Big Digital Energy, Inc 10-Q for FY2024 Q2
Big Digital Energy, Inc. (BGDE)
About this 10-Q
Big Digital Energy, Inc filed this 10-Q on August 19, 2024, covering the quarter ended June 30, 2024 (FY2024 Q2).
Headline figures
Quarter ended June 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $13.11M
- up 24.3% from $10.55M a year earlier
- Net loss
- $9.62M
- compared with a net loss of $17.34M a year earlier
- Diluted EPS
- -$0.55
- compared with -$1.12 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from ________________ to ________________
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Securities registered pursuant to Section 12(b) of the Act:
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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
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| ☒ | Smaller reporting company | |||
| Emerging growth company |
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As of August 14, 2024, the issuer had a
total of
MAWSON INFRASTRUCTURE GROUP INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2024
TABLE OF CONTENTS
| Item | Page Number | |
| Part I – Financial Information | ||
| Item 1. | Financial Statements | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 30 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risks | 44 |
| Item 4. | Controls and Procedures | 44 |
| Part II – Other Information | ||
| Item 1. | Legal Proceedings | 47 |
| Item 1A. | Risk Factors | 49 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 49 |
| Item 3. | Defaults Upon Senior Securities | 49 |
| Item 4. | Mine Safety Disclosures | 50 |
| Item 5. | Other Information | 50 |
| Item 6. | Exhibits | 51 |
| Signatures | 52 | |
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MAWSON INFRASTRUCTURE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
| June 30, 2024 (unaudited) | December 31, 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Trade and other receivables | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Derivative asset | ||||||||
| Investments, equity method | ||||||||
| Security deposits | ||||||||
| Operating lease right-of-use asset | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Trade and other payables | $ | $ | ||||||
| Current portion of operating lease liability | ||||||||
| Current portion of finance lease liability | ||||||||
| Current portion of long-term borrowings | ||||||||
| Total current liabilities | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Finance lease liability, net of current portion | ||||||||
| TOTAL LIABILITIES | ||||||||
| Stockholders’ equity: | ||||||||
| Series A preferred stock; | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Mawson Infrastructure Group, Inc. stockholders’ equity | ||||||||
| Non-controlling interest | ||||||||
| TOTAL STOCKHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
See accompanying notes to unaudited consolidated condensed financial statements.
1
MAWSON INFRASTRUCTURE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| For the three-months Ended June 30, | For the six-months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues: | ||||||||||||||||
| Digital Assets mining revenue | $ | $ | $ | $ | ||||||||||||
| Hosting Co-location revenue | ||||||||||||||||
| Net energy benefits | ||||||||||||||||
| Sale of equipment | ||||||||||||||||
| Total revenues | ||||||||||||||||
| Less: Cost of revenues (excluding depreciation) | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Stock based compensation | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Change in fair value of derivative asset | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Non-operating income/ (expense): | ||||||||||||||||
| Losses on foreign currency transactions | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Profit on sale of site | ||||||||||||||||
| Loss on deconsolidation | ( | ) | ( | ) | ||||||||||||
| Gain or loss on sale of investments | ||||||||||||||||
| Other costs | ( | ) | ( | ) | ||||||||||||
| Other income | ||||||||||||||||
| Share of net loss of equity method investments | ( | ) | ||||||||||||||
| Total non-operating income/ (expense): | ( | ) | ( | ) | ||||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss attributable to noncontrolling interests | ( | ) | ( | ) | ( | ) | ||||||||||
| Net Loss attributed to Mawson Infrastructure Group stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Weighted average number of shares outstanding | ||||||||||||||||
See accompanying notes to unaudited consolidated condensed financial statements.
2
MAWSON INFRASTRUCTURE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
| For the three-months Ended June 30, | For the six-months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive loss net of tax | ||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||||||||||
| Total comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: Comprehensive loss attributable to non-controlling interests | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive income (loss) attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
See accompanying notes to unaudited consolidated condensed financial statements.
3
MAWSON INFRASTRUCTURE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
For the Three-Months Ended June 30, 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 March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
| Stock based compensation expense for RSU’s and stock options | ||||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Other comprehensive loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance as of June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
See accompanying notes to unaudited consolidated condensed financial statements.
4
MAWSON INFRASTRUCTURE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
For the Three-Months Ended June 30, 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 March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Issuance of warrants | - | |||||||||||||||||||||||||||||||
| Exercising of RSU’s and stock options | ||||||||||||||||||||||||||||||||
| Issuance of RSU’s and stock options | - | |||||||||||||||||||||||||||||||
| Issuance of common stock, net of issuance costs | ||||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Other comprehensive income | - | |||||||||||||||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||
See accompanying notes to unaudited consolidated condensed financial statements.
5
MAWSON INFRASTRUCTURE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
For the Six-Months Ended June 30, 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 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
| Stock based compensation expense for RSU’s and stock options | ||||||||||||||||||||||||||||||||
| Deconsolidation of MIG No.1 Pty Ltd | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Other comprehensive loss | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance as of June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
See accompanying notes to unaudited consolidated condensed financial statements.
6
MAWSON INFRASTRUCTURE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
For the Six-Months Ended June 30, 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 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Conversion of notes payable into common stock | ||||||||||||||||||||||||||||||||
| Issuance of common stock in lieu of interest on borrowings | - | |||||||||||||||||||||||||||||||
| Issuance of common stock for services | ||||||||||||||||||||||||||||||||
| Issuance of warrants | - | |||||||||||||||||||||||||||||||
| Exercising of RSU’s and stock options | ( | ) | ||||||||||||||||||||||||||||||
| Stock based compensation for RSUs | - | - | ||||||||||||||||||||||||||||||
| Issuance of common stock, net of issuance costs | ||||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Other comprehensive income | - | |||||||||||||||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||
See accompanying notes to unaudited consolidated condensed financial statements.
7
MAWSON INFRASTRUCTURE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the six-months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of operating lease right-of-use asset | ||||||||
| Foreign exchange loss | ||||||||
| Stock based compensation | ||||||||
| Non-cash interest expense | ||||||||
| Unrealized loss on derivative asset | ||||||||
| Loss on deconsolidation | ||||||||
| Gain on sale of marketable securities | ( | ) | ||||||
| Loss on lease termination | ||||||||
| Loss from equity method investments | ||||||||
| Loss on sale of property and equipment | ||||||||
| Loss on write off of property and equipment | ||||||||
| Profit on sale of site | ( | ) | ||||||
| Changes in assets and liabilities: | - | - | ||||||
| Trade and other receivables | ||||||||
| Operating lease liabilities | ( | ) | ||||||
| Other current assets | ( | ) | ||||||
| Trade and other payables | ( | ) | ||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Payment for the purchase of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from sale of site | ||||||||
| Proceeds from sales of property and equipment | ||||||||
| Proceeds from sale of marketable securities | ||||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from common share issuances | ||||||||
| Payments of stock issuance costs | ( | ) | ||||||
| Proceeds from borrowings | ||||||||
| Repayment of finance lease liabilities | ( | ) | ( | ) | ||||
| Repayment of borrowings | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ||||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Non-cash transactions | ||||||||
| Recognition of right of use operating asset and lease liability | $ | $ | ||||||
| Accrued interest on convertible notes settled in common stock | $ | $ | ||||||
See accompanying notes to unaudited consolidated condensed financial statements.
8
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 $
The Company has 3 primary businesses – digital co-location business, digital assets self-mining business, and energy management business.
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 next generation digital infrastructure platforms for digital colocation services, and digital assets mining activities including on the Bitcoin blockchain network. The Company also provides digital infrastructure services for its colocation customers that use computational machines through our digital infrastructure platforms. The Company also has an energy management 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 assets mining, data center infrastructure and related equipment periodically, subject to prevailing market conditions. The Company designs, develops, operates, and manages its next generation digital infrastructure platforms to responsibly support digital assets such as the Bitcoin network and other digital assets by contributing to the scale, structure, and decentralization of these networks and optimizing energy consumption. The Company contributes to the ecosystem and growth of digital assets as there continues to be a global transition to the new digital economy.
The Company strives to operate and invest in those 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 broader economic initiatives within these ecosystems.
The Company manages and operates next generation digital infrastructure platforms delivering a total current capacity of approximately 129 MW with its current operational sites located in the United States,
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 Company currently operates facilities in the United States of America and does not have operating sites 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, MIG No.1 Pty Ltd was placed into a Australian court appointed liquidation and wind-up process), MIG No.1 LLC, Mawson AU Pty Ltd (on April 23, 2024, Mawson AU Pty Ltd was placed into a Australian court appointed liquidation and wind-up process, as disclosed in note 3), 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 3), 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”).
9
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 six-months ended June 30, 2024, the Company
incurred a loss after tax of $
Bitcoin and other digital asset 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 Colocation Agreement the Company’s subsidiary, Luna Squares LLC (“Luna”), had with Celsius
Mining LLC (the “Colocation Agreement”), expired on
10
The Company is the guarantor on a Secured Loan Facility Agreement by
MIG No. 1 Pty Ltd (“MIG No.1”) 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 $
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 June 30, 2024, AUD
$
The Company, or its subsidiaries, have not fulfilled specific payment obligations related to the Celsius Promissory Note, the 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.
11
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:
| ● | Expanding its digital infrastructure platform and increasing capacity for either colocation services or self-mining; |
| ● | Executing new customer colocation service agreements in bitcoin and other digital assets mining to diversify its exposure to any one colocation customer or digital asset; | |
| ● | 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 and at-the-market (ATM) transactions; |
| ● | Assessing and evaluating corporate and strategic transactions with the help of outside advisors; |
| ● | Assessing and evaluating monetizing specific assets, including potential sales of mining infrastructure equipment, miners, operational sites, or expansion locations under consideration; |
| ● | Conducting assessments to identify and implement operational efficiencies, cost-cutting measures, and other actions aimed at enhancing revenue and optimizing expenses. ; and |
| ● | Evaluating, assessing and pursuing business and margin expansion opportunities. |
Mawson recently finished the
The Company also announced that it had executed
a new colocation agreement for about
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 obtains advice from outside resources, however, 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.
12
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 assets 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).
13
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 assets. 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 asset is received.
The Company measures the non-cash consideration received at the fair market value of the digital asset received. Management estimates fair value on a daily basis, as the quantity of digital assets received multiplied by the price quoted on the exchange that the Company uses to dispose of digital assets.
Colocation business services revenue
Colocation customers pay for energy used in connection with the customer colocation services 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 colocation 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.
Energy Management and 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.
14
Equipment sales
The Company had previously earned revenues from the sale of earlier generation digital asset 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.
| Asset class | Useful life | Depreciation Method | ||
| Fixtures | ||||
| Plant and equipment | ||||
| Modular data center | ||||
| Motor vehicles | ||||
| Computer equipment | ||||
| Computational and Processing machinery (Miners) | ||||
| Transformers | ||||
| Leasehold improvements |
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. The 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.
15
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.
| Fair value measured as of June 30, 2024 | ||||||||||||||||
| Total | Total Level 1 | Total Level 2 | Total Level 3 | |||||||||||||
| Derivative asset | $ | $ | ||||||||||||||
| Fair value measured as of December 31, 2023 | ||||||||||||||||
| Total | Total Level 1 | Total Level 2 | Total Level 3 | |||||||||||||
| Derivative asset | $ | $ | ||||||||||||||
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 five amendments to the contract with Energy Harbor LLC entered into in November 2023, December 2023, January 2024, April 2024 and May 2024 all the contracts were to purchase additional electricity at a fixed price for the months of December 2023, January 2024, February 2024, April 2024, May 2024 and June 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.
16
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
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 any 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
Digital assets
Digital assets are included in current assets in the consolidated balance sheets. Digital assets 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.
17
| Three- months to June 30, 2024 | Six- months to June 30, 2024 | |||||||
| Opening number of bitcoin held | ||||||||
| Number of bitcoin received | ||||||||
| Number of bitcoin sold | ( | ) | ( | ) | ||||
| Closing number of bitcoin held | ||||||||
Digital assets 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 six-month periods ended June 30, 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.
18
NOTE 3 – SUBSIDIARIES DECONSOLIDATION
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 Company currently operates facilities in the United States of America and does not have operating sites in Australia.
MIG No.1
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 19, 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 $
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 $
Treatment of intercompany balances
The Company had total payables owed to MIG No.1
of $
Australian entity 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 $
19
Mawson AU Pty Ltd
Liquidation and Deconsolidation of an Australian entity Mawson AU Pty Ltd
On
April 23, 2024, the Company’s Australian entity and a subsidiary, Mawson AU Pty Ltd was placed into an Australian court appointed
liquidation. The liquidation of an insolvent Australian 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 approach. In the instance of Mawson
AU Pty Ltd, it is an Australian court liquidation, where a liquidator is appointed by the Australian court to wind up a company. As a
result of this the Company ceded authority for this Australian entity to the Australian liquidator, and the Company could not carry on
Mawson AU Pty Ltd’s activities in the ordinary course of business. For these reasons, it was concluded that the Company had ceded
control of Mawson AU Pty Ltd, and no longer had significant influence over this Australian entity since the liquidator was in control
of this Australian entity. Therefore, Mawson AU Pty Ltd loss of control was effective when it was placed into Australian court appointed
liquidation on April 23, 2024, and was deconsolidated at this date, in accordance with ASC 810-10-15. In order to deconsolidate this
Australian entity, Mawson AU Pty Ltd, the carrying values of the assets, liabilities and equity components previously recognized in accumulated
other comprehensive income of Mawson AU Pty Ltd were removed from the Company’s consolidated balance sheet as of April 23, 2024,
in accordance with ASC 810, Consolidation. The net impact of removing the assets and liabilities resulted in a gain on deconsolidation
of $
Investment in the Australian entity Mawson AU Pty Ltd
The
investment in this Australian entity, Mawson AU Pty Ltd, 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 Mawson AU Pty Ltd from April 23, 2024.
The fair value of Mawson AU was estimated to be $
Treatment of intercompany balances
The
Company had total receivables owed from Mawson AU Pty Ltd of $
Mawson Services Pty Ltd
Liquidation and Deconsolidation of an Australian entity Mawson Services Pty Ltd
On
April 29, 2024, the Company’s Australian entity and
a subsidiary, Mawson Services Pty Ltd was placed into an Australian court appointed liquidation. 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 approach As a result of this the Company ceded authority for this Australian entity to the Australian liquidator,
and the Company could not carry on Mawson Services Pty Ltd’s activities in the ordinary course of business. For these reasons, it
was concluded that the Company had ceded control of Mawson Services Pty Ltd, and no longer had significant influence over this Australian
entity since the liquidator was in control of this Australian entity. Therefore, Mawson Services Pty Ltd loss of control was effective
when it was placed into Australian court appointed liquidation on April 29, 2024, and was deconsolidated at this date, in accordance with
ASC 810-10-15. In order to deconsolidate this Australian entity, Mawson Services Pty Ltd, the carrying values of the assets, liabilities
and equity components previously recognized in accumulated other comprehensive income of Mawson Services Pty Ltd were removed from the
Company’s consolidated balance sheet as of April 29, 2024, in accordance with ASC 810, Consolidation. The net impact of removing
the assets and liabilities resulted in a gain on deconsolidation of $
20
Investment in the Australian entity Mawson Services Pty Ltd
The investment in this Australian entity, Mawson
Services Pty Ltd, 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 Mawson Services Pty Ltd from April 29, 2024. The fair value of Mawson Services Pty
Ltd was estimated to be $
Treatment of intercompany balances
The Company had no payables or receivables owed to Mawson Services Pty Ltd at the date of liquidation, April 29, 2024.
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.
| As of June 30, | ||||||||
| 2024 | 2023 | |||||||
| Warrants to purchase common stock | ||||||||
| Options to purchase common stock | ||||||||
| Restricted Stock-Units (“RSUs”) issued under equity incentive plan(s) | ||||||||
NOTE 5 – LEASES
The Company’s operating leases are for digital mining sites and its finance leases are primarily for related plant and equipment.
| For the three-months ended June 30, | For the six-months ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Operating lease charges (1) | $ | $ | $ | $ | ||||||||||||
| Finance lease charges: | ||||||||||||||||
| Amortization of right-of-use assets | $ | $ | $ | $ | ||||||||||||
| Interest on lease obligations | $ | $ | $ | $ | ||||||||||||
| (1) |
21
| Operating leases | Finance leases | |||||||
| Remainder of 2024 | $ | $ | ||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | - | |||||||
| Total undiscounted lease obligations | ||||||||
| Less inputed interest | ( | ) | ( | ) | ||||
| Total present value of lease liabilities | ||||||||
| Less current portion of lease liabilities | ||||||||
| Non-current lease liabilities | $ | $ | ||||||
| Operating leases | Finance leases | |||||||
| Operating cash out flows from leases | $ | $ | ||||||
| Weighted-average remaining lease term (years) | ||||||||
| Weighted-average discount rate (%) | % | % | ||||||
NOTE 6 – PROPERTY AND EQUIPMENT
| June 30, 2024 | December 31, 2023 | |||||||
| Plant and equipment | $ | $ | ||||||
| Computer equipment | ||||||||
| Processing machines (Miners) | ||||||||
| Modular data center | ||||||||
| Motor Vehicles | ||||||||
| Transformers | ||||||||
| Low-cost assets | ||||||||
| Assets under construction | ||||||||
| Leasehold improvements | ||||||||
| Total | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
The Company incurred depreciation and amortization
expenses in the amounts of $
22
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 as of this time that it is more likely than not that the Company will not realize the benefits of the net deferred tax assets as of June 30, 2024.
| For the three-months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Effective income tax rate | ( | )% | % | |||||
| For the six-months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Effective income tax rate | ( | )% | % | |||||
As of June 30, 2024, the Company had no unrecognized tax benefits and does not anticipate any significant change to the unrecognized tax benefit balance.
23
NOTE 8 – BORROWINGS
Marshall loan
The
Company is the guarantor on a Secured Loan Facility Agreement by MIG No. 1 with Marshall. The loan matured in February 2024 and bears
interest at a rate of
Celsius loan
On
February 23, 2022, Luna entered into a Colocation Agreement with Celsius Mining LLC. In connection with this agreement, Celsius
Mining LLC loaned Luna a principal amount of $
24
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 June 30, 2024, AUD
$
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 $
25
NOTE 9 – STOCKHOLDERS’ EQUITY
Common Stock
During
the six-month period ended June 30, 2024, vested and outstanding restricted stock units were settled into
Common Stock Warrants
The
Company’s outstanding stock warrants have not changed during the six-months ended June 30, 2024. The outstanding stock warrants
as of June 30, 2024 are
Stock-Based Compensation:
Equity plans
| For the three-months ended June 30, | For the six-months ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Performance-based restricted stock awards | $ | $ | $ | $ | ||||||||||||
| Service-based restricted stock awards | ||||||||||||||||
| Stock issued to consultants | - | - | - | |||||||||||||
| Warrant expense | - | - | ||||||||||||||
| Option expense* | ( | ) | ||||||||||||||
| Total stock-based compensation** | $ | $ | $ | $ | ||||||||||||
| * |
| ** |
26
Performance-based awards
Performance-based awards generally vest over a three-year performance period upon the successful completion of specified market and performance conditions.
| Number of shares | Weighted Average Remaining Contractual Life (in years) | |||||||
| Outstanding as of December 31, 2023 | ||||||||
| Expired/forfeited | ( | ) | - | |||||
| Outstanding as of June 30, 2024 | ||||||||
| Exercisable as of June 30, 2024 | ||||||||
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.
| Number of shares | Weighted Average Remaining Contractual Life (in years) | |||||||
| Outstanding as of December 31, 2023 | ||||||||
| Issued | - | |||||||
| Exercised | ( | ) | - | |||||
| Outstanding as of June 30, 2024 | ||||||||
| Exercisable as of June 30, 2024 | ||||||||
As
of June 30, 2024, there was approximately $
Stock options awards
Stock options awards vest upon the successful completion of specified stock price threshold conditions.
27
| Number of shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding as of December 31, 2023 | $ | $ | ||||||||||||||
| Cancelled | ( | ) | - | |||||||||||||
| Outstanding as of June 30, 2024 | $ | $ | ||||||||||||||
| Exercisable as of June 30, 2024 | $ | - | $ | |||||||||||||
As of June 30, 2024, there was approximately $
NOTE 10 – SUBSEQUENT EVENTS
On July 1, 2024, Mawson Hosting, LLC (the “Service Provider”), and Krypton Technologies LLC (the “Customer”), executed a Service Framework Agreement for the provision of certain colocation services (the “Agreement”). In accordance with the terms of the Agreement, Service Provider will provide Customer with colocation services for approximately 20MW at Service Provider’s Midland Pennsylvania site. The Agreement provides for Service Provider to provide colocation services to Customer for 12 months and the parties can extend further upon mutual agreement.
| Name: | Role/Title: | RSU Awards(1) | Stock Options(1)(2) | |||||||
| Kaliste Saloom | General Counsel and Corporate Secretary | (3) | ||||||||
| William ‘Sandy’ Harrison | Chief Financial Officer | (3) | ||||||||
| (4) | ||||||||||
| Rahul Mewawalla | Director, CEO, President | (3) | (5) | |||||||
| (6) | ||||||||||
| Craig Hibbard | Chief Development Officer | (6) | ||||||||
| (1) |
| (2) |
| (3) |
| (4) |
| (5) |
| (6) |
28
On July 16, 2024, the Company filed a suit for damages in excess of
$
On
July 18, 2024, Celsius Network, LLC filed for arbitration of its claims against the Company with the American Arbitration Association
in the matter entitled, “Celsius Network Ltd., Celsius Mining LLC and Ionic Digital Mining LLC v. Mawson Infrastructure Group, Luna
Squares LLC and Cosmos Infrastructure LLC - Case 01-24-0006-4462”. The Company opposes the claim in arbitration and on August 12,
2024, has filed responsive pleadings denying the claims and asserting affirmative defenses, including set off against the claims, and asserted cross claims against Celsius for sums due to the
Company in excess of $
On August 9, 2024, Mawson Hosting, LLC (the “Service Provider”), and BE Global Development Limited (the “Customer”), executed a Service Framework Agreement for the provision of certain colocation services (the “Agreement”). In accordance with the terms of the Agreement, Service Provider will license a portion of the Service Provider Co-Location Space to Client and provide Client with internet service and twenty 20MW of electrical power. The Agreement provides for Service Provider to provide colocation services to Customer for 6 years and the parties can extend further upon mutual agreement. In addition, the Company and the Customer also entered into an additional non-binding Letter of Intent to supplement the binding 20 MW Agreement, to plan for further expansion of their business relationship to a total of 144 MW over time. Revenue subject to change depending on operating capacity ramp up timeframes as well as potential colocation rate updates every two years as per the Agreement
Regarding the Company’s Midland, Pennsylvania facility, on May 7, 2024, the Company issued to the landlord a notice of intent to renew the lease. The renewal will begin immediately on expiration of the original term of the Lease which ends on September 14, 2024, and shall be in effect for an additional term of three years, from September 15, 2024 through September 14, 2027. The landlord has indicated their willingness to renew the lease on terms acceptable to the Company and the Company plans to execute the lease renewal per the terms offered by the landlord.
29
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 and our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, identify important factors which could cause our actual results to differ materially from those indicated by the forward-looking statements, particularly those set forth herein under Item 1A. “Risk Factors” below, and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
The risk factors included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, 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; |
| - | the evolution of AI and HPC market and changing technologies; |
| - | the slower than expected growth in demand for AI, HPC and other accelerated computing technologies than expected; |
| - | the ability to timely implement and execute on AI and HPC digital infrastructure; |
| - | the ability to timely complete the digital infrastructure build-out in order to achieve its revenue expectations for the periods mentioned; |
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| - | failure to maintain required compliance to remain eligible for the most cost-effective forms of raising additional equity capital; | |
| - | downturns in the digital assets 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; | |
| - | counterparty risks related to our customers, agreements and/or contracts; | |
| - | adverse actions by creditors, debt providers, or other parties; |
| - | changes to the Bitcoin and/or other 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 asset 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 herein in Item 1A. Risk Factors and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
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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 lines of business – its digital co-location business, digital assets self-mining business, and energy management business.
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 next generation digital infrastructure platforms for digital colocation services, and digital assets mining activities including on the Bitcoin blockchain network. The Company also provides digital infrastructure services for its colocation customers that use computational machines through our digital infrastructure platforms. The Company also has an energy management 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 assets mining, data center infrastructure and related equipment periodically, subject to prevailing market conditions. The Company designs, develops, operates, and manages its next generation digital infrastructure platforms to responsibly support digital assets such as the Bitcoin network and other digital assets by contributing to the scale, structure, and decentralization of these networks and optimizing energy consumption. The Company contributes to the ecosystem and growth of digital assets 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 it operates and supports 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 digital asset 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.
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Recent Developments
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 intends to defend against all alleged claims made related to this matter. The company also reserves and retains all rights against Blockware Solutions, LLC.
On June 12, 2024, the Company held its 2024 annual meeting of stockholders. At the Annual Meeting, among other things, the stockholders also adopted and approved the Company’s new 2024 Omnibus Equity Incentive Plan
On July 1, 2024, the Board approved the following equity compensation awards to the following named executive officers:
| Name: | Role/Title: | RSU Awards(1) | Stock Options(1)(2) | |||||||
| Kaliste Saloom | General Counsel and Corporate Secretary | 144,093 | (3) | |||||||
| William ‘Sandy’ Harrison | Chief Financial Officer | 792,508 | (3) | |||||||
| 16,424 | (4) | |||||||||
| Rahul Mewawalla | Director, CEO, President | 2,881,845 | (3) | 1,750,000 | (5) | |||||
| 1,801,153 | (6) | |||||||||
| Craig Hibbard | Chief Development Officer | 31,142 | (6) | |||||||
| (1) | RSUs and Option awards were made under and subject to the Company’s 2024 Omnibus Equity Incentive Plan (the “2024 Plan”). |
| (2) | Stock option grants were made on the form of Stock Option Grant Notice and Option Agreement filed as Exhibit 99.2 to the Company’s Registration Statement on Form S-8 filed June 21, 2024. |
| (3) | Restricted stock units vest in four equal installments on August 26, 2025, August 25, 2026, August 24, 2027 and August 23, 2028. |
| (4) | Restricted stock units vest fully on July 1, 2024. |
| (5) | Stock Option vests in the following amounts when fair market value of Company’s share (as measured on each trading day) averaged over the preceding ten trading days has reached or exceeded the corresponding price as follow: 500,000 Shares vest at price of $1.89, 400,000 Shares vest at price of $2.30, 300,000 Shares vest at $3.60, 200,000 Shares vest at price of $4.70, 100,000 Shares vest at price of $6.00, 100,000 Shares vest at price of $7.10, 100,000 Shares vest at price of $8.20, and 50,000 Shares vest at price of $9.40. Provided that if the corresponding price vesting condition is met prior to January 1, 2025, such portion of the option shall vest on January 1, 2025. In addition, if the Company undergoes or upon a change in control, all Options shall be fully and immediately accelerated. |
| (6) | Restricted stock units vest fully on July 1, 2024. |
On July 1, 2024, Mawson Hosting, LLC (the “Service Provider”), and Krypton Technologies LLC (the “Customer”), executed a Service Framework Agreement for the provision of certain colocation services (the “Agreement”). In accordance with the terms of the Agreement, Service Provider will provide Customer with colocation services for approximately 20MW at Service Provider’s Midland PA site. The Agreement provides for Service Provider to provide colocation services to Customer.
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Results of Operations – Three-months Ended June 30, 2024 compared to the three-months ended June 30, 2023
| For the three-months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Revenues: | ||||||||
| Digital Assets mining revenue | $ | 3,248,084 | $ | 4,896,521 | ||||
| Hosting Co-location revenue | 8,131,439 | 4,594,752 | ||||||
| Net energy benefits | 1,732,596 | 1,017,678 | ||||||
| Sale of equipment | - | 42,584 | ||||||
| Total revenues | 13,112,119 | 10,551,535 | ||||||
| Less: Cost of revenues (excluding depreciation) | 8,794,642 | 7,028,458 | ||||||
| Gross Profit | 4,317,477 | 3,523,077 | ||||||
| Selling, general and administrative | 3,642,157 | 6,265,256 | ||||||
| Stock based compensation | 1,053,248 | 687,276 | ||||||
| Depreciation and amortization | 4,604,334 | 8,789,755 | ||||||
| Change in fair value of derivative asset | 1,775,103 | 5,444,300 | ||||||
| Total operating expenses | 11,074,842 | 21,186,587 | ||||||
| Loss from operations | (6,757,365 | ) | (17,663,510 | ) | ||||
| Non-operating income/ (expense): | ||||||||
| Losses on foreign currency transactions | (285,530 | ) | (397,165 | ) | ||||
| Interest expense | (752,945 | ) | (647,062 | ) | ||||
| Profit on sale of site | - | 2,562,283 | ||||||
| Loss on deconsolidation | (84,744 | ) | - | |||||
| Gain or loss on sale of investments | - | - | ||||||
| Other costs | (9,913 | ) | - | |||||
| Other income | 24,523 | 252,363 | ||||||
| Share of net loss of equity method investments | - | - | ||||||
| Total non-operating income/ (expense): | (1,108,609 | ) | 1,770,419 | |||||
| Loss before income taxes | (7,865,974 | ) | (15,893,091 | ) | ||||
| Income tax expenses | (1,752,719 | ) | (1,756,371 | ) | ||||
| Net Loss | (9,618,693 | ) | (17,649,462 | ) | ||||
| Loss attributable to noncontrolling interests | - | (305,556 | ) | |||||
| Net Loss attributed to Mawson Infrastructure Group stockholders | $ | (9,618,693 | ) | $ | (17,343,906 | ) | ||
| Net Loss per share, basic & diluted | $ | (0.55 | ) | $ | (1.12 | ) | ||
| Weighted average number of shares outstanding | 17,412,862 | 15,527,824 | ||||||
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Revenues
Digital colocation services revenues for the three-months ended June 30, 2024 and 2023, were $8.13 million and $4.59 million, respectively. This represented an increase of $3.54 million or 77%. The increase in revenue was due to the Company providing colocation services to multiple colocation customers. For the same period of 2023, the Company only provided colocation services to a single customer. The Company expects to continue to diversify its colocation services customer base to manage its exposure or dependance to any specific customer, as well as to expand its agreements to potentially include enterprise customers mining digital assets other than bitcoin or for other compute purposes.
Digital assets self-mining revenues from the production of bitcoin for the three-months ended June 30, 2024, and 2023, were $3.25 million and $4.90 million, respectively, and represented a decrease of $1.65 million or 34%. The decrease for the three-months ended June 30, 2024, was due in large part to the impact of the April 2024 halving event, and a higher global network difficulty rate in the three-months ended June 30, 2024 compared to the same period in 2023, which led to lower bitcoin production from self-mining. The total bitcoin produced in the three-months ended June 30, 2024 period totaled 49 bitcoin versus 182 bitcoin in the three-months ended June 30, 2023 period; a decrease of 73% bitcoin produced over the respective period. In the three-months ended June 30, 24 period, the Company also expanded its colocation services business absorbing some of its digital asset self-mining capacity. The decrease in digital asset self-mining revenue for the period was slightly offset by the average price of bitcoin increasing. During the three-months ended June 30, 2023, the average price of bitcoin was $28,027, whereas the average price of bitcoin during the three-months ended June 30, 2024, was $65,657. The Company believes its digital assets self-mining revenue may continue to fluctuate with bitcoin pricing and market conditions as the bitcoin industry works through the expected volatility associated with and post the April 2024 halving event.
Net energy benefits revenues for the three-months ended June 30, 2024 and 2023, were $1.73 million and $1.02 million, respectively. This represented an increase of $0.71 million or a 70% increase. This increase is due to the Company participating more in energy management programs in the three-months ended June 30, 2024 than in the 2023 period. The revenue opportunity from net energy benefits is expected to be impacted by seasonal patterns and other weather-related events as well as the dynamic nature of power prices.
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 asset mining and digital colocation services and cost of mining equipment sold.
Cost of revenue for the three-months ended June 30, 2024 and 2023, were $8.79 million and $7.03 million, respectively. The increase in cost of revenue was primarily attributable to an increase in power costs related to the increase in energy used to operate the colocated mining equipment for our enterprise colocation customers within our facilities.
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Selling, general and administrative
Our selling, general and administrative expenses consist primarily of professional and management fees relating to: audit; legal; professional services, employee and director compensation, equipment repairs; marketing; freight; insurance; consultant fees; lease amortization, general and other expenses.
Selling, general and administrative expenses for the three-months ended June 30, 2024 and 2023 were $3.64 million and $6.27 million, respectively, which is a reduction of $2.62 million from period to period. The decrease in these expenses is primarily attributable to reduced freight costs, lower marketing and travel expenses and lower employee compensation expenses including payroll costs; 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 June 30, 2024 and 2023 were $1.05 million and $0.69 million, respectively. In the three-months ended June 30, 2024, stockbased compensation expense was attributable to the 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.
Depreciation and amortization
Depreciation consists primarily of depreciation of digital asset mining hardware, MDC equipment and other data center infrastructure.
Depreciation and amortization for the three-months ended June 30, 2024 and 2023, were $4.60 million and $8.79 million, respectively. The lower depreciation and amortization expense is the result of an increased number of the Company’s digital asset mining hardware being fully depreciated and lower number of digital asset miners for the three-months ended June 30, 2024 following the deconsolidation of MIG No. 1 Pty Ltd during the three-months ended March 31, 2024.
Change in fair value of derivative asset
During the three-months ended June 30, 2024 and 2023, there was a loss on the fair value of the derivative asset by $1.78 million and a loss of $5.44 million, respectively, in relation to our power supply arrangements. The loss on the derivative asset was due to a decrease expected in the price of energy costs in 2024 and decrease in the amount of time remaining for the derivative asset.
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Non-operating expenses
Non-operating expenses consist primarily of interest expenses, loss on deconsolidation and other expenses.
Interest expenses for the three-months ended June 30, 2024 and 2023, were $0.75 million and $0.65 million, respectively.
During the three-months ended June 30, 2024, the Company recognized a deconsolidation loss of $0.08 million. This loss was as a result of two Australian entities and subsidiaries, Mawson AU Pty Ltd and Mawson Services Pty Ltd proceeding through into Australian court appointed liquidation and accordingly these subsidiaries were deconsolidated. The deconsolidation loss recorded was due to the removal of the net assets and certain liabilities of the subsidiaries 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 June 30, 2024 and 2023, the realized and unrealized gain on foreign currency transactions was a loss of $0.29 million and a loss of $0.40 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 $9.62 million for the three-months ended June 30, 2024, compared to a net loss of $17.34 million for the three-months ended June 30, 2023.
Results of Operations – Six-months Ended June 30, 2024 compared to the six-months ended June 30, 2023
| For the six-months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Revenues: | ||||||||
| Digital Assets mining revenue | $ | 10,762,847 | $ | 7,652,521 | ||||
| Hosting Co-location revenue | 16,365,480 | 8,917,306 | ||||||
| Net energy benefits | 4,205,101 | 1,458,734 | ||||||
| Sale of equipment | 550,000 | 193,581 | ||||||
| Total revenues | 31,883,428 | 18,222,142 | ||||||
| Less: Cost of revenues (excluding depreciation) | 20,580,810 | 11,706,460 | ||||||
| Gross Profit | 11,302,618 | 6,515,682 | ||||||
| Selling, general and administrative | 7,105,757 | 11,242,674 | ||||||
| Stock-based compensation | 5,954,731 | 1,691,619 | ||||||
| Depreciation and amortization | 12,595,980 | 16,752,279 | ||||||
| Change in fair value of derivative asset | 88,950 | 6,125,525 | ||||||
| Total operating expenses | 25,745,418 | 35,812,097 | ||||||
| Loss from operations | (14,442,800 | ) | (29,296,415 | ) | ||||
| Non-operating income/ (expense): | ||||||||
| Losses on foreign currency transactions | (124,588 | ) | (815,382 | ) | ||||
| Interest expense | (1,486,703 | ) | (1,546,114 | ) | ||||
| Profit on sale of site | - | 3,353,130 | ||||||
| Loss on deconsolidation | (12,010,652 | ) | - | |||||
| Gain or loss on sale of investments | - | 1,437,230 | ||||||
| Other costs | (19,687 | ) | - | |||||
| Other income | 189,784 | 177,941 | ||||||
| Share of net loss of equity method investments | - | (36,356 | ) | |||||
| Total non-operating income/ (expense): | (13,451,846 | ) | 2,570,449 | |||||
| Loss before income taxes | (27,894,646 | ) | (26,725,966 | ) | ||||
| Income tax expenses | (1,693,332 | ) | (2,304,454 | ) | ||||
| Net Loss | (29,587,978 | ) | (29,030,420 | ) | ||||
| Loss attributable to noncontrolling interests | (205,086 | ) | (584,489 | ) | ||||
| Net Loss attributed to Mawson Infrastructure Group stockholders | $ | (29,382,892 | ) | $ | (28,445,931 | ) | ||
| Net Loss per share, basic & diluted | $ | (1.73 | ) | $ | (1.93 | ) | ||
| Weighted average number of shares outstanding | 17,028,786 | 14,744,915 | ||||||
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Revenues
Digital colocation services revenues for six-months ended June 30, 2024 and 2023, were $16.37 million and $8.92 million, respectively, representing an increase of $7.45 million or 84%. The increase in revenue was due to the significant increase in the colocation business during the six-months ended June 30, 2024, where the Company provided colocation services to multiple colocation customers, whereas for the six-months ended June 30, 2023 the Company provided colocation services to a single customer and began transitioning those services to its Pennsylvania facilities in early 2023 from its prior Georgia facilities that it exited in late 2022.
Digital assets self-mining revenues from production of bitcoin for the six-months ended June 30, 2024, and 2023, were $10.76 million and $7.63 million, respectively, representing an increase of $3.11 million or 41% over the prior period.
Net energy benefits revenues for the six-months ended June 30, 2024 and 2023, were $4.21 million and $1.46 million, respectively, representing an increase of $2.75 million or an 188% increase. This increase is due to the Company’s greater participation in energy management programs.
Sales of digital mining and other equipment for the six-months ended June 30, 2024 and 2023, were $0.55 million and $0.19 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 assets mining and colocation services and cost of mining equipment sold.
Cost of revenue for the six-months ended June 30, 2024 and 2023, were $20.58 million and $11.71 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’s mining equipment and customer colocated mining equipment within our facilities.
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Selling, general and administrative
Our selling, general and administrative expenses consist primarily of professional and management fees relating to: audit; legal; equipment repairs; marketing; freight; insurance; consultant fees; lease amortization, director and employee compensation, general and other expenses.
Selling, general and administrative expenses for the six-months ended June 30, 2024 and 2023 were $7.11 million and $11.24 million, respectively, which is a reduction of $4.14 or 37% million from period to period. The decrease is primarily attributable to lower employee compensation expenses including payroll costs, lower doubtful debt expense, reduced freight costs, lower marketing and travel expenses also driven by the cost reduction and optimization actions that the Company had previously undertaken.
Stock-based compensation
Stock-based compensation expenses for the six-months ended June 30, 2024 and 2023 were $5.95 million and $1.69 million, respectively. In the six-months ended June 30, 2024, stock-based compensation was attributable to costs recognized in relation to long-term incentives for the Company’s directors and employees and to align incentives with long-term stockholder value creation.
Depreciation and amortization
Depreciation consists primarily of depreciation of digital asset mining hardware and MDC equipment.
Depreciation and amortization for the six-months ended June 30, 2024 and 2023, were $12.60 million and $16.75 million, respectively.
Change in fair value of derivative asset
During the six-months ended June 30, 2024 and 2023, there was a loss on the fair value of the derivative asset by $0.09 million and a loss of $6.13 million, respectively, in relation to our power supply arrangements. The loss on the derivative asset was due to the passage of time offset by an 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 six-months ended June 30, 2024 and 2023, were $1.49 million and $1.55 million, respectively. This decrease of $0.06 million was attributable to the paydown of debt during 2023 and 2024.
During the six-months ended June 30, 2024, the Company recognized a deconsolidation loss of $12.01 million. This loss was as a result of three Australian entities and subsidiaries, MIG No.1 Pty Ltd, Mawson AU Pty Ltd and Mawson Services Pty Ltd going into Australian court appointed liquidation and accordingly these subsidiaries were deconsolidated. The deconsolidation loss recorded was due to the removal of 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.
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Non-operating income
Non-operating income consists primarily of gain on foreign currency transactions and other income.
During the six-months ended June 30, 2024 and 2023, the realized and unrealized loss on foreign currency transactions was a loss of $0.12 million and a loss of $0.82 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 $29.38 million for the six-months ended June 30, 2024, compared to a net loss of $28.45 million for the six-months ended June 30, 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 six-month period ended June 30, 2024, we financed our operations primarily through net cash provided by operating activities of $4.34 million and other cash reserves. During the six-months ending June 30, 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 $9.00 million from time to time. Sales of shares of Common Stock pursuant to the ATM Agreement are currently inactive and have been inactive since May 3, 2023. If and when the Company reactivates sales under the ATM Agreement, 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 June 30, 2024, we had an aggregate of $20.15 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. The Company reserves and retains all its legal rights and remedies under applicable law related to the debt, deposit and other related matters.
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 June 30, 2024 and December 31, 2023, we had a cash and cash equivalent balance of $6.78 million and $4.48 million, respectively, representing an increase of 52% in our cash and cash equivalent balance. As of June 30, 2024 and December 31, 2023, the trade receivables balance was $11.19 million and $12.11 million, respectively. As of June 30, 2024, we had $20.12 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 June 30, 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 June 30, 2024 and December 31, 2023, we had negative working capital of $34.50 million and $33.18 million, respectively.
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The following table presents the major components of net cash flows (used in) provided by operating, investing and financing activities for the years ending June 30, 2024 and 2023:
| Six-Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Net cash provided by (used in) operating activities | $ | 4,344,563 | $ | (4,192,480 | ) | |||
| Net cash provided by (used in) investing activities | $ | (1,415,281 | ) | $ | 10,767,041 | |||
| Net cash used in financing activities | $ | (623,478 | ) | $ | (1,893,177 | ) | ||
For the six-month period ended June 30, 2024, net cash provided by operating activities was $4.34 million and for the six-months period ended June 30, 2023, net cash used operating activities was $4.19 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 six-month period ended June 30, 2024, net cash used in investing activities was $1.42 million and for the six-month period ended June 30, 2023, net cash provided by investing activities was $10.77 million. The net cash used in investing activities during the six-months ended June 30, 2024, was primarily attributable to the proceeds from sale of certain non-utilized equipment. The net cash provided by investing activities during the six-month period to June 30, 2023 was primarily attributable to the proceeds from sale of investment shares in CleanSpark, Inc.
For the six-month period ended June 30, 2024, net cash used in financing activities was $0.62 million and for the six-month period ended June 30, 2023, net cash used in financing activities was $1.89 million. The cash used in financing activities during the six-month period ended June 30, 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.
The Company is the guarantor on a Secured Loan Facility Agreement by MIG No. 1 with 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 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 $9.71 million as of June 30, 2024, all of which is classified as a current liability. There has been no principal and interest payments made since May 2023. This Secured Loan Facility Agreement was entered into with an Australian entity MIG No.1, this company was placed into a court appointed liquidation and wind-up process and was deconsolidated from the group on March 19, 2024. 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. The Company also reserves and retains all rights against Marshall.
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On February 23, 2022, Luna entered into a Colocation Agreement with Celsius Mining LLC. In connection with this agreement, Celsius Mining LLC loaned Luna a principal amount of $20.00 million, for the purpose of funding the infrastructure required to meet the obligations of the Colocation 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 had a maturity date of August 23, 2023, the outstanding balance including interest is $9.10 million as of June 30, 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 Colocation 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. On July 18, 2024, Celsius Network, LLC filed for arbitration of its claims against the Company with the American Arbitration Association in the matter entitled, “Celsius Network Ltd., Celsius Mining LLC and Ionic Digital Mining LLC v. Mawson Infrastructure Group, Luna Squares LLC and Cosmos Infrastructure LLC - Case 01-24-0006-4462”. The Company opposes the claim in arbitration and on August 12, 2024, has filed responsive pleadings denying the claims and asserting affirmative defenses, including set off against the claims, and asserted cross claims against Celsius for sums due to the Company in excess of $115.00 million. This includes counter claims asserted by the Company against Celsius Network Ltd., Celsius Mining LLC and Ionic Digital Mining LLC in excess of $115.00 million for damages due to the Company, including for breach of the Colocation Agreement by Celsius. The matter is proceeding through the arbitration process.
The Company is the guarantor on a Secured Loan Facility Agreement for working capital by an Australian entity Mawson Infrastructure Group Pty Ltd with W Capital Advisors Pty Ltd. As of June 30, 2024, AUD $1.86 million (USD $1.24 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. The receiverships of these two Australian companies are proceeding, and the Company is dependent on the appointed receivers and managers to send information on their respective status.
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 $0.10 million as of June 30, 2024, all of which is classified as a current liability. 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 USD $0.17 million as unpaid interest for the convertible note and AUD $0.30 million under the loan deed, plus interest and costs. The Company sought dismissal of the Australian proceedings arguing jurisdiction of any claims against the Company was in the United States as set forth in the agreements between the parties. Despite its objections, the Australian court ruled in favor of the Australian claimant and rendered a judgment against the Company under Australian law for US $0.17 million as unpaid interest under a convertible note after the Company paid in full the principal of $0.50 million, and AUD $0.30 million under a loan deed, plus interest and costs for sums due. The Company continues to believe that jurisdiction and adjudication of this matter has to be pursuant to U.S law and has to occur in the United States and the Company retain all rights and shall pursue all remedies as available under U.S. jurisdictions.
Financial condition
As of June 30, 2024, and December 31, 2023, we had negative working capital of $34.50 million and $33.18 million, respectively. As of June 30, 2024, and December 31, 2023, we had net assets of $4.40 million and $30.38 million, respectively. As of June 30, 2024, we had an accumulated deficit of $212.05 million compared to $182.67 million as of December 31, 2023. Our cash position of June 30, 2024, was $6.78 million in comparison to $4.48 million as of December 31, 2023. For the six-month period ended June 30, 2024 and 2023 the Company incurred a loss after tax of $29.38 million and $29.03 million, respectively. Included in trade and other receivables is a $2.00 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 July 16, 2024, the Company filed a civil lawsuit for its claims against CleanSpark, Inc and CSRE with the United States District Court for the Southern District of New York in the matter entitled, “Mawson Infrastructure Group, Inc. and Luna Squares, LLC v. CleanSpark, Inc. and CSRE Properties Sandersville, LLC” under Civil Action Number 1:24-cv-5379 for claims and payments due to the Company in excess of $2.00 million. The matter is proceeding through the court system.
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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 colocation 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.
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| For the three-months ended | For the six-months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Reconciliation of non-GAAP adjusted EBITDA: | ||||||||||||||||
| Net loss: | $ | (9,618,693 | ) | $ | (17,649,462 | ) | $ | (29,587,978 | ) | $ | (29,030,420 | ) | ||||
| Share of net loss of equity method investments | - | - | - | 36,356 | ||||||||||||
| Depreciation and amortization | 4,604,334 | 8,789,755 | 12,595,980 | 16,752,279 | ||||||||||||
| Stock based compensation | 1,053,248 | 687,276 | 5,954,731 | 1,691,619 | ||||||||||||
| Losses on foreign currency transactions | 285,530 | 397,165 | 124,588 | 815,382 | ||||||||||||
| Other non-operating income | (24,523 | ) | (252,363 | ) | (189,784 | ) | (177,941 | ) | ||||||||
| Other non-operating expenses | 762,858 | 647,062 | 1,506,390 | 1,546,114 | ||||||||||||
| Change in fair value of derivative asset | 1,775,103 | 5,444,300 | 88,950 | 6,125,525 | ||||||||||||
| Income tax | 1,752,719 | 1,756,371 | 1,693,332 | 2,304,454 | ||||||||||||
| Loss on deconsolidation | 84,744 | - | 12,010,652 | - | ||||||||||||
| EBITDA (non-GAAP) | $ | 675,320 | $ | (179,896 | ) | $ | 4,196,861 | $ | 63,368 | |||||||
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 June 30, 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.
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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 multiple 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 colocation revenue, net energy benefits, and digital asset 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 June 30, 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.
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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.
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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. On November 23, 2023, Celsius filed an adversary proceeding in its Chapter 11 bankruptcy proceedings in the United States Bankruptcy Court for the Southern District of New York (the “Court”), Case No. 22-10964 against Mawson, and Mawson’s subsidiaries Luna Squares LLC and Cosmos Infrastructure LLC, asserting various claims related to the alleged breach of a Colocation Agreement and Secured Promissory Note. Adv. Case No. 23-01202, claiming it is owed approximately $8.00 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 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. Pursuant to court order dated April 22, 2024, the Celsius adversarial proceedings against Luna Squares and Mawson was dismissed pursuant to the Company’s successful motion to compel arbitration. On July 18, 2024, Celsius Network, LLC filed for arbitration of its claims against the Company with the American Arbitration Association in the matter entitled, “Celsius Network Ltd., Celsius Mining LLC and Ionic Digital Mining LLC v. Mawson Infrastructure Group, Luna Squares LLC and Cosmos Infrastructure LLC - Case 01-24-0006-4462”. The Company opposes the claim in arbitration and on August 12, 2024, has filed responsive pleadings denying the claims and asserting affirmative defenses, including set off against the claims, and asserted cross claims against Celsius for sums due to the Company in excess of $115.00 million. This includes counter claims asserted by the Company against Celsius Network Ltd., Celsius Mining LLC and Ionic Digital Mining LLC in excess of $115.00 million for damages due to the Company, including for breach of the Colocation Agreement by Celsius. The matter is proceeding through the arbitration process.
On December 22, 2023, Mawson Infrastructure Group Inc. and Luna Squares LLC made formal demand on CleanSpark Inc. and CSRE Properties Sandersville, LLC for $2.00 million 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. CleanSpark, Inc has disputed the obligation to make this payment. On January 12, 2024, the Company filed formal arbitration before the American Arbitration Association. On February 5, 2024, CleanSpark, Inc and CSRE filed a motion objecting to jurisdiction of the arbitration proceedings. On May 1, 2024, the appointed arbitrator ruled that it did not have jurisdiction to hear the matter, referring any disputes to the appropriate civil court. The ruling did not address the merits of the Company’s claims. On July 16, 2024, the Company filed a civil lawsuit for its claims against CleanSpark, Inc and CSRE with the United States District Court for the Southern District of New York in the matter entitled, “Mawson Infrastructure Group, Inc. and Luna Squares, LLC v. CleanSpark, Inc. and CSRE Properties Sandersville, LLC” under Civil Action Number 1:24-cv-5379 for claims and payments due to the Company in excess of $2.00 million. The matter is proceeding through the court system.
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 $0.167 million as unpaid interest under a convertible note after the Company paid in full the principal of US $0.50 million, and AUD $0.30 million 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. The Company sought dismissal of the Australian proceedings arguing jurisdiction of any claims against the Company was in the United States as set forth in the agreements between the parties. Despite its objections to jurisdiction, the Australian court ruled in favor of the Australian claimant and rendered a judgment against the Company under Australian law for US $0.167 million as unpaid interest under a convertible note after the Company paid in full the principal of US $0.50 million, and AUD $0.30 million under a loan deed, plus interest and costs for sums due. The Company continues to believe that jurisdiction and adjudication of this matter has to be pursuant to U.S law and has to occur in the United States and the Company retain all rights and shall pursue all remedies as available under U.S. jurisdictions. The Company has also corresponded with W Capital Advisory Pty Ltd and/or its representatives, the Company’s ongoing concerns about W Capital Advisory Ptv Ltd and James Manning being related parties. W Capital Advisory Pty has not responded to the Company’s concerns in a manner satisfactory to the Company.
The Company and some of its subsidiaries or entities 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 $0.13 million, 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. The Company has ongoing concerns about Flynt ICS Pty Ltd and James Manning being related parties. Flynt ICS Pty Ltd has not responded to the Company’s concerns in a manner satisfactory to the Company.
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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 US $0.01 million in alleged 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 US $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 US $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 $0.17 million as alleged unpaid interest under a convertible note after the Company paid in full the principal of US $0.50 million, and an alleged AUD $0.30 million 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 has also corresponded with W Capital Advisory Pty Ltd and/or its representatives, the Company’s ongoing concerns about W Capital Advisory Ptv Ltd and James Manning being related parties. W Capital Advisory Pty has not responded to the Company’s concerns in a manner satisfactory to the Company.
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 $0.12 million, alleged consequential damages due to lost profits of $0.36 million, 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 intends to defend against these alleged claims. The company also reserves and retains all rights against Blockware Solutions, LLC.
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 July 18, 2024, Celsius Network, LLC filed for arbitration of its claims against the Company with the American Arbitration Association in the matter entitled, “Celsius Network Ltd. v. Mawson Infrastructure Group; Luna Squares LLC - Case 01-24-0006-4462”. The Company opposes the claim in arbitration and on August 12, 2024, has filed responsive pleadings denying the claims and asserting affirmative defenses, including set off against the claims, and asserted cross claims against Celsius for sums due to the Company in excess of $115.00 million. This includes counter claims asserted by the Company against Celsius Network Ltd., Celsius Mining LLC and Ionic Digital Mining LLC in excess of $115.00 million for damages due to the Company, including for breach of the Colocation Agreement by Celsius. The matter is proceeding through the arbitration process.
Regarding the Company’s lease of the property and premises in Sharon, Pennsylvania, the Company has conducted further analysis and believes it has the legal right to possess the Sharon property. As such, the Company is now pursuing its legal rights and remedies against the landlord, Vertua Property Inc, which is a related party of James Manning, for the Company to assert its legal rights and obtain clear and unencumbered possession to the property. The Company also believes that it was overcharged by Vertua Property Inc. and the Company is due a refund or a credit to offset any future expenses. The Company has provided written communication to the landlord Vertua Property Inc. of its rights and its intent to regain possession of the leased property, while reserving all of its claims, rights and remedies against Vertua Property Inc. under applicable law, including for damages caused by Vertua Property Inc. towards the Company. The Company has provided a copy of such correspondence to Bitfarms, Ltd. so all parties are notified of the Company’s legal rights and remedies, and the Company asserting its legal rights to obtain clear and unencumbered possession to the Sharon property.
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 or other correspondence from time to time which could lead to legal proceedings.
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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 Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, which was filed on May 15, 2024, and (iii) 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 colocation 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 colocation 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. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
Celsius Mining LLC loaned $20.00 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 June 30, 2024, of $9.10 million. Luna Squares LLC has not repaid the loan as required on the maturity date and is claimed by Celsius to be 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 Colocation Agreement and Secured Promissory Note. Adv. Case No. 23-01202, claiming it is owed approximately $8.00 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 Colocation 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. On July 18, 2024, Celsius Network, LLC filed for arbitration of its claims against the Company with the American Arbitration Association in the matter entitled, “Celsius Network Ltd., Celsius Mining LLC and Ionic Digital Mining LLC v. Mawson Infrastructure Group, Luna Squares LLC and Cosmos Infrastructure LLC - Case 01-24-0006-4462”. The Company opposes the claim in arbitration and on August 12, 2024, has filed responsive pleadings denying the claims and asserting affirmative defenses, including set off against the claims, and asserted cross claims against Celsius for sums due to the Company in excess of $115.00 million. This includes counter claims asserted by the Company against Celsius Network Ltd., Celsius Mining LLC and Ionic Digital Mining LLC in excess of $115.00 million for damages due to the Company, including for breach of the Colocation Agreement by Celsius. The matter is proceeding through the arbitration process.
The Company 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 $9.71 million as of June 30, 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.
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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. On June 25, Marshall inspected and inventoried the miners and MDCs located at the Company’s Midland facilities but has taken no further action on the collateral at this time. The company is currently not utilizing these miners or MDCs for its operations and has asked Marshall to take these assets out of the Company’s storage. Marshall has not responded to the Company’s ask for these miners and MDCs to be removed from the Company’s storage. The Company also reserves and retains all rights against Marshall.
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 June 30, 2024, AUD $1.86 million (USD $1.24 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 $0.10 million as of June 30, 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 claimed by W Capital Advisors Pty Ltd to be 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 (AUD $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 AUD $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 USD $166,219 as alleged unpaid interest under a convertible note after the Company paid in full the principal of $0.50 million, and an alleged AUD $0.30 million 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 has also corresponded with W Capital Advisory Pty Ltd and/or its representatives, the Company’s ongoing concerns about W Capital Advisory Ptv Ltd and James Manning being related parties. W Capital Advisory Pty has not responded to the Company’s concerns in a manner satisfactory to the Company.
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. The company reserves and retains all its rights under all applicable laws.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the fiscal quarter
ended June 30, 2024, no director or officer (as defined in Rule 16a-1(f) promulgated under the Exchange Act) of the Company
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Item 6. Exhibits
| * | Filed herewith. |
| ** | Furnished herewith. |
| # | Indicates management contract or compensatory plan |
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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: August 19, 2024 | By: | /s/ Rahul Mewawalla |
|
Rahul Mewawalla Chief Executive Officer and President | ||
| (Principal Executive Officer) | ||
| Date: August 19, 2024 | By: | /s/ William Harrison |
|
William Harrison Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
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Exhibit 3.8
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION OF
MAWSON INFRASTRUCTURE GROUP INC.
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:
| 1. | This Certificate of Amendment (the Certificate of Amendment) amends the provisions of the Corporations Certificate of Incorporation filed with the Secretary of State on February 10, 2012, as amended February 28, 2012, July 18, 2013, November 15, 2017, March 1, 2018, March 17, 2021, June 9, 2021 and August 11, 2021 (collectively, the Certificate of Incorporation). |
| 2. | Section 3.1(i) of Article III of the Certificate of Incorporation is hereby amended and restated in its entirety such that, as amended, said section shall read in its entirety 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. |
| 3. | This Certificate of Amendment was duly adopted in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware. |
| 4. | All other provisions of the Certificate of Incorporation shall remain in full force and effect. |
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed this 6th day of February, 2023.
| MAWSON INFRASTRUCTURE GROUP, INC. | ||
| By: | ||
| James Manning, Chief Executive Officer | ||
Exhibit 4.5
MAWSON INFRASTRUCTURE GROUP INC.
STOCK OPTION GRANT NOTICE AND OPTION AGREEMENT
(2024 Omnibus Equity Incentive Plan)
As a key leader in our business, you are in a position to have significant influence on the performance and success of Mawson Infrastructure Group Inc. (the “Company”). I am pleased to inform you that, in recognition of the role you play in our collective success, you have been granted an option to purchase shares of the Company’s Common Stock. This award is subject to the terms and conditions of the Mawson Infrastructure Group Inc. 2024 Omnibus Equity Incentive Plan, this Grant Notice, your employment agreement and any addendums with the Company, and the following Stock Option Agreement. The details of this award are indicated below.
| Optionee: | [_____] |
| Date of Grant: | [_____] |
| Number of Shares of Common Stock subject to the Option (“Option Common Stock”): | [_____] |
| Exercise Price Per Share: | [_____] |
| Type of Option: | [ISO/Nonqualified Stock Option] |
| Expiration Date: | The tenth (10th) anniversary of the Date of Grant (the “Expiration Date”). |
| Vesting: | [_____] |
IN WITNESS WHEREOF, this Agreement has been executed and delivered hereto as of the date first written above.
MAWSON INFRASTRUCTURE GROUP INC., a Delaware corporation
________________________
By: [___]
Its: [___]
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (together with the above grant notice (the “Grant Notice”), the “Agreement”) is made and entered into as of the date set forth on the Grant Notice by and between Mawson Infrastructure Group Inc., a Delaware corporation (the “Company”), and the individual (the “Optionee”) set forth on the Grant Notice.
A. Pursuant to the Mawson Infrastructure Group Inc. 2024 Omnibus Equity Incentive Plan (the “Plan”), the Administrator has determined that it is to the advantage and best interest of the Company to grant to the Optionee an option to purchase the number of shares of Common Stock (the “Common Stock”) set forth on the Grant Notice, at the exercise price per share of Common Stock set forth on the Grant Notice, and in all respects subject to the terms, definitions and provisions of the Plan, which is incorporated herein by reference, and this Agreement (the “Option”).
B. Unless otherwise defined herein, capitalized terms used in this Agreement shall have the meanings set forth in the Plan. For purposes of this Agreement, the following definitions shall apply:
(i) “Termination” shall mean the termination of the employment or service of the Optionee with the Company and all Affiliates thereof (including because of the Optionee’s employer ceasing to be an affiliate of the Company). For purposes of this Agreement, Termination will not occur when Optionee goes on a military leave, a sick leave or another bona fide leave of absence that was approved by the Company in writing if the terms of the leave provide for continued service crediting, or when continued service crediting is required by Applicable Laws. Notwithstanding the foregoing, an approved leave of absence for six months or less, which does not in fact exceed six months, will not result in Termination for purposes of this Agreement. However, Termination will occur when an approved leave described in this Section B ends, unless Optionee immediately returns to active work.
(ii) “Termination Date” shall mean the date of the Optionee’s Termination of Service.
NOW, THEREFORE, in consideration of the mutual agreements contained herein, the Optionee and the Company hereby agree as follows:
1. Agreement. Company and Optionee have reviewed all of the provisions of the Plan and this Agreement. This Agreement is subject to the applicable provisions if any contained in a written employment agreement and addendums between the Company or an Affiliate and the Optionee.
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2. Grant and Terms of Stock Option.
2.1 Grant of Option. Pursuant to this Agreement, the Company has granted to the Optionee the right and option to purchase, subject to the terms and conditions set forth in the Plan and this Agreement, all or any part of the number of shares of Common Stock set forth on the Grant Notice at a purchase price per share of Common Stock equal to the exercise price per share of Common Stock set forth on the Grant Notice. An Option granted pursuant to the Grant Notice and this Agreement shall be either an ISO or a Nonqualified Stock Option as specified.
2.2 Vesting and Term of Option. This Section 2.2 is subject to the provisions of the Plan, the other provisions of this Agreement, and applicable provisions if any contained in a written employment agreement and addendums between the Company or an Affiliate and the Optionee.
2.2.1 This Option shall vest and become exercisable as described in the Grant Notice and applicable provisions if any contained in a written employment agreement and addendums between the Company or an Affiliate and the Optionee.
2.2.2 The “Term” of this Option shall begin on the Date of Grant set forth in the Grant Notice and end on the Expiration Date specified in the Grant Notice. No portion of this Option may be exercised after the expiration of the Term.
2.2.3 In the event of Optionee’s Termination for any reason other than death, Disability, or Cause:
2.2.3.1 the portion of this Option that is not vested and exercisable shall be subject to applicable provisions if any contained in a written employment agreement and addendums between the Company or an Affiliate and the Optionee; and
2.2.3.2 the portion of this Option that is vested and exercisable as of the Termination Date shall terminate and be cancelled on the expiration of the Term.
2.2.4 In the event of Termination due to death or Disability:
2.2.4.1 the portion of this Option that is not vested and exercisable shall be subject to applicable provisions if any contained in a written employment agreement and addendums between the Company or an Affiliate and the Optionee; and
2.2.4.2 the portion of this Option that is vested and exercisable as of the Termination Date shall be cancelled on the expiration of the Term.
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3. Method of Exercise.
3.1 Method of Exercise. Each election to exercise the Option shall be subject to the terms and conditions of the Plan and shall be in writing, signed by the Optionee or by his or her executor, administrator, or permitted transferee (subject to any restrictions provided under the Plan), made pursuant to and in accordance with the terms and conditions set forth in the Plan and received by the Company at its principal offices, accompanied by payment in full as provided in the Plan or in this Agreement or as contained in a written employment agreement and addendums between the Company. Upon the Option being exercised as to any of the shares of Common Stock, the Company may issue certificates in the Optionee’s name for such shares of Common Stock. However, the Company shall not be liable to the Optionee for damages relating to any mistakes or errors in the issuance of the certificates or in the certificates themselves which it promptly undertakes to correct.
3.2 Restrictions on Exercise. No share of Common Stock will be issued pursuant to the exercise of this Option unless and until there shall have been full compliance with all applicable requirements of the Securities Act of 1933 (“Securities Act”), as amended (whether by registration or satisfaction of exemption conditions), all applicable listing requirements of any national securities exchange or other market system on which the share of Common Stock is then listed and all applicable requirements of any Applicable Laws and of any regulatory bodies having jurisdiction over such issuance. Optionee shall not sell any share of Common Stock acquired upon exercise of this Option at a time when Applicable Laws, regulations or Company’s or underwriter trading policies prohibit such sale. Any other provision of this Agreement notwithstanding, the Company shall have the right to designate one or more periods of time, each of which shall not exceed 180 days in length, during which this Option shall not be exercisable if the Administrator reasonably determines in good faith that such limitation on exercise could in any way facilitate a lessening of any restriction on transfer pursuant to the Securities Act or any state securities laws with respect to any issuance of securities by the Company, facilitate the registration or qualification of any securities by the Company under the Securities Act or any state securities laws, or facilitate the perfection of any exemption from the registration or qualification requirements of the Securities Act or any applicable state securities laws for the issuance or transfer of any securities. Such limitation on exercise shall not alter the vesting schedule set forth in this Agreement other than to limit the periods during which this Option shall be exercisable.
3.3 Method of Payment. Payment or consideration of the exercise price shall be made as per the written employment agreement and addendums between the Company and Optionee or (a) by the delivery of cash or check acceptable to the Administrator, including an amount to cover the withholding taxes (as provided in Section 7.11) with respect to such exercise, or (b) any other method including (i) by means of consideration received under any cashless exercise procedure (including the withholding of shares of Common Stock otherwise issuable upon exercise) or (ii) any other form of consideration permitted by Applicable Laws.
3.4 No Rights as a Shareholder. Until the shares of Common Stock are issued to the Optionee (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder will exist with respect to the shares of Common Stock, notwithstanding the exercise of the Option.
4. Non-Transferability of Option. Except as provided below, this Option may not be sold, assigned or transferred in any manner, pledged or otherwise encumbered other than by will or by the laws of descent or distribution or to a beneficiary designated pursuant to the Plan, and may be exercised during the lifetime of Optionee only by Optionee or the Optionee’s guardian or legal representative or estate. Subject to all of the other terms and conditions of this Agreement, following the death of Optionee, this Option may, to the extent it is vested and exercisable by Optionee in accordance with its terms on the Termination Date, be exercised by Optionee’s executor or administrator, or the person or persons to whom the Optionee’s rights under this Agreement shall pass by will or by the laws of descent and distribution as the case may be. Any heir or legatee of the Optionee shall take rights herein granted subject to the terms and conditions hereof.
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5. Restrictions; Restrictive Legends. Ownership and transfer of shares of Common Stock issued pursuant to the exercise of this Option will be subject to the provisions of, including ownership and transfer restrictions contained in, the Company’s Certificate of Incorporation or Bylaws, as amended from time to time, restrictions imposed by Applicable Laws and restrictions set forth or referenced in legends imprinted on certificates representing such shares of Common Stock.
6. Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, to the extent that this Option had not been previously exercised, it will terminate immediately prior to the consummation of such proposed dissolution or liquidation. In such instance, the Administrator shall give the Optionee the right to exercise this Option prior to such date as to all or any part of the optioned stock, including shares of Common Stock as to which this Option would not otherwise be exercisable.
7. General.
7.1 Governing Law. This Agreement shall be governed by and construed under the laws of the State of Delaware applicable to agreements made and to be performed entirely in Delaware, without regard to the conflicts of law provisions of Delaware or any other jurisdiction.
7.2 Community Property. Without prejudice to the actual rights of the spouses as between each other, for all purposes of this Agreement, the Optionee shall be treated as agent and attorney-in-fact for that interest held or claimed by his or her spouse with respect to this Option and the parties hereto shall act in all matters as if the Optionee was the sole owner of this Option. This appointment is coupled with an interest and is irrevocable.
7.3 No Employment Rights. Nothing herein contained shall be construed as an agreement by the Company or any of its Subsidiaries, express or implied, to employ the Optionee or contract for the Optionee’s services, to restrict the Company’s or such Subsidiary’s right to discharge the Optionee or cease contracting for the Optionee’s services or to modify, extend or otherwise affect in any manner whatsoever the terms of any employment agreement or contract for services which may exist between the Optionee and the Company or any Affiliate.
7.4 Application to Other Stock. In the event any capital stock of the Company or any other corporation shall be distributed on, with respect to, or in exchange for shares of Common Stock as a stock dividend, stock split, reclassification or recapitalization in connection with any merger or reorganization or otherwise, all restrictions, rights and obligations set forth in this Agreement shall apply with respect to such other capital stock to the same extent as they are, or would have been applicable, to the shares of Common Stock on or with respect to which such other capital stock was distributed, and references to “Company” in respect of such distributed stock shall be deemed to refer to the company to which such distributed stock relates.
7.5 No Third-Party Benefits. Except as otherwise expressly provided in this Agreement, none of the provisions of this Agreement shall be for the benefit of, or enforceable by, any third-party beneficiary.
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7.6 Successors and Assigns. Except as provided herein to the contrary, this Agreement shall be binding upon and inure to the benefit of the parties, all their respective successors and permitted assigns.
7.7 No Assignment. Except as otherwise provided in this Agreement, the Optionee may not assign any of his or her rights under this Agreement without the prior written consent of the Company, which consent may be withheld in its sole discretion. The Company shall be permitted to assign its rights or obligations under this Agreement so long as such assignee agrees to fully perform all of the Company’s obligations hereunder.
7.8 Severability. The validity, legality or enforceability of the remainder of this Agreement shall not be affected even if one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable in any respect.
7.9 Equitable Relief. The Optionee acknowledges that, in the event of a threatened or actual breach of any of the provisions of this Agreement, damages alone will be an inadequate remedy, and such breach will cause the Company great, immediate and irreparable injury and damage. Accordingly, the Optionee agrees that the Company shall be entitled to injunctive and other equitable relief, and that such relief shall be in addition to, and not in lieu of, any remedies it may have at law or under this Agreement.
7.10 Jurisdiction. Any suit, action or proceeding with respect to this Agreement, or any judgment entered by any court in respect of any thereof, shall be brought in any court of competent jurisdiction in the State of Delaware or in any court of competent jurisdiction as specified in a written employment agreement between the Company and the Optionee, and the Company and the Optionee hereby submit to the exclusive jurisdiction of such courts for the purpose of any such suit, action, proceeding or judgment.
7.11 Taxes. By agreeing to this Agreement, the Optionee represents that he or she has reviewed with his or her own tax advisors the federal, state, local and foreign tax consequences of the transactions contemplated by this Agreement and that he or she is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. Subject to any applicable provisions of an employment agreement and its addendums between the Company and the Optionee, the Company shall be entitled to a cash payment by or on behalf of the Optionee and/or to deduct from the shares of Common Stock or cash otherwise issuable hereunder or other compensation payable to the Optionee the amount of any sums required by federal, state or local tax law to be withheld (or other such sums that will not cause adverse accounting consequences for the Company and is permitted under applicable withholding rules promulgated by the Internal Revenue Service or another applicable governmental entity) in respect of the Option, its exercise or any payment or transfer under or with respect to the Option.
7.12 Headings. The section headings in this Agreement are inserted only as a matter of convenience, and in no way define, limit, extend or interpret the scope of this Agreement or of any particular section.
7.13 Number and Gender. Throughout this Agreement, as the context may require, (a) the masculine gender includes the feminine and the neuter gender includes the masculine and the feminine; (b) the singular tense and number includes the plural, and the plural tense and number includes the singular; (c) the past tense includes the present, and the present tense includes the past; (d) references to parties, sections, paragraphs and exhibits mean the parties, sections, paragraphs and exhibits of and to this Agreement; and (e) periods of days, weeks or months mean calendar days, weeks or months.
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7.14 Data Privacy. Optionee agrees that all of Optionee’s information that is described or referenced in this Agreement and the Plan may be used by the Company, its affiliates and the designated broker and its affiliates to administer and manage Optionee’s participation in the Plan.
7.15 Complete Agreement. The Grant Notice, this Agreement, the Plan, and the applicable provisions if any contained in a written employment agreement and addendums between the Company or an Affiliate and the Optionee constitute the parties’ entire agreement with respect to the subject matter hereof and supersede all agreements, representations, warranties, statements, promises and understandings, whether oral or written, with respect to the subject matter hereof.
7.16 Waiver. The Optionee acknowledges that a waiver by the Company of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Optionee.
7.17 Signature in Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
7.18 Amendments and Termination. To the extent permitted by the Plan, this Agreement may be wholly or partially amended, altered or terminated at any time or from time to time by the Administrator or the Board, but no amendment, alteration or termination shall be made that would materially impair the rights of an Optionee under the Option without such Optionee’s consent. If it is determined that the terms of this Agreement have been structured in a manner that would result in adverse tax treatment under Section 409A of the Code, the parties agree to cooperate in taking all reasonable measures to restructure the arrangement to minimize or avoid such adverse tax treatment without materially impairing Optionee’s economic rights.
7.19 Electronic Delivery and Disclosure. The Company may, in its sole discretion, decide to deliver or disclose, as applicable, any documents related to this Award granted under the Plan, future awards that may be granted under the Plan, the prospectus related to the Plan, the Company’s annual reports or proxy statements by electronic means or to request Optionee’s consent to participate in the Plan by electronic means, including, but not limited to, the Securities and Exchange Commission’s Electronic Data Gathering, Analysis, and Retrieval system or any successor system (“EDGAR”). Optionee hereby consents to receive such documents delivered electronically or to retrieve such documents furnished electronically (including on EDGAR), as applicable, and agrees to participate in the Plan through any online or electronic system established and maintained by the Company or another third party designated by the Company.
7.20 Section 409A. The parties intend for the Option to be exempt from Section 409A of the Code or, if not so exempt, to be treated in a manner which complies with the requirements of such section, and intend that this Agreement be construed and administered in accordance with such intention. In the event that the parties determine that the terms of this Agreement or the Option needs to be modified in order to comply with Section 409A of the Code, the parties shall cooperate reasonably to do so in a manner intended to best preserve the economic benefits of this Agreement. Any payments that qualify for the “short-term deferral” exception or another exception under Section 409A of the Code shall be paid under the applicable exception. For purposes of the limitations on nonqualified deferred compensation under Section 409A of the Code, each payment of compensation under this Agreement shall be treated as a separate payment of compensation. Notwithstanding anything contained herein to the contrary, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to this Agreement during the six-month period immediately following the Participant’s separation from service shall instead be paid on the first business day after the date that is six months following the Participant’s termination date (or death, if earlier).
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Exhibit 10.1
APPROVAL OF THE 2024 OMNIBUS EQUITY INCENTIVE PLAN
We currently maintain the 2018 Equity Incentive Plan and the 2021 Equity Incentive Plan (the “Prior Plans”). However, following the Effective Date upon approval by our stockholders, no further awards may be issued under the Prior Plans, but all awards under the Prior Plans that are outstanding as of the Effective Date will continue to be outstanding and governed by the terms, conditions and procedures set forth in the Prior Plans and any applicable award agreement. On April 9, 2024, Company’s Board of Directors (the “Board”) approved the Company’s 2024 Omnibus Equity Incentive Plan (the “2024 Plan”). This 2024 Plan is proposed for adoption by our stockholders (the “Effective Date”).
We are asking our stockholders to adopt and approve the 2024 Omnibus Equity Plan so that the Company will be able to continue to provide equity-based incentive compensation to our employees, board directors, and other key service providers. Equity awards have been historically and, we believe, will continue to be an integral component of our overall compensation program for our employees and directors. Approval of the 2024 Omnibus Equity Plan will allow us to continue to grant equity awards at levels we determine to be appropriate in order to attract new employees, consultants and directors, retain our existing employees and to provide incentives for such persons to further contribute towards our success and ultimately increase stockholder value.
However, should the 2024 Omnibus Equity Plan not be approved, in order to remain competitive in hiring and retaining high quality employees, it shall become necessary to replace equity awards with cash components of compensation. We do not believe the Company increasing cash compensation to make up for any shortfall in equity compensation would be preferable because we believe that a combination of equity awards and cash compensation provide a more effective compensation strategy than cash alone for attracting, retaining and motivating our employees long-term and aligning employees’ and stockholders’ interests.
In addition, any significant increase in cash compensation in lieu of equity awards could substantially increase our operating expenses and increase the negative cash flow from our operations, which could adversely affect our business results and could adversely affect our business strategy. As of April 19, 2024, the approximate number of each class of participants eligible to participate in the 2024 plan and the basis of such participation is about thirty employees, four board directors of which one is an employee, and one independent contractor. The 2024 Plan will be administered by the Board.
Under the 2024 Omnibus Plan, 10,000,000 shares of our common stock are initially available for grant and the number of shares proposed to be available for grant under the 2024 Omnibus Plan are designed to enable us to properly incentivize employees, directors, and management teams over several years on a going-forward basis. Our administrator may grant incentive stock options (“ISOs”), non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards to participants to acquire shares of Company common stock under the 2024 Omnibus Plan to align with long-term stockholder value.
| BOARD VOTING RECOMMENDATION REGARDING PROPOSAL NO. 3 |
| THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE ADOPTION OF THE 2024 OMNIBUS EQUITY INCENTIVE PLAN AS APPROVED BY THE BOARD, AND PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON THE PROXY. |
Description of 2024 Omnibus Plan
The following is a summary of the material features of the 2024 Omnibus Equity Incentive Plan. This summary is qualified in its entirety by the full text of the 2024 Plan, a copy of which is attached to this Proxy Statement as Appendix B.
Types of Awards. The 2024 Plan provides for the issuance of equity awars such as incentive stock options, non-statutory stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), and other stock-based awards. Items described above in the Section called “Shares Available” are incorporated herein by reference.
Administration.
The 2024 Plan will be administered by the Board, or if the Board does not administer the 2024 Plan, a committee or subcommittee of our Board that complies with the applicable requirements of Section 16 of the Exchange Act and any other applicable legal or stock exchange listing requirements (each of the Board or such committee or subcommittee, the “plan administrator”). The plan administrator may interpret the 2024 Plan and may prescribe, amend and rescind rules and make other determinations necessary or desirable for the administration of the 2024 Plan, as specified in the full text of the 2024 Plan.
The 2024 Plan permits the plan administrator to select the eligible recipients who will receive awards, to determine the terms and conditions of those awards, including but not limited to the exercise price or other purchase price of an award, the number of shares of common stock or cash or other property subject to an award, the term of an award and the vesting schedule applicable to an award as pursuant to the full text of the 2024 Plan.
Restricted Stock and Restricted Stock Units. Restricted stock and RSUs may be granted under the 2024 Plan. The plan administrator will determine the purchase price, vesting schedule and performance goals, if any, and any other conditions that apply to a grant of restricted stock and RSUs. If the restrictions, performance goals or other conditions determined by the plan administrator are not satisfied, the restricted stock and RSUs may be forfeited, as specified in the full text of the 2024 Plan subject to provisions as contained in an award agreement, a written employment or other agreement. Subject to the provisions of the 2024 Plan and the applicable award agreement and written employment agreements, the plan administrator has the sole discretion to provide for the lapse of restrictions in installments.
Unless the applicable award agreement provides otherwise, participants with restricted stock will generally have all the rights of a stockholder; provided that dividends will only be paid if and when the underlying restricted stock vests. RSUs will not be entitled to dividends prior to vesting, but may be entitled to receive dividend equivalents if the award agreement provides for them. The rights of participants granted restricted stock or RSUs upon the termination of employment or service to us will be set forth in the award agreement or a written employment agreement or other agreement with the Company.
Options. Incentive stock options and non-statutory stock options may be granted under the 2024 Plan. An “incentive stock option” means an option intended to qualify for tax treatment applicable to incentive stock options under Section 422 of the Internal Revenue Code. A “non-statutory stock option” is an option that is not subject to statutory requirements and limitations required for certain tax advantages that are allowed under specific provisions of the Internal Revenue Code. A non-statutory stock option under the 2024 Plan is referred to for federal income tax purposes as a “non-qualified” stock option. Each option granted under the Plan will be designated as a non-qualified stock option or an incentive stock option. At the discretion of the administrator, incentive stock options may be granted only to our employees, employees of our “parent corporation” (as such term is defined in Section 424(e) of the Code) or employees of our subsidiaries.
The exercise period of an option may not exceed ten years from the date of grant and the exercise price may not be less than 100% of the fair market value of a share of common stock on the date the option is granted (110% of fair market value in the case of incentive stock options granted to ten percent stockholders). The exercise price for shares of common stock subject to an option may be paid in cash, or as determined by the administrator in its sole discretion, (i) through any cashless exercise procedure approved by the administrator (including the withholding of shares of common stock otherwise issuable upon exercise), (ii) by tendering unrestricted shares of common stock owned by the participant, (iii) with any other form of consideration approved by the administrator and permitted by applicable law or (iv) by any combination of these methods. The option holder will have no rights to dividends or distributions or other rights of a stockholder with respect to the shares of common stock subject to an option until the option holder has given written notice of exercise and paid the exercise price and applicable withholding taxes.
In the event of a participant’s termination of employment or service, the participant may exercise his or her option (to the extent vested as of such date of termination) for such period as specified in his or her option agreement or a written employment agreement or other agreement with the Company.
Stock Appreciation Rights. SARs may be granted either alone (a “Free-Standing Right”) or in conjunction with all or part of any option granted under the 2024 Plan (a “Related Right”). A Free-Standing Right will entitle its holder to receive, at the time of exercise, an amount per share up to the excess of the fair market value (at the date
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of exercise) of a share of common stock over the base price of the Free-Standing Right (which shall be no less than 100% of the fair market value of the related shares of common stock on the date of grant) multiplied by the number of shares in respect of which the SAR is being exercised. A Related Right will entitle its holder to receive, at the time of exercise of the SAR and surrender of the applicable portion of the related option, an amount per share up to the excess of the fair market value (at the date of exercise) of a share of common stock over the exercise price of the related option multiplied by the number of shares in respect of which the SAR is being exercised. The exercise period of a Free-Standing Right may not exceed ten years from the date of grant. The exercise period of a Related Right will also expire upon the expiration of its related option.
The holder of a SAR will have no rights to dividends or any other rights of a stockholder with respect to the shares of common stock subject to the SAR until the holder has given written notice of exercise and paid the exercise price and applicable withholding taxes.
In the event of a participant’s termination of employment or service, the holder of a SAR may exercise his or her SAR (to the extent vested as of such date of termination) for such period of time as specified in his or her SAR agreement or a written employment agreement or other agreement with the Company.
Other Stock-Based Awards. The administrator may grant other stock-based awards under the 2024 Plan, valued in whole or in part by reference to, or otherwise based on, shares of common stock. The administrator will determine the terms and conditions of these awards, including the number of shares of common stock to be granted pursuant to each award, the manner in which the award will be settled, and the conditions to the vesting and payment of the award (including the achievement of performance goals). The rights of participants granted other stock-based awards upon the termination of employment or service to us will be set forth in the applicable award agreement or a written employment agreement or other agreement with the Company. In the event that a bonus is granted in the form of shares of common stock, the shares of common stock constituting such bonus shall, as determined by the administrator, be evidenced in uncertificated form or by a book entry record or a certificate issued in the name of the participant to whom such grant was made and delivered to such participant as soon as practicable after the date on which such bonus is payable. Any dividend or dividend equivalent award issued hereunder shall be subject to the same restrictions, conditions and risks of forfeiture as apply to the underlying award or a written employment agreement or other agreement with the Company.
Equitable Adjustment and Treatment of Outstanding Awards Upon a Change in Control
Equitable Adjustments. In the event of a merger, consolidation, reclassification, recapitalization, spin-off, spin-out, repurchase, reorganization, special or extraordinary dividend or other extraordinary distribution (whether in the form of common stock, cash or other property), combination, exchange of shares, or other change in corporate structure affecting our common stock, an equitable substitution or proportionate adjustment shall be made in (i) the aggregate number and kind of securities reserved for issuance under the 2024 Plan; (ii) the kind and number of securities subject to, and the exercise price of, any outstanding options and SARs granted under the 2024 Plan; (iii) the kind, number and purchase price of shares of common stock, or the amount of cash or amount or type of property, subject to outstanding restricted stock, RSUs and other stock-based awards granted under the 2024 Plan; and (iv) the terms and conditions of any outstanding awards (including any applicable performance targets). Equitable substitutions or adjustments other than those listed above may also be made as determined by the plan administrator. In addition, the plan administrator may, subject in all events to the requirements of Section 409A of the Internal Revenue Code, may terminate all outstanding awards for the payment of cash or in-kind consideration having an aggregate fair market value equal to the excess of the fair market value of the shares of common stock, cash or other property covered by such awards over the aggregate exercise price, if any, of such awards, but if the exercise price of any outstanding award is equal to or greater than the fair market value of the shares of common stock, cash or other property covered by such award, the plan administrator may cancel the award without the payment of any consideration to the participant subject to provisions of a written employment agreement or other agreement with the Company. With respect to awards subject to foreign laws, adjustments will be made in compliance with applicable requirements. Except to the extent determined by the plan administrator, adjustments to ISOs will be made only to the extent not constituting a “modification” within the meaning of Section 424(h)(3) of the Code.
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Change in Control. The 2024 Plan provides that, unless otherwise determined by the plan administrator and evidenced in an award agreement, if a “change in control” (as defined below) occurs and a participant is employed by us or any of our affiliates immediately prior to the consummation of the change in control, then the plan administrator, subject to the provisions of a written employment agreement or other agreement of the participant with the Company, may (i) provide that any unvested or unexercisable portion of an award carrying a right to exercise will become fully vested, settled and exercisable; and (ii) cause the restrictions, deferral limitations, payment conditions and forfeiture conditions applicable to any award granted under the 2024 Plan to lapse, and the awards will be deemed fully vested, settled, and any performance conditions imposed with respect to such awards will be deemed to be fully achieved at target performance levels. The administrator shall have discretion to, subject to the provisions of a written employment agreement or other agreement of the participant with the Company, in connection with such change in control to provide that all outstanding and unexercised options and SARs shall expire upon the consummation of such change in control. Notwithstanding the foregoing, in the event that a participant’s employment or service is terminated without cause or for good reason within thirty six (36) months following a change in control, the time-vesting portion of any award granted to such participant shall accelerate, vest and settle in full, and the performance-vesting portion of any such award shall vest at target level, in each case upon the date of termination of employment or service of such participant, all as specified in the full text of the 2024 Plan.
For purposes of the 2024 Plan, a “change in control” means, in summary, the occurrence of any of the following events: (i) a person or entity becomes the beneficial owner of more than 50% of our voting power of the Company’s then outstanding securities; (ii) the date on which individuals who constitute the Board as of the Effective Date and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including, but not limited to, a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company’s stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the Effective Date or whose appointment, election or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of the number of directors serving on the Board; (iii) a merger or consolidation of us or any of our subsidiaries with any other corporation or entity, other than (A) a merger or consolidation that results in our voting securities continuing to represent 50% or more of the combined voting power of the surviving entity or its parent and our Board immediately prior to the merger or consolidation continuing to represent at least a majority of the board of directors of the surviving entity or its parent or (B) a merger or consolidation effected to implement a recapitalization in which no person is or becomes the beneficial owner of our voting securities representing more than 50% of our combined voting power; or (iv) stockholder approval of a plan of our complete liquidation or dissolution or the consummation of an agreement for the sale or disposition of all or majority of our assets, other than (A) a sale or disposition to an entity, more than 50% of the combined voting power of which is owned by our stockholders in substantially the same proportions as their ownership of us immediately prior to such sale; or (B) a sale or disposition to an entity controlled by the Board whose constitution is the same as prior to the Change of Control. However, a change in control will not be deemed to have occurred as a result of any transaction or series of integrated transactions if its sole purpose is to change the state of the Company’s incorporation or to create a holding company following which our stockholders, immediately prior thereto, hold immediately afterward the same proportionate equity interests in the entity that owns all or substantially all of our assets.
Tax Withholding
Subject to the provisions of a written agreement with the Company, each participant may be required to make arrangements satisfactory to the plan administrator regarding payment of up to the maximum statutory tax rates in the participant’s applicable jurisdiction with respect to any award granted under the 2024 Plan, as determined by us, unless otherwise provided in a written agreement with the Company. We have the right, to the extent permitted by applicable law, to deduct any such taxes from any payment of any kind otherwise due to the participant unless otherwise provided in a written agreement with the Company. With the approval of the plan administrator, the participant may satisfy the foregoing requirement by either electing to have us withhold from delivery of shares of common stock, cash or other property, as applicable, or by delivering already owned unrestricted shares of common stock, in each case, having a value not exceeding the applicable taxes to be withheld and applied to the tax obligations, unless otherwise provided in a written agreement with the Company. We may also use any other method of obtaining the necessary payment or proceeds, as permitted by applicable law, to satisfy our withholding obligation with respect to any award unless otherwise provided in a written agreement with the Company.
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Amendment and Termination of the 2024 Plan
The 2024 Plan provides the Board with authority to amend, alter or terminate the 2024 Plan, but no such action may impair the rights of any participant with respect to outstanding awards without the participant’s written consent or impair the rights of a participant pursuant to a written employment agreement or other agreement. The plan administrator may amend an award, prospectively or retroactively, but no such amendment may impair the rights of any participant without the participant’s written consent. Stockholder approval of any such action will be obtained if required to comply with applicable law. The 2024 Plan will terminate on the tenth anniversary of the Effective Date (although awards granted before that time will remain outstanding in accordance with their terms).
Clawback
Notwithstanding any other provisions in this Plan and subject to any provisions in a written employment agreement or other agreement with Participant, any Award received by a Participant which is subject to clawback under any Applicable U.S. Laws, government regulation or stock exchange listing requirement (or any policy adopted by the Company in mandatory conformity with such Applicable U.S. Law, government regulation or stock exchange listing requirement), may be subject to such clawback as are mandatorily required to be made pursuant to such Applicable U.S. Law, government regulation or stock exchange listing requirement (or any policy adopted by the Company in conformity with any such law, government regulation or stock exchange listing requirement on or following the Effective Date).
US Federal Income Tax Consequences
The following is a summary of certain United States federal income tax consequences of awards under the 2024 Plan. It does not purport to be a complete description of all applicable rules, and those rules (including those summarized here) are subject to change.
Non-Qualified Stock Options
A participant who has been granted a non-qualified stock option will not recognize taxable income upon the grant of a non-qualified stock option. Rather, at the time of exercise of such non-qualified stock option, the participant will recognize ordinary income for income tax purposes in an amount equal to the excess of the fair market value of the shares of common stock purchased over the exercise price. We generally will be entitled to a tax deduction at such time and in the same amount that the participant recognizes ordinary income. If shares of common stock acquired upon exercise of a non-qualified stock option are later sold or exchanged, then the difference between the amount received upon such sale or exchange and the fair market value of such shares on the date of such exercise will generally be taxable as long-term or short-term capital gain or loss (if the shares are a capital asset of the participant) depending upon the length of time such shares were held by the participant.
Incentive Stock Options
In general, no taxable income is realized by a participant upon the grant of an ISO. If shares of common stock are purchased by a participant, or option shares, pursuant to the exercise of an ISO granted under the 2024 Plan and the participant does not dispose of the option shares within the two-year period after the date of grant or within one year after the receipt of such option shares by the participant, such disposition a disqualifying disposition, then, generally (1) the participant will not realize ordinary income upon exercise and (2) upon sale of such option shares, any amount realized in excess of the exercise price paid for the option shares will be taxed to such participant as capital gain (or loss). The amount by which the fair market value of the common stock on the exercise date of an ISO exceeds the purchase price generally will constitute an item which increases the participant’s “alternative minimum taxable income.” If option shares acquired upon the exercise of an ISO are disposed of in a disqualifying disposition, the participant generally would include in ordinary income in the year of disposition an amount equal to the excess of the fair market value of the option shares at the time of exercise (or, if less, the amount realized on the disposition of the option shares), over the exercise price paid for the option shares. Subject to certain exceptions, an option generally will not be treated as an ISO if it is exercised more than three months following termination of employment. If an ISO is exercised at a time when it no longer qualifies as an ISO, such option will be treated as a nonqualified stock option as discussed above. In general, we will receive an income tax deduction at the same time and in the same amount as the participant recognizes ordinary income.
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Stock Appreciation Rights
A participant who is granted an SAR generally will not recognize ordinary income upon receipt of the SAR. Rather, at the time of exercise of such SAR, the participant will recognize ordinary income for income tax purposes in an amount equal to the value of any cash received and the fair market value on the date of exercise of any shares of common stock received. We generally will be entitled to a tax deduction at such time and in the same amount, if any, that the participant recognizes as ordinary income. The participant’s tax basis in any shares of common stock received upon exercise of an SAR will be the fair market value of the shares of common stock on the date of exercise, and if the shares are later sold or exchanged, then the difference between the amount received upon such sale or exchange and the fair market value of such shares on the date of exercise will generally be taxable as long-term or short-term capital gain or loss (if the shares are a capital asset of the participant) depending upon the length of time such shares were held by the participant.
Restricted Stock
A participant generally will not be taxed upon the grant of restricted stock, but rather will recognize ordinary income in an amount equal to the fair market value of the shares of common stock at the earlier of the time the shares become transferable or are no longer subject to a substantial risk of forfeiture (within the meaning of the Code). We generally will be entitled to a deduction at the time when, and in the amount that, the participant recognizes ordinary income on account of the lapse of the restrictions. A participant’s tax basis in the shares of common stock will equal their fair market value at the time the restrictions lapse, and the participant’s holding period for capital gains purposes will begin at that time. Any cash dividends paid on the shares of common stock before the restrictions lapse will be taxable to the participant as additional compensation and not as dividend income, unless the individual has made an election under Section 83(b) of the Code. Under Section 83(b) of the Code, a participant may elect to recognize ordinary income at the time the restricted shares are awarded in an amount equal to their fair market value at that time, notwithstanding the fact that such stock is subject to restrictions or transfer and a substantial risk of forfeiture. If such an election is made, no additional taxable income will be recognized by such participant at the time the restrictions lapse, the participant will have a tax basis in the shares of common stock equal to their fair market value on the date of their award, and the participant’s holding period for capital gains purposes will begin at that time. We generally will be entitled to a tax deduction at the time when, and to the extent that, ordinary income is recognized by such participant.
Restricted Stock Units
In general, the grant of RSUs will not result in income for the participant or in a tax deduction for us. Upon the settlement of such an award in cash or shares of common stock, the participant will recognize ordinary income equal to the aggregate value of the payment received, and we generally will be entitled to a tax deduction at the same time and in the same amount.
Other Awards
With respect to other stock-based awards, generally when the participant receives payment in respect of the award, the amount of cash and/or the fair market value of any shares of common stock or other property received will be ordinary income to the participant, and we generally will be entitled to a tax deduction at the same time and in the same amount.
New Plan Benefits
Future grants under the 2024 Plan will be made at the discretion of the plan administrator and, accordingly, are not yet fully determinable. In addition, benefits under the 2024 Plan will depend on a number of factors, including the fair market value of our common stock on future dates and the exercise decisions made by participants. Consequently, at this time, it is not possible to fully determine the future benefits that might be received by participants receiving discretionary grants under the 2024 Plan.
| Regarding Proposal No. 3, the Board unanimously recommends that our stockholders vote for the approval of the 2024 Omnibus Equity Incentive Plan, and proxies solicited by the Board will be voted in favor thereof unless a stockholder has indicated otherwise on the proxy. |
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Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Rahul Mewawalla, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Mawson Infrastructure Group Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
MAWSON INFRASTRUCTURE GROUP INC. |
||
| Date: August 19, 2024 | By: | /s/ Rahul Mewawalla |
| Rahul Mewawalla | ||
| Chief Executive Officer and President | ||
| (Principal Executive Officer) | ||
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, William Harrison, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Mawson Infrastructure Group Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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MAWSON INFRASTRUCTURE GROUP INC. |
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| Date: August 19, 2024 | By: | /s/ William Harrison |
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William Harrison Chief Financial Officer |
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| (Principal Financial and Accounting Officer) | ||
Exhibit 32
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Mawson Infrastructure Group Inc. (the “Company”) for the period ended June 30, 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:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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MAWSON INFRASTRUCTURE GROUP INC. |
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| Date: August 19, 2024 | By: | /s/ Rahul Mewawalla |
| Rahul Mewawalla | ||
| Chief Executive Officer and President | ||
| (Principal Executive Officer) | ||
|
MAWSON INFRASTRUCTURE GROUP INC. |
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| Date: August 19, 2024 | By: | /s/ William Harrison |
|
William Harrison Chief Financial Officer |
||
| (Principal Financial and Accounting Officer) | ||