harrison, Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350,
that: