Big Digital Energy, Inc 10-Q for FY2024 Q1
Big Digital Energy, Inc. (BGDE)
About this 10-Q
Big Digital Energy, Inc filed this 10-Q on May 15, 2024, covering the quarter ended March 31, 2024 (FY2024 Q1).
Headline figures
Quarter ended March 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $18.77M
- up 144.7% from $7.67M a year earlier
- Net loss
- $19.76M
- compared with a net loss of $11.1M a year earlier
- Diluted EPS
- -$1.19
- compared with -$0.80 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 ________________
Commission File No.
(Exact name of registrant as specified in its charter)
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Registrant’s telephone number, including area code:
Securities Registered pursuant to Section 12(b) of the Act:
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| The |
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically
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preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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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 May 12, 2024, the issuer had a total of
MAWSON INFRASTRUCTURE GROUP INC.
FORM 10-Q
FOR THE QUARTER ENDED March 31, 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 | 22 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risks | 33 |
| Item 4. | Controls and Procedures | 33 |
| Part II – Other Information | ||
| Item 1. | Legal Proceedings | 35 |
| Item 1A. | Risk Factors | 37 |
| Item 2. | Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities | 37 |
| Item 3. | Defaults Upon Senior Securities | 37 |
| Item 4. | Mine Safety Disclosures | 38 |
| Item 5. | Other Information | 38 |
| Item 6. | Exhibits | 39 |
| Signatures | 40 | |
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MAWSON INFRASTRUCTURE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Trade and other receivables | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Derivative asset | ||||||||
| Investments, equity method | ||||||||
| Security deposits | ||||||||
| Operating lease right-of-use asset | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Trade and other payables | $ | $ | ||||||
| Current portion of operating lease liability | ||||||||
| Current portion of finance lease liability | ||||||||
| Current portion of long-term borrowings | ||||||||
| Total current liabilities | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Finance lease liability, net of current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| Series A preferred stock; | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Mawson Infrastructure Group, Inc. stockholders’ equity | ||||||||
| Non-controlling interest | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to unaudited consolidated condensed financial statements.
1
MAWSON INFRASTRUCTURE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| For the three months ended | ||||||||
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenues: | ||||||||
| Digital currency mining revenue | $ | $ | ||||||
| Co-location revenue | ||||||||
| Net energy benefits | ||||||||
| Sale of equipment | ||||||||
| Total revenues | ||||||||
| Less: Cost of revenues (excluding depreciation) | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| 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): | ||||||||
| Gains (losses) on foreign currency transactions | ( | ) | ||||||
| Interest expense | ( | ) | ( | ) | ||||
| Loss on write off property and equipment | ( | ) | ||||||
| Profit on sale of site | ||||||||
| Gain on sale of marketable securities | ||||||||
| Other income | ||||||||
| Other expenses | ( | ) | ||||||
| Loss on deconsolidation | ( | ) | ||||||
| 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 | $ | ( | ) | $ | ( | ) | ||
| $ | ( | ) | $ | ( | ) | |||
| 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 March 31, | ||||||||
| 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
(Unaudited)
For the Three Months Ended March 31, 2024
| Common Stock (#) | Common Stock ($) | Additional Paid-in- Capital | Accumulated Other Comprehensive Income/(Loss) | Accumulated Deficit | Total Mawson Stockholders’ Equity | Non- controlling interest | Total Equity | |||||||||||||||||||||||||
| Balance as of December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
| Deconsolidation of MIG No.1 Pty Ltd | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Stock based compensation expense for RSU’s and stock options | - | |||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Other comprehensive loss | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance as of March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
See accompanying notes to unaudited consolidated condensed financial statements.
4
MAWSON INFRASTRUCTURE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
For the Three Months Ended March 31, 2023
| Common Stock (#) | Common Stock ($) | Additional Paid-in- Capital | Accumulated Other Comprehensive Income/(Loss) | Accumulated Deficit | Total Mawson Stockholders’ Equity | Non- controlling interest | Total Equity | |||||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Issuance of common stock, share based compensation | ||||||||||||||||||||||||||||||||
| Issuance of warrants | - | |||||||||||||||||||||||||||||||
| Exercising of RSU’s and stock options | ||||||||||||||||||||||||||||||||
| Issuance of common stock, net of offer costs | ||||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Other comprehensive income | - | |||||||||||||||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||
See accompanying notes to unaudited consolidated condensed financial statements.
5
MAWSON INFRASTRUCTURE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of operating lease right-of-use asset | ||||||||
| Foreign exchange gain | ( | ) | ||||||
| Stock based compensation | ||||||||
| Non-cash interest expense | ||||||||
| Unrealized (gain) loss on derivative asset | ( | ) | ||||||
| Loss on deconsolidation | ||||||||
| Gain on sale of marketable securities | ( | ) | ||||||
| Gain on lease termination | ( | ) | ||||||
| Loss from equity method investments | ||||||||
| Loss (gain) on sale of property and equipment | ( | ) | ||||||
| Loss on write off of property and equipment | ||||||||
| Changes in assets and liabilities: | - | |||||||
| Trade and other receivables | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Other current assets | ( | ) | ||||||
| Trade and other payables | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Payment for the purchase of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from sales of property and equipment | ||||||||
| Proceeds from sale of marketable securities | ||||||||
| Net cash provided by investing activities | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from common share issuances | ||||||||
| Repayment of finance lease liabilities | ( | ) | ( | ) | ||||
| Repayment of borrowings | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ||||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| 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.
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MAWSON INFRASTRUCTURE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – GENERAL
Nature of Operations
Mawson Infrastructure Group Inc. (“Mawson,” the “Company,” “we,” “us,” and “our”) is a digital infrastructure company headquartered in the United States.
Mawson is a corporation incorporated in Delaware in 2012. On March
9, 2021, the Company acquired the shares of Cosmos Capital Limited in a stock for stock exchange. This transaction has been accounted
for as a reverse asset acquisition. Mawson was previously known as Wize Pharma Inc, and changed its name on March 17, 2021. Shares of
Mawson’s common stock, par value $
The Company has 3 primary businesses – digital currency or Bitcoin self-mining, co-location and related services, and energy markets.
Throughout this filing, we use the term Bitcoin (with a capital “B”) to represent the overall concept of Bitcoin, including the technology, protocol, and the entire ecosystem. The term bitcoin (with a lower case “b”) refers to the digital bitcoin currency or token.
The Company develops and operates digital infrastructure for digital currency, such as bitcoin, mining activities on the Bitcoin blockchain network. The Company also provides digital infrastructure services for its co-location customers that use computational machines to mine bitcoin through our data centers and the Company charges for the use of its digital infrastructure and related services. The Company also has an energy markets program through which it can receive net energy benefits in exchange for curtailing the power the Company utilizes from the grid in response to instances of high electricity demand.
The Company may also transact in digital currency mining, data center infrastructure and related equipment on a periodic basis, subject to prevailing market conditions. The Company designs, develops, operates, and manages its digital infrastructure to responsibly support the Bitcoin network by contributing to the scale, structure, and decentralization of the Bitcoin network and optimizing energy consumption. The Company helps contribute to the ecosystem and growth of digital currencies and commodities as there continues to be a global transition to the new digital economy.
The Company strives to operate and invest in markets and communities that offer low or zero carbon renewable energy sources and participate in energy management activities. We invest in the communities in which we operate and also support our broader ecosystem.
The Company manages and operates data centers delivering a current capacity of approximately 109 MW with its current operational sites in the United States of America.
The Company has previously reported through an 8-K filing on March 29, 2024 that the Company may seek to exit certain or all of its entities and holdings in Australia. The accompanying consolidated condensed unaudited interim financial statements, including the results of a number of the Company’s Australian subsidiaries: Cosmos Trading Pty Ltd, Cosmos Infrastructure LLC, Cosmos Manager LLC, MIG No.1 Pty Ltd (on March 19, 2024, an Australian entity MIG No.1 Pty Ltd was placed into a Australian court appointed liquidation and wind-up process, as disclosed in note 3), MIG No.1 LLC, Mawson AU Pty Ltd (on April 23, 2024, an Australian entity Mawson AU Pty Ltd was placed into a Australian court appointed liquidation and wind-up process, as disclosed in note 10 subsequent events), an Australian entity Mawson Services Pty Ltd (on April 29, 2024, Mawson Services Pty Ltd was placed into a Australian court appointed liquidation and wind-up process, as disclosed in note 10 subsequent events), Luna Squares LLC, Mawson Bellefonte LLC, Luna Squares Repairs LLC, Luna Squares Property LLC, Mawson Midland LLC, Mawson Hosting LLC, Mawson Ohio LLC and Mawson Mining LLC (collectively referred to as the “Group”), have been prepared by the Company, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and in accordance with generally accepted accounting principles in the United States (“GAAP”).
7
These consolidated, condensed unaudited interim financial statements should be read in conjunction with the audited consolidated financial statements of the Group as of December 31, 2023, and the notes thereto, included in the Company’s Annual Report on Form 10-K filed with SEC on April 1, 2024. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. The results of the interim period are not necessarily indicative of the results to be expected for the full year ending December 31, 2024. These consolidated, condensed unaudited interim financial statements reflect all adjustments which, in the opinion of management, are necessary to present fairly the financial position, the results of operations and cash flows of the Company for the periods presented.
Going Concern
The accompanying consolidated, condensed unaudited interim financial statements have been prepared assuming the Company will continue as a going concern basis and in accordance with GAAP. The going concern basis of presentation assumes that the Company will continue in operation one year after the date these financial statements are issued and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.
Pursuant to the requirements of the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date these financial statements are issued. This evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.
For the three months ended March 31, 2024, the
Company incurred a loss after tax of $
Bitcoin prices can be volatile and the difficulty of earning bitcoin has typically trended higher over time, which means the Company typically earns less bitcoin for the same effort. In addition, the rewards that bitcoin miners earn halved (not including transaction fees) during April 2024. These factors are outside the Company’s direct control, and the Company may not be able to practically mitigate their impact. The Company cannot predict with any certainty whether these trends will reverse or persist. In addition, the Company’s miners and other mining equipment will require replacement over time as they come to the end of their useful lives to ensure that the Company can continue to competitively and efficiently produce bitcoin.
The Customer Equipment Co-Location Agreement the
Company’s subsidiary, Luna Squares LLC (“Luna”), had with Celsius Mining LLC (the “Co-Location Agreement”),
expired on
In addition, Celsius and Luna have made certain allegations and counter-allegations
against each other claiming it is owed approximately $
8
A subsidiary of the Company, MIG No. 1 Pty Ltd (“MIG No.1”)
has a Secured Loan Facility Agreement with Marshall Investments GCP Pty Ltd ATF for the Marshall Investments MIG Trust (“Marshall”).
The loan matured in February 2024 and the total outstanding balance is $
The Company is the guarantor on a Secured Loan
Facility Agreement for working capital by Mawson Infrastructure Group Pty Ltd with W Capital Advisors Pty Ltd. As of March 31, 2024, AUD
$
The Company, or its subsidiaries, have not fulfilled specific payment obligations related to the Celsius Promissory Note, Marshall loan and the W Capital Working Capital Loan mentioned above. Consequently, the creditors associated with these debt facilities may initiate actions as allowed by relevant grace periods. This includes the possibility of opting to expedite the repayment of the principal debt, pursuing legal action against the Company or its subsidiaries for payment default, raising interest rates to the default or overdue rate, or taking appropriate measures concerning collateral (including appointing a receiver), if applicable.
The Company has evaluated the above conditions and concluded that these conditions raise substantial doubt regarding our ability to continue as a going concern for a period of at least one year from the date of issuance of these consolidated financial statements.
To mitigate these conditions, the Company has explored various avenues to enhance liquidity, fund the Company’s expenditures, and meet debt servicing requirements. These strategies include, among others:
| ● | Executing and implementing further new customer co-location service agreements; |
| ● | Engaging in discussions with new and existing lenders, including related to refinancing debt, raising additional debt, or modifying terms of existing debt; |
| ● | Considering equity issuances such as capital raises; |
| ● | Assessing and evaluating corporate and strategic transactions including engagement of an investment bank; |
| ● | Assessing and evaluating monetizing specific assets, including potential sales of mining infrastructure equipment, miners, operational sites, or expansion locations under consideration; and |
| ● | Conducting assessments to identify and implement operational efficiencies, cost-cutting measures, and other actions aimed at enhancing revenue and optimizing expenses. |
Although the Company may have access to debt, equity, and other sources of funding, these may require additional time and cost, may impose operational restrictions and other covenants on the Company, may not be available on attractive terms, and may not be available at all. If the Company raises additional capital or debt, this could cause additional dilution to the Company’s current stockholders. The terms of any future capital raise or debt issuance and the costs of any financing are uncertain and may be unfavorable to the Company and the Company’s current stockholders. Should the Company be unable to source sufficient funding, the Company may not be able to realize assets at their recognized values and fulfill its liabilities in the normal course of business at the amounts stated in these consolidated financial statements.
As previously reported, the Company has engaged Needham and Company, an investment bank, and is obtaining advice from outside legal counsel. It is important to note that strategic and other initiatives may not lead to any transaction or other outcome.
These consolidated, condensed unaudited interim financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and other commitments in the normal course of business. They do not include any adjustments relating to the recoverability and carrying amounts of assets and the amounts of liabilities should the Company be unable to continue as a going concern and meet its obligations and debts as and when they fall due.
9
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Preparation
The accompanying unaudited consolidated condensed financial statements of the Company include the accounts of the Company and its wholly or majority owned and controlled subsidiaries. Intercompany investments, balances and transactions have been eliminated in consolidation. Non–controlling interests represent the minority equity investment in the Company’s subsidiaries, plus the minority investors’ share of the net operating results and other components of equity relating to the non–controlling interest.
Any change in the Company’s ownership interest in a consolidated subsidiary, through additional equity issuances by the consolidated subsidiary or from the Company acquiring the shares from existing stockholders, in which the Company maintains control is recognized as an equity transaction, with appropriate adjustments to both the Company’s additional paid-in capital and the corresponding non-controlling interest.
Use of Estimates and Assumptions
The preparation of the financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of income and expenses during the reporting periods. Actual results could differ from those estimates. The Company has considered the following to be significant estimates made by management, including but not limited to, going concern assumptions, estimating the useful lives of fixed assets, realization of long-lived assets, unrealized tax positions, valuing the derivative asset classified under Level 3 fair value hierarchy, and the contingent obligation with respect to future revenues.
Revenue recognition
Digital currency mining revenue
The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of ASC 606 is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Five steps are required to be followed in evaluating revenue recognition: (i) identify the contract with the customer; (ii) identity the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price; and (v) recognize revenue when or as the entity satisfies a performance obligation.
In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met: the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct), and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract).
10
The Company has a contract with mining pools and has undertaken the performance obligation of providing computing power in exchange for non-cash consideration in the form of digital currency. The provision of computing power is the only performance obligation in the Company’s contract with its pool operators. Where the consideration received is variable (for example, due to payment only being made upon successful mining), it is recognized when it is highly probable that the variability is resolved, which is generally when the digital currency is received.
The Company measures the non-cash consideration received at the fair market value of the digital currency received. Management estimates fair value on a daily basis, as the quantity of digital currency received multiplied by the price quoted on the crypto exchange that the Company uses to dispose of digital currency.
Co-location revenue
Co-location customers pay for energy used in connection with the customer co-location agreement on a pass-through basis, which may be on a fixed or variable basis calculated on the portion of energy used by the customer on the site. The Company additionally charges co-location fees for the use of the facilities, and other related fees. Revenue is typically received monthly from the customer based on the power usage at the rates outlined in each customer contract.
The customer contracts contain variable consideration to be allocated to and recognized in the period to which the consideration relates. Usually this is when it is invoiced, rather than obtaining an estimation of variable consideration at the beginning of the customer contracts.
Net energy benefits
In exchange for powering down the Company’s digital infrastructure and curtailing power usage in response to instances of high electricity demand, the Company receives net energy benefits from the grid.
Revenue for curtailing power is recognized over the period that the services are being provided. The Company estimates the amount of curtailable power and the expected payment for that curtailment and recognizes revenue based on the proportion of the service that has been provided. In this arrangement, the Company is considered the principal and revenue is recognized on a gross basis.
Revenue through the Company’s power pricing arrangement is recognized over the period that the services are being provided. The Company estimates the amount of energy available for sale and the expected payment for that energy, and recognizes revenue based on the proportion of the service that has been provided. In this arrangement, the Company is considered the principal and revenue is recognized on a gross basis.
11
Equipment sales
The Company had previously earned revenues from the sale of earlier generation digital currency mining units, modular data centers or equipment that have been assembled or refurbished for resale (collectively, “Hardware”). Revenue from the sale of Hardware is recognized upon transfer of control of the Hardware to the customer. At the date of sale, the net book value is expensed in cost of revenues.
Property and equipment
Property and equipment are stated at cost, net of accumulated depreciation. All other repair and maintenance costs are charged to operating expenses as incurred. The present value of the expected cost for the decommissioning of an asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met. Property and equipment transferred from customers is initially measured at the fair value at the date on which control is obtained.
Property and equipment are depreciated on a straight-line
or declining balance basis based on the asset classification, over their useful lives to the economic entity commencing from the time
the assets arrive at their destination where they are ready for use. Low-cost assets are capitalized and immediately depreciated.
| Asset class | Useful life | Depreciation Method | ||
| Fixtures | ||||
| Plant and equipment | ||||
| Modular data center | ||||
| Motor vehicles | ||||
| Computer equipment | ||||
| Computational and Processing machinery (Miners) | ||||
| Transformers | ||||
| Leasehold improvements |
Property and equipment are derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is included in the consolidated statement of operations.
The residual values, useful lives and methods of depreciation of property and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.
The Company’s long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. 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.
12
Fair value of financial instruments:
The Company accounts for financial instruments under ASC 820, Fair Value Measurements. This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements, ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:
Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 — observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and
Level 3 — assets and liabilities whose significant
value drivers are unobservable. Observable inputs are based on market data obtained from independent sources, while unobservable inputs
are based on the Company’s market assumptions. Unobservable inputs require significant management judgment or estimation. In some
cases, the inputs used to measure an asset or liability may fall into different levels of the fair value hierarchy.
| Fair value measured as of March 31, 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 | $ | |||||||||||||||
13
Level 3 Assets:
In June 2022, the Company entered into a Power Supply Agreement with Energy Harbor LLC, the energy supplier to the Company’s Midland, Pennsylvania facility, to provide the delivery of a fixed portion of the total amount of electricity for a fixed price through to December 2026. There were three amendments to the contract with Energy Harbor LLC entered into in November 2023, December 2023, and January 2024, all the contracts were to purchase additional electricity at a fixed price for the months of December 2023 and January 2024. If the Midland, Pennsylvania facility uses more electricity than contracted, the cost of the excess is incurred at a new price quoted by Energy Harbor LLC.
While the Company manages operating costs at the Midland, Pennsylvania facility in part by periodically selling unused or uneconomical power back to the market, the Company does not consider such actions as trading activities. That is, the Company does not engage in speculation in the power market as part of its ordinary activities. Because the sale of any electricity under a curtailment program allows for net settlement, the Company has determined the Power Supply Agreement meets the definition of a derivative under ASC 815, Derivatives and Hedging. However, because the Company has the ability to sell the power back to the grid rather than take physical delivery, physical delivery is not probable through the entirety of the contract and therefore, the Company does not believe the normal purchases and normal sales scope exception applies to the Power Supply Agreement. Accordingly, the Power Supply Agreement (the non-hedging derivative contract) is recorded at estimated fair value each reporting period with the change in the fair value recorded in “change in fair value of derivative asset” in the consolidated statements of operations.
The Power Supply Agreement was classified as a
derivative asset beginning in the quarter ended June 30, 2022, and measured at fair value on the date of Power Supply Agreement, with
changes in fair value recognized in the accompanying consolidated statements of operations. The estimated fair value of the Company’s
derivative asset is classified in Level 3 of the fair value hierarchy due to the significant unobservable inputs utilized in the valuation.
Specifically, the Company’s discounted cash flow estimation models contain quoted commodity exchange spot and forward prices and
are adjusted for basis spreads for load zone-to-hub differentials through the term of the Power Supply Agreement, which expires in December
2026. In addition, the Company adopted a discount rate of approximately
Stock based compensation
The Company follows ASC 718-10, Compensation-Stock
Compensation. The Company expenses stock-based compensation to directors, employees, and non-employees over the requisite service
period based on the grant-date fair value of the awards. The Company determines the grant-date fair value of options using the Trinomial
Lattice Method. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and
involve inherent uncertainties and the application of management’s judgment. These assumptions are the expected stock volatility,
the risk–free interest rate, the expected life of the option, and the expected forfeiture rate. Expected volatility computes stock
price volatility over expected terms based on its historical common stock trading prices. Risk–free interest rates are calculated
based on the yield of a
Digital currencies
Digital currencies are included in current assets in the consolidated balance sheets. Digital currencies are classified as indefinite-lived intangible assets in accordance with ASC 350, Intangibles – Goodwill and Other, and are accounted for in connection with the Company’s revenue recognition policy detailed above.
14
| Three months to March 31, | ||||||||
| 2024 | 2023 | |||||||
| Opening number of bitcoin held | ||||||||
| Number of bitcoin received | ||||||||
| Number of bitcoin sold | ( | ) | ( | ) | ||||
| Closing number of bitcoin held | ||||||||
Digital currencies are not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not likely that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.
The Company’s policy is to typically dispose of bitcoin received from mining operations at the earliest opportunity, therefore the holding period is generally minimal, usually no more than a few days. Due to the short period for which bitcoin is held prior to sale and the consequent small numbers held, the risk of impairment is not material. No impairment charges have been recorded during the quarters ended March 31, 2024 and 2023.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption.
In December 2023, the FASB issued ASU 2023-08, Intangibles—Goodwill and Other—Crypto Assets (Topic 3580-60): Accounting for and Disclosure of Crypto Assets. Under the new guidance, an entity would be required to subsequently measure certain crypto assets at fair value, with changes in fair value included in net income in each reporting period. The proposed set of rules would also require presentation of crypto assets and related fair value changes separately in the balance sheet and income statement and require various disclosures in interim and annual periods. The Company does not expect the adoption of ASU 2023-08 to have a material impact on its consolidated financial statements since the Company’s policy is to dispose of bitcoin received from mining operations at the earliest opportunity, therefore the holding period is minimal, usually no more than a few days. ASU 2023-08 is effective for fiscal years beginning after December 15, 2024 and interim periods within those fiscal years. The Company will adopt ASU 2023-08 on January 1, 2025 .
15
NOTE 3 – SUBSIDIARY DECONSOLIDATION
Liquidation and Deconsolidation of an Australian entity MIG No.1
On March 19, 2024, the Company’s subsidiary
and an Australian entity, MIG No.1 was placed into an Australian court appointed liquidation due to it being deemed insolvent in Australia.
The liquidation of an insolvent company in Australia allows an independent registered Australian liquidator (the liquidator) to take control
of the Australian entity so its affairs can be wound up in an orderly and fair way and to benefit creditors. In the instance of MIG No.1,
it is an Australian court liquidation, where a liquidator is appointed by the Australian court to wind up a company following an application
(by a creditor of MIG No.1). As a result of this the Company ceded authority for managing this Australian entity to the Australian liquidator,
and the Company could not carry on MIG No.1’s activities in the ordinary course of business. For these reasons, it was concluded
that the Company had ceded control of MIG No.1, and no longer had significant influence over this Australian entity since the liquidator
was in control of this Australian entity. Therefore, MIG No.1 loss of control was effective when it was placed into Australian court appointed
liquidation on March 189, 2024, and was deconsolidated at this date, in accordance with ASC 810-10-15. In order to deconsolidate this
Australian entity, MIG No.1, the carrying values of the assets, liabilities and equity components previously recognized in accumulated
other comprehensive income of MIG No.1 were removed from the Company’s consolidated balance sheet as of March 19, 2024, in accordance
with ASC 810, Consolidation. The net impact of removing the assets and liabilities resulted in a loss on deconsolidation of $
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 $
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 $
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 March 31, | ||||||||
| 2024 | 2023 | |||||||
| Warrants to purchase common stock | ||||||||
| Options to purchase common stock | ||||||||
| Restricted Stock-Units (“RSUs”) issued under equity incentive plan(s) | ||||||||
16
NOTE 5 – LEASES
The Company’s operating leases are for mining sites and its finance leases are primarily for related plant and equipment.
On February 2, 2024, the Company’s lease for a non-operating property in Sharon, Pennsylvania was terminated, and the Company exited the facility, which was a non-operating site for the Company.
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| Operating lease charges (1) | $ | $ | ||||||
| Finance lease charges: | ||||||||
| Amortization of right-of-use assets | ||||||||
| Interest on lease obligations | ||||||||
| (1) |
| Operating leases | Finance leases | |||||||
| 2024 | $ | $ | ||||||
| 2025 | ||||||||
| 2026 | ||||||||
| Total undiscounted lease obligations | ||||||||
| Less: imputed interest | ( | ) | ( | ) | ||||
| Total present value of lease liabilities | ||||||||
| Less: current portion of lease liabilities | ||||||||
| Non-current lease liabilities | $ | $ | ||||||
| Operating leases | Finance leases | |||||||
| Operating cash out flows from leases | $ | $ | ||||||
| Weighted-average remaining lease term (years) | ||||||||
| Weighted-average discount rate (%) | % | % | ||||||
17
NOTE 6 – PROPERTY AND EQUIPMENT
| March 31, 2024 | December 31, 2023 | |||||||
| Plant and equipment | $ | $ | ||||||
| Computer equipment | ||||||||
| Processing machines (Miners) | ||||||||
| Modular data center | ||||||||
| Motor Vehicles | ||||||||
| Transformers | ||||||||
| Low-cost assets | ||||||||
| Assets under construction | ||||||||
| Leasehold improvements | ||||||||
| Total | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
The Company incurred depreciation and amortization expense 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 that it is more likely than not that the Company will not realize the benefits of the net deferred tax assets as of March 31, 2024.
| For the three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Effective income tax rate | % | % | ||||||
As of March 31, 2024, the Company had no unrecognized tax benefits and does not anticipate any significant change to the unrecognized tax benefit balance.
18
NOTE 8 – BORROWINGS
Marshall loan
In December 2021, the Company’s subsidiary
and an Australian entity, MIG No. 1 Pty Ltd entered into a Secured Loan Facility Agreement with Marshall Investments MIG Pty Ltd. The
loan matured in February 2024 and bears interest at a rate of
Celsius loan
On February 23, 2022, Luna entered into a Co-Location
Agreement with Celsius Mining LLC. In connection with this agreement, Celsius Mining LLC loaned Luna a principal amount of $
W Capital loan
The Company is the guarantor on a Secured Loan Facility Agreement for
working capital by Mawson Infrastructure Group Pty Ltd with W Capital Advisors Pty Ltd. As of March 31, 2024, AUD $
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 $
19
NOTE 9 – STOCKHOLDERS’ EQUITY
Common Stock
During the quarter ended March 31, 2024, there was no movement in common stock.
Common Stock Warrants
The Company’s outstanding stock warrants have not changed during
the three months ended March 31, 2024. The outstanding stock warrants as of March 31, 2024 are
Stock-Based Compensation:
Equity plans
| Three months ended March, | ||||||||
| 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.
The Company’s outstanding performance-based restricted stock
awards have not changed during the three months ending March 31, 2024. The outstanding performance-based restricted stock awards as of
March 31, 2024 are
As of March 31, 2024, there was approximately $
20
Service-based restricted stock awards
Service-based awards generally vest over a specified time period and as determined by the Compensation Committee of the Board of Directors and/or as specified in the award agreements or employment agreements.
| Number of shares | Weighted Average Remaining Contractual Life (in years) | |||||||
| Outstanding as of December 31, 2023 | ||||||||
| Issued | - | |||||||
| Outstanding as of March 31, 2024 | ||||||||
| Exercisable as of March 31, 2024 | ||||||||
As of March 31, 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 | ( | ) | - | - | ||||||||||||
| Outstanding as of March 31, 2024 | $ | $ | ||||||||||||||
| Exercisable as of March 31, 2024 | $ | - | $ | - | ||||||||||||
As of March 31, 2024, there was approximately
$
NOTE 10 – SUBSEQUENT EVENTS
On April 23, 2024, the Company’s subsidiary and an Australian entity Mawson AU Pty Ltd was placed into an Australian court appointed liquidation and wind-up process.
On April 29, 2024, the Company’s subsidiary and an Australian entity Mawson Services Pty Ltd was placed into an Australian court appointed liquidation and wind-up process.
On April 19, 2024, a civil suit entitled “Blockware Solutions,
LLC v. Mawson Bellefonte LLC and Mawson Infrastructure Group, Inc.” was filed in the US District Court, Southern District of New
York under Civil Action No. 1:24-cv-02976 with the plaintiff claiming alleged merchandise price and incidental damages of $
21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of our balance sheets, statements of operations and cash flows. The following discussion and analysis of our financial condition and results of operations should be read together with the interim condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. All amounts are in U.S. dollars.
Throughout this report, unless otherwise designated, the terms “we,” “us,” “our,” the “Company,” “Mawson,” “our company” and the “combined company” refer to Mawson Infrastructure Group Inc., a Delaware corporation, Cosmos Trading Pty Ltd, Cosmos Infrastructure LLC, Cosmos Manager LLC, MIG No.1 Pty Ltd (on March 19, 2024, MIG No.1 Pty Ltd was placed into a court appointed liquidation and wind-up process), MIG No.1 LLC, Mawson AU Pty Limited (on April 23, 2024, Mawson AU Pty Ltd was placed into a court appointed liquidation and wind-up process), Mawson Services Pty Ltd (on April 29, 2024, Mawson Services Pty Ltd was placed into a court appointed liquidation and wind-up process), Mawson Bellefonte LLC, Luna Squares LLC, Luna Squares Repairs LLC, Luna Squares Property LLC, Mawson Midland LLC, Mawson Ohio LLC, Mawson Hosting LLC and Mawson Mining LLC.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements, about our expectations, beliefs or intentions regarding, among other things, our product development efforts, business, financial condition, results of operations, strategies or prospects. Forward-looking statements can be identified by the use of forward-looking words such as “believe”, “expect”, “intend”, “plan”, “may”, “should”, “could” or “anticipate” or their negatives or other variations of these words or other comparable words or by the fact that these statements do not relate strictly to historical or current matters. These forward-looking statements may be included in, but are not limited to, various filings made by us with the United States Securities and Exchange Commission (the “SEC”), press releases or oral statements made by or with the approval of one of our authorized executive officers. Forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements, including, but not limited to, the factors summarized below.
This report identifies important factors which could cause our actual results to differ materially from those indicated by the forward-looking statements, particularly those set forth under Item 1A. “Risk Factors” below.
The risk factors included in this Quarterly Report on Form 10-Q are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Given these uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The following important factors, among others, could affect future results and events, causing those results and events to differ materially from those expressed or implied in our forward-looking statements:
| - | continued evolution and uncertainty related to growth in blockchain and bitcoin usage; | |
| - | high volatility in bitcoin and other digital assets’ prices and in value attributable to our business; | |
| - | our need to, and difficulty in, raising additional debt or equity capital and the availability of financing opportunities; |
22
| - | failure to maintain required compliance to remain eligible for the most cost-effective forms of raising additional equity capital; | |
|
- |
impact of the bitcoin halving event; | |
| - | downturns in the cryptocurrency industry; | |
| - | inflation; | |
| - | increased interest rates; |
| - | the inability to procure needed hardware; |
| - | the failure or breakdown of mining equipment, or internet connection failure; | |
| - | access to reliable and reasonably priced electricity sources; | |
| - | our reliance on key management personnel and employees; | |
| - | cyber-security threats; |
| - | operational, maintenance, repair, safety, and construction risks; | |
| - | our ability to obtain proper insurance; |
|
- |
banks and other financial institutions ceasing to provide services to our industry; | |
| - | adverse actions by creditors, debt providers, or other parties; |
| - | changes to the Bitcoin network’s protocols and software; |
| - | the decrease in the incentive or increased difficulty to mine Bitcoin; |
| - | the increase of transaction fees related to digital assets: |
| - | the fraud or security failures of large digital asset exchanges; |
| - | future digital asset, technological and digital currency development; | |
| - | our ability to develop and execute on our business strategy and plans; | |
| - | the regulation and taxation of digital assets like Bitcoin; |
| - | our ability to timely and effectively implement controls and procedures required by Section 404 of the Sarbanes-Oxley Act of 2002; and |
| - | material litigation, investigations, or enforcement actions, including by regulators and governmental authorities. |
Factors that could cause our actual results to differ materially from those expressed or implied in such forward-looking statements include, but are not limited to, the risk factors set out in Item 1A. Risk Factors.
23
All forward-looking statements attributable to us or persons acting on our behalf speak only as of the date of this report and are expressly qualified in their entirety by the cautionary statements included in this report. We undertake no obligation to update or revise forward-looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. In evaluating forward-looking statements, you should consider these risks and uncertainties.
Company Overview
Mawson Infrastructure Group Inc. (“Mawson,” the “Company,” “we,” “us,” and “our”) is a digital infrastructure company headquartered in the United States.
Mawson is a corporation incorporated in Delaware in 2012. On March 9, 2021, the Company acquired the shares of Cosmos Capital Limited in a stock for stock exchange. This transaction has been accounted for as a reverse asset acquisition. Mawson was previously known as Wize Pharma Inc, and changed its name on March 17, 2021. Shares of Mawson’s common stock, par value $0.001 per share (“Common Stock”) have been listed on The Nasdaq Capital Market since September 29, 2021.
The Company has 3 primary businesses – digital currency or Bitcoin self-mining, co-location and related services, and energy markets.
The Company develops and operates digital infrastructure for digital currency, such as bitcoin, mining activities on the Bitcoin blockchain network. The Company also provides digital infrastructure services for its co-location customers that use computational machines to mine bitcoin through our data centers and the Company charges for the use of its digital infrastructure and related services. The Company also has an energy markets program through which it can receive net energy benefits in exchange for curtailing the power the Company utilizes from the grid in response to instances of high electricity demand.
The Company may also transact in digital currency mining, data center infrastructure and related equipment on a periodic basis, subject to prevailing market conditions. The Company designs, develops, operates, and manages its digital infrastructure to responsibly support the Bitcoin network by contributing to the scale, structure, and decentralization of the Bitcoin network and optimizing energy consumption. The Company helps contribute to the ecosystem and growth of digital currencies and commodities as there continues to be a global transition to the new digital economy.
The Company strives to operate and invest in markets and communities that offer low or zero carbon renewable energy sources and participate in energy management activities. The Company invests in the communities in which the Company operates and also support our broader ecosystem.
The Company seeks to power our operations and facilities with renewable or sustainable power to further support our sustainability priorities.
The Company may also operate in related and adjacent businesses, including transacting in new and used crypto-currency mining and modular data centers (“MDCs”) or other equipment on a periodic basis, subject to prevailing market conditions and any surplus the Company may be experiencing.
24
Recent Developments
On February 2, 2024, the Company’s lease for a non-operational site in Sharon, Pennsylvania was terminated, and the Company exited the facility, which was a non-operating site.
Mr. James Manning, a former director and executive of the Company, who stepped down as Chief Executive Officer of the Company effective May 22, 2023, had entered into an agreement with Mawson AU that he would be issued 1.35 million restricted stock units (“RSUs”) and his other RSU agreements and entitlements would be cancelled, as set forth in the Company’s Current Report on Form 8-K filed May 25, 2023. The Company’s Audit Committee (“Audit Committee”) of the Board of Directors (“Board”) commenced an investigation in the third quarter of 2023 into potential related party transactions involving Mr. Manning, including but not limited to Mr. Manning’s failure to appropriately and fully disclose certain related party transactions, late or incomplete disclosure of certain transactions, and a failure to confirm to the Company’s satisfaction that the disclosures made about related party transactions were complete. Following the investigation, the Audit Committee reported its initial findings to the Board on February 15, 2024. Based on the information obtained to date and Mr. Manning’s repeated refusal to either provide a full and complete disclosure of his related party transactions (or confirm the accuracy of prior related party disclosures provided to the Company), the Audit Committee determined that there is a prima facie basis to conclude that Mr. Manning did not fully and properly disclose his related party transactions to the Company. Based on this determination, the Board resolved on February 19, 2024, that certain RSUs, payments, and other equity grants provided for in Mr. Manning’s May 2023 Separation Agreement should not be issued by the Company.
On March 19, 2024, an Australian entity and subsidiary of the Company, Mig No.1 Pty Ltd, was placed into an Australian court appointed liquidation and wind-up process.
On March 29, 2024, the Company released an 8-K that the Company may seek to exit certain or all of its entities and holdings in Australia.
On April 15, 2024, the Company announced that the Board had appointed Ryan Costello, a former U.S. Congressman, as the Chair of the Company’s Board of Directors effective April 9, 2024.
On April 23, 2024, an Australian entity and subsidiary of the Company, Mawson AU Pty Ltd, was placed into an Australian court appointed liquidation and wind-up process.
On April 29, 2024, an Australian entity and subsidiary of the Company, Mawson Services Pty Ltd, was placed into an Australian court appointed liquidation and wind-up process.
On April 19, 2024, a civil suit entitled “Blockware Solutions, LLC v. Mawson Bellefonte LLC and Mawson Infrastructure Group, Inc.” was filed in the US District Court, Southern District of New York under Civil Action No. 1:24-cv-02976 with the Plaintiff claiming alleged merchandise price and incidental damages of $115,500, alleged consequential damages due to lost profits of $358,689, and other alleged, non-specified damages, for alleged claims of non-payment. Mawson Bellefonte, LLC is a Delaware subsidiary of the Company. Mawson Bellefonte and the Company intend to defend against alleged claims made related to this matter.
25
Results of Operations – Three months Ended March 31, 2024 compared to the three months ended March 31, 2023
| For the three months ended | ||||||||
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenues: | ||||||||
| Digital currency mining revenue | $ | 7,514,763 | $ | 2,756,000 | ||||
| Co-location revenue | 8,234,041 | 4,322,553 | ||||||
| Net energy benefits | 2,472,505 | 441,055 | ||||||
| Sale of equipment | 550,000 | 150,997 | ||||||
| Total revenues | 18,771,309 | 7,670,605 | ||||||
| Less: Cost of revenues (excluding depreciation) | 11,786,168 | 4,678,002 | ||||||
| Gross profit | 6,985,141 | 2,992,603 | ||||||
| Operating expenses: | ||||||||
| Selling, general and administrative | 3,463,923 | 4,977,417 | ||||||
| Stock based compensation | 4,901,484 | 1,068,288 | ||||||
| Depreciation and amortization | 7,999,076 | 7,962,523 | ||||||
| Change in fair value of derivative asset | (1,686,152 | ) | 681,225 | |||||
| Total operating expenses | 14,678,331 | 14,689,453 | ||||||
| Loss from operations | (7,693,190 | ) | (11,696,850 | ) | ||||
| Non-operating income (expense): | ||||||||
| Gains (losses) on foreign currency transactions | 169,638 | (418,216 | ) | |||||
| Interest expense | (734,580 | ) | (835,107 | ) | ||||
| Loss on write off property and equipment | - | (118,933 | ) | |||||
| Profit on sale of site | - | 790,847 | ||||||
| Gain on sale of marketable securities | - | 1,437,230 | ||||||
| Other income | 165,160 | 44,510 | ||||||
| Other expenses | (9,792 | ) | - | |||||
| Loss on deconsolidation | (11,925,908 | ) | - | |||||
| Share of net loss of equity method investments | - | (36,356 | ) | |||||
| Total non-operating income (expense), net | (12,335,482 | ) | 863,975 | |||||
| Loss before income taxes | (20,028,672 | ) | (10,832,875 | ) | ||||
| Income tax benefit (expense) | 59,387 | (548,083 | ) | |||||
| Net Loss | (19,969,285 | ) | (11,380,958 | ) | ||||
| Less: Net loss attributable to non-controlling interests | (205,086 | ) | (278,933 | ) | ||||
| Net Loss attributed to Mawson Infrastructure Group stockholders | $ | (19,764,199 | ) | $ | (11,102,025 | ) | ||
| Net Loss per share, basic & diluted | $ | (1.19 | ) | $ | (0.80 | ) | ||
| Weighted average number of shares outstanding | 16,644,711 | 13,953,308 | ||||||
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Revenues
Digital currency mining revenues from production of bitcoin for the three months ended March 31, 2024, and 2023, were $7.51 million and $2.76 million, respectively. This represented an increase of $4.75 million or 172%. The increase for the 3 months ended March 31, 2024 was due in part to the Company transitioning from its self- mining operations at its Georgia facilities to its Pennsylvania facilities during 2023, which it had completed in 2024. The increase in mining revenue for the period was also driven by the average price of bitcoin increasing. During the quarter ended March 31, 2023, the average price of Bitcoin was $22,721, whereas the average price of bitcoin during the quarter ended March 31, 2024, was $54,468, a 140% increase in the average price, that was offset by a higher network difficulty rate in 2024. In addition, the increase in mining revenue is also partially due to the total bitcoin produced in the 2024 period versus the 2023 period. Bitcoin produced totaled 140.20 in the 2024 period compared with 121.11 in the 2023 period, an increase of 16% of bitcoin produced over the respective period.
Co-location services revenues for three months ended March 31, 2024 and 2023, were $8.23 million and $4.32 million, respectively. The increase in revenue was due to the number of miners we co-located during 2024, during the 2024 quarter the Company provided co-location services to multiple co-location customers, whereas in the 2023 quarter the Company only provided co-location services to one customer.
Net energy benefits revenues for the three months ended March 31, 2024 and 2023, were $2.47 million and $0.44 million, respectively. This represented an increase of $2.03 million or a 461% increase. This increase is due to the Company participating more in the energy programs in the 2024 period than in the 2023 period due to higher power costs in the current period.
Sales of digital mining equipment for the three months ended March 31, 2024 and 2023, were $0.55 million and $0.15 million, respectively.
Operating Cost and Expenses
Our operating costs and expenses include cost of revenues; selling, general and administrative expenses; stock-based compensation; change in fair value of derivative asset; and depreciation and amortization.
Cost of revenue
Our cost of revenue consists primarily of direct power costs related to digital currency mining and co-location services and cost of mining equipment sold.
Cost of revenue for the three months ended March 31, 2024 and 2023, were $11.79 million and $4.68 million, respectively. The increase in cost of revenue was primarily attributable to an increase in power costs related to the energy used to operate the Company mining equipment and co-located mining equipment within our facilities.
Selling, general and administrative
Our selling, general and administrative expenses consist primarily of professional and management fees relating to: employee compensation, audit; legal; equipment repairs; marketing; freight; insurance; consultant fees; lease amortization, general and other expenses.
Selling, general and administrative expenses for the three months ended March 31, 2024 and 2023 were $3.46 million and $4.98 million, respectively, which is a reduction of $1.52 million from period to period. The decrease in these expenses is primarily attributable to payroll costs decreasing by $0.24 million; property tax decreasing by $0.32 million; freight decreasing by $0.13 million; marketing expense decreasing by $0.21 million; rent costs decreasing by $0.16 million and contract labor decreasing by $0.14 million, due to cost reduction and optimization actions that the Company had previously undertaken.
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Stock based compensation
Stock based compensation expenses for the three months ended March 31, 2024 and 2023 were $3.46 million and $1.07 million, respectively. In the three months ended March 31, 2024, stock based compensation was attributable to costs recognized in relation to long-term incentives for the Company’s directors, management, and employees and to align incentives with long-term stockholder value creation. Whereas in the three months ended March 31, 2023, share based payments were largely attributable to costs recognized for warrants issued to Celsius Mining LLC amounting to $0.50 million, shares issued to W Capital Advisors Pty Ltd amounting to $0.31 million and $0.20 million in relation to long-term incentives for the Company’s directors and management.
Depreciation and amortization
Depreciation consists primarily of depreciation of digital currency mining hardware and MDC equipment.
Depreciation and amortization for the three months ended March 31, 2024 and 2023, were $7.99 million and $7.96 million, respectively.
Change in fair value of derivative asset
During the three months ended March 31, 2024 and 2023, there was a gain on the fair value of the derivative asset by $1.69 million and a loss of $0.68 million, respectively, in relation to our power supply arrangements. The gain on the derivative asset was due to the increase in the price of energy costs in 2024.
Non-operating expenses
Non-operating expenses consist primarily of interest expenses, loss on deconsolidation and other expenses.
Interest expenses for the three months ended March 31, 2024 and 2023, were $0.73 million and $0.84 million, respectively. This decrease of $0.11 million was attributable to the paydown of debt during 2023 and 2024.
During the three months ended March 31, 2024, the Company recognized a deconsolidation loss of $11.93 million. This loss was as a result of an Australian entity and subsidiary, MIG No.1 Pty Ltd, going into Australian court appointed liquidation and accordingly this subsidiary was deconsolidated. The deconsolidation loss recorded was due to the removal the net assets and certain liabilities of this subsidiary from the condensed consolidated financial statements. See Note 3 - Subsidiary Deconsolidation to the Consolidated Condensed Financial Statements (Unaudited) in Item 1. Financial Statements, for further discussion.
Non-operating income
Non-operating income consists primarily of gain on foreign currency transactions and other income.
During the three months ended March 31, 2024 and 2023, the realized and unrealized gain on foreign currency transactions was $0.17 million and a loss of $0.42 million, respectively. This difference was due mostly to the movement in foreign exchange rates.
Net loss attributable to Mawson Infrastructure Group, Inc. stockholders
As a result of the foregoing, the Company recognized a net loss of $19.76 million for the three months ended March 31, 2024, compared to a net loss of $11.10 million for the three months ended March 31, 2023.
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Liquidity and Capital Resources
General
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditure. For the three-month period ended March 31, 2024, we financed our operations primarily through net cash provided by operating activities of $1.88 million and other cash reserves. During the three months ending March 31, 2024, the Company repaid $0.50 million of principal payments against previous facilities provided by W Capital Advisors Pty Ltd.
On May 27, 2022, the Company entered an At the Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC (“Wainwright”), and filed a prospectus supplement, to sell shares of our Common Stock through an “at the market offering” program as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. Effective May 4, 2023, the Company filed a prospectus supplement to amend, supplement and supersede certain information contained in the earlier prospectus and prospectus supplement, which reduced the number of shares of Common Stock the Company may offer and sell under the ATM Agreement to an aggregate offering price of up to $9 million from time to time. Sales of shares of Common Stock pursuant to the ATM Agreement are currently inactive, have been inactive since May 3, 2023, and are not currently expected until at the earliest August 2024, when the Company is expected to have eligibility to use Form S-3 registration statements. After the Company has eligibility to use Form S-3 registration statements, the Company still expects limitations related to General Instruction I.B.6 of Form S-3, which is referred to as the “baby shelf” rules.
We believe our near-term working capital requirements will continue to be funded through a combination of the cash we expect to generate from future operations, our existing funds, external debt facilities that may be available to us, further issuances of shares, and other potential sources of capital, monetization, or funds. We believe a combination of these opportunities are expected to be adequate to fund our longer-term operations needed over the next twelve months. For our business growth, it is expected we may continue investing in expanding our infrastructure, expanding and/or upgrading our miners, and/or other equipment and will require additional working capital in the short-term and long-term. As of March 31, 2024, we had an aggregate of $19.13 million of debt all of which is overdue for repayment unless we refinance or renegotiate the terms. In addition, the Celsius deposit of $15.33 million is the subject of an ongoing legal dispute.
Please see our Risk Factor entitled “We will need to raise substantial additional capital to continue our operations and execute our business strategy, meet our debt service obligations and execute our business strategy, and we may not be able to raise adequate capital on a timely basis, on favorable terms, or at all. Our inability to raise sufficient capital would have a material adverse effect on our financial condition and business.” in our Annual Report on Form 10-K for the year ended December 31, 2023.
Working Capital and Cash Flows
As of March 31, 2024 and December 31, 2023, we had a cash and cash equivalent balance of $6.37 million and $4.48 million, respectively. As of March 31, 2024 and December 31, 2023, the trade receivables balance was $13.24 million and $12.11 million, respectively. As of March 31, 2024, we had $19.13 million of outstanding short-term borrowings, and as of December 31, 2023, we had $19.35 million of short-term borrowings. The short-term borrowings as of March 31, 2024, relate to Celsius Mining LLC, W Capital Advisors Pty Ltd, the secured convertible promissory notes issued to investors and Marshall Investments MIG Pty Ltd (these loans are currently in default, refer to Material Cash Requirements section below for more information). As of March 31, 2024 and December 31, 2023, we had negative working capital of $30.39 million and $33.18 million, respectively.
The following table presents the major components of net cash flows (used in) provided by operating, investing and financing activities for the years ending March 31, 2024 and 2023:
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Net cash provided by operating activities | $ | 1,875,647 | $ | 1,316,592 | ||||
| Net cash provided by investing activities | $ | 530,640 | $ | 4,069,294 | ||||
| Net cash used in financing activities | $ | (509,544 | ) | $ | (4,935,714 | ) | ||
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For the three months ended March 31, 2024, net cash provided by operating activities was $1.88 million and for the three months ended March 31, 2023, net cash provided by operating activities was $1.32 million. The increase in net cash provided by operating activities was attributable to operations and timing differences in trade and other receivables and trade and other payables amongst other factors.
For the three months ended March 31, 2024, net cash provided by investing activities was $0.53 million and for the three months ended March 31, 2023, net cash provided by investing activities was $4.07 million. The net cash provided by investing activities during the year ended March 31, 2024, was primarily attributable to the proceeds from sale of certain non-utilized equipment. The net cash provided by investing activities during the year ended March 31, 2023, was primarily attributable to the proceeds from the sale of CleanSpark, Inc. shares held offset by the purchase of equipment.
For the three months ended March 31, 2024, net cash used in financing activities was $0.51 million and for the three months ended March 31, 2023, net cash used in financing activities was $4.94 million. The cash used in financing activities during the three months ended March 31, 2024, was primarily attributable to the repayment of borrowings.
Material Cash Requirements
The following discussion summarizes our material cash requirements from contractual and other obligations.
In December 2021, the Company’s subsidiary and Australian entity MIG No. 1 Pty Ltd entered into a Secured Loan Facility Agreement with Marshall Investments MIG Pty Ltd (“Marshall”). The loan matured in February 2024 and bears interest at a rate of 12% per annum (with an overdue rate provision of an additional 500bps), payable monthly with interest payments that commenced in December 2021. This loan facility is secured by direct assets of MIG No.1 Pty Ltd and a general security agreement given by the Company. Principal repayments began during November 2022. The outstanding balance includes interest of $9.09 million as of March 31, 2024, all of which is classified as a current liability. MIG No. 1 Pty Ltd has not made a principal and interest payment since May 2023. Marshall and MIG No. 1 Pty Ltd have each reserved their rights. On March 19, 2024, Mig No.1 Pty Ltd, which is an Australian entity, was placed into an Australian court appointed liquidation and wind-up process and was from the Company’s group as of this date. See Note 3 - Subsidiary Deconsolidation to the Consolidated Condensed Financial Statements (Unaudited) in Item 1. Financial Statements, for further discussion. On March 19, 2024, Marshall appointed receivers and managers in Australia under the terms of their security relating to their secured loan facility. The assets securing this loan include 5,372 miners and 8 modular data centers (“MDCs”) these assets are held by the MIG No.1 and therefore were included in the deconsolidation. The receiver’s statutory duty includes the obligation to sell the secured assets at market value or, if market value is not known, at the best price reasonably obtainable to maximize the prospects of there being sufficient proceeds available to satisfy the balance of the outstanding secured debt. It is therefore expected that this loan balance will be offset in the future by the amount received from the sale of the miners and MDCs.
On February 23, 2022, the Company’s subsidiary Luna Squares LLC entered into a Co-Location Agreement with Celsius Mining LLC. In connection with this agreement, Celsius Mining LLC loaned Luna Squares LLC a principal amount of $20 million, for the purpose of funding the infrastructure required to meet the obligations of the Co-Location Agreement, for which Luna Squares LLC issued a Secured Promissory Note for repayment of such amount. The Secured Promissory Note accrues interest daily at a rate of 12% per annum (with an overdue rate provision of an additional 200bps). Luna Squares LLC is required to amortize the loan at a rate of 15% per quarter, principal repayments began at the end of September 2022. The Secured Promissory Note has a maturity date of August 23, 2023, and the outstanding balance including interest is $8.82 million as of March 31, 2024, all of which is classified as a current liability. Celsius Mining LLC transferred the benefit of the promissory note to Celsius Network Ltd. Celsius Mining LLC and Celsius Network Ltd filed for Chapter 11 bankruptcy protection on July 13, 2022. Under the Co-location Agreement, Celsius Mining LLC advanced $15.33 million to Luna Squares LLC that was held as a deposit. Whether that amount has been forfeited or must be returned to Celsius Mining LLC is the subject of a dispute between the parties. As of May 1, 2024 and pursuant to a court order dated April 22, 2024, the Celsius civil lawsuit against Luna Squares and Mawson has been dismissed pursuant to the Company’s successful motion to compel arbitration. Currently, no arbitration proceedings or further appeals have been filed by either party.
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The Company is the guarantor of a Secured Loan Facility Agreement for working capital by the Company’s subsidiary Mawson Infrastructure Group Pty Ltd with W Capital Advisors Pty Ltd. As of March 31, 2024, AUD $1.77 million (USD $1.13 million) has been drawn down from this facility, all of which is classified as a current liability. The Secured Loan Facility accrues interest daily at a rate of 12% per annum (with an overdue rate provision of an additional 800bps) and is paid monthly. Principal repayments are paid ad hoc in line with the loan facility agreement. The Secured Loan Facility expired in March 2023. On October 30, 2023 Mawson Infrastructure Group Pty Ltd, which is an Australian entity, was placed into voluntary administration in Australia, and on November 3, 2023, W Capital Advisors appointed receivers and managers in Australia under the terms of their security relating to their working capital facility.
On July 8, 2022, the Company issued secured convertible promissory notes to investors in exchange for cash. The outstanding balance relates to the interest on the convertible note which has been accrued from July onwards and therefore the outstanding balance is $0.91 million as of March 31, 2024, all of which is classified as a current liability.
Financial condition
As of March 31, 2024, and December 31, 2023, we had net current liabilities of $30.39 million and $33.18 million, respectively. As of March 31, 2024, and December 31, 2023, we had net assets of $13.01 million and $30.38 million, respectively. As of March 31, 2024, we had an accumulated deficit of $202.43 million compared to $182.67 million as of December 31, 2023. Our cash position of March 31, 2024, was $6.37 million in comparison to $4.48 million as of December 31, 2023. For the three-month period ended March 31, 2024 and 2023 the Company incurred a loss after tax of $19.97 million and $11.38 million, respectively. Included in trade and other receivables is a $2 million payment due and pending from CleanSpark, Inc. for the sale of the Georgia facility. CleanSpark, Inc has disputed the obligation to make this payment. On December 22, 2023, the Company made formal demand on CleanSpark Inc. and CSRE Properties Sandersville, LLC for at least $2 million for breach of contract on the debtors’ obligation to pay for an energy earnout provision contained in a Purchase and Sale Agreement dated October 1, 2022, between the parties. Subsequently, on January 12, 2024, Mawson and Luna filed notice of its claim for formal arbitration before the American Arbitration Association. On February 5, 2024, CleanSpark and CSRE filed a motion objecting to jurisdiction of the arbitration proceedings. An arbitrator was appointed to hear the matter and on May 1, 2024, ruled that the arbitration proceedings be dismissed for lack of jurisdiction on the grounds of conflicting language contained in the purchase and sale agreement. The ruling did not address the merits of the Company’s claims, and the Company intends to pursue its claims against Cleanspark, Inc. by civil lawsuit through a filing with the court.
Our primary requirements for liquidity and capital are working capital, capital expenditures, public company costs and general corporate needs. In particular, we have large power usage costs, and other significant costs include our lease, operational, general costs and employee costs. We expect these capital and liquidity needs to continue as we further develop and grow our business. Our principal sources of liquidity have been and are expected to be our cash and cash equivalents, external debt facilities available to us and further issuances of shares.
We require additional capital to respond to near-term debt repayment obligations, competitive pressure, market dynamics, new technologies, customer demands, business opportunities, challenges, potential acquisitions or unforeseen circumstances, and we will likely need to determine to engage in equity or debt financings in the short term. If we are unable to obtain adequate financing on terms satisfactory to us when we require it, our ability to continue to fund, grow or support our business model and to respond to business challenges could be significantly limited, our business, financial condition and results of operations could be adversely affected, and this may result in bankruptcy or our ceasing operations.
The Company continues to take steps to preserve cash by optimizing costs and negotiating with its suppliers to improve or extend their terms of trade. The Company has been improving its revenue generation by improving the efficiency of its operations and adding multiple, institutional co-location services customers. The Company will continue to seek to optimize its cashflows through these and other initiatives.
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Non-GAAP Financial Measures
The Company utilizes a number of different financial measures, both GAAP and non-GAAP, in analyzing and assessing its overall business performance, for making operating decisions and for forecasting and planning future periods. The Company considers the use of non-GAAP financial measures helpful in assessing its current financial performance, ongoing operations, and prospects for the future. While the Company uses non-GAAP financial measures as a tool to enhance its understanding of certain aspects of its financial performance, the Company does not consider these measures to be a substitute for, or superior to, the information provided by GAAP financial measures. Consistent with this approach, the Company believes that disclosing non-GAAP financial measures to the readers of its financial information provides such readers with useful supplemental data that, while not a substitute for GAAP financial measures, allows for greater transparency in the review of its financial and operational performance. Investors are cautioned that there are inherent limitations associated with the use of non-GAAP financial measures as an analytical tool. In particular, non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles and many of the adjustments to the GAAP financial measures reflect the exclusion of items that are recurring and will be reflected in the company’s financial results for the foreseeable future. In addition, other companies, including other companies in the Company’s industry, may calculate non-GAAP financial measures differently than the Company does, limiting their usefulness as a comparative tool.
The Company is providing supplemental financial measures for (i) non-GAAP adjusted earnings before interest, taxes, depreciation and amortization, or (“adjusted EBITDA”) that excludes the impact of interest, income tax, depreciation, amortization, stock-based compensation expense, change in fair value of derivative asset, impairment of financial assets, unrealized gains/losses, share of net loss of equity method investments, loss on deconsolidation and certain non-recurring expenses. We believe that adjusted EBITDA is useful to investors in comparing our performance across reporting periods on a consistent basis where one-time, or non-recurring gains or losses or expenses unrelated to operating activities would otherwise mask the Company’s operating performance.
| For the three month period ended | ||||||||
| 2024 | 2023 | |||||||
| Reconciliation of non-GAAP adjusted EBITDA: | ||||||||
| Net loss: | $ | (19,969,285 | ) | $ | (11,380,958 | ) | ||
| Share of net loss of equity method investments | - | 36,356 | ||||||
| Depreciation and amortization | 7,999,076 | 7,962,523 | ||||||
| Stock based compensation | 4,901,484 | 1,068,288 | ||||||
| (Gain) loss on foreign currency transactions | (169,638 | ) | 418,216 | |||||
| Other non-operating income | (165,160 | ) | (44,510 | ) | ||||
| Other non-operating expenses | 744,372 | 954,040 | ||||||
| Change in fair value of derivative asset | (1,686,152 | ) | 681,225 | |||||
| Income tax | (59,387 | ) | 548,083 | |||||
| Loss on deconsolidation | 11,925,908 | - | ||||||
| EBITDA (non-GAAP) | $ | 3,521,218 | $ | 243,263 | ||||
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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 March 31, 2024, including the material weaknesses in our internal control over financial reporting described below. Management’s assessment of the effectiveness of our disclosure controls and procedures is expressed at a level of reasonable assurance because management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Whilst remediation actions are ongoing and controls have been implemented across all business processes, the material weaknesses in our internal control over financial reporting and information technology will not be considered remediated, until controls have operated for a sufficient period of time and have been tested for and concluded to be operating effectively. As operating effectiveness testing has not been concluded as of the date of this report, we continue to disclose the following material weaknesses.
Significant Reliance on Certain Individuals. There is inadequate segregation of duties in place related to our financial reporting and other review and oversight procedures due to the lack of sufficient accounting and other personnel. This is not inconsistent with similar sized and small organizations. This gives rise to the risk of lack of ability to react in a timely manner to operations issues and to fully meet the requirements of the SEC, GAAP, and the Sarbanes-Oxley Act of 2002. In addition, this poses the risk that compliance and other reporting obligations are not dealt with in an adequate manner.
Controls over the financial statement close and reporting process. Controls were not adequately designed or implemented in the financial statement close and reporting process. This includes controls related to complex and judgmental accounting transactions including business acquisitions and divestures, derivatives, manual journal entries, account reconciliations and financial statement policies and disclosures.
Information and Technology Controls. There are control deficiencies related to information technology (“IT”) general controls that in the aggregate constitute a material weakness. Deficiencies identified include lack of controls over access to programs and data, program changes, program development and general IT controls.
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Data from third parties. The Company does not have the resources and personnel to fully execute its designed controls to ensure that data received from third parties was validated, complete and accurate. Such data is relied on by the Company in determining amounts pertaining to mining and co-location revenue, net energy benefits, and digital currency assets.
Fixed asset verification. The Company does not have the resources and personnel to fully execute its designed controls around physical asset verification. Together with system limitations, restricting tracking of fixed asset movements, there is a risk around the existence of fixed assets.
Notwithstanding the identified material weaknesses and management’s assessment that our disclosure controls and procedures were not effective as of March 31, 2024, management believes that the consolidated condensed financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows as of and for the periods presented in accordance with generally accepted accounting principles. We rely on the assistance of outside advisors with expertise in these matters in preparing the financial statements.
Remediation
Our Board of Directors and management take internal control over financial reporting and the integrity of our financial statements seriously. Our management continues to work to find ways to improve its controls related to our material weaknesses. With the oversight of the Board of Directors, the Board Committee(s) and management, the Company plans to continue to progress the remediation of the underlying causes of the identified material weaknesses, primarily through the performance of a risk assessment process; the development and implementation of formal, documented policies and procedures, improved processes and control activities (including an assessment of the segregation of duties); as well as the hiring of additional finance and other personnel for specific roles including financial reporting.
Whilst controls have been implemented across all business processes and are operating, the material weaknesses in our internal control over financial reporting and information technology will not be considered remediated until controls have operated for a sufficient period of time and have been tested for and concluded on for effectiveness. As operating effectiveness testing has not been concluded as of the date of this report, we continue to disclose the material weaknesses.
Remediation efforts for upcoming quarters will be focused on progressing the implementation of the remainder of controls, refining existing controls and validating the effectiveness of implemented controls using criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control. We cannot provide any assurance that our remediation efforts will be successful or that our internal control over financial reporting and other business processes will be effective as a result of these efforts. In addition, as we continue to evaluate and work to improve our internal control over financial reporting related to the identified material weaknesses, management may determine to take additional measures to address control deficiencies or determine to modify or update the remediation plan described above.
Changes in internal control over financial reporting
Except for the remedial measures described above, there have been no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures and Internal Control over Financial Reporting
In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, the Board of Directors and management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints, and that the Board of Directors and management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We have been made a defendant in certain legal proceedings which may have in the future or have had in the recent past significant effects on our financial position or profitability. On July 13, 2022, Celsius Mining LLC and Celsius Network LLC and other related entities (collectively, “Celsius”), filed for bankruptcy relief under Chapter 11 in the United States Bankruptcy Court for the Southern District of New York (the “Court”), Case No. 22-10964. In that matter, on November 23, 2023, Celsius filed an adversary proceeding against Mawson, its subsidiaries Luna Squares LLC and Cosmos Infrastructure LLC, asserting various claims related to the alleged breach of a Co-Location Agreement and Secured Promissory Note. Adv. Case No. 23-01202, claiming it is owed approximately $8 million under the promissory note and claiming entitlement to return of $15.33 million paid as deposit. Mawson denied that Celsius is entitled to the relief it seeks in the adversary proceeding and is actively defending the matter. Many of the related claims and disputes between Celsius and Mawson have been disclosed in more detail in Mawson’s previous filings with the SEC. As part of its defense, Mawson sought to have the matter removed from the adversary proceeding to arbitration based on the arbitration clause contained in one of the transaction’s agreements. Celsius opposed the removal and the matter was heard before the Court. On February 27, 2024, the Court ruled in part that the claims regarding the Co-Location Agreement could be arbitrated, but the claims for the promissory note would stay before the Court. The Court appointed a litigation administrator to handle the claims arising out of the promissory note. Mawson appealed this decision to the District Court for the Southern District of New York and ultimately prevailed. As of May 1, 2024, and pursuant to a court order dated April 22, 2024, the Celsius civil lawsuit against Luna Squares and Mawson has been dismissed pursuant to the Company’s successful motion to compel arbitration. Currently, no arbitration proceedings or further appeals have been filed by either party.
On December 22, 2023, Mawson Infrastructure Group Inc. and Luna Squares LLC made formal demand on CleanSpark Inc. and CSRE Properties Sandersville, LLC for $2,000,000 for breach of contract for failing to pay for an energy earnout provision contained in the Purchase and Sale Agreement dated September 8, 2022, between the parties. Subsequently, on January 12, 2024, Mawson and Luna filed notice of its claim for formal arbitration before the American Arbitration Association. On February 5, 2024, CleanSpark and CSRE filed a motion objecting to jurisdiction of the arbitration proceedings. An arbitrator was appointed to hear the matter and on May 1, 2024 ruled that the arbitration proceedings be dismissed for lack of jurisdiction on the grounds of conflicting language contained in the purchase and sale agreement. The ruling did not address the merits of the Company’s claims, and the Company intends to pursue its claims by civil lawsuit through a court filing.
On March 28, 2024, the Company was made a defendant in a civil suit before the Supreme Court of NSW in Sydney Australia, in the matter entitled “W Capital Advisors Pty Ltd in its capacity as trustee for the W Capital Advisors Fund v. Mawson Infrastructure Group, Inc.”, Docket No. 2024/00117331, alleging a claim to seek US$166,219 as unpaid interest under a convertible note after the Company paid in full the principal of $500,000, and AUD$298,926 under a loan deed, plus interest and costs for sums due claiming corporate guarantee by the Company for a “Variation Deed to Loan Deed” dated September 29, 2022, executed by its Australian entity, Mawson Infrastructure Group Pty Ltd. As noted previously in the Company’s Current Report on Form 8-K filed on March 29, 2024, the Company, pursuant to Australian law, on March 28, 2024, sent a preliminary discovery notice to W Capital to obtain documents and to investigate and ascertain if W Capital is a related party to Mr. James Manning, the Company’s former director and executive, and to investigate and ascertain if transactions between W Capital Advisors Pty Ltd and the Company were related party transactions.
The Company and some of its subsidiaries, including Australian entities, are currently in disputes, as outlined below. These disputes may be in or may lead to litigation.
On January 8, 2024, a commercial demand was made Flynt ICS Pty Ltd to the Company’s subsidiary and an Australian entity, MIG No. 1 Pty Ltd, for $129,930, for alleged claimed sums due under a service agreement. As determined by the Audit Committee’s investigation into Mr. James Manning, Flynt ICS Pty Ltd is a party related to Mr. James Manning, a former director and executive of the Company. On March 19, 2024, MIG No.1 Pty Ltd was placed into an Australian court appointed liquidation and wind-up process. See Note 3 - Subsidiary Deconsolidation to the Consolidated Condensed Financial Statements (Unaudited) in Item 1. Financial Statements, for further discussion.
35
On February 1, 2024, a former independent contractor, Noam Danenberg, through his professional company, N. Danenberg Holding (2000) Ltd, apparently filed a civil suit in Tel Aviv Israel against the Company for an alleged $90,000 in fees and other benefits. The Company has never been formally served nor has it submitted to jurisdiction in Israel.
On October 30, 2023, the directors of the Company’s Australian subsidiary, Mawson Infrastructure Group Pty Ltd (“Mawson AU”) appointed voluntary administrators in Australia to Mawson AU. Voluntary administration is a process under Australian corporate law where an external administrator is appointed to take control of the relevant entity, investigate and report to creditors about the relevant entity’s business, property, affairs and financial circumstances, and report on the options available to creditors. It is not a court process. On November 3, 2023, W Capital Advisors appointed receivers and managers in Australia under the terms of their security relating to their working capital facility.
On January 3, 2024, W Capital put Mawson on notice of its intent to collect what it asserts are past due amounts for the following claims as of December 31, 2023: (a) principal and interest payable on the Loan Amount advanced to Mawson under a variation deed, amounting to $1.30 million (AU $1.90 million); (b) the principal amount advanced under convertible note, amounting to $0.50 million; and (c) interest payable on the principal amount advanced under a convertible note, amounting to $0.07 million. W Capital is also claiming issuance of an alleged 1,500,000 shares of the Company. The Company paid to W Capital $0.50 million on March 6, 2024, and is reserving all of its rights and remedies as they pertain to W Capital’s alleged claims for additional AU$1.30 million and 1,500,000 shares which the Company disputes. On March 28, 2024, the Company was made a defendant in a civil suit before the Supreme Court of NSW, in Sydney Australia, in the matter entitled “W Capital Advisors Pty Ltd in its capacity as trustee for the W Capital Advisors Fund v. Mawson Infrastructure Group, Inc.”, Docket No. 2024/00117331, alleging a claim to seek US$166,219 as alleged unpaid interest under a convertible note after the Company paid in full the principal of $500,000, and an alleged AUD$298,926 under a loan deed, plus interest and costs for sums allegedly due claiming corporate guarantee by the Company for a “Variation Deed to Loan Deed” dated September 29, 2022, executed by Australian entity, Mawson Infrastructure Group Pty Ltd. As noted previously in the Company’s Current Report on Form 8-K filed on March 29, 2024, the Company, pursuant to Australian law, on March 28, 2024, sent a preliminary discovery notice to W Capital to obtain documents and materials to investigate and ascertain if W Capital is a related party to Mr. James Manning, the Company’s former director and executive, and to investigate and ascertain if transactions between W Capital Advisors Pty Ltd and the Company were related party transactions.
On April 19, 2024, a civil suit entitled “Blockware Solutions, LLC v. Mawson Bellefonte LLC and Mawson Infrastructure Group, Inc.” was filed in the US District Court, Southern District of New York under Civil Action No. 1:24-cv-02976 with the plaintiff, Blockware Solutions, LLC, claiming alleged merchandise price and incidental damages of $115,500, alleged consequential damages due to lost profits of $358,689, and other alleged non-specified damages, for alleged claims of non-payment. Mawson Bellefonte, LLC is a Delaware subsidiary of the Company. Mawson Bellefonte and the Company intend to defend against these alleged claims made related to this matter.
On April 23, 2024, the Company’s subsidiary and an Australian entity, Mawson AU Pty Ltd, was placed into an Australian court appointed liquidation and wind-up process.
On April 29, 2024, the Company’s subsidiary and an Australian entity, Mawson Services Pty Ltd, was placed into an Australian court appointed liquidation and wind-up process.
The Company and its subsidiaries have been in the past, and from time to time in the future, may be involved in certain litigation related to our businesses. For example, the Company and its subsidiaries receive letters of demand for payments from time to time which could lead to legal proceedings.
36
Item 1A. Risk Factors
The Company’s risk factors were disclosed in (i) Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed on April 1, 2024 and (ii) as disclosed in our 8-K filing on March 29, 2024. In addition, the Company is subject to risks related to:
The impact of the Bitcoin halving, which took place in April 2024 has introduced uncertainly that could materially impact our self-mining revenue or our co-location services customers businesses
The bitcoin block reward halved on April 19, 2024, reducing the number of bitcoins earned for each block mined from 6.25 to 3.125. If the bitcoin price does not appreciate sufficiently to offset this 50% reduction in mining rewards, our and/or our co-location services customers revenues, cash flows, and operating results could be materially and adversely impacted. There can be no assurance that the market price of bitcoin will increase in the near term nor that our operating costs will decrease proportionally to mitigate the halving’s adverse impact on our self-mining profitability. As a result, the halving has introduced significant uncertainty to our near-term financial prospects and could require us to modify our operating plans and growth strategies.
Item 2. Use of Proceeds, and Issuer Purchases of Equity Securities
None
Item 3. Defaults Upon Senior Securities
Celsius Mining LLC loaned $20 million to Luna Squares LLC, through a Secured Promissory Note (the “Celsius Promissory Note”), which had a maturity date of August 23, 2023, and a total outstanding balance as of March 31, 2024, of $8.82 million. Luna Squares LLC has not repaid the loan as required on the maturity date and is therefore in default. Celsius Mining LLC transferred to benefit of the Celsius Promissory Note to Celsius Network Ltd. Celsius Network Ltd has notified Luna Squares the default interest is payable. On November 23, 2023, Celsius filed an adversary proceeding against Mawson, its subsidiaries Luna Squares LLC and Cosmos Infrastructure LLC, asserting various claims related to the alleged breach of a Co-Location Agreement and Secured Promissory Note. Adv. Case No. 23-01202, claiming it is owed approximately $8 million under the promissory note and claiming entitlement to return of $15.33 million paid as deposit. Mawson denied that Celsius is entitled to the relief it seeks in the adversary proceeding and is actively defending the matter. Many of the related claims and disputes between Celsius and Mawson have been disclosed in more detail in Mawson’s previous filings with the SEC. As part of its defense, Mawson sought to have the matter removed from the adversary proceeding to arbitration based on the arbitration clause contained in one of the transaction’s agreements. Celsius opposed the removal and the matter was heard before the Court. On February 27, 2024, the Court ruled in part that the claims regarding the Co-Location Agreement could be arbitrated, but the claims for the promissory note would stay before the Court. The Court appointed a litigation administrator to handle the claims arising out of the promissory note. Mawson appealed this decision to the District Court for the Southern District of New York and ultimately prevailed. As of May 1, 2024, and pursuant to a court order dated April 22, 2024, the Celsius civil lawsuit against Luna Squares and Mawson has been dismissed pursuant to the Company’s successful motion to compel arbitration. Currently, no arbitration proceedings or further appeals have been filed by either party.
The Company has a Secured Loan Facility Agreement with Marshall Investments GCP Pty Ltd ATF for the Marshall Investments MIG Trust (“Marshall”). The loan matures in February 2024 and the total outstanding balance is $9.09 million as of March 31, 2024. MIG No. 1 Pty Ltd, an Australian entity, has not made a principal and interest payment since May 2023, despite such payments falling due, and is therefore in default. MIG No. 1 Pty Ltd is also in default of a number of other covenants under the terms of the loan. On March 19, 2024, Mig No.1 Pty Ltd was placed into an Australian court appointed liquidation and wind-up process and was deconsolidated for the group from this date. On March 19, 2024, Marshall appointed receivers and managers in Australia relating to their secured loan facility.
37
The Company is the guarantor on a Secured Loan Facility Agreement for working capital by Mawson Infrastructure Group Pty Ltd with W Capital Advisors Pty Ltd. As of March 31, 2024, AUD $1.77 million (USD $1.13 million) has been drawn down from this facility. The Secured Loan Facility expired in March 2023 and the Company did not extend the maturity date, and has not repaid the loan amount, and is therefore in default. This Secured Loan facility Agreement was originally with Mawson Infrastructure Group Pty Ltd, an Australian entity which was placed into voluntary administration under Australian law on October 30, 2023 and on November 3, 2023, W Capital Advisors appointed receivers and managers in Australia under the terms of their security relating to their working capital facility.
The Company has a Secured Convertible Promissory Note with W Capital Advisors Pty Ltd with an outstanding balance of $0.91 million as of March 31, 2024. The Convertible Note matured in July 2023. W Capital Advisors did not convert the note, and the Company has repaid the principal balance of the note Convertible Note, however there is outstanding interest claimed which is in default. On January 3, 2024, W Capital put Mawson on notice of its intent to collect what it asserts are past due amounts for the following claims as of December 31, 2023: (a) principal and interest payable on the Loan Amount advanced to Mawson under a variation deed, amounting to $1.30 million (AU $1.90 million); (b) the principal amount advanced under convertible note, amounting to $0.50 million; and (c) interest payable on the principal amount advanced under a convertible note, amounting to $0.07 million. W Capital is also claiming issuance of an alleged 1,500,000 shares of the Company. The Company paid to W Capital $0.50 million on March 6, 2024, and is reserving all of its rights and remedies as they pertain to W Capital’s alleged claims for additional AU$1.30 million and 1,500,000 shares which the Company disputes. On March 28, 2024, the Company was made a defendant in a civil suit before the Supreme Court of NSW, in Sydney Australia, in the matter entitled “W Capital Advisors Pty Ltd in its capacity as trustee for the W Capital Advisors Fund v. Mawson Infrastructure Group, Inc.”, Docket No. 2024/00117331, alleging a claim to seek US$166,219 as alleged unpaid interest under a convertible note after the Company paid in full the principal of $500,000, and an alleged AUD$298,926 under a loan deed, plus interest and costs for sums allegedly due claiming corporate guarantee by the Company for a “Variation Deed to Loan Deed” dated September 29, 2022, executed by Australian entity, Mawson Infrastructure Group Pty Ltd. As noted previously in the Company’s Current Report on Form 8-K filed on March 29, 2024, the Company, pursuant to Australian law, on March 28, 2024, sent a preliminary discovery notice to W Capital to obtain documents and materials to investigate and ascertain if W Capital is a related party to Mr. James Manning, the Company’s former director and executive, and to investigate and ascertain if transactions between W Capital Advisors Pty Ltd and the Company were related party transactions.
The Company, or its subsidiaries, have not fulfilled specific payment obligations related to the Celsius Promissory Note, Marshall loan, the W Capital Working Capital Loan and Secured Convertible Promissory Note mentioned above. Consequently, the creditors associated with these debt facilities may initiate actions as allowed by relevant grace periods. This includes the possibility of opting to expedite the repayment of the principal debt, pursuing legal action against the Company for payment default, raising interest rates to the default or overdue rate, or taking appropriate measures concerning collateral (including appointing a receiver), if applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the fiscal quarter ended March
31, 2024, no director or officer (as defined in Rule 16a-1(f) promulgated under the Exchange Act) of the Company
On May 9, 2024, the Company received notice of termination of its ground lease on unimproved property located in Perry County, Ohio. The Company is in discussions about potential options related to the notice and the unimproved property, including options to terminate, retain, modify or extend the ground lease on the unimproved property.
38
Item 6. Exhibits
| * | Filed herewith. |
| ** | Furnished herewith. |
39
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Mawson Infrastructure Group Inc. | ||
| Date: May 15, 2024 | By: | /s/ Rahul Mewawalla |
|
Rahul Mewawalla Chief Executive Officer and President | ||
| (Principal Executive Officer) | ||
| Date: May 15, 2024 | By: | /s/ William Harrison |
|
William Harrison Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
40
Exhibit 3.8
CERTIFICATE OF AMENDMENT TO
CERTIFICATE OF INCORPORATION OF
MAWSON INFRASTRUCTURE GROUP INC.
Mawson Infrastructure Group Inc. (the “Corporation”), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the “DGCL”), DOES HEREBY CERTIFY AS FOLLOWS:
| 1. | This Certificate of Amendment (the “Certificate of Amendment”) amends the provisions of the Corporation’s Certificate of Incorporation filed with the Secretary of State on February 10, 2012, as amended February 28, 2012, July 18, 2013, November 15, 2017, March 1, 2018, March 17, 2021, June 9, 2021 and August 11, 2021 (collectively, the “Certificate of Incorporation”). |
| 2. | Section 3.1(i) of Article III of the Certificate of Incorporation is hereby amended and restated in its entirety such that, as amended, said section shall read in its entirety as follows: |
“(i) The total number of shares of stock which the Corporation shall have authority to issue is 90,000,000 shares of common stock, par value $.001 per share, and 1,000,000 shares of preferred stock, par value $.001 per share.”
(ii) Upon the filing and effectiveness (the “Effective Time”) pursuant to the Delaware General Corporation Law of this Certificate of Amendment , each six (6) shares of Common Stock issued and outstanding immediately prior to the Effective Time shall be and hereby are automatically reclassified and changed (without any further act) into one (1) fully paid and nonassessable share of Common Stock, provided that in the event a stockholder would otherwise be entitled to a fraction of a share, such stockholder shall receive one whole share of Common Stock in lieu of such fractional share and no fractional shares shall be issued.”
| 3. | This Certificate of Amendment was duly adopted in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware. |
| 4. | All other provisions of the Certificate of Incorporation shall remain in full force and effect. |
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed this 6th day of February, 2023.
| MAWSON INFRASTRUCTURE GROUP, INC. | ||
| By: | /s/ James Manning | |
| James Manning, Chief Executive Officer | ||
Exhibit 10.1
SERVICE ORDER #2
This is a Service Order under the Service Framework Agreement dated October 12, 2023 (the “Service Framework Agreement”) between Consensus Colocation PA LLC (“CTG”) and Mawson Hosting LLC (“Service Provider”). Unless otherwise specified, capitalized terms used herein shall have the same meaning as those defined in the Service Framework Agreement. The effective date of this Service Order is March 25, 2024.
| 1. | DATA CENTER FACILITY |
This Service Order is corresponding to the Information Memorandum of Data Center Facility submitted by the Service Provider on or about March 25, 2024, attached hereto as EXHIBIT A (the “Information Memo”) as well as the Data Center Facility as described in the Information Memo located at 950 Railroad Avenue, Midland, PA 15059.
| 2. | CO-LOCATION CAPACITY AND CO-LOCATION SERVERS |
| 2.1. | Under this Service Order, Service Provider agrees to provide to CTG Co-location Capacity as follows, together with the necessary onsite production facilities including office rooms, maintenance facility, and toilets. The number of the Minimum Co- location Quantity is as set out below. |
| Maximum Co-location Capacity （MW） | Minimum Co-location Quantity （Units） |
| 17.70 MW | 5,880 |
| 2.2. | Details of the Co-location Servers to be delivered hereunder are as follows, including the specific model, power efficiency and quantity of the Co-location Servers. Service Provider shall ensure that the Data Center Facility has been connected to electrical power and reaches its standard operational conditions for each batch of Co-location Servers to be in Online Status on or before the respective estimated power-on date as set forth in the table below. |
| Batch No. | Model | Power
Efficiency (J/T) |
Co-location Quantity （Units） |
Estimated Arrival Date |
Estimated Power- on Date |
| 1 | S19 XP/ S19j XP | 21.5 | 5,880 | March 26, 2024 | April 5, 2024 |
| In Total | - | - | 5,880 | - | - |
| 2.3. | The Parties further acknowledge and agree that, subject to the Co-location Capacity and Minimum Co-location Quantity, CTG shall be entitled to, from time to time, modify the model of the Co-location Servers with a newer model and Co-location Quantity, at its sole discretion, by providing written notice (the “Co-location Servers Modification Notice”) in the form attached hereto as EXHIBIT B of this Service Order five (5) Business Days prior to the delivery, withdrawal, and/or replacement of the Co-location Servers as long as the change doesn’t require any infrastructure change to the Data Center Facility, cause the Service Provider to be in breach of the Service Framework Agreement, this Order, Applicable Law, or any other agreements Service Provider may have (including the Lease or the power agreements), or cause the power draw to exceed the maximum amount attributed to the contract, or otherwise cause a material decrease in CTG’s usage of the Co-location Capacity set forth herein. CTG shall pay Service Provider’s reasonable costs and expenses to facilitate those changes. |
Service Provider shall cooperate with CTG to on-rack and/or de-rack of the Co-location Servers, power on additional Co-location Servers as applicable, and adjust the amount of the Prepayment in accordance with the calculation methods provided in the Agreement. In the event where there is a decrease in the Prepayment, Service Provider shall return the difference in accordance with Article 3.5(b) of this Agreement.
SERVICE ORDER #2
| 3. | SERVICE AND FEES |
| 3.1. | Deposit. CTG shall pay to Service Provider the Deposit as set forth below in accordance with the Service Framework Agreement. |
| Batch No. | Co-location Quantity (Units) |
Deposit Breakdown | Deposit (US$) |
| 1 | 5,880 | 17.70 MW * 730 Hours * $20.00/MWh | $258,402.48 |
| In Total | 5,880 | - | $258,402.48 |
| 3.2. | Fees. |
| (a) | Co-location Fee Rate: $0.020/kWh |
| (b) | Power Reimbursement Fees: The Power Reimbursement will be Service Provider’s actual billed rate for power. Service Provider will provide CTG with all necessary supporting evidence from its power provider or power consultant to substantiate its billing rate. The estimated average Power Reimbursement Fee is $0.04350/kWh which will be used to estimate the Prepayment. |
| (c) | Monthly Theoretical Co-location Fee (including sales taxes/expenses): ∑Rated Power of Each Co-location Server Powered-On (kW) × Co-location Fee Rate × 24 × 31 |
| (d) | Minimum Co-location Fee: $84,000 per month |
2
SERVICE ORDER #2
| 3.3. | Other Fees. CTG shall pay the following fees as per use, provided that these fees may be incurred only after prior written approval of CTG: |
| (a) | On-rack fee (including sales taxes/expenses): US$17 per Co-location Server plus the cost of cables if not provided by CTG. |
| (b) | De-rack fee (including sales taxes/expenses): US$10 per Co-location Server. |
| (c) | Waste fee: Reimbursement of actual costs associated with removal of any packaging materials associated with CTG equipment. |
| (d) | Packing Materials: Reimbursement for all packing materials required for removal of CTG equipment. |
| (e) | Storage: $10 per server per month or part thereof if stored onsite. If stored offsite: at commercially available rates + 9% storage administration fee. Only applies to servers that are not operational and not in the process of being repaired. Does not apply to servers that have been delivered but not yet made operational. |
| (f) | Others (please specify): N/A |
| 3.4. | Taxes and Expenses. |
Service Provider may pass through to CTG any actual sales or use taxes on power as charged by Service Provider’s power provider.
| 3.5. | Operational |
CTG may only utilize Low Power Mode for up to 30% of the time available in any Quarter.
Minimum Strike Price: $36.13 (not including adders or taxes).
| 3.6. | Curtailment Revenue |
For the purposes of this Service Order, Section 5.5 (a) shall be deleted in its entirely and replaced with the following, “CTG will receive 50% of the revenue Service Provider receives from the CSP net of all fees, commissions, and other charges for the reduction of power utilized by the Co-location Servers and the MDC Infrastructure at the time of curtailment (“CTG Curtailment Revenue”).”
3
SERVICE ORDER #2
| 4. | BILLING AND PAYMENT |
| 4.1. | The Prepayment is estimated as follows as confirmed by documentation provided by Service Provider and the date of provision of such documentation by Service Provider: |
| Batch No. | Co-location Quantity (Units) |
Estimated Prepayment Breakdown | Estimated Prepayment Amount (US$) |
| 1 | 5,880 | 17.70 MW * 1,460 Hours * $43.50/MWh1 | $1,124,160.93 |
| In Total | 5,880 | - | $1,124,160.93 |
| 1 | $43.50/MWh is an average of the next two expected month’s power prices of 30 days at $42.93/MWh and 31 days at $44.06/MWh. |
| 4.2. | All payment of Co-location Fee under this Service Order, including any remittance or refund of Co-location Fee, shall be made: |
| ☒ | via wire transfer of immediately available funds in the US Dollars to the bank account of designated by the receiving Party; or |
| ☐ | via other methods: ________________________. |
The Parties agree that CTG shall be entitled to make payments via the foregoing methods in its sole discretion. In the event that Service Provider fails to provide or update (if applicable) the correct and the latest valid payment information of Service Provider, Service Provider shall not suspend provision of Services, terminate the Service Framework Agreement or this Service Order, or hold CTG liable for any breach of contract for failure of CTG to make payment due thereto.
| 4.3. | Account Information of Service Provider |
Account Name: Mawson Hosting LLC
Bank Name: Axos Bank
Bank Address: 4350 La Jolla Village Drive, Suite 140 San Diego, CA 92122
Account Number: To be provided by Service Provider
Routing Number: To be provided by Service Provider
| 4.4. | Account Information of CTG |
Account Name: Consensus Colocation PA LLC
Bank Name: Flagstar Bank
Bank Address: 565 5TH AVE, New York, NY 10017
Account Number: 1504960613
Routing Number: 026013576 (Wires only)
4
SERVICE ORDER #2
| 5. | TERM AND TERMINATION OF SERVICE ORDER |
| 5.1. | This Service Order shall be effective from the date hereof and expire on the expiration or early termination of the Service Framework Agreement. |
| 5.2. | This Service Order may be terminated prior to its expiration: |
| (a) | upon mutual agreement in writing of the Parties; |
| (b) | upon CTG giving a written notice to Service Provider if the Data Center Facility fails to meet its standard operational conditions of the respective Co-location Capacity for the Co-location Servers to be in Online Status within thirty (30) calendar days after the estimated power-on date set forth in paragraph 2.1 of this Service Order; meanwhile, CTG shall not be liable to pay Service Provider any fee, charges or expenses during the period of such operational conditions; |
| (c) | upon Service Provider giving a written notice to CTG if CTG fails to deliver the any batch of Co-location Servers by (i) the estimated arrival date set forth in paragraph 2.2 of this Service Order, in which case Service Provider shall have no obligation to pay any Delayed Compensation or (ii) the actual date on which the Data Center Facility meets the standard operational conditions of the respective Co-location Capacity, whichever is later; and |
| (d) | upon either Party giving a written notice of no less than sixty (60) calendar days to the other Party, and the terminating Party pays a one-time early termination fee, along with delivery of the notice, in an amount equal to Monthly Theoretical Co-location Fee shall be paid by the terminating Party to the non-terminating Party upon termination. |
| 5.3. | Upon expiration or early termination of this Service Order, Service Provider shall: |
| (a) | in any event no later than thirty (30) Business Days from the expiration or early termination, issue final invoices for the unpaid Billing Period, with the Reconciliation Statement for such unpaid Billing Period and the supporting documents proving the Power Consumption for the such Billing Period (e.g., photos of the Separate Meter showing the Power Consumption at the end of such Billing Period) as attachments to the invoice in accordance with Article 3.6(a) of the Service Framework Agreement; and |
| (b) | issue to CTG the updated invoice(s) for the unpaid Billing Period(s) in accordance with Article 3.6 of the Service Framework Agreement (if applicable). |
| 5.4. | Settlement of Last Invoice |
CTG shall make payment(s) to Service Provider to settle the outstanding amount in the invoice for the unpaid Billing Period(s) in accordance with Article 3.6 of the Service Framework Agreement (if applicable).
| 6. | PREVAILING PROVISION |
In the event of any discrepancy between the provision of this Service Order and the Service Framework Agreement, the provision in this Service Order shall prevail.
5
SERVICE ORDER #2
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the date first written above.
| Signed for and on behalf of CTG: | Consensus Colocation PA LLC | |
| Signature | /s/ Ruslan Zinurov | |
| Name: | Ruslan Zinurov | |
| Title: | Authorized Signatory | |
| Signed for and on behalf of Service Provider: | ||
| MAWSON HOSTING LLC | ||
| Signature | /s/ Rahul Mewawalla | |
| Name: | Rahul Mewawalla | |
| Title: | Authorized Signatory | |
6
SERVICE ORDER #2
EXHIBIT A
INFORMATION MEMORANDUM OF DATA CENTER FACILITY
Service Provider: Mawson Hosting LLC
Submission Date: March
2024
| BASIC INFORMATION | ||||||
| Location | 950 Railroad Avenue, Midland, PA 15059 | |||||
| Jurisdiction | Midland, PA; Beaver County, PA | |||||
| Land Area (sq. m) | ||||||
| Building Area (sq. m) | ||||||
| Construction Structure | ☐ Steel Structure ☐ Warehouse ☒ Container | |||||
| Designed No. of Racks | 10 containerized data centers 5,880 rack spaces | |||||
| Heat Dissipation Method | ☐ Hydro Cooling ☒ Air Cooling | |||||
| Local Temperature (℃) | Max. | Min. | Avg. | |||
| Server Air Inlet Temperature (℃) | Max. | Min. | Avg. | |||
| Humidity (%) | June % December % | |||||
| Air Pressure (kPa) | June December | |||||
| ELECTRICAL POWER | ||||||
| Power Type | ☒ Grid hybrid ☐ Wind ☐ Solar ☐ Hydro ☐ Nuclear | |||||
| Max. Power Capacity (MW) | 20 MW | |||||
| Minimum Power Commitment | ☒ Not Available ☐ ____MW | |||||
| NETWORK | ||||||
| Network Operator | ||||||
| Network Bandwidth, Mb/s | ||||||
| Conditions of Prepayment | ||||||
| 1. | Service Provider completed the construction of the Data Center Facility and passed the inspection of the Data Center Facility by CTG; | |||||
| 2. | The Data Center Facility has the capability to connect to electrical power for the respective batch of Co-location Servers; and | |||||
SERVICE ORDER #2
| Conditions of Payment of Deposit | |
| 1. | The high-voltage, medium-voltage and low-voltage transformers arrived at the Data Center Facility; |
| 2. | The wiring between high-voltage and low-voltage transformers is completed; |
| 3. | The construction of infrastructure, including but not limited to site hardening of the Data Center Facility, construction of facilities and buildings are completed, if applicable; and |
| 4. | The site protection facilities of the Data Center Facility are set up, and the Data Center Facility has the capability of basic safety protection. |
| COMPLIANCE STATUS | |
| Project Approval Documents | ☐ Not Available ☒ Provided to CTG on 9/13/2023 |
| Power Purchase Agreement(s) | ☐ Not Available ☒ Provided to CTG on 9/13/2023 |
| Land Title Document | ☐ Not Available ☐ Land License Agreement provided to CTG on 9/13/2023 |
| Location of the Separate Meter | ☐ Next to the high voltage transformer ☒ Next to the low voltage transformer ☐ Next to the container or plant ☐ Other:______________ |
| Ultimate Beneficiary Owner of Data Center Facility1 | Mawson Infrastructure Group Inc, listed on Nasdaq |
| OTHER INFORMATION | |
| 1 | Please indicate the ultimate beneficial owner who is either (i) an individual, or (ii) a company listed on a qualified stock exchange. |
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: May 15, 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: May 15, 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 March 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Rahul Mewawalla, Chief Executive Officer of the Company, and William Harrison, Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, that:
| (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: May 15, 2024 | By: | /s/ Rahul Mewawalla |
| Rahul Mewawalla | ||
| Chief Executive Officer and President | ||
| (Principal Executive Officer) | ||
| MAWSON INFRASTRUCTURE GROUP INC. | ||
| Date: May 15, 2024 | By: | /s/ William Harrison |
| William Harrison Chief Financial Officer |
||
| (Principal Financial and Accounting Officer) | ||