Big Digital Energy, Inc 10-Q for FY2024 Q3
Big Digital Energy, Inc. (BGDE)
About this 10-Q
Big Digital Energy, Inc filed this 10-Q on November 14, 2024, covering the quarter ended September 30, 2024 (FY2024 Q3).
Headline figures
Quarter ended September 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $12.32M
- up 8.7% from $11.33M a year earlier
- Net loss
- $12.23M
- compared with a net loss of $19.05M a year earlier
- Diluted EPS
- -$0.66
- compared with -$1.15 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
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| ☒ | Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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As of November 8, 2024, the issuer had a total
of
MAWSON INFRASTRUCTURE GROUP INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 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 | 26 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risks | 39 |
| Item 4. | Controls and Procedures | 39 |
| Part II – Other Information | ||
| Item 1. | Legal Proceedings | 41 |
| Item 1A. | Risk Factors | 42 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 42 |
| Item 3. | Defaults Upon Senior Securities | 42 |
| Item 4. | Mine Safety Disclosures | 43 |
| Item 5. | Other Information | 43 |
| Item 6. | Exhibits | 44 |
| Signatures | 45 | |
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MAWSON INFRASTRUCTURE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
| September 30, 2024 (unaudited) | December 31, 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Trade and other receivables | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Derivative asset | ||||||||
| Investments, equity method | ||||||||
| Security deposits | ||||||||
| Operating lease right-of-use asset | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| 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 (deficit): | ||||||||
| Series A preferred stock; | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Mawson Infrastructure Group, Inc. stockholders’ equity (deficit) | ( | ) | ||||||
| Non-controlling interest | ||||||||
| TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) | ( | ) | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | $ | ||||||
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 September 30, | For the Nine-Months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues: | ||||||||||||||||
| Digital colocation revenue | $ | $ | $ | $ | ||||||||||||
| Energy management revenue | ||||||||||||||||
| Digital assets mining revenue | ||||||||||||||||
| Equipment sales | ||||||||||||||||
| 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 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Impairment of financial assets | ( | ) | ( | ) | ||||||||||||
| Profit on sale of site | ||||||||||||||||
| Gain on sale of marketable securities | ||||||||||||||||
| Other expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on deconsolidation | ( | ) | ||||||||||||||
| Other income | ||||||||||||||||
| Share of net loss of equity method investments | ( | ) | ||||||||||||||
| Total non-operating income (expense), net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax benefit (expense) | ( | ) | ( | ) | ||||||||||||
| Net Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: Net loss attributable to non-controlling interests | ( | ) | ( | ) | ( | ) | ||||||||||
| Net Loss attributed to Mawson Infrastructure Group stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net Loss per share, basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 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 September 30, | For the Nine-Months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive (income) loss | ||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ||||||||||||||
| Comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: Comprehensive loss attributable to non-controlling interests | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive 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 (DEFICIT)
(Unaudited)
| For the Three-Months Ended September 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 (Deficit) |
|||||||||||||||||||||||||
| Balance as of June 30, 2024 | $ | $ | $ | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||
| Exercising of RSU’s and stock options | ||||||||||||||||||||||||||||||||
| Stock based compensation expense for RSU’s and stock options | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||
| Other comprehensive income | - | |||||||||||||||||||||||||||||||
| Balance as of September 30, 2024 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | |||||||||||||||||||
See accompanying notes to unaudited consolidated condensed financial statements.
4
MAWSON INFRASTRUCTURE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
| For the Three-Months Ended September 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 June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Issuance of warrants | - | |||||||||||||||||||||||||||||||
| Exercising of RSU’s and stock options | ||||||||||||||||||||||||||||||||
| Stock based compensation expense for RSU’s and stock options | - | |||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Other comprehensive income | - | |||||||||||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||
See accompanying notes to unaudited consolidated condensed financial statements.
5
MAWSON INFRASTRUCTURE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
| For the Nine-Months Ended September 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 (Deficit) |
|||||||||||||||||||||||||
| Balance as of December 31, 2023 | $ | $ | $ | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||
| Exercising of RSU’s and stock options | ( |
|||||||||||||||||||||||||||||||
| 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 September 30, 2024 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | |||||||||||||||||||
See accompanying notes to unaudited consolidated condensed financial statements.
6
MAWSON INFRASTRUCTURE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
| For the Nine-Months Ended September 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 RSU’s | - | |||||||||||||||||||||||||||||||
| Issuance of common stock, net of issuance costs | ||||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Other comprehensive income | - | |||||||||||||||||||||||||||||||
| Balance as of September 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 Nine-Months ended September 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 (gain) | ( | ) | ||||||
| Stock based compensation | ||||||||
| Non-cash interest expense | ||||||||
| Unrealized (gain) loss on derivative asset | ||||||||
| Loss on deconsolidation | ||||||||
| Gain on sale of marketable securities | ( | ) | ||||||
| Share of loss from equity method investments | ||||||||
| Loss on sale of property and equipment | ||||||||
| Gain on lease termination | ( | ) | ||||||
| Profit on sale of site | ( | ) | ||||||
| Impairment of equity method investment | ||||||||
| Changes in assets and liabilities: | ||||||||
| Trade and other receivables | ( | ) | ( | ) | ||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Other current assets | ( | ) | ||||||
| Trade and other payables | ||||||||
| Net cash (used in) provided by 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) provided by financing activities | ( | ) | ( | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ||||||
| Net increase/(decrease) 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 | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| 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 technology company focused on digital infrastructure platforms, headquartered in the United States of America.
The Company 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. The Company was previously known as Wize Pharma Inc and changed its name on March 17,
2021. Shares of the Company’s common stock, par value $
The Company develops and operates digital infrastructure platforms for enterprise customers and for its own purposes. The Company’s digital infrastructure platforms can be used to operate computing resources for a number of applications, and are offered across digital assets, artificial intelligence (AI), high-performance computing (HPC) and other computing applications. The Company also has an energy management business, which utilizes software and analysis, to generate revenue when the Company adapts its power usage to the real-time needs of the grid. The Company may also transact in digital computational machines, data center infrastructure, and related equipment periodically, subject to business and commercial opportunities.
The Company has a strategy to prioritize the usage of carbon-free energy sources, including nuclear energy, to power its digital infrastructure platforms and computational machines.
The Company manages and operates digital infrastructure platforms delivering a total current capacity of approximately 129 megawatts (MW) with its current operational sites with an additional 24 MW of future capacity that is under development, all strategically located in locations served by the PJM Energy Market in the United States. The PJM Energy Market is the largest wholesale power market in North America.
Previously, the Company also had interests in the Australian market, however for strategic and commercial reasons, the Company is currently focused on advancing its interests in North America. The Company currently operates facilities in the United States of America and does not have operating sites in Australia. The Company has previously reported through an 8-K filing on March 29, 2024 that the Company may seek to exit certain or all of its entities and holdings in Australia. The accompanying consolidated condensed unaudited interim financial statements, including the results of a number of the Company’s Australian subsidiaries: Cosmos Trading Pty Ltd, Cosmos Infrastructure LLC, Cosmos Manager LLC, MIG No.1 Pty Ltd (on March 19, 2024, 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 of America (“GAAP”).
These consolidated, condensed unaudited interim financial statements should be read in conjunction with the audited consolidated financial statements of the Group as of December 31, 2023, and the notes thereto, included in the Company’s Annual Report on Form 10-K filed with the 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.
9
Going Concern
The accompanying consolidated, condensed unaudited interim financial statements have been prepared assuming the Company will continue on 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 nine-months ended September 30, 2024,
the Company incurred a loss after tax of $
The Company’s revenue is dependent on a number of external factors, including commercial terms, payments from customers, payments from partners, counterparty risks, and market conditions, including those related to digital assets, artificial intelligence, high-performance computing and other markets. 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 equipment and infrastructure will require replacement over time as they come to the end of their useful lives to ensure that the Company can continue to operate competitively and efficiently
Celsius Colocation Agreement Dispute
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 “Celsius Collocation Agreement Dispute”). The Company opposes the claim in arbitration and
on August 12, 2024, filed responsive pleadings denying the claims and asserting affirmative defenses, including set off against the claims,
and the Company asserted cross-claims against Celsius for sums due to the Company in excess of $
Loan Disputes with Australian Entities (W Capital and Marshall)
The Company is the guarantor of 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 $
10
The Company is the guarantor on of a Secured Loan
Facility Agreement for working capital by Mawson Infrastructure Group Pty Ltd with W Capital Advisors Pty Ltd. As of September 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.
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 capacities for either digital colocation services and/or AI and HPC markets; |
| ● | Executing new customer digital colocation service agreements in either AI, HPC, and/or digital assets mining to diversify its exposure across customers and/or markets; |
| ● | Engaging in discussions with capital providers, including related to equity and/or debt; |
| ● | Considering equity issuances such as capital raises and at-the-market (ATM) transactions; |
| ● | Assessing and evaluating corporate and strategic transactions; |
| ● | Assessing and evaluating commercial opportunities or other business opportunities under consideration; |
| ● | Conducting assessments to identify and implement operational improvements and/or efficiencies and other actions aimed at enhancing revenue and/or optimizing expenses; and |
| ● | Evaluating, assessing and pursuing business revenue and margin expansion opportunities. |
Mawson successfully expanded its Midland Facility
by
11
The Company also announced in June 2024 that it
had executed a new digital colocation agreement for about
Although the Company may have access to capital, equity, debt, and/or 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.
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 colocation revenue
The Company additionally charges colocation fees for the use of the facilities, and other related fees. Digital colocation customers typically 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. 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.
12
Energy management revenue
The Company also has an energy management business to generate revenue when the Company adapts its power usage to the real-time needs of 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.
Digital mining revenue
The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of ASC 606 is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Five steps are required to be followed in evaluating revenue recognition: (i) identify the contract with the customer; (ii) identity the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price; and (v) recognize revenue when or as the entity satisfies a performance obligation.
In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met: the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct), and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract).
The Company has a contract with mining pools and has undertaken the performance obligation of providing computing power in exchange for non-cash consideration in the form of digital 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.
Equipment sales
The Company had previously earned revenues from the sale of equipment and/or infrastructure (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.
13
Property, Plant, and Equipment
Property, plant and equipment (PP&E) 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, plant and equipment transferred from customers is initially measured at the fair value at the date on which control is obtained.
PP&E 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 |
PP&E 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 PP&E 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.
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.
14
| Fair value measured as of September 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.
While the Company participates in energy management programs at its Midland, Pennsylvania facility, 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 September 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
15
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.
| Three- months to September 30, 2024 | Nine- months to September 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 nine-month periods ended September 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.
16
NOTE 3 – AUSTRALIAN SUBSIDIARIES DECONSOLIDATION
Previously, the Company also had interests in the Australian market, however for strategic and commercial reasons, the Company is currently focused on advancing its interests in North America. The Company has previously reported through an 8-K filing on March 29, 2024 that the Company may seek to exit certain or all of its entities and holdings in Australia. The Company currently operates facilities in the United States of America and does not have operating sites in Australia.
MIG No.1 (Australian Entity)
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 does 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 $
Mawson AU Pty Ltd (Australian Entity)
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 does 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 $
17
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 (Australian Entity)
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 does 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 $
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.
18
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 September 30, | ||||||||
| 2024 | 2023 | |||||||
| Warrants to purchase common stock | ||||||||
| Options to purchase common stock | ||||||||
| Restricted Stock-Units (“RSU’s”) issued under equity incentive plan(s) | ||||||||
NOTE 5 – LEASES
The Company’s operating leases are for digital mining and colocation sites and its finance leases are primarily for related plant and equipment.
| For the three-Months ended September 30, | For the nine-Months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Operating lease charges (1) | $ | $ | $ | $ | ||||||||||||
| Finance lease charges: | ||||||||||||||||
| Amortization of right-of-use assets | $ | $ | $ | $ | ||||||||||||
| Interest on lease obligations | $ | $ | $ | $ | ||||||||||||
| (1) |
| Operating leases | Finance leases | |||||||
| Remainder of 2024 | $ | $ | ||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| Total undiscounted lease obligations | ||||||||
| Less imputed interest | ( | ) | ( | ) | ||||
| Total present value of lease liabilities | ||||||||
| Less current portion of lease liabilities | ||||||||
| Non-current lease liabilities | $ | $ | ||||||
19
| Operating leases | Finance leases | |||||||
| Operating cash out flows from leases | $ | $ | ||||||
| Weighted-average remaining lease term (years) | ||||||||
| Weighted-average discount rate (%) | % | % | ||||||
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT
| September 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, plant and equipment, net | $ | $ | ||||||
The Company incurred depreciation and amortization
expenses in the amounts of $
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 September 30, 2024.
| For the Three-Months ended September 30, 2024 | ||||||||
| 2024 | 2023 | |||||||
| Effective income tax rate | % | | % | |||||
20
| For the Nine-Months ended September 30, 2024 | ||||||||
| 2024 | 2023 | |||||||
| Effective income tax rate | ( | )% | | % | ||||
As of September 30, 2024, the Company had no unrecognized tax benefits and does not anticipate any significant change to the unrecognized tax benefit balance.
NOTE 8 – BORROWINGS
W Capital loan
The Company is the guarantor of a Secured Loan
Facility Agreement for working capital by Mawson Infrastructure Group Pty Ltd with W Capital Advisors Pty Ltd. As of September 30, 2024,
AUD $
Marshall loan
The Company is the guarantor of a Secured Loan
Facility Agreement by MIG No. 1 with Marshall. The loan matured in February 2024 and bears interest at a rate of
21
Celsius loan
On February 23, 2022, Luna entered into a Digital
Colocation Agreement with Celsius Mining LLC. In connection with this agreement, Celsius Mining LLC loaned Luna a principal amount 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”. For more details on this dispute, please see the Celsius Collocation Agreement Dispute found in Part I. Financial Information, Item 1. Financial Statements, contained in this Form 10-Q and made part here of and incorporated herein by reference.
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 $
On June 12, 2024, W Capital issued a statutory
demand under Australian Law to the Company seeking USD $
NOTE 9 – STOCKHOLDERS’ EQUITY
Common Stock
During the nine-month period ended September 30,
2024, vested and outstanding restricted stock units were exercised for
Common Stock Warrants
The Company’s outstanding stock warrants
have not changed during the nine-months ended September 30, 2024. The outstanding stock warrants as of September 30, 2024 are
22
Stock-Based Compensation:
Equity plans
| For the Three-Months ended September 30, | For the Nine-Months ended September 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** | $ | $ | $ | $ | ||||||||||||
| * |
| ** |
Performance-based awards
Performance-based awards generally vest over a three-year performance period upon the successful completion of specified market and performance conditions.
23
| Number of shares | Weighted Average Remaining Contractual Life (in years) | |||||||
| Outstanding as of December 31, 2023 | ||||||||
| Expired/forfeited | ( | ) | - | |||||
| Outstanding as of September 30, 2024 | ||||||||
| Exercisable as of September 30, 2024 | ||||||||
Service-based restricted stock awards
Service-based awards generally vest over a specified time period pursuant to the grant by the Compensation Committee of the Board of Directors and 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 September 30, 2024 | ||||||||
| Exercisable as of September 30, 2024 | ||||||||
As of September 30, 2024, there was approximately
$
Stock options awards
Stock options awards vest upon the successful completion of specified stock price threshold conditions.
| Number of shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding as of December 31, 2023 | $ | $ | ||||||||||||||
| Cancelled | ( | ) | - | |||||||||||||
| Issued | - | - | ||||||||||||||
| Outstanding as of September 30, 2024 | $ | $ | ||||||||||||||
| Exercisable as of September 30, 2024 | $ | - | $ | |||||||||||||
24
As of September 30, 2024, there was approximately
$
NOTE 10 – SUBSEQUENT EVENTS
Effective September 6, 2024, the Company terminated the At the Market Offering Agreement with H.C. Wainwright & Co., LLC dated May 27, 2022. The Company filed an 8K on October 25, 2024 announcing this termination. This filing is incorporated herein by reference.
On October 3, 2024, a proceeding before the Federal Court of Australia, New South Wales was filed by W Capital against the Company, seeking a hearing on November 29, 2024 regarding its claims related to Company’s solvency under Australian law. The current proceeding is in Australian courts and there are no associated proceedings in the United States. The Company believes that W Capital and Marshall are using this proceeding in Australia as a bad faith attempt to gain leverage in ongoing legal disputes between the parties. For further information, please reference the Marshall and W Capital Australian Loan Disputes found in Part I. Financial Information, Item 1. Financial Statements, made part here of and incorporated herein by reference.
On October 17, 2024, the Company filed a complaint in The Court of Common Pleas of Mercer County, Pennsylvania (file number 2024-2332), against Vertua Property, Inc. as landlord for the Company’s Sharon, PA property for breach of the lease agreement and wrongful termination of the lease, as well as for tortious interference with a business relationship, seeking reinstatement of the lease, compensatory damages, disgorgement of revenue, and exemplary and punitive damages, as well as reimbursement for Plaintiffs’ costs and expenses including attorneys’ fees and costs of suit. Vertua Property, Inc. is a company affiliated to Darron Wolter of W Capital and to James Manning, a former board director and executive of the Company.
25
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 and other digital assets’ usage; |
| - | access to reliable and reasonably priced electricity sources; |
| - | operational, maintenance, repair, safety, and construction risks; |
| - | the failure or breakdown of mining equipment, or internet connection failure; |
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| - | our reliance on key management personnel and employees; | |
| - | our ability to attract or retain the talent needed to sustain or grow the business; |
| - | our ability to develop and execute on our business strategy and plans; |
| - | counterparty risks related to our customers, agreements and/or contracts; |
| - | adverse actions by creditors, debt providers, or other parties; |
| - | high volatility in bitcoin and other digital assets’ prices and in value attributable to our business; |
| - | our need to, and difficulty in, raising additional debt or equity capital and the availability of financing opportunities; |
| - | failure to maintain required compliance to remain eligible for the most cost-effective forms of raising additional equity capital; |
| - | 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 contracts or deployment; |
| - | the ability to timely complete the digital infrastructure build-out in order to achieve its revenue expectations for the periods mentioned; |
| - | downturns in the digital assets industry; |
| - | inflation, economic or political environment; |
| - | cyber-security threats; |
| - | our ability to obtain proper insurance; |
| - | banks and other financial institutions ceasing to provide services to our industry; |
| - | changes to the Bitcoin and/or other networks’ protocols and software; |
| - | the decrease in the incentive or increased network difficulty to mine Bitcoin; |
| - | the increase of transaction fees related to digital assets: |
| - | the fraud or security failures of large digital asset exchanges; |
| - | 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.
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.
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Company Overview
Mawson Infrastructure Group Inc. (“Mawson,” the “Company,” “we,” “us,” and “our”) is a technology company focused on digital infrastructure platforms, headquartered in the United States of America.
The Company 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. The Company was previously known as Wize Pharma Inc and changed its name on March 17, 2021. Shares of the Company’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 develops and operates digital infrastructure platforms for enterprise customers and for its own purposes. The Company’s digital infrastructure platforms can be used to operate computing resources for a number of applications, and are offered across digital assets, artificial intelligence (AI), high-performance computing (HPC) and other computing applications. The Company also has an energy management business, which utilizes software and analysis, to generate revenue when the Company adapts its power usage to the real-time needs of the grid. The Company may also transact in digital computational machines, data center infrastructure, and related equipment periodically, subject to business and commercial opportunities.
The Company has a strategy to prioritize the usage of carbon-free energy sources, including nuclear energy, to power its digital infrastructure platforms and computational machines.
The Company manages and operates digital infrastructure platforms delivering a total current capacity of approximately 129 megawatts (MW) with its current operational sites with an additional 24 MW of future capacity that is under development, all strategically located in locations served by the PJM Energy Market in the United States. The PJM Energy Market is the largest wholesale power market in North America.
Previously, the Company also had an interest in the Australian energy market, however for strategic and commercial reasons, the Company is currently focused on advancing its interests in North America. The Company currently operates facilities in the United States of America and does not have operating sites in Australia. The Company has previously reported through an 8-K filing on March 29, 2024 that the Company may seek to exit certain or all of its entities and holdings in Australia. The accompanying consolidated condensed unaudited interim financial statements, including the results of a number of the Company’s Australian subsidiaries: Cosmos Trading Pty Ltd, Cosmos Infrastructure LLC, Cosmos Manager LLC, MIG No.1 Pty Ltd (on March 19, 2024, 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 of America (“GAAP”).
Recent Developments
On August 6, 2024, the Company announced the future departure of Mr. Craig Hibbard as the Company’s Chief Development Officer given personal reasons. Mr. Hibbard will remain with the Company in a full-time capacity until February 6, 2025 to ensure a structured transition. The Company does not plan to continue with a Chief Development Officer position henceforth and the responsibilities will be divided amongst other management team members.
On August 9, 2024, a wholly owned subsidiary of the Company, Mawson Hosting, LLC, and BE Global Development Limited, executed a Service Provider Agreement for the provision of AI/HPC digital colocation services for 20MW of power for AI/HPC digital colocation services at the Company’s facilities at pre-determined pricing for the first two years of the agreement, with the pricing subject to updates every two years, and with an initial six-year contract term. The contract is expected to generate $92 million in the first 2 years, with cumulative revenue potential of $285 million through the 6-year initial contract term. In addition, the Company and the Customer also entered into an additional non-binding Letter of Intent (the “LOI”) to supplement the binding 20 MW agreement, to plan for further expansion of their business relationship to a total of 144 MW over time. The Company filed an 8K on August 12, 2024 attaching the agreement as Exhibit 99.1. This filing is incorporated herein by reference.
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On August 21, 2024, the Company secured a lease amendment to expand its Ohio facility and extending the lease term for 9 years, through April 2033. Securing an initial 24 MW of capacity through agreements. The Company filed an 8K on August 27, 2024 announcing the event pursuant to a press release which was attached here to the 8-K as Exhibit 99.1 and is incorporated herein by reference.
On September 6, 2024, Luna Squares Property, LLC, a wholly-owned subsidiary of the Company, filed a praecipe of lis pendens for the property leased in Sharon, Pennsylvania. It did so to also provide third parties such as Bitfarms Ltd. notice that the property is encumbered by a lease between Luna Squares Property LLC and Vertua Property, Inc. This property is the subject of a current civil lawsuit between the Company and Luna Squares against Vertua. On October 17, 2024, the Company filed several claims against Vertua Property, Inc including claims for breach of the lease agreement and wrongful termination of the lease, as well as for tortious interference with a business relationship, seeking reinstatement of the lease, compensatory damages, disgorgement of revenue, and exemplary and punitive damages, as well as reimbursement for Plaintiffs’ costs and expenses including attorneys’ fees and costs of suit.
On September 9, 2024, the Company entered into the Third Amendment to Lease Agreement (the “Amendment”) which amended the existing Lease Agreement, dated as of September 20, 2021, by and between the Company and Jewel Acquisition, LLC, pursuant to which the Company leases approximately 8 acres of land and improvements located at 950 10th Street (950 Railroad Avenue), Midland (Beaver County), Pennsylvania (the “Lease”). The Amendment extends the Lease from September 14, 2024 to September 14, 2027 and sets new rental rates that are effective as of September 15, 2024. Future minimum lease payments for the Lease, as amended, are approximately $1,380,509, with annual increases of 3.1%. All other terms of the Lease remain in full force and effect. The Company filed an 8K on September 11, 2024 attaching the amendment as Exhibit 99.1. This filing is incorporated herein by reference.
On September 11, 2024, the Company entered into a Marketing Services Agreement with Outside The Box Capital Inc. (“OTB”) pursuant to which OTB will provide certain marketing and distribution services to the Company for a six month term in consideration for the payment of a fee of $100,000 worth of restricted shares of the Company’s common stock, as approved by the Company’s board. The Company filed an 8K on September 11, 2024 attaching the agreement as Exhibit 99.1. This filing is incorporated herein by reference.
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Results of Operations – Three-months Ended September 30, 2024 compared to the three-months ended September 30, 2023
| For the Three-Months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Revenues: | ||||||||
| Digital colocation revenue | $ | 9,518,696 | $ | 2,959,074 | ||||
| Energy management revenue | 1,963,805 | 1,475,333 | ||||||
| Digital assets mining revenue | 833,516 | 6,898,223 | ||||||
| Equipment sales | - | - | ||||||
| Total revenues | 12,316,017 | 11,332,630 | ||||||
| Less: Cost of revenues (excluding depreciation) | 7,996,440 | 7,715,920 | ||||||
| Gross profit | 4,319,577 | 3,616,710 | ||||||
| Selling, general and administrative | 6,000,344 | 3,655,444 | ||||||
| Stock based compensation | 5,320,823 | 3,784,316 | ||||||
| Depreciation and amortization | 3,607,848 | 11,875,618 | ||||||
| Change in fair value of derivative asset | 789,146 | 520,838 | ||||||
| Total operating expenses | 15,718,161 | 19,836,216 | ||||||
| Loss from operations | (11,398,584 | ) | (16,219,506 | ) | ||||
| Non-operating income (expense): | ||||||||
| Losses on foreign currency transactions | (352,375 | ) | (600,619 | ) | ||||
| Interest expense | (801,625 | ) | (514,953 | ) | ||||
| Impairment of financial assets | - | (1,837,063 | ) | |||||
| Profit on sale of site | - | - | ||||||
| Gain on sale of marketable securities | - | - | ||||||
| Other expenses | (443,537 | ) | (158,577 | ) | ||||
| Loss on deconsolidation | - | - | ||||||
| Other income | 119,526 | - | ||||||
| Share of net loss of equity method investments | - | - | ||||||
| Total non-operating income (expense), net | (1,478,011 | ) | (3,111,212 | ) | ||||
| Loss before income taxes | (12,876,595 | ) | (19,330,718 | ) | ||||
| Income tax benefit (expense) | 648,857 | - | ||||||
| Net Loss | (12,227,738 | ) | (19,330,718 | ) | ||||
| Less: Net loss attributable to non-controlling interests | - | (283,101 | ) | |||||
| Net Loss attributed to Mawson Infrastructure Group stockholders | $ | (12,227,738 | ) | $ | (19,047,617 | ) | ||
| Net Loss per share, basic and diluted | $ | (0.66 | ) | $ | (1.15 | ) | ||
| Weighted average number of shares outstanding | 18,519,572 | 16,500,833 | ||||||
Revenues
Digital colocation business revenues for the three-months ended September 30, 2024 and 2023, were $9.52 million and $3.00 million, respectively. This represented an increase of $6.56 million or 222% increase.
The increase in revenue was due to the Company providing digital colocation services to multiple digital colocation customers. For the same period of 2023, the Company only provided digital colocation services to a single customer whereas the Company now provides digital colocation services to multiple customers. The Company expects to continue to diversify its digital colocation services customer across customers and to expand its business.
Energy management business revenues for the three-months ended September 30, 2024 and 2023, were $1.96 million and $1.48 million, respectively. This represented an increase of $0.49 million or 33% increase.
This increase is due to the Company enhanced energy management program participation in the three-months ended September 30, 2024 than in the 2023 period. The revenue opportunity from energy management is expected to be impacted by seasonal patterns and other weather-related events as well as the dynamic nature of global power prices.
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Digital assets mining revenues from the production of bitcoin for the three-months ended September 30, 2024, and 2023, were $0.83 million and $6.90 million, respectively. The decrease for the three-months ended September 30, 2024, was due to a number of factors, including the impact of the April 2024 halving event, and a higher global network difficulty rate in the three-months ended September 30, 2024 compared to the same period in 2023, which led to lower bitcoin production from self-mining. In the three-months ended September 30, 24 period, the Company also significantly expanded and grew its digital colocation services business across multiple customers reallocating some of its digital asset mining capacities. The Company believes its digital mining revenue may continue to fluctuate with bitcoin pricing and market conditions as the bitcoin industry works through the expected volatility inherently associated with bitcoin including the impact post the April 2024 halving event.
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 equipment and infrastructure sold.
Cost of revenue for the three-months ended September 30, 2024 and 2023, were $8.00 million and $7.72 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 equipment for our enterprise digital colocation customers within our facilities.
Selling, general and administrative
Our selling, general and administrative expenses consist primarily of professional and management fees relating to: audit; legal; professional services, director and employee compensation, equipment repairs; marketing; freight; insurance; consultant fees; lease amortization, general and other expenses.
Selling, general and administrative expenses for the three-months ended September 30, 2024 and 2023 were $6.00 million and $3.66 million, respectively.
Stock based compensation
Stock based compensation expenses for the three-months ended September 30, 2024 and 2023 were $5.32 million and $3.78 million, respectively. In the three-months ended September 30, 2024, stock-based compensation expense was attributable to the costs recognized in relation to long-term incentives for the Company’s directors, management, and employees and to continue 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 September 30, 2024 and 2023, were $3.61 million and $11.88 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 September 30, 2024 following the deconsolidation of MIG No. 1 Pty Ltd.
Change in fair value of derivative asset
During the three-months ended September 30, 2024 and 2023, there was a loss on the fair value of the derivative asset by $0.79 million and a loss of $0.52 million, respectively, in relation to our power supply arrangements. The loss on the derivative asset was due to an expected decrease 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 and other expenses.
Interest expenses for the three-months ended September 30, 2024 and 2023, were $0.80 million and $0.51 million, respectively driven by default interest on loans outstanding.
Non-operating income
Non-operating income consists primarily of gain on foreign currency transactions and other income.
During the three-months ended September 30, 2024 and 2023, the realized and unrealized gain on foreign currency transactions was a loss of $0.35 million and a loss of $0.60 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 $12.23 million for the three-months ended September 30, 2024, compared to a net loss of $19.05 million for the three-months ended September 30, 2023.
Results of Operations – Nine-months Ended September 30, 2024 compared to the nine-months ended September 30, 2023
| For the Nine-Months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Revenues: | ||||||||
| Digital colocation revenue | $ | 25,884,176 | $ | 11,876,379 | ||||
| Energy management revenue | 6,168,906 | 2,934,066 | ||||||
| Digital assets mining revenue | 11,596,363 | 14,550,744 | ||||||
| Equipment sales | 550,000 | 193,581 | ||||||
| Total revenues | 44,199,445 | 29,554,770 | ||||||
| Less: Cost of revenues (excluding depreciation) | 28,577,249 | 19,422,380 | ||||||
| Gross profit | 15,622,196 | 10,132,390 | ||||||
| Selling, general and administrative | 13,100,223 | 14,898,118 | ||||||
| Stock based compensation | 11,275,554 | 5,475,935 | ||||||
| Depreciation and amortization | 16,211,516 | 28,627,896 | ||||||
| Change in fair value of derivative asset | 878,096 | 6,646,363 | ||||||
| Total operating expenses | 41,465,389 | 55,648,312 | ||||||
| Loss from operations | (25,843,193 | ) | (45,515,922 | ) | ||||
| Non-operating income (expense): | ||||||||
| Losses on foreign currency transactions | (474,210 | ) | (1,416,000 | ) | ||||
| Interest expense | (2,289,150 | ) | (2,061,067 | ) | ||||
| Impairment of financial assets | - | (1,837,063 | ) | |||||
| Profit on sale of site | - | 3,353,130 | ||||||
| Gain on sale of marketable securities | - | 1,437,230 | ||||||
| Other expenses | (29,800 | ) | (226,330 | ) | ||||
| Loss on deconsolidation | (12,444,097 | ) | - | |||||
| Other income | 309,209 | 245,694 | ||||||
| Share of net loss of equity method investments | - | (36,356 | ) | |||||
| Total non-operating income (expense), net | (14,928,048 | ) | (540,762 | ) | ||||
| Loss before income taxes | (40,771,241 | ) | (46,056,684 | ) | ||||
| Income tax expense | (1,044,475 | ) | (2,304,454 | ) | ||||
| Net Loss | (41,815,716 | ) | (48,361,138 | ) | ||||
| Less: Net loss attributable to non-controlling interests | (205,086 | ) | (867,590 | ) | ||||
| Net Loss attributed to Mawson Infrastructure Group stockholders | $ | (41,610,630 | ) | $ | (47,493,548 | ) | ||
| Net Loss per share, basic and diluted | $ | (2.37 | ) | $ | (3.10 | ) | ||
| Weighted average number of shares outstanding | 17,529,342 | 15,336,653 | ||||||
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Revenues
Digital colocation services revenues for nine-months ended September 30, 2024 and 2023, were $25.88 million and $11.88 million, respectively, representing an increase of $14.01 million or 118% increase.
The increase in revenue was due to growth of the digital colocation business during the nine-months ended September 30, 2024, where the Company provided digital colocation services to multiple digital colocation customers, whereas for the nine-months ended September 30, 2023 the Company provided digital colocation services to a single customer.
Energy management revenues for the nine-months ended September 30, 2024 and 2023, were $6.17 million and $2.93 million, respectively, representing an increase of $3.23 million or 110% increase.
This increase is due to the Company’s enhanced participation in energy management programs.
Digital assets revenues from production of bitcoin for the nine-months ended September 30, 2024, and 2023, were $11.60 million and $14.55 million, respectively. In the nine-months ended September 30, 24 period, the Company also significantly expanded its digital colocation services business reallocating some of its digital asset mining capacities. The Company believes its digital mining revenue may continue to fluctuate with bitcoin pricing and market conditions as the bitcoin industry works through the expected volatility inherently associated with bitcoin including the impact post the April 2024 halving event.
Sales of digital mining and other equipment for the nine-months ended September 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 digital colocation services and cost of mining equipment sold.
Cost of revenue for the nine-months ended September 30, 2024 and 2023, were $28.58 million and $19.42 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 nine-months ended September 30, 2024 and 2023 were $13.10 million and $14.90 million, respectively, which is a reduction of $1.80 million or 12% 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, efficiency, and optimization actions that the Company had previously undertaken.
Stock-based compensation
Stock-based compensation expenses for the nine-months ended September 30, 2024 and 2023 were $11.28 million and $5.48 million, respectively. In the nine-months ended September 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 continue 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 nine-months ended September 30, 2024 and 2023, were $16.21 million and $28.63 million, respectively.
Change in fair value of derivative asset
During the nine-months ended September 30, 2024 and 2023, there was a loss on the fair value of the derivative asset by $0.88 million and a loss of $6.65 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 nine-months ended September 30, 2024 and 2023, were $2.29 million and $2.06 million, respectively.
During the nine-months ended September 30, 2024, the Company recognized a deconsolidation loss of $12.44 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.
Non-operating income
Non-operating income consists primarily of gain on foreign currency transactions and other income.
During the nine-months ended September 30, 2024 and 2023, the realized and unrealized loss on foreign currency transactions was a loss of $0.47 million and a loss of $1.42 million, respectively. This difference was due mostly to the movement in foreign exchange rates.
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Net loss attributable to Mawson Infrastructure Group, Inc. stockholders
As a result of the foregoing, the Company recognized a net loss of $41.61 million for the nine-months ended September 30, 2024, compared to a net loss of $47.49 million for the nine-months ended September 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 nine-month period ended September 30, 2024, we financed our operations primarily through net positive cash flow provided by operating activities and other cash reserves. During the nine-months ending September 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 its 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. The Company terminated the ATM Agreement effective September 6, 2024. The Company may choose to enter into other “at the market offering” programs with other parties in the future.
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, future 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 infrastructure and/or other equipment and will require additional working capital in the short-term and long-term. As of September 30, 2024, we had an aggregate of $21.37 million of debt all of which is overdue for repayment unless we refinance, renegotiate the terms or prevail in our disputes and/or related claims. In addition, the Celsius deposit of $15.33 million is the subject of an ongoing legal dispute in arbitration. For more details on this dispute, please see the Celsius Collocation Agreement Dispute found in Part I. Financial Information, Item 1. Financial Statements, contained in this Form 10-Q and made part here of and incorporated herein by reference.
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 September 30, 2024 and December 31, 2023, we had a cash and cash equivalent balance of $5.76 million and $4.48 million, respectively, representing a positive increase of 29% in our cash and cash equivalent balance. As of September 30, 2024 and December 31, 2023, the trade receivables balance was $12.84 million and $12.11 million, respectively. As of September 30, 2024, we had $21.37 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 September 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 September 30, 2024 and December 31, 2023, we had negative working capital of $36.09 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 September 30, 2024 and 2023:
| Nine-Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net cash provided by (used in) operating activities | $ | 3,106,434 | $ | (4,818,073 | ) | |||
| Net cash provided by (used in) investing activities | $ | (1,097,654 | ) | $ | 10,510,543 | |||
| Net cash used in financing activities | $ | (726,773 | ) | $ | (5,115,470 | ) | ||
For the nine-month period ended September 30, 2024, net cash provided by operating activities was $3.11 million and for the nine-months period ended September 30, 2023, net cash used operating activities was $4.82 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 nine-month period ended September 30, 2024, net cash used in investing activities was $1.10 million and for the nine-month period ended September 30, 2023, net cash provided by investing activities was $10.51 million. The net cash used in investing activities during the nine-months ended September 30, 2024, was primarily attributable to the proceeds from sale of certain non-utilized equipment. The net cash provided by investing activities during the nine-month period to September 30, 2023 was primarily attributable to the proceeds from sale of investment shares in CleanSpark, Inc.
For the nine-month period ended September 30, 2024, net cash used in financing activities was $0.73 million and for the nine-month period ended September 30, 2023, net cash used in financing activities was $5.12 million. The cash used in financing activities during the nine-month period ended September 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 of 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 $10.53 million as of September 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.
On February 23, 2022, Luna entered into a Digital 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 Digital 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 $9.38 million as of September 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 Digital 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. The Company has filed cross-claims against Celsius. For more details on this dispute, please see the Celsius Collocation Agreement Dispute found in Part I. Financial Information, Item 1. Financial Statements, contained in this Form 10-Q and made part here of and incorporated herein by reference.
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The Company is the guarantor of 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 September 30, 2024, AUD $1.95 million (USD $1.35 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 May 31, 2024, W Capital obtained a judgment from the Australian court awarding it a money judgment for USD $0.17 million as unpaid interest under the convertible note after the Company paid in full the principal of $0.50 million, and AUD $0.30 million under a loan deed. On June 12, 2024, W Capital issued a statutory demand under Australian Law to the Company seeking USD $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. The Company rejected this demand. Subsequently, on October 3, 2024, a proceeding before the Federal Court of Australia, New South Wales was filed by W Capital against the Company, seeking a hearing on November 29, 2024 regarding its claims related to Company’s solvency under Australian law. The current proceeding is in Australian courts and there are no associated proceedings in the United States. The Company believes that W Capital and Marshall are using this proceeding in Australia as a bad faith attempt to gain leverage in ongoing legal disputes between the parties. For further information, please reference the Marshall and W Capital Australian Loan Disputes found in Part I. Financial Information, Item 1. Financial Statements, made part here of and incorporated herein by reference.
Financial condition
As of September 30, 2024, and December 31, 2023, we had negative working capital of $36.09 million and $33.18 million, respectively. As of September 30, 2024, and December 31, 2023, we had negative net assets of $1.56 million and $30.38 million, respectively. As of September 30, 2024, we had an accumulated deficit of $224.28 million compared to $182.67 million as of December 31, 2023. Our cash position of September 30, 2024, was $5.76 million in comparison to $4.48 million as of December 31, 2023. For the nine-month period ended September 30, 2024 and 2023 the Company incurred a loss after tax of $41.61 million and $48.36 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. For more details, please see the CleanSpark Litigation found in Item 1. Legal Proceedings, Part II Other Information contained in this Form 10-Q.
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.
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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, debt or other 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 operations, costs and pursuing efficiencies. The Company has been improving its revenue generation by enhancing its operations, driving growth in business lines, and adding multiple, enterprise digital colocation services customers and diversifying its businesses. The Company will continue to seek to optimize its cashflows through these and other initiatives.
Non-GAAP Financial Measures
The Company utilizes a number of different financial measures, both GAAP and non-GAAP, in analyzing and assessing its overall business performance, for making operating decisions and for forecasting and planning future periods. The Company considers the use of non-GAAP financial measures helpful in assessing its current financial performance, ongoing operations, and prospects for the future. While the Company uses non-GAAP financial measures as a tool to enhance its understanding of certain aspects of its financial performance, the Company does not consider these measures to be a substitute for, or superior to, the information provided by GAAP financial measures. Consistent with this approach, the Company believes that disclosing non-GAAP financial measures to the readers of its financial information provides such readers with useful supplemental data that, while not a substitute for GAAP financial measures, allows for greater transparency in the review of its financial and operational performance. Investors are cautioned that there are inherent limitations associated with the use of non-GAAP financial measures as an analytical tool. In particular, non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles and many of the adjustments to the GAAP financial measures reflect the exclusion of items that are recurring and will be reflected in the company’s financial results for the foreseeable future. In addition, other companies, including other companies in the Company’s industry, may calculate non-GAAP financial measures differently than the Company does, limiting their usefulness as a comparative tool.
The Company is providing supplemental financial measures for (i) non-GAAP adjusted earnings before interest, taxes, depreciation and amortization, or (“adjusted EBITDA”) that excludes the impact of interest, income tax, depreciation, amortization, stock-based compensation expense, change in fair value of derivative asset, impairment of financial assets, unrealized gains/losses, share of net loss of equity method investments, loss on deconsolidation and certain non-recurring expenses. We believe that adjusted EBITDA is useful to investors in comparing our performance across reporting periods on a consistent basis where one-time, or non-recurring gains or losses or expenses unrelated to operating activities would otherwise mask the Company’s operating performance.
| For the Three-Months ended September 30, | For the Nine-Months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Reconciliation of non-GAAP adjusted EBITDA: | ||||||||||||||||
| Net loss: | $ | (12,227,738 | ) | $ | (19,330,718 | ) | $ | (41,815,716 | ) | $ | (48,361,138 | ) | ||||
| Impairment of financial assets | - | 1,837,063 | - | 1,837,063 | ||||||||||||
| Share of net loss of equity method investments | - | - | - | 36,356 | ||||||||||||
| Depreciation and amortization | 3,607,848 | 11,875,618 | 16,211,516 | 28,627,896 | ||||||||||||
| Stock based compensation | 5,320,823 | 3,784,316 | 11,275,554 | 5,475,935 | ||||||||||||
| Unrealized and realized losses/(gain) | 352,375 | 600,619 | 474,210 | 1,416,000 | ||||||||||||
| Other non-operating income | (119,526 | ) | - | (309,209 | ) | (245,694 | ) | |||||||||
| Other non-operating expenses | 1,245,162 | 673,530 | 2,318,950 | 2,287,397 | ||||||||||||
| Loss on deconsolidation | - | - | 12,444,097 | - | ||||||||||||
| Change in fair value of derivative asset | 789,146 | 520,838 | 878,096 | 6,646,363 | ||||||||||||
| Income tax | (648,857 | ) | - | 1,044,475 | 2,304,454 | |||||||||||
| EBITDA (non-GAAP) | $ | (1,680,767 | ) | $ | (38,734 | ) | $ | 2,521,973 | $ | (24,632 | ) | |||||
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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 September 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.
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 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.
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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 digital 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 September 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.
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, Board Committee(s), 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, Board Committee(s), 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
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 by an Australian entity 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 board director and executive of the Company. The Audit Committee’s investigation concluded that Mr. Manning had not disclosed such related party transactions to the Company, and Mr. Manning has not cooperated with the Company on its investigation. On March 19, 2024, MIG No.1 Pty Ltd was placed into an Australian court appointed liquidation and wind-up process. The Company has ongoing concerns about Flynt ICS Pty Ltd and James Manning being related parties and lack of disclosure by Flynt ICS Pty Ltd and James Manning amongst other concerns. Flynt ICS Pty Ltd and Mr. Manning have 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. The parties have elected to enter the court’s Mediation Program. The matter is ongoing and the mediation hearing date is currently pending finalization.
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 “CleanSpark Litigation”). The matter is proceeding through the court system. On September 13, 2024, CleanSpark filed a motion to dismiss. On October 18, 2024, the Company filed a brief in opposition. CleanSpark is due to file a reply motion by November 8, 2024.
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”. For more details on this dispute, please see the Celsius Collocation Agreement Dispute found in Part I. Financial Information, Item 1. Financial Statements, contained in this Form 10-Q and made part here of and incorporated herein by reference.
On October 3, 2024, a proceeding before the Federal Court of Australia, New South Wales entitled “In The Matter Of Mawson Infrastructure Group Inc. (ARBN 649 261 861)”, File No. NSD1395/2024” was filed by W Capital against the Company, seeking a hearing on November 29, 2024 regarding its claims related to the Company’s solvency under Australian law. Marshall Investments GCP Pty Ltd gave formal notice that it intends to appear before the court. The current proceeding is in Australian courts and there are no associated proceedings in the United States. The Company believes that W Capital and Marshall are using this proceeding in Australia as a bad faith attempt to gain leverage in ongoing legal disputes between the companies. For further information, please reference the Marshall and W Capital Australian Loan Disputes found in Part I. Financial Information, Item 1. Financial Statements, made part here of and incorporated herein by reference.
On October 17, the Company filed a complaint (No. 2024-2332) in The Court of Common Pleas of Mercer County, PA, against Vertua Property, Inc. as landlord for the Company’s Sharon, PA property for breach of the lease agreement and wrongful termination, as well as for tortious interference with a business relationship, seeking reinstatement of the lease, compensatory damages, disgorgement of revenue, and exemplary and punitive damages, as well as reimbursement for Plaintiffs’ costs and expenses including attorneys’ fees and costs of suit.
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 June 30, 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 Company’s expansion into the Artificial Intelligence (“AI”) and High-Performance Computing (“HPC”) markets. While the Company does not run AI and HPC workloads for its own purposes, it offers infrastructure for potential customers. As such, the Company may be indirectly exposed to risks in the AI and HPC space, including:
| ● | Regulatory Uncertainty. Many countries have not yet established comprehensive AI regulations, creating uncertainty that can impact future development, deployment, and compliance costs. |
| ● | Compliance with Privacy Laws. AI companies must address compliance with data protection regulations, such as the EU’s General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA), as these laws significantly impact AI applications that process personal data. |
| ● | Technology and Data Dependencies. There is a risk of dependency on vast datasets for training AI models and obtaining quality data could become more difficult due to legal restrictions or competitive factors. |
| ● | Cybersecurity. AI systems, like all other IT systems, are vulnerable to cyber-attacks, data breaches, intellectual property theft, and malicious manipulation of AI models. |
| ● | Litigation and Intellectual Property. Intellectual property disputes over algorithms, AI models, and proprietary datasets are common concerns. Legal challenges or patent disputes could negatively impact AI companies’ operations. |
| ● | Reputational Risks. Public trust in AI is in flux and could be undermined by high-profile failures, ethical concerns, or regulatory sanctions. This could affect consumer adoption and AI companies’ images and reputations. |
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 September 30, 2024, of $9.38 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 Digital Colocation Agreement. The Company is pursuing counter claims against Celsius. For more details on this dispute, please see the Celsius Collocation Agreement Dispute found in Part I. Financial Information, Item 1. Financial Statements, contained in this Form 10-Q and made part here of and incorporated herein by reference.
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 $10.53 million as of September 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. 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 of a Secured Loan Facility Agreement for working capital by Mawson Infrastructure Group Pty Ltd with W Capital Advisors Pty Ltd. As of September 30, 2024, AUD $1.95 million (USD $1.35 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 $0.11 million as of September 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 W Capital $0.50 million on March 6, 2024.
On May 31, 2024, W Capital obtained a judgment from the Australian court awarding it a money judgment for USD $0.17 million as unpaid interest under the convertible note after the Company paid in full the principal of $0.50 million, and AUD $0.30 million under a loan deed. On June 12, 2024, W Capital issued a statutory demand under Australian Law to the Company seeking USD $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. The Company rejected this demand. Subsequently, on October 3, 2024, a proceeding before the Federal Court of Australia, New South Wales was filed by W Capital against the Company, seeking a hearing on November 29, 2024 regarding its claims related to the Company’s solvency under Australian law. The current proceeding is in Australian courts and there are no associated proceedings in the United States. The Company believes that W Capital and Marshall are using this proceeding in Australia as a bad faith attempt to gain leverage in ongoing legal disputes between the parties. For further information, please reference the Marshall and W Capital Australian Loan Disputes found in Part I. Financial Information, Item 1. Financial Statements, made part here of and incorporated herein by reference.
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 September 30, 2024, no director or officer (as defined in Rule 16a-1(f) promulgated under the Exchange Act) of the Company
43
Item 6. Exhibits
| * | Filed herewith. |
| ** | Furnished herewith. |
| # | Indicates management contract or compensatory plan |
44
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: November 14, 2024 | By: | /s/ Rahul Mewawalla |
|
Rahul Mewawalla Chief Executive Officer and President | ||
| (Principal Executive Officer) | ||
| Date: November 14, 2024 | By: | /s/ William Harrison |
|
William Harrison Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
45
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: November 14, 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. |
|
MAWSON INFRASTRUCTURE GROUP INC. |
||
| Date: November 14, 2024 | By: | /s/ William Harrison |
|
William Harrison Chief Financial Officer |
||
| (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 September 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.
|
MAWSON INFRASTRUCTURE GROUP INC. |
||
| Date: November 14, 2024 | By: | /s/ Rahul Mewawalla |
| Rahul Mewawalla | ||
| Chief Executive Officer and President | ||
| (Principal Executive Officer) | ||
|
MAWSON INFRASTRUCTURE GROUP INC. |
||
| Date: November 14, 2024 | By: | /s/ William Harrison |
|
William Harrison Chief Financial Officer |
||
| (Principal Financial and Accounting Officer) | ||