BGDE 10-Q
Big Digital Energy, Inc. (BGDE)
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)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip code) |
Registrant’s telephone number, including area code:
Securities Registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||
| 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☒
As of May 5, 2025, the issuer had a total of
MAWSON INFRASTRUCTURE GROUP INC.
FORM 10-Q
FOR THE QUARTER ENDED March 31, 2025
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 | 25 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risks | 36 |
| Item 4. | Controls and Procedures | 36 |
| Part II – Other Information | ||
| Item 1. | Legal Proceedings | 38 |
| Item 1A. | Risk Factors | 38 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 46 |
| Item 3. | Defaults Upon Senior Securities | 46 |
| Item 4. | Mine Safety Disclosures | 46 |
| Item 5. | Other Information | 46 |
| Item 6. | Exhibits | 47 |
| Signatures | 48 | |
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MAWSON INFRASTRUCTURE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Trade and other receivables, net | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Derivative asset | ||||||||
| Security deposits | ||||||||
| Operating lease right-of-use asset, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Trade and other payables | $ | $ | ||||||
| Current portion of operating lease liability | ||||||||
| Current portion of finance lease liability | ||||||||
| Current portion of long-term loans | ||||||||
| Total current liabilities | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Finance lease liability, net of current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ deficit: | ||||||||
| Preferred stock; | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
See accompanying notes to unaudited consolidated condensed financial statements.
1
MAWSON INFRASTRUCTURE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| For the three months ended | ||||||||
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenues: | ||||||||
| Digital colocation revenue | $ | $ | ||||||
| Energy management revenue | ||||||||
| Digital assets mining revenue | ||||||||
| Equipment sales | ||||||||
| 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 | ||||||||
| Income / (Loss) from operations | ( | ) | ||||||
| Non-operating income (expense): | ||||||||
| Gain (loss) on foreign currency transactions | ( | ) | ||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other income | ||||||||
| Other expenses | ( | ) | ( | ) | ||||
| Loss on deconsolidation | ( | ) | ||||||
| Total non-operating 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 common stockholders | $ | ( | ) | $ | ( | ) | ||
| Net Loss per share, basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of shares outstanding | ||||||||
See accompanying notes to unaudited consolidated condensed financial statements.
2
MAWSON INFRASTRUCTURE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
| For the three months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive income (loss) | ||||||||
| Foreign currency translation adjustment | ( | ) | ||||||
| Comprehensive loss | ( | ) | ( | ) | ||||
| Less: Comprehensive loss attributable to non-controlling interests | ( | ) | ||||||
| Comprehensive loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | ||
See accompanying notes to unaudited consolidated condensed financial statements.
3
MAWSON INFRASTRUCTURE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
For the Three Months Ended March 31, 2025
| Common Stock (#) | Common Stock ($) | Additional Paid-in- Capital | Accumulated Other Comprehensive Income/(Loss) | Accumulated Deficit | Total Equity (Deficit) | |||||||||||||||||||
| Balance as of December 31, 2024 | $ | $ | $ | | $ | ( | ) | $ | ( | ) | ||||||||||||||
| Stock based compensation expense for RSU’s and stock options | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Other comprehensive income | - | |||||||||||||||||||||||
| Balance as of March 31, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
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, 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.
5
MAWSON INFRASTRUCTURE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the three months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of operating lease right-of-use asset | ||||||||
| Foreign exchange (gain) loss | ( | ) | ||||||
| Stock based compensation | ||||||||
| Non-cash interest expense | ||||||||
| Unrealized gain on derivative asset | ( | ) | ( | ) | ||||
| Loss on deconsolidation | ||||||||
| Gain on lease termination | ( | ) | ||||||
| Gain on sale of property, plant and equipment | ( | ) | ||||||
| Provision for doubtful accounts | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Trade and other receivables | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Other current assets | ( | ) | ||||||
| Trade and other payables | ( | ) | ||||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Capital expenditures | ( | ) | ( | ) | ||||
| Proceeds from sales of property, plant and equipment | ||||||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Payment of finance lease liabilities | ( | ) | ( | ) | ||||
| Payments of loans | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net (decrease) 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 (received) for income taxes | $ | ( | ) | $ | ||||
See accompanying notes to unaudited consolidated condensed financial statements.
6
MAWSON INFRASTRUCTURE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – GENERAL
Nature of Operations
Mawson Infrastructure Group Inc. (“Mawson,” the “Company,” “we,” “us,” and “our”) is a technology company focused on digital infrastructure platforms, headquartered in the United States of America.
The Company develops and operates digital infrastructure platforms for enterprise customers and for its own purposes. The Company’s digital infrastructure platforms can be used to operate computing resources for a number of applications, and are offered across artificial intelligence (“AI”), high-performance computing (“HPC”), digital assets, and other computing applications. The Company also has an energy management business, which utilizes software and analysis, to generate revenue when the Company participates in energy management programs related to the real-time needs of the power grid.
The Company has a strategy to prioritize the usage of carbon-free energy sources, including nuclear energy, to power its digital infrastructure platforms and computational machines.
The Company manages and operates digital infrastructure platforms and data centers delivering a total current capacity of approximately 129 megawatts (“MW”) with its current operational sites with an additional 24 MW of future capacity that is under development, all strategically located in locations served by the PJM Energy Market in the United States. The PJM Energy Market is amongst the largest wholesale power markets in North America.
Previously, the Company also had interests in the Australian market, however for strategic and commercial reasons, the Company is currently focused on advancing its interests in North America. The Company currently operates facilities in the United States of America and does not have operating sites in Australia.
The accompanying unaudited consolidated condensed financial statements, including the results of Cosmos Trading Pty Ltd, Cosmos Infrastructure LLC (“Cosmos”), Cosmos Manager LLC, MIG No.1 Pty Ltd (“MIG No. 1”), MIG No.1 LLC, Mawson AU Pty Ltd (“Mawson AU”), Mawson Services Pty Ltd (“Mawson SPL”), Luna Squares LLC (“Luna Squares”), Mawson Bellefonte LLC, Luna Squares Repairs LLC, Luna Squares Property LLC (“Luna Property”), Mawson Midland LLC, Mawson Hosting LLC (“Mawson Hosting”), Mawson Ohio LLC and Mawson Mining LLC (collectively referred to as the “Group”), have been prepared by the Company pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and in accordance with generally accepted accounting principles in the United States of America (“GAAP”).
7
NOTE 1 – GENERAL (Cont.)
These unaudited consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements of the Group as of December 31, 2024, and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024 filed with the SEC on March 28, 2025, as amended by Amendment No. 1 on Form 10-K/A filed with SEC on April 30, 2025 (the “2024 Form 10-K”). 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, 2025. These unaudited consolidated, condensed 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 unaudited consolidated condensed financial statements have been prepared assuming the Company will continue on a going concern basis and in accordance with GAAP. The going concern basis of presentation assumes that the Company will continue in operation one year after the date these financial statements are issued and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.
Pursuant to the requirements of the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date these financial statements are issued. This evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.
For the three months ended March 31, 2025, the
Company incurred a net loss of $
The Company’s revenue is dependent on a number of external factors, including commercial terms, payments from customers, payments from partners, counterparty risks, and market conditions, including those related to digital assets, AI, HPC and other markets. These factors are outside the Company’s direct control, and the Company may not be able to practically mitigate their impact. The Company cannot predict with any certainty whether these trends will reverse or persist. In addition, the Company’s equipment and infrastructure will require replacement over time as they come to the end of their useful lives to ensure that the Company can continue to operate competitively and efficiently.
The Company has ongoing litigation related to the Marshall Loan, W Capital Loan, Celsius Promissory Note and Celsius Colocation Agreement (each defined below). See Note 9 – Commitments and Contingencies.
8
NOTE 1 – GENERAL (Cont.)
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 unaudited consolidated condensed financial statements
To mitigate these conditions, the Company has explored various avenues to enhance liquidity, fund the Company’s expenditures, and meet debt servicing requirements. These strategies include, among others:
| ● | Expanding its digital infrastructure platform and increasing capacities for either digital colocation services and/or AI and HPC markets; |
| ● | Executing new customer digital colocation service agreements in either AI, HPC, and/or digital assets mining to diversify its exposure across customers and/or markets; |
| ● | Engaging in discussions with capital providers, relating to equity and/or debt; |
| ● | Considering equity issuances such as capital raises and at-the-market (“ATM”) transactions; |
| ● | Assessing and evaluating corporate and strategic transactions; |
| ● | Assessing and evaluating commercial opportunities or other business opportunities under consideration; |
| ● | Conducting assessments to identify and implement operational improvements and/or efficiencies and other actions aimed at enhancing revenue and/or optimizing expenses; and |
| ● | Evaluating, assessing and pursuing business revenue and margin expansion opportunities. |
On December 13, 2024, the Company entered into a Sales Agreement (the
“Sales Agreement”) with Roth Capital Partners, LLC (the “Lead Agent”) and A.G.P./Alliance Global Partners (collectively
with the Lead Agent, the “Agents” and individually an “Agent”), to sell shares of our common stock, $
Although the Company may have access to capital, debt, and/or other sources of funding, these may require additional time and cost, may impose operational restrictions and other covenants on the Company, may not be available on attractive terms, and may not be available at all. If the Company raises additional capital or debt, this could cause additional dilution to the Company’s 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. 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 unaudited consolidated condensed financial statements.
The Company obtains advice from outside resources; however, it is important to note that strategic and other initiatives may not lead to any transaction or other outcome.
These unaudited consolidated condensed 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. As of March 31, 2025, the Company no longer holds non-controlling interests.
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 unaudited consolidated condensed 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
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) identify 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).
Digital colocation revenue
The Company offers other businesses and customers the opportunity to colocate their specialized computers used in mining digital assets and other equipment within our facilities. The Company generates revenue from these customers for their use of our digital colocation services and facilities. This offering is known as “colocation” and can be customized and tailored for each customer’s situation and their and the Company’s strategy. For example, customers may agree to be charged upfront digital infrastructure fees, minimum fees, and maintenance fees. The Company charges colocation fees for the use of its facilities, and other related fees. In addition, digital colocation customers typically pay for energy used in connection with the customer colocation services agreement on a pass-through basis, which may be on a fixed or variable basis calculated on the portion of energy used by the customer on the site. The Company satisfies the performance obligation when the customer has the ability to direct the use and obtain substantially all of the remaining benefits of the good or service. Revenue is recognized over time as customers simultaneously receive and consume the benefits because another party would not need to substantially reperform the work completed by the Company were that other party to fulfill the remaining performance obligation to the customer. Revenue is recognized upon confirmation of the Company’s power usage by the electricity provider and billed at the rates outlined in each customer contract on a monthly basis.
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.
10
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Revenue recognition (Cont.)
Energy management revenue
The Company has developed several energy management program capabilities and has an energy management business to generate revenue when the Company adapts its power usage to the real-time needs of the power grid. Energy management revenue consists of revenue for curtailing power, and through a power pricing arrangement.
Revenue for curtailing power is recognized over the period that the services are being provided. The Company estimates the amount of curtailable power and the expected payment for that curtailment and recognizes revenue based on the proportion of the service that has been provided. In this arrangement, the Company is considered the principal and revenue is recognized on a gross basis.
Revenue through the Company’s power pricing arrangement is recognized over the period that the services are being provided. The Company estimates the amount of energy available for sale and the expected payment for that energy, and recognizes revenue based on the proportion of the service that has been provided. In this arrangement, the Company is considered the principal and revenue is recognized on a gross basis.
Digital assets mining revenue
The Company has a contract with mining pools and has undertaken the performance obligation of providing computing power in exchange for non-cash consideration in the form of digital assets. The provision of computing power is the only performance obligation in the Company’s contract with its pool operators. Where the consideration received is variable (for example, due to payment only being made upon successful mining), it is recognized when it is highly probable that the variability is resolved, which is generally when the digital asset is received.
The Company measures the non-cash consideration received at the fair market value of the digital asset received. Management estimates fair value on a daily basis, as the quantity of digital assets received multiplied by the price quoted on the exchange that the Company uses to dispose of digital assets.
Equipment sales
The Company has earned revenues from the sale of equipment and/or infrastructure (collectively, “Hardware”). Revenue from the sale of Hardware is recognized upon transfer of control of the Hardware to the customer. At the date of sale, the net book value is expensed in cost of revenues.
11
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Property, plant and equipment
Property, plant and equipment (“PP&E”) are stated at cost, net of accumulated depreciation. All other repair and maintenance costs are charged to operating expenses as incurred. The present value of the expected cost for the decommissioning of an asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met. PP&E transferred from customers is initially measured at the fair value at the date on which control is obtained.
PP&E are depreciated on a straight-line or
declining balance basis based on the asset classification, over their useful lives to the economic entity commencing from the time the
assets arrive at their destination where they are ready for use. Low-cost assets are capitalized and immediately depreciated.
| Asset class | Useful life | Depreciation Method | ||
| Fixtures | ||||
| Plant and equipment | ||||
| Modular data center | ||||
| Motor vehicles | ||||
| Computer equipment | ||||
| Computational and Processing machinery (Miners) | ||||
| Transformers | ||||
| Leasehold improvements |
PP&E are derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is included in the consolidated statement of operations.
The residual values, useful lives and methods of depreciation of PP&E are reviewed at each financial year end and adjusted prospectively, if appropriate.
The Company’s long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. 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
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Fair value of financial instruments:
The Company accounts for financial instruments under ASC 820, Fair Value Measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in a principal or most advantageous market. 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 valuations whose significant inputs and significant value drivers are observable in active markets; 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, 2025 | ||||||||||||||||
| Total | Total Level 1 | Total Level 2 | Total Level 3 | |||||||||||||
| Derivative asset | $ | $ | $ | $ | ||||||||||||
| Fair value measured as of December 31, 2024 | ||||||||||||||||
| Total | Total Level 1 | Total Level 2 | Total Level 3 | |||||||||||||
| Derivative asset | $ | $ | $ | $ | ||||||||||||
13
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Level 3 Assets:
In June 2022, the Company entered into a power supply agreement (“PSA”) with Energy Harbor LLC (“Energy”), 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 December 2026. There were five amendments to PSA entered into in November 2023, December 2023, January 2024, April 2024 and May 2024. All the amendments were to purchase additional electricity at a fixed price for the months of December 2023, January 2024, February 2024, April 2024, May 2024 and June 2024. If the Midland, Pennsylvania facility uses more electricity than contracted, the cost of the excess is incurred at a new price quoted by Energy.
While the Company participates in energy management programs at its Midland, Pennsylvania facility, the Company does not consider such actions as trading activities. That is, the Company does not engage in speculation in the power market as part of its ordinary activities. Because the sale of any electricity under a curtailment program allows for net settlement, the Company has determined the PSA 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 PSA. Accordingly, the PSA (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 PSA was classified as a derivative asset beginning
in the quarter ended September 30, 2022, and measured at fair value on the date of the PSA, 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 PSA, 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
Segment Reporting
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”), or decision–making group in deciding how to allocate resources and in assessing performance.
The Company operates as
14
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)
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 adopted ASU 2023-08 on January 1, 2025.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The new FASB guidance requires incremental disclosures in annual and interim periods related to a public entity’s reportable segments (particularly on segment expenses) but does not change the definition of a segment, the method for determining segments, or the criteria for aggregating operating segments into reportable segments. The new guidance is effective for annual financial statements of public entities for fiscal years beginning after December 15, 2023 (e.g., in 2024 year-end financial statements for calendar year entities) and in interim periods in fiscal years beginning after December 15, 2024 (e.g., in 2025 interim financial statements for calendar year entities) and should be adopted retrospectively unless impracticable. The Company adopted ASU 2023-07 in 2024.
15
NOTE 3 – AUSTRALIAN SUBSIDIARIES DECONSOLIDATION
The Company currently operates facilities in the United States of America and does not have operating sites in Australia.
MIG No.1
Liquidation and Deconsolidation of an Australian entity MIG No. 1
On March 19, 2024, the Company’s subsidiary
MIG No.1, an Australian entity, 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 court appointed liquidation, the Company ceded authority for managing this Australian
entity to the Australian liquidator, and the Company could not carry on MIG No.1’s activities in the ordinary course of business.
For these reasons, it was concluded that the Company had ceded control of MIG No.1, and no longer had significant influence over this
Australian entity since the liquidator was in control of this Australian entity. Therefore, MIG No.1 loss of control was effective when
it was placed into Australian court appointed liquidation on March 19, 2024, and was deconsolidated at this date, in accordance with ASC
810-10-15. In order to deconsolidate this Australian entity, MIG No.1, the carrying values of the assets, liabilities and equity components
previously recognized in accumulated other comprehensive income of MIG No.1 were removed from the Company’s consolidated balance
sheet as of March 19, 2024, in accordance with ASC 810, Consolidation. The net impact of removing the assets and liabilities resulted
in a loss on deconsolidation of $
Investment in MIG No.1
The investment in 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. At the time of the deconsolidation, the fair value of MIG No.1 was estimated to be $
Australian entity MIG No.1 Secured Loan Facility Agreement
MIG No. 1 is party to a Secured Loan Facility
Agreement (the “Marshall Loan”) with Marshall. Investments GCP Pty Ltd ATF for the Marshall Investments MIG Trust (collectively,
“Marshall”). The Marshall 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. Diluted loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding plus the dilutive effect of unvested restricted stock units (“RSUs”), and outstanding warrants and options. The computation of diluted net loss per share does not include dilutive common stock equivalents in the weighted average shares outstanding, as they would be anti-dilutive.
Securities that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share as of March 31, 2025 and 2024, are as follows:
| As of March 31, | ||||||||
| 2025 | 2024 | |||||||
| Warrants to purchase Common Stock | ||||||||
| Options to purchase Common Stock | ||||||||
| RSUs issued under a management equity plan | ||||||||
16
NOTE 5 – LEASES
The Company’s operating leases are for digital asset mining sites and its finance leases are primarily for related plant and equipment.
On February 2, 2024, the Company’s lease for a non-operating property in Sharon, Pennsylvania was terminated, and the Company exited the facility, which was a non-operating site for the Company.
The Company’s lease costs recognized in the consolidated condensed statements of operations consist of the following:
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Operating lease charges (1) | $ | $ | ||||||
| Finance lease charges: | ||||||||
| Amortization of right-of-use assets | ||||||||
| Interest on lease obligations | ||||||||
| (1) |
The following is a schedule of the Company’s lease liabilities by contractual maturity as of March 31, 2025:
| Operating leases | Finance leases | |||||||
| 2025 | $ | $ | ||||||
| 2026 | ||||||||
| 2027 | ||||||||
| Total undiscounted lease obligations | ||||||||
| Less: imputed interest | ( | ) | ( | ) | ||||
| Total present value of lease liabilities | ||||||||
| Less: current portion of lease liabilities | ||||||||
| Non-current lease liabilities | $ | $ | ||||||
Other lease information as of and for the period ended March 31, 2025:
| Operating leases | Finance leases | |||||||
| Operating cash out flows from leases | $ | $ | ||||||
| Weighted-average remaining lease term (years) | ||||||||
| Weighted-average discount rate (%) | % | % | ||||||
17
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net, consisted of the following:
| March 31, 2025 | December 31, 2024 | |||||||
| Plant and equipment | $ | $ | ||||||
| Computer equipment | ||||||||
| Processing machines (Miners) | ||||||||
| Modular data center | ||||||||
| Motor Vehicles | ||||||||
| Transformers | ||||||||
| Low-cost assets | ||||||||
| Leasehold improvements | ||||||||
| Total | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property, plant 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, 2025.
The Company recorded income tax (benefit) expense
of approximately (
| For the three months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Effective income tax rate | ( | )% | % | |||||
As of March 31, 2025, the Company had no unrecognized tax benefits and does not anticipate any significant change to the unrecognized tax benefit balance.
18
NOTE 8 – LOANS
Marshall Loan
The Company is included as a guarantor of the
Marshall Loan. The loan matured in February 2024 and bears interest at a rate of
W Capital Loan
The Company is included as a guarantor of a Secured
Loan Facility Agreement (the “W Capital Loan”) for working capital by Mawson PL with W Capital Advisors Pty Ltd for the W
Capital Advisors Fund (collectively, “W Capital”). As of March 31, 2025, AUD $
Celsius Promissory Note
On February 23, 2022, Luna Squares entered into
a Digital Colocation Agreement (the “Digital Colocation Agreement”) with Celsius Mining LLC. In connection with this agreement,
Celsius Mining LLC loaned Luna Squares a principal amount of $
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 – COMMITMENTS AND CONTINGENCIES
The Company accounts for its contingent liabilities in accordance with ASC 450 Contingencies. A provision is recorded when it is both probable that a liability has been incurred, and the amount of the loss can be reasonably estimated. With respect to legal matters, provisions are reviewed and adjusted to reflect the impact of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. Legal costs incurred in connection with loss contingencies are expensed as incurred.
The Company is subject to the various legal proceedings and claims discussed below (and in Note 1) that have not been fully resolved and that have arisen in the ordinary course of business. In the opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss, or a material loss in excess of a recorded accrual, with respect to loss contingencies. However, the outcome of legal proceedings and claims brought against the Company is subject to significant uncertainty. Therefore, although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be materially adversely affected.
Marshall Loan and W Capital Loan
The Marshall Loan was entered into with an Australian entity MIG No.1, which was placed into a court appointed liquidation and wind-up process and was deconsolidated from the Group on March 19, 2024. On March 19, 2024, Marshall appointed receivers and managers in Australia under the terms of their security relating to their secured loan facility. The direct assets that secure this loan include 5,372 miners and 8 MDCs. These assets are held by MIG No.1 and therefore were included in the deconsolidation. The receiver’s statutory duty includes the obligation to sell the secured assets at market value or, if market value is not known, at the best price reasonably obtainable to maximize the prospects of there being sufficient proceeds available to satisfy the balance of the outstanding secured debt. It is therefore expected that this loan balance will be offset in the future by the amount received from the sale of these miners and MDCs. On June 25, 2024, Marshall inspected and inventoried the miners and MDCs located at the Company’s Midland facilities. The Company had asked Marshall to take these assets out of the Company’s facilities. Marshall has not responded to the Company’s request for these miners and MDCs to be removed from the Company’s facilities. The Company is reserving all its rights and remedies against Marshall.
The W Capital Loan was originally with Mawson PL and this Australian entity was placed into Australian voluntary administration on October 30, 2023 and on November 3, 2023, W Capital appointed receivers and managers in Australia under the terms of their security relating to their working capital facility. The Company has corresponded with W Capital and/or its representatives, the Company’s ongoing significant concerns about W Capital and James Manning, a former board director and Chief Executive Officer of the Company (“Manning”), being related parties. W Capital has not responded to the Company’s concerns in a manner satisfactory to the Company.
On October 3, 2024, a proceeding was filed by W Capital and Marshall against the Company before the Federal Court of Australia, New South Wales (the “Australian Court”), 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., No. NSD 1395/2024. In an effort to force the Company to pay the W Capital Loan and the Marshall Loan, W Capital and Marshall sought to have the Company declared insolvent under Australian law on the grounds that the Company failed to pay W Capital the sums it claims the Company owed it under the aforesaid Australian judgment. On February 11, 2025, the Australian Court declared that Mawson be “wound up” under Australian law. However, Mawson has no assets, revenue or other business in Australia subject to Australian jurisdiction. It is unclear as to any adverse effect this ruling has on Mawson in the US. This Australian ruling completely disregarded the automatic stay in place as established by the involuntary Chapter 11 petition. The Company has communicated its objections and concerns to these Australian liquidator and entities.
Concurrently with the above Australian litigation,
on December 4, 2024, Marshall, W Capital, and Rayra Pty Ltd, as Trustee for the Mountainview Trust (“Rayra” and together with
Marshall and W Capital, collectively, the “Petitioners”), all Australian entities, concurrently filed an involuntary petition
(the “Involuntary Petition”) in the matter entitled In Re Mawson Infrastructure Group, Alleged Debtor, Case No. 1:24-bk-12726,
under chapter 11 (“Chapter 11”) of title 11, 11 U.S.C. § 101 through 1330 (the “Bankruptcy Code”), seeking
a determination of the court to force the Company into a Chapter 11 proceeding. The Petitioners have claimed in the Involuntary Petition
that they have debts aggregating AUD$
20
NOTE 9 – COMMITMENTS AND CONTINGENCIES (Cont.)
The matter continues in discovery phase. Both parties have filed pretrial motions seeking various remedies including dismissal prior to trial, sanctions and attorney fees, which are pending. A motion to compel discovery was filed by Mawson and was heard on May 9, 2025. On May 9, 2025, the Court granted Mawson’s motions for discovery from the Petitioners and paved pathway for discovery of Manning—including from Australia if needed. The Court further directed the parties to mediate and agreed to reach out to a sitting judge to act as mediator. Celsius made an appearance on its motions for sanctions and requested to be part of the mediation as well, which the Court allowed. The Court denied Celsius’ previously filed motion for sanctions. The trial date has been continued indefinitely to allow for the completion of discovery and the opportunity for the parties to mediate.
As previously noted, the Company believes that W Capital and Marshall are using these proceedings in Australia and the United States as a bad faith attempt to gain leverage in ongoing legal disputes between the parties.
The Company believes that W Capital and Marshall were using the Involuntary Petition and the Australian insolvency proceedings against the Company in an improper attempt to gain leverage in ongoing legal disputes between the parties. The Company believes that the filing of the Involuntary Petition is an extension of the ongoing disputes, including with Manning, and a continuation of the pattern of bad faith actions, by Manning and the Petitioners, with the improper intention of harassing and intimidating the Company.
The Company’s counsel plans to propound discovery requests to the Petitioners, including the depositions of the Petitioners’ principals. In addition, Manning, who the Company believes has close ties to these Australian creditors, remains the subject of an investigation by the Audit Committee of the Company’s Board of Directors, including related to his dealings with W Capital, current litigation with an entity related to Manning, Vertua Property Inc. (“Vertua”), alleged self-dealing, breach of contract, and tortious interference with a business relationship.
The Company had previously reported that it may seek to exit certain or all of its entities and holdings in Australia. The Company currently operates facilities in the United States of America and does not have any operating sites or assets in Australia.
The Company expects to vigorously pursue sanctions, attorney fees, general and punitive damages against these Australian Petitioners, as available to the full extent of the law.
The Company expects to continue to operate as usual and execute its business plan accordingly.
Celsius Promissory Note and Digital Colocation Agreement
Luna Squares has not repaid the Celsius Promissory Note as required on its stated maturity date and is claimed by Celsius Mining LLC and Celsius Network Ltd (collectively, “Celsius”) to be in default. Celsius Mining LLC transferred the benefit of the Celsius Promissory Note to Celsius Network Ltd. and Celsius Network Ltd has notified Luna Squares that the default interest is payable. On November 23, 2023, Celsius filed an adversary proceeding against Mawson and its subsidiaries Luna Squares and Cosmos, asserting various claims related to the alleged breach of a Digital Colocation Agreement.
Celsius filed for Chapter 11 bankruptcy
protection on July 13, 2022. Under the Digital Colocation Agreement, Celsius Mining LLC advanced $
On July 18, 2024, Celsius Network, LLC filed for
arbitration of its claims against the Company with the American Arbitration Association in the matter entitled Celsius Network Ltd., Celsius
Mining LLC and Ionic Digital Mining LLC v. Mawson Infrastructure Group, Luna Squares LLC and Cosmos Infrastructure LLC - Case 01-24-0006-4462.
An arbitrator was appointed on September 30, 2024 and the parties submitted their respective positions on October 25, 2024 regarding the
scheduling of the arbitration. The matter is temporarily stayed as to Mawson pending determination of automatic stay in favor of the Company
as a result of the Involuntary Petition. However, the stay does not apply to Luna Squares or Cosmos. On January 23, 2025, the arbitrator
issued a Partial Final Award (the “Partial Final Award”) granting in part Celsius’ claim against Luna Squares on the
outstanding promissory note executed by Luna Squares in favor of Celsius. The Partial Final Award granted Celsius monetary damages in
the amount of $
21
NOTE 9 – COMMITMENTS AND CONTINGENCIES (Cont.)
The Company and/or its applicable subsidiaries have not fulfilled specific payment obligations related to the Marshall Loan, the W Capital Loan and the Celsius 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 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.
Blockware
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. The parties have unsuccessfully concluded the court’s Mediation Program and the matter remains ongoing before the court.
CleanSpark
On July 16, 2024, the Company filed a civil lawsuit
for its claims against CleanSpark, Inc (CleanSpark”) and CSRE Properties Sandersville, LLC with the United States District Court
for the Southern District of New York in the matter entitled “Mawson Infrastructure Group, Inc. and Luna Squares, LLC v. CleanSpark,
Inc. and CSRE Properties Sandersville, LLC”, Civil Action No. 1:24-cv-5379, for at least $
Vertua
On March 16, 2022, Luna Squares entered into a
lease with respect to a property in the City of Sharon, Mercer County, Pennsylvania (the “Sharon Lease”) with Vertua Property,
a subsidiary entity in which Vertua Ltd has a
On September 6, 2024, Luna Squares filed a praecipe of lis pendens for the property leased in Sharon, Pennsylvania in the Court of Common Pleas of Mercer County, Pennsylvania in the matter entitled Luna Squares Property, LLC v. Vertua Property, Inc. Case No 2024-2332. It did so to also provide third parties such as Bitfarms Ltd. notice that the property is encumbered by a lease between Luna Property and Vertua. This property is the subject of a current civil lawsuit between the Company and Luna Property against Vertua. On October 17, 2024, the Company filed several claims in the matter captioned above against Vertua, including claims for breach of the lease agreement and wrongful termination of the lease, as well as for tortious interference with a business relationship. The Company is seeking reinstatement of the lease, compensatory damages, disgorgement of revenue, and exemplary and punitive damages, as well as reimbursement for its costs and litigation expenses. Vertua is a company related to Manning and also affiliated with Darron Wolter of W Capital. The matter has since been removed to federal court and is pending before the United States Bankruptcy Court for the Western District of Pennsylvania, under adversary proceeding number 25-01003-JCM. The matter remains ongoing.
Consensus Colocation Agreement
On October 12, 2023, the Company entered into a Service Framework Agreement with a wholly owned subsidiary of Consensus Technology Group, Consensus Colocation PA LLC, for co-location services for approximately 15,876 Bitmain Antminer S19 XP miners or approximately 50 MW at Mawson’s Midland, Pennsylvania facilities (the “Service Framework Agreement”). On March 6, 2025, a complaint was filed by Consensus Colocation PA LLC and Stone Ridge Ventures II LLC (collectively, “CTG”) with Court of Chancery of the State of Delaware, under C.A. No. 2025-0252-MTZ seeking (i) a temporary restraining order (“TRO”) to terminate Mawson’s redirection of CTG’s miners following a fee dispute and (ii) authority to remove its miners from Mawson’s facility prior to the termination of the Service Framework Agreement. The matter went to hearing on the TRO on March 13, 2025 and by joint stipulation the parties agreed to terminate the redirection of the miners but that the Service Framework Agreement remained active, and the miners could not be removed before March 20, 2025. All servers were removed by April 15, 2025 and by agreement, the TRO was dismissed. The parties reserved all other rights.
On April 25, 2025, CTG filed an arbitration demand with the American Arbitration Association for damages stemming from Mawson’s redirection of its miners following the parties’ contractual dispute Mawson has retained legal counsel, categorically denies the allegations of the demand, and intends to pursue its claims and counterclaims against CTG, including but not limited to the Company’s Right of First Refusal (ROFR) related damages claims against CTG. No further filings or hearings have been made or set at this time. The matter remains ongoing.
22
NOTE 10 – STOCKHOLDERS’ EQUITY
Common Stock
During the quarter ended March 31, 2025, there were no issuances of Common Stock.
Common Stock Warrants
The Company’s outstanding stock warrants
have not changed during the three months ended March 31, 2025. The outstanding stock warrants as of March 31, 2025 are
Stock-Based Compensation:
Equity plans
At the Company’s annual meeting on May
17, 2023, the stockholders approved an amendment to the Company’s 2021 Equity Incentive Plan (the “2021 Equity
Plan”) that, amongst other things, increased the number of shares available under the 2021 Equity Plan to
As of March 31, 2025, the number of shares allocated
and available under the 2024 Plan were
The Company recognized stock-based compensation expense during the three months ended March 31, 2025 and 2024, as follows:
| Three months ended March, | ||||||||
| 2025 | 2024 | |||||||
| Performance-based restricted stock awards | $ | $ | ||||||
| Service-based restricted stock awards | ||||||||
| 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 following table presents a summary of the Company’s performance-based restricted stock awards activity:
| Number of shares | Weighted Average Remaining Contractual Life (in years) | |||||||
| Outstanding as of December 31, 2024 | ||||||||
| Exercised | ||||||||
| Expired/forfeited | ||||||||
| Outstanding as of March 31, 2025 | ||||||||
| Exercisable as of March 31, 2025 | ||||||||
23
NOTE 10 – STOCKHOLDERS’ EQUITY (Cont.)
Service-based restricted stock awards
Service-based awards generally vest over a one-year service period or as otherwise defined.
The following table presents a summary of the Company’s service-based awards activity:
| Number of shares | Weighted Average Remaining Contractual Life (in years) | |||||||
| Outstanding as of December 31, 2024 | ||||||||
| Issued | ||||||||
| Forfeited/cancelled | ( | ) | ||||||
| Outstanding as of March 31, 2025 | ||||||||
| Exercisable as of March 31, 2025 | ||||||||
As of March 31, 2025, there was approximately
$
Stock options awards
Stock options awards vest upon the successful completion of specified market conditions.
The following table presents a summary of the Company’s Stock options awards activity:
| Number of shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding as of December 31, 2024 | $ | $ | ||||||||||||||
| Issued | - | |||||||||||||||
| Outstanding as of March 31, 2025 | $ | $ | ||||||||||||||
| Exercisable as of March 31, 2025 | $ | - | $ | |||||||||||||
24
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 unaudited consolidated condensed 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 the 2024 Form 10-K. All amounts are in U.S. dollars.
Throughout this report, unless otherwise designated, the terms “we,” “us,” “our,” the “Company,” and “Mawson,” refer to Mawson Infrastructure Group Inc., a Delaware corporation, Cosmos Trading Pty Ltd, Cosmos Infrastructure LLC, Cosmos Manager LLC, MIG No.1 Pty Ltd (on March 19, 2024, MIG No.1 Pty Ltd was placed into a court appointed liquidation and wind-up process), MIG No.1 LLC, Mawson AU Pty Limited (on April 23, 2024, Mawson AU Pty Ltd was placed into a court appointed liquidation and wind-up process), Mawson Services Pty Ltd (on April 29, 2024, Mawson Services Pty Ltd was placed into a court appointed liquidation and wind-up process), Mawson Bellefonte LLC, Luna Squares LLC, Luna Squares Repairs LLC, Luna Squares Property LLC, Mawson Midland LLC, Mawson Ohio LLC, Mawson Hosting LLC and Mawson Mining LLC.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements, about our expectations, beliefs or intentions regarding, among other things, our product development efforts, business, financial condition, results of operations, strategies or prospects. Forward-looking statements can be identified by the use of forward-looking words such as “believe”, “expect”, “intend”, “plan”, “may”, “should”, “could” or “anticipate” or their negatives or other variations of these words or other comparable words or by the fact that these statements do not relate strictly to historical or current matters. These forward-looking statements may be included in, but are not limited to, various filings made by us with the United States Securities and Exchange Commission (the “SEC”), press releases or oral statements made by or with the approval of one of our authorized executive officers. Forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements, including, but not limited to, the factors summarized below.
This report and the 2024 Form 10-K identify important factors which could cause our actual results to differ materially from those indicated by the forward-looking statements, including those set forth under Item 1A. “Risk Factors” below.
25
The risk factors included in this Quarterly Report on Form 10-Q and on the 2024 Form 10-K 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 technologies and digital infrastructure; |
| - | access to reliable and reasonably priced electricity sources; |
| - | operational, maintenance, repair, safety, and construction risks; |
| - | the failure or breakdown of mining equipment, or internet connection failure; |
| - | our reliance on key management personnel and employees; | |
| - | our ability to attract or retain the talent needed to sustain or grow the business; |
| - | our ability to develop and execute on our business strategy and plans; |
| - | counterparty risks related to our customers, agreements and/or contracts; |
| - | adverse actions by creditors, debt providers, or other parties; |
| - | continued evolution and uncertainty related to growth in blockchain and Bitcoin and other digital assets’ usage; |
| - | high volatility in Bitcoin and other digital assets’ prices and in value attributable to our business; |
| - | our need to, and difficulty in, raising additional debt or equity capital and the availability of financing opportunities; |
| - | failure to maintain required compliance to remain eligible for the most cost-effective forms of raising additional equity capital; |
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| - | the evolution of AI and HPC market and changing technologies; |
| - | the slower than expected growth in demand for AI, HPC and other accelerated computing technologies than expected; |
| - | the ability to timely implement and execute on AI and HPC digital infrastructure contracts or deployment; |
| - | the ability to timely complete the digital infrastructure build-out in order to achieve its revenue expectations for the periods mentioned; |
| - | downturns in the digital assets industry; |
| - | counterparty risks and risks of delayed or delinquent payments from customers and others; |
| - | inflation, economic or political environment; |
| - | cyber-security threats; |
| - | our ability to obtain proper insurance; |
| - | banks and other financial institutions ceasing to provide services to our industry; |
| - | changes to the Bitcoin and/or other networks’ protocols and software; |
| - | the decrease in the incentive or increased network difficulty to mine Bitcoin; |
| - | the increase of transaction fees related to digital assets: |
| - | the fraud or security failures of large digital asset exchanges; |
| - | the regulation and taxation of digital assets like Bitcoin; |
| - | our ability to timely and effectively implement controls and procedures required by Section 404 of the Sarbanes-Oxley Act of 2002; and |
| - | material litigation, investigations, or enforcement actions, including by regulators and governmental authorities. |
Factors that could cause our actual results to differ materially from those expressed or implied in such forward-looking statements include, but are not limited to, the risk factors set out in Item 1A. Risk Factors and in our 2024 Form 10-K.
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All forward-looking statements attributable to us or persons acting on our behalf speak only as of the date of this report and are expressly qualified in their entirety by the cautionary statements included in this report. We undertake no obligation to update or revise forward-looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. In evaluating forward-looking statements, you should consider these risks and uncertainties.
Company Overview
We are a technology company focused on digital infrastructure platforms.
The Company develops and operates digital infrastructure platforms for enterprise customers and for its own purposes. The Company’s digital infrastructure platforms can be used to operate computing resources for a number of applications, and are offered across artificial intelligence (“AI”), high-performance computing (“HPC”), digital assets, and other computing applications. The Company also has an energy management business, which utilizes software and analysis, to generate revenue when the Company participates in energy management programs related to the real-time needs of the power grid.
The Company has a strategy to prioritize the usage of carbon-free energy sources, including nuclear energy, to power its digital infrastructure platforms and computational machines.
The Company manages and operates digital infrastructure platforms and data centers delivering a total current capacity of approximately 129 megawatts (“MW”) with its current operational sites with an additional 24 MW of future capacity that is under development, all strategically located in locations served by the PJM Energy Market in the United States. The PJM Energy Market is the largest wholesale power market in North America.
Recent Developments
On March 21, 2025, Mawson Hosting LLC (the “Host”), a subsidiary of the Company, and Cantaloupe Digital LLC (the “Client”), a subsidiary of Canaan Inc., a NASDAQ-listed publicly traded company, entered into a Master Colocation Agreement (the “Canaan Agreement”). The Canaan Agreement has an initial term of three years, and the parties can extend upon mutual agreement. Under the terms of the Agreement, the Host will provide the Client approximately 64 MW of colocation capacity at the Company’s facilities. The Host will also provide the Client with digital colocation services pursuant to the Canaan Agreement.
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Results of Operations – Three months Ended March 31, 2025 compared to the three months ended March 31, 2024
| For the three months ended | ||||||||
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenues: | ||||||||
| Digital colocation revenue | $ | 10,428,873 | $ | 8,234,041 | ||||
| Energy management revenue | 3,064,875 | 2,472,505 | ||||||
| Digital assets mining revenue | 320,625 | 7,514,763 | ||||||
| Equipment sales | - | 550,000 | ||||||
| Total revenues | 13,814,373 | 18,771,309 | ||||||
| Less: Cost of revenues (excluding depreciation) | 7,890,443 | 11,786,168 | ||||||
| Gross profit | 5,923,930 | 6,985,141 | ||||||
| Operating expenses: | ||||||||
| Selling, general and administrative | 5,778,408 | 3,463,923 | ||||||
| Stock based compensation | 2,100,504 | 4,901,484 | ||||||
| Depreciation and amortization | 1,527,913 | 7,999,076 | ||||||
| Change in fair value of derivative asset | (4,059,573 | ) | (1,686,152 | ) | ||||
| Total operating expenses | 5,347,252 | 14,678,331 | ||||||
| Income / (Loss) from operations | 576,678 | (7,693,190 | ) | |||||
| Non-operating income (expense): | ||||||||
| Gain (loss) on foreign currency transactions | (87,338 | ) | 169,638 | |||||
| Interest expense | (784,865 | ) | (734,580 | ) | ||||
| Other income | 104,112 | 165,160 | ||||||
| Other expenses | (9,341 | ) | (9,792 | ) | ||||
| Loss on deconsolidation | - | (11,925,908 | ) | |||||
| Total non-operating expense, net | (777,432 | ) | (12,335,482 | ) | ||||
| Loss before income taxes | (200,754 | ) | (20,028,672 | ) | ||||
| Income tax benefit (expense) | (110,109 | ) | 59,387 | |||||
| Net Loss | (310,863 | ) | (19,969,285 | ) | ||||
| Less: Net loss attributable to non-controlling interests | - | (205,086 | ) | |||||
| Net Loss attributed to Mawson common stockholders | $ | (310,863 | ) | $ | (19,764,199 | ) | ||
| Net Loss per share, basic & diluted | $ | (0.02 | ) | $ | (1.19 | ) | ||
| Weighted average number of shares outstanding | 18,792,360 | 16,644,711 | ||||||
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Revenues
Digital Co-location revenues for three months ended March 31, 2025 and 2024, were $10.4 million and $8.2 million, respectively. This represented a 27% revenue increase or an increase of $2.2 million, compared to the same period in 2024. The increase in revenue was due to the Company enhancing its digital colocation capabilities, expanding its number of digital colocation customers, increasing the number of machines using our digital colocation infrastructure services, and growing its digital colocation business.
Energy management revenues for the three months ended March 31, 2025 and 2024, were $3.1 million and $2.5 million, respectively. This represented a 24% revenue increase or an increase of $0.6 million, compared to the same period in 2024. This increase is due to the Company’s enhanced energy management programs, which utilizes software and analysis, to generate revenue when the Company adapts its power usage to the real-time needs of the grid and enhanced participation in energy programs in the 2025 period than in the 2024 period.
Digital assets mining revenues from self-mining of bitcoin for the three months ended March 31, 2025 and 2024, were $0.3 million and $7.5 million, respectively, representing a decrease of $7.2 million. The decrease for the three months ended March 31, 2025 compared to the same period in 2024, was due to a number of factors, including the impact of the April 2024 halving industry event, and a higher global network difficulty rate, which led to lower bitcoin production from self-mining. In the three months ended March 31, 2025, compared to the same period in 2024, the Company also significantly expanded and grew its digital colocation services business across multiple customers reallocating some of its digital asset mining capacities.
Cost of revenue
Our cost of revenue consists primarily of direct power costs related to digital asset mining and co-location services and cost of mining equipment sold.
Cost of revenue for the three months ended March 31, 2025 and 2024, were $7.9 million and $11.8 million, respectively. The decrease in cost of revenue was primarily attributable to a decrease in power costs related to the energy used to operate the Company mining equipment and co-located mining equipment within our facilities.
Operating Expenses
Our operating expenses include: selling, general and administrative expenses; stock-based compensation; change in fair value of derivative asset; and depreciation and amortization.
Selling, general and administrative
Our selling, general and administrative expenses consist primarily of audit, legal, and other professional fees, employee compensation, director fees, equipment repairs, marketing, freight, insurance, consultant fees, lease amortization and general expenses.
Selling, general and administrative expenses for the three months ended March 31, 2025 and 2024 were $5.8 million and $3.5 million, respectively, which is an increase of $2.3 million from period to period, primarily due to increased legal and litigation related expenses, employee compensation and provision for doubtful accounts.
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Stock based compensation
Stock based compensation expenses for the three months ended March 31, 2025 and 2024 were $2.1 million and $4.9 million, respectively. The decrease was primarily due to a reduction in new issuances of long-term incentives for the Company’s directors, management, and employees in the quarter ended March 31, 2025.
Depreciation and amortization
Depreciation consists primarily of depreciation of digital asset mining hardware and MDC equipment.
Depreciation and amortization for the three months ended March 31, 2025 and 2024, were $1.5 million and $8.0 million, respectively. The lower depreciation and amortization expense is the result of an increased number of the Company’s digital asset mining hardware being fully depreciated in prior periods.
Change in fair value of derivative asset
During the three months ended March 31, 2025 and 2024, there was a gain on the fair value of the derivative asset of $4.1 million and $1.7 million, respectively, in relation to our power supply arrangements. The change in fair value between March 31, 2025 and 2024 is primarily due to an increase in the forward market prices between 2025 and 2024.
Non-operating income (expense)
Non-operating income (expense) consist primarily of interest expenses, loss on deconsolidation, gain (loss) on foreign currency transactions, and other income and expenses.
Interest expenses for the three months ended March 31, 2025 and 2024, were $0.8 million and $0.7 million, respectively. This increase of $0.05 million was attributable to the increase in interest rates during 2024 and 2025.
During the three months ended March 31, 2025, loss on foreign currency transactions was $0.09 million. During the three months ended March 31, 2024, gain on foreign currency transactions was $0.2 million. This difference was due mostly to the movement in foreign exchange rates.
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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 expenditures. For the three months ended March 31, 2025, we financed our operations primarily through cash flow provided by operating activities and other cash reserves.
On December 13, 2024, the Company entered into a Sales Agreement (the “Sales Agreement”) with Roth Capital Partners, LLC (the “Lead Agent”) and A.G.P./Alliance Global Partners (collectively with the Lead Agent, the “Agents” and individually an “Agent”), to sell shares of our Common Stock (the “Shares”), having an aggregate sales price of up to $12 million, from time to time, through an “at the market offering” program under which the Agents will act as sales agent. The sales, if any, of the Shares made under the Sales Agreement will be made by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 promulgated under the Securities Act.
We believe our near-term working capital requirements will continue to be funded through a combination of the cash we expect to generate from future operations, our existing funds, external debt facilities that may be available to us, future issuances of shares, and other potential sources of capital, monetization, or funds. We believe a combination of these opportunities are expected to be adequate to fund our long-term operations needed over the next twelve months. For our business growth, it is expected we may continue investing in expanding our infrastructure, expanding and/or upgrading our infrastructure and/or other equipment and will require additional working capital in the short-term and long-term. As of March 31, 2025, we had an aggregate of $21.8 million of debt, all of which is overdue for repayment unless we refinance, renegotiate the terms, or prevail in our disputes and/or related claims and/or counterclaims. In addition, the Celsius deposit of $15.3 million is the subject of an ongoing legal dispute in arbitration with Mawson and Celsius having claims and counterclaims. See Note 9 – Commitments and Contingencies, Celsius Promissory Note and Digital Colocation Agreement.
We will need to raise substantial additional capital to continue our operations, execute our business strategy and meet our debt service obligations. 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.
Working Capital and Cash Flows
As of March 31, 2025 and December 31, 2024, we had a cash and cash equivalent balance of $5.5 million and $6.1 million, respectively. As of March 31, 2025 and December 31, 2024, the trade receivables balance was $10.9 million and $15.2 million, respectively. As of March 31, 2025, we had $21.8 million of outstanding short-term loans, and as of December 31, 2024, we had $20.9 million of short-term loans. The short-term loans as of March 31, 2025, relate to the Celsius Promissory Note, W Capital Loan, Secured Convertible Promissory Notes and Marshall Loan (these loans are currently in default, refer to Material Cash Requirements section below for more information). As of March 31, 2025 and December 31, 2024, we had negative working capital of $36.7 million and $35.9 million, respectively.
The following table presents the major components of net cash flows (used in) provided by operating, investing and financing activities for the three months ended March 31, 2025 and 2024:
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Net cash (used in) provided by operating activities | $ | (510,385 | ) | $ | 1,875,647 | |||
| Net cash (used in) provided by investing activities | $ | (6,496 | ) | $ | 530,640 | |||
| Net cash used in financing activities | $ | (103,295 | ) | $ | (509,544 | ) | ||
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For the three months ended March 31, 2025, net cash used in operating activities was $0.5 million and for the three months ended March 31, 2024, net cash provided by operating activities was $1.9 million. We had a net loss of $0.3 million for the three months ended March 31, 2025, which included $4.1 million of gain on derivative asset, $2.1 million of stock based compensation, $1.5 million of depreciation and amortization expense, $1.0 million of provision for doubtful accounts and $0.8 million of non-cash interest expense. We had a net loss of $20.0 million for the three months ended March 31, 2024, which included $11.9 million of loss on deconsolidation, $8.0 million of depreciation and amortization expense, $4.0 million of stock based compensation expense, and $1.7 million of gain on derivative asset.
For the three months ended March 31, 2025, net cash used in investing activities was $0 and for the three months ended March 31, 2024, net cash provided by investing activities was $.5 million. The net cash provided by investing activities during the three months ended March 31, 2024, was primarily due to proceeds from sale of property, plant and equipment.
For the three months ended March 31, 2025 and 2024, net cash used in financing activities was $0.1 million and $0.5 million, respectively. The cash used in financing activities during the three months ended March 31, 2024, was primarily attributable to loan payments.
Material Cash Requirements
The following discussion summarizes our material cash requirements from contractual and other obligations. For more information on these matters, please see Note 9 – Commitments and Contingencies.
The Company is included as a guarantor of the Marshall Loan. 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 and a general security agreement given by the Company. Principal repayments began during November 2022. There has been no principal and interest payments made since May 2023. The outstanding balance including interest is $10.4 million as of March 31, 2025, all of which is currently classified as a current liability.
The Company is included as a guarantor of the W Capital Loan. As of March 31, 2025, the balance was AUD $2.2 million (USD $1.3 million) representing outstanding interest, all of which is currently classified as a current liability. The W Capital Loan accrues interest daily at a rate of 12% per annum (with an overdue rate provision of an additional 800bps). The W Capital Loan expired in March 2023.
On February 23, 2022, Luna Squares entered into the Digital Colocation Agreement with Celsius Mining LLC. In connection with this agreement, Celsius Mining LLC loaned Luna Squares a principal amount of $20.0 million, for the purpose of funding the infrastructure required to meet the obligations of the Digital Colocation Agreement, for which Luna Squares issued the Celsius Promissory Note for repayment of such amount. The Celsius Promissory Note accrues interest daily at a rate of 12% per annum (with an overdue rate provision of an additional 200bps). Luna Squares is required to amortize the loan at a rate of 15% per quarter, principal repayments began at the end of September 2022. The Celsius Promissory Note had a maturity date of August 23, 2023. The outstanding balance including interest is $9.9 million as of March 31, 2025, all of which is currently classified as a current liability.
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On July 8, 2022, the Company issued the Secured Convertible Promissory Notes in exchange for an aggregate of $3.6 million in cash. On September 29, 2022, the Company entered into a letter variation relating to some of the Secured Convertible Promissory Notes, with an aggregate principal amount of $3.1 million, which gave those holders the option to elect for pre-payment (including accrued interest to maturity) subject to certain conditions. All of the investors included in this letter variation elected for the pre-payment option and therefore there were $3.1 million principal repayments made during November 2022. The final convertible noteholder who was not a party to this variation opted to enter into an arrangement whereby it received pre-payment of interest but agreed that repayment of the principal was not required therefore the remaining $0.50 million had been classified as a current liability. The convertible note matured in July 2023. Interest has been accrued from July onwards and therefore the outstanding balance is $0.1 million as of March 31, 2025, all of which is classified as a current liability. During 2024 the principal amount outstanding of $0.50 million was repaid to the investor.
Financial condition
As of March 31, 2025, and December 31, 2024, we had net current liabilities of $56.9 million and $61.9 million, respectively. As of March 31, 2025, and December 31, 2024, we had negative net assets of $1.4 million and $3.2 million, respectively. As of March 31, 2025, we had an accumulated deficit of $229.1 million compared to $228.8 million as of December 31, 2024. Our cash position of March 31, 2025, was $5.5 million in comparison to $6.1 million as of December 31, 2024.
For the three-month period ended March 31, 2025 and 2024, the Company incurred a loss after tax of $0.3 million and $20.0 million, a decrease in financial loss of $19.7 million, respectively.
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 reports all financial information required in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The Company believes, however, that evaluating its ongoing operating results will be enhanced if it also discloses certain non-GAAP information. Adjusted EBITDA, which is a non-GAAP financial measure, is defined by the Company as net loss plus income tax, depreciation and amortization, further adjusted by stock based compensation, gain/loss on foreign currency, other non-operating income and expenses, change in fair value of derivative asset, provision for doubtful accounts, net of recoveries and loss on deconsolidation.
Adjusted EBITDA should not be considered an alternative to net income, operating income, net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted EBITDA may have material limitations as a performance measure because it excludes items that are necessary elements of our costs and operations. In addition, Adjusted EBITDA presented by other companies may not be comparable to our presentation, since each company may define these terms differently.
| For the three months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| (unaudited) | ||||||||
| Net loss: | $ | (310,863 | ) | $ | (19,969,285 | ) | ||
| Depreciation and amortization | 1,527,913 | 7,999,076 | ||||||
| Stock based compensation | 2,100,504 | 4,901,484 | ||||||
| (Gain) loss on foreign currency transactions | 87,338 | (169,638 | ) | |||||
| Other non-operating income | (104,112 | ) | (165,160 | ) | ||||
| Other non-operating expenses | 794,206 | 744,372 | ||||||
| Change in fair value of derivative asset | (4,059,573 | ) | (1,686,152 | ) | ||||
| Income tax | 110,109 | (59,387 | ) | |||||
| Provision for doubtful accounts, net of recoveries | 977,755 | - | ||||||
| Loss on deconsolidation | - | 11,925,908 | ||||||
| Adjusted EBITDA (non-GAAP) | $ | 1,123,277 | $ | 3,521,218 | ||||
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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 the 2024 Form 10-K.
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 Committee(s) thereof and our management team, including our Chief Executive Officer and President (principal executive officer) and Chief Financial Officer (principal financial officer), have 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, 2025, 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.
Segregation of Duties and Staff Turnover. 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 is 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, 2025, 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 material weaknesses 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
The Company and certain of its subsidiaries are currently in disputes, which may be in or may lead to litigation. The results of these matters cannot be predicted with certainty and an unfavorable resolution of one or more of these or other matters could have a material adverse effect on our business, results of operations, financial condition and/or cash flows. For information on these matters, refer to Note 9 - Commitments and Contingencies to the unaudited consolidated condensed financial statements included in Item 1. “Financial Statements” of this Quarterly Report. The disclosure set forth in Note 9 relating to such legal matters is incorporated herein by reference.
The Company and its subsidiaries from time to time in the future may be involved in certain litigation related to our businesses. For example, the Company and its subsidiaries receive letters of demand for payments or other correspondence from time to time which could lead to legal proceedings.
Item 1A. Risk Factors
The information in this Form 10-Q should be read in conjunction with the risk factors and information disclosed in the 2024 Form 10-K. Except as set forth below, there have been no material changes to the primary risks related to our business and securities as described in the 2024 Form 10-K under “Risk Factors” in Item 1A.
Risks Associated with the Chapter 11 Involuntary Petition Filed Against Us
Certain of our creditors have filed an Involuntary Petition seeking entry of an order for relief, which if entered over our expected opposition, would impose on us a Chapter 11 reorganization proceeding under the U. S. Bankruptcy Code. Such proceeding could lead to a reorganization or a liquidation which would raise substantial doubt about our ability to continue as a going concern.
On December 4, 2024, certain of our creditors filed an Involuntary Petition against us seeking an order for relief by the Delaware Bankruptcy Court placing us in Chapter 11 reorganization under the U.S. Bankruptcy Code. No such order for relief with regard to the Involuntary Petition has been entered by the Bankruptcy Court, and the Company intends to vigorously oppose any such relief. However, if such relief is eventually ordered, such an event could raise substantial doubt about our ability to continue as a going concern and could affect our assets, business, operations, earnings, properties, condition (financial and otherwise), prospects, stockholders’ equity and results of operations.
As with any judicial proceeding, there are risks with an involuntary Chapter 11 proceeding, including uncertainty, cost and unavoidable delay. Further, should the Delaware Bankruptcy Court enter an order for relief in connection with the Involuntary Petition, there would be additional associated risks operating under an involuntary Chapter 11 reorganization. Throughout the course of an involuntary Chapter 11 proceeding, the effects of an involuntary Chapter 11 proceeding, including increased legal and other professional costs, on the Company’s liquidity (including the availability of operating capital during the pendency of an involuntary Chapter 11 proceeding), results of operations or business prospects; the effects of an involuntary Chapter 11 proceeding on the interests of various constituents and financial stakeholders; the length of time that the Company could operate under Chapter 11 protection and the continued availability of operating capital during the pendency of an involuntary Chapter 11 proceeding; objections to the Company’s restructuring process, or other pleadings filed that could protract an involuntary Chapter 11 proceeding; risks associated with third-party motions in an involuntary Chapter 11 proceeding; Bankruptcy Court rulings in an involuntary Chapter 11 proceeding and the outcome of an involuntary Chapter 11 proceeding in general; the Company’s ability to comply with the restrictions imposed by the terms and conditions of a plan of reorganization; employee attrition and the Company’s ability to retain senior management and other key personnel due to the distractions and uncertainties; the Company’s ability to maintain relationships with suppliers, customers, employees and other third parties and regulatory authorities as a result of an involuntary Chapter 11 proceeding; the impact and timing of any cost-savings measures and related local law requirements in various jurisdictions; finalization of the Company’s annual and quarterly financial statements (including finalization of the Company’s impairment tests), completion of standard annual and quarterly-close processes; risks relating to the delisting of the Company’s common stock from Nasdaq and future quotation of the Company’s common stock; the effectiveness of the Company’s internal control over financial reporting and disclosure controls and procedures, and the potential for additional material weaknesses in the Company’s internal controls over financial reporting or other potential weaknesses, all pose added risks and uncertainties.
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These risks and uncertainties could affect our business and operations in various ways. For example, negative events or publicity associated with an involuntary Chapter 11 proceeding could adversely affect our relationships with our suppliers, customers and employees. In particular, critical vendors, suppliers, and/or customers may determine not to do business with us due to the involuntary Chapter 11 proceeding and we may not be successful in securing alternative sources of financing. Also, transactions outside the ordinary course of business are subject to the prior approval of the Bankruptcy Court, which may limit our ability to respond timely to certain events or take advantage of opportunities that might otherwise exist outside of Chapter 11. Additionally, uncertainty with respect to intercompany transactions may negatively impact our captive insurance companies’ ability to meet insurance regulatory requirements. There may be objections from certain stakeholders, including objections from the holders of unsecured claims as well as other risks associated with any business reorganizing under Chapter 11 to our business activities or any plan of reorganization developed as part of the Chapter 11 reorganization. Because of the risks and uncertainties associated with an involuntary Chapter 11, we cannot predict or quantify the ultimate impact that events occurring during the Chapter 11 process may have on our business, financial condition and results of operations, and there is no certainty as to our ability to successfully emerge from any such proceeding as a going concern.
A prolonged continuation of the Chapter 11 proceeding could impact the value of our assets and our business.
Furthermore, if an order for relief is entered (or ultimately consented to) and the Company is operating in Chapter 11, we could be required to incur substantial additional costs for professional fees and other expenses associated with the administration of the Chapter 11 proceedings.
Finally, we again note that notwithstanding the filing of the Involuntary Petition, we continue to operate in the ordinary course of business as authorized pursuant to 11 U.S.C. § 303(f), and no trustee, interim trustee or examiner has been appointed in connection with the pending Involuntary Petition. Pursuant to 11 U.S.C. § 303(g), at any time before the entry of an order for relief with respect to the Involuntary Petition, on request of the petitioning creditors or any other party in interest to the Delaware Bankruptcy Case, following notice to the debtor and a hearing, and if necessary to preserve the property of the debtor’s estate or to prevent loss to the debtor’s estate, the Delaware Bankruptcy Court may order the United States trustee to appoint an interim trustee to take possession of the property of the debtor’s estate and to operate the business of the debtor. The Company would have the right to oppose any such interim trustee request, and even if an interim trustee were to be appointed pending the determination on the Involuntary Petition, the debtor may regain possession of its assets or property by posting a sufficient bond as may be required by the Delaware Bankruptcy Court.
We are in the process of opposing the Involuntary Petition for Chapter 11 reorganization under the U.S. Bankruptcy Code, which may cause our common stock to decrease in value or may render our common stock worthless.
Since the Involuntary Petition under Chapter 11 of the Bankruptcy Code in the Delaware Bankruptcy Court was filed against us, the price of our common stock has been volatile and the common stock price may continue to decrease in value and/or become worthless. Accordingly, any trading in our common stock during the pendency of the determination of the Involuntary Petition is highly speculative and poses substantial risks to purchasers of our common stock. On February 6, 2025, the Company received the Bid Price Notice from the Staff of Nasdaq notifying the Company that for the last 30 consecutive business days prior to the date of the Bid Price Notice, the closing bid price of Company’s Common Stock was less than the $1.00 per share minimum bid price required for continued listing on Nasdaq, as required by the “Bid Price Rule. In the event the Company does not regain compliance with the Bid Price Rule prior to the expiration of the Bid Price Compliance Period and is not granted an additional 180-day compliance period, it will receive written notification that its securities are subject to delisting. Delisting our common stock may adversely impact our liquidity, impair our stockholders’ ability to buy and sell our common stock, impair our ability to raise capital, and the market price of our common stock could decrease.
Should the Delaware Bankruptcy Court enter an order for relief placing us in Chapter 11, recoveries for holders of common stock, if any, may depend upon our ability to negotiate and confirm a Chapter 11 plan of reorganization or liquidation, the terms of such plan, the value of our assets, the recovery of our business from any adverse effects of these proceedings or other adverse industry conditions, if any, which may arise. Although we cannot predict how our common stock will ultimately be treated if the Involuntary Petition is not dismissed by the Delaware Bankruptcy Court, we expect that common stockholders may not receive any recovery through a Chapter 11 plan (if any) unless the holders of more senior claims and interests, such as secured and unsecured indebtedness, are paid in full. Our stockholders’ equity could decrease as we use cash on hand to support our operations in bankruptcy. Consequently, should the Involuntary Petition not be dismissed, there is a significant risk that the holders of our common stock would receive no recovery and that our common stock could be worthless.
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As a result of the filing of an Involuntary Petition by petitioning creditors, we are subject to the risks and uncertainties associated with reorganization under an involuntary Chapter 11 and operating under Chapter 11 may restrict our ability to pursue strategic and operational initiatives.
If we are unsuccessful in dismissing the Involuntary Petition filed against us, for the duration of the Chapter 11, our operations and our ability to execute our business strategy could be subject to the risks and uncertainties associated with bankruptcy. These risks include:
| ● | our ability to obtain Bankruptcy Court approval with respect to motions filed in the Chapter 11 case from time to time; |
| ● | our ability to comply with and operate under the requirements and constraints of the Bankruptcy Code and under any cash management, cash collateral, adequate protection, or other orders entered by the Delaware Bankruptcy Court from time to time; |
| ● | our ability to engage in intercompany transactions and to fund operations from cash on hand or from financings and, in the event of such financings, our ability to comply with the terms of such financings; |
| ● | our ability to locate, obtain and close bankruptcy DIP financing; |
| ● | our ability to negotiate and consummate a Chapter 11 plan; |
| ● | our ability to develop, fund, and execute our business plan; and |
| ● | our ability to continue as a going concern. |
We may not be able to raise additional capital to meet our liquidity needs, which could have a material adverse impact on the Company.
Outside of revenue generated by our ongoing operations, the Company’s primary sources of capital to fund ongoing operations and other capital needs includes corporate financing as well as the sale of equity through such mechanisms as the “at the market offering” under this prospectus supplement. The ability to engage in these activities may be limited, if available at all, in light of the Involuntary Petition and related court process in connection therewith.
In the event that cash on hand, cash flow from operations are not sufficient to meet these liquidity needs, the Company may be required to seek additional financing or sale of equity or debt financing, and can provide no assurance that additional financing or equity sales or debt financing may be available or, if available, offered on acceptable terms.
Defense of and responding to the pending Involuntary Petition has consumed and may continue to consume a substantial portion of the time and attention of our management, which may have an adverse effect on our business and results of operations, and we may face increased levels of employee attrition.
While the determination as to whether the Involuntary Petition satisfies the requirements of the Bankruptcy Code for entry of an order for relief continues, our management may be required to spend a significant amount of time and effort focusing on this Involuntary Bankruptcy Case. This diversion of attention may materially adversely affect the conduct of our business, and, as a result, our financial condition and results of operations, particularly if our opposition to the entry of any order for relief with regard to the Involuntary Petition is protracted. During these proceedings (and any related Chapter 11 or Chapter 7 bankruptcy proceeding), our employees may face considerable distraction and uncertainty, and we may experience increased levels of employee attrition. A loss of key personnel or material erosion of employee morale could have a materially adverse effect on our ability to meet customer expectations, thereby adversely affecting our business and results of operations. The failure to retain or attract members of our management team and other key personnel could impair our ability to execute our strategy and implement operational initiatives, thereby having a material adverse effect on our financial condition and results of operations.
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If an order for relief is entered with regard to the Involuntary Petition and we are forced to operate in Chapter 11 and are unable to negotiate and confirm a Chapter 11 plan of reorganization, we could be required to liquidate under Chapter 7 (“Chapter 7”) of the Bankruptcy Code in which case our common stock could be worthless.
We are not yet ordered into Chapter 11 by the Bankruptcy Court in response to the Involuntary Petition, but if an order for relief is entered and we are so ordered, we may need or attempt to develop a plan of reorganization. If we are unable to negotiate a plan of reorganization that results in our remaining a going concern, upon a showing of cause, the Bankruptcy Court may dismiss or convert the Chapter 11 proceedings to proceedings under Chapter 7 of the Bankruptcy Code. In the event of conversion of the proceedings to Chapter 7, a Chapter 7 trustee could be appointed or elected to liquidate our assets for distribution to creditors in accordance with the priorities established by the Bankruptcy Code. Holders of our common stock would most likely lose their entire investment in a Chapter 7 bankruptcy, as most Chapter 7 bankruptcy proceedings render shares of a debtor’s common stock worthless.
If we are unsuccessful in dismissing the Involuntary Petition filed against us and we are ordered into an involuntary Chapter 11, we may be subject to claims that may not be discharged in the involuntary Chapter 11, which could have a material adverse effect on our financial condition and results of operations.
The Bankruptcy Code provides that the confirmation of a Chapter 11 plan of reorganization discharges a debtor from substantially all debts arising prior to confirmation. With few exceptions, all claims that arose prior to confirmation of the plan of reorganization (i) may be subject to compromise and/or treatment under the plan of reorganization and (ii) may be discharged in accordance with the Bankruptcy Code and the terms of the plan of reorganization. Any claims not ultimately discharged through a Chapter 11 plan of reorganization could be asserted against us and may have an adverse effect on our financial condition and results of operations on a post-reorganization basis.
Operating in bankruptcy for a long period of time may harm our business.
If we are unsuccessful in dismissing the Involuntary Petition filed against us and are ordered into an involuntary Chapter 11, we may be subject to a long period of operations in the Chapter 11 which may have a material adverse effect on our business, financial condition, results of operations, and liquidity. So long as the Chapter 11 continues, senior management may be required to spend a significant amount of time and effort dealing with the reorganization instead of focusing exclusively on business operations. A prolonged period of operating under Bankruptcy Court protection also may make it more difficult to retain management and other key personnel necessary to the success of our business. In addition, the longer the Chapter 11 continues, the more likely it is that customers and suppliers may lose confidence in our ability to reorganize our business successfully and may seek to establish alternative commercial relationships.
So long as the Chapter 11 case continues, we may be required to incur substantial costs for professional fees and other expenses associated with the administration of the Chapter 11, including potentially the cost of litigation. In general, litigation can be expensive and time consuming to bring or defend against. Such litigation may result in settlements or damages that may significantly affect our financial results. It is also possible that certain parties may commence litigation with respect to the treatment of their claims under a plan. It is not possible to predict the potential litigation that we may become a party to, nor the final resolution of such litigation. The impact of any such litigation on our business and financial stability, however, may be material.
Should the Chapter 11, assuming an order for relief is entered, be protracted, we may also need to seek new financing to fund operations. If we are unable to obtain such financing on favorable terms or at all, the chances of confirming a Chapter 11 plan may be seriously jeopardized and the likelihood that we may instead be required to liquidate our assets could increase.
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The price of our common stock has and may continue to fluctuate significantly, which could negatively affect us and holders of our common stock.
The market price of our common stock has and may continue to fluctuate significantly as a result of many factors, including the pending Involuntary Petition. Our results may also fluctuate due to factors such as the following:
| ● | investors’ perceptions of our equity value in light of the pending, unresolved Involuntary Petition; |
| ● | investors’ perceptions of us and/or the industry’s risk and return characteristics relative to other investment alternatives; |
| ● | investors’ perceptions of the prospects of the market in which we operate; |
| ● | differences between actual financial and operating results and those expected by investors and analysts; |
| ● | changes in analyst reports, recommendations or earnings estimates regarding us, other comparable companies or the industry generally, and our ability to meet those estimates; |
| ● | actual or anticipated fluctuations in quarterly financial and operating results; |
| ● | volatility in the equity securities market; |
| ● | sales, or anticipated sales, of large blocks of our common stock; and |
| ● | other factors described under “Cautionary Note Regarding Forward-Looking Statements” in this prospectus supplement. |
The Delaware Bankruptcy Court could enter an order imposing trading restrictions with respect to our common stock.
If the Delaware Bankruptcy Court enters an order for relief with regard to the Involuntary Petition, the debtor may seek entry of an order that, among other things, imposes trading restrictions on some or all of our holders of our common stock. Restrictions such as these are often entered in order to preserve the value of certain assets, including things like tax attributes, including net operating losses and carryforwards.
The filing of the Involuntary Petition may adversely impact our U.S. subsidiary businesses and affiliates, which may themselves become subject to Chapter 11 or other insolvency proceedings.
We have significant subsidiary businesses and affiliates. The filing of the Involuntary Petition and the possibility that, despite our anticipated objections to the entry of any order for relief, such petition leads to us being placed into Chapter 11, may result in negative consequences to our subsidiaries’ and affiliates’ business operations and possibly force them into the Chapter 11 proceedings or other insolvency proceedings.
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An impairment of our goodwill and other indefinite-lived intangible assets could have a material impact to our results of operations.
As a result of the stigma to our reputation and material effect on our business operations and vendor and customer relations, our goodwill and indefinite-lived intangible assets may become impaired leading to a loss of value to our stock price as well as a significant decline in revenues and cash flow.
The filing of the Involuntary Petition potentially places us in material breach of certain contracts and debt obligations of the Company.
The filing of the Involuntary Petition may constitute defaults, termination events and/or amortization events with respect to certain of the Company’s existing leases, contracts, and debt obligations.
The Company may need to seek waivers or other remedies under law related to the filing of the Involuntary Petition under its leases and contracts which may automatically deem such petition filed against the Company a default upon the filing of such bankruptcy petition, but it may not be successful in doing so. Such an inability to obtain waivers could cause such leases and contracts to terminate, imposing material and adverse effect on our operations, financial condition, business, and reputation.
The filing of the Involuntary Petition seeking relief under Chapter 11 of the U. S. Bankruptcy code could adversely affect our business and relationships.
It is possible that the filing of the Involuntary Petition or ultimately being placed in Chapter 11 could adversely affect our business and relationships with vendors, suppliers, service providers, customers, employees and other third parties. Due to uncertainties, many risks exist, including the following:
| ● | key suppliers could terminate their relationship or require financial assurances or enhanced performance; |
| ● | the ability to renew existing contracts and compete for new business may be adversely affected; |
| ● | the ability to attract, motivate and/or retain key executives and employees may be adversely affected; |
| ● | employees may be distracted from performance of their duties or more easily attracted to other employment opportunities; and |
| ● | competitors may take business away from us, and our ability to attract and retain customers may be negatively impacted. |
The occurrence of one or more of these events could have a material and adverse effect on our results of operations, financial condition, business and reputation. We cannot assure you that being the subject of an Involuntary Petition for relief may not adversely affect our future operations, financial condition, and business.
The filing of the Involuntary Petition for relief under Chapter 11 of the U. S. Bankruptcy code could materially and adversely affect our public stockholders.
Holders of our secured debt would have priority over unsecured creditors, and unsecured creditors would have priority over holders of our common stock, in the event of any bankruptcy, liquidation or any similar proceeding under the Bankruptcy Code.
If the Involuntary Petition filed against us is not dismissed, the claims of creditors in such a bankruptcy proceeding may have priority over the claims of our stockholders and the per-share amount that may otherwise be received by our stockholders in connection with bankruptcy, liquidation or any similar proceeding may be reduced or eliminated. For the avoidance of doubt, there is a risk that the holders of our common stock will receive no recovery under any Chapter 11 cases, and that our common stock will be worthless.
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Risk Factors Involving Winding Up Proceedings Under Australian Law
One of our Australian creditors has obtained an order to wind up the Company under Australian law before the Federal Court in New South Wales, Australia, which raises substantial doubt about our ability to continue as a going concern.
On or about October 3, 2024, certain of our Australian creditors filed an application for winding up order against us in the matter entitled “In re Mawson Infrastructure Group, Inc.” Action No. NSD1395/2024, in the Federal Court of new South Wales in Sydney, Australia, seeking a determination of insolvency and order of liquidation against us under Australian law before the Federal Court in New South Wales, Australia. The applicants who filed this Australian application are the same parties who filed the above referenced involuntary Chapter 11 proceedings against the Company for the same remedy and for the same alleged debts. We have responded to the application, opposing any such determination. We have not been ordered to wind up by the Australian Court as there must be a trial before such a determination, but regardless of our efforts, on February 11, 2025, the Australian Court issued an order to wind up the Company under Australian law because the Company no longer is carrying on business in Australia, which is grounds under Australian law for winding it up. The Australian Court allowed the petitioning creditors to appoint an Australian liquidator. This order raises substantial concern about our ability to continue as a going concern, including uncertainty, cost, and unavoidable delay, if such an order were enforceable in the United States.
These risks and uncertainties could affect our business and operations in various ways. For example, negative events or publicity associated with Australian winding up application proceedings could adversely affect our relationships with our suppliers, customers and employees. In particular, critical vendors, suppliers, and/or customers may determine not to do business with us due to Australian winding up application proceedings and we may not be successful in securing alternative sources. Because of the risks and uncertainties associated with this Australian winding up application, we cannot predict or quantify the ultimate impact that events occurring during the Australian winding up application process may have on our business, financial condition and results of operations, and there is no certainty as to our ability to continue as a going concern.
A prolonged continuation of the Australian winding up application proceedings could impact the value of our assets and our business. Furthermore, so long as the Australian winding up application proceedings continue, we could be required to incur substantial costs for professional fees and other expenses associated with the administration of the Australian winding up application proceedings.
However, the order of winding up in Australia does not pose immediate risk to the Company as the Company has no assets in Australia, nor does it have employees, revenue, or even ongoing business in Australia. Further, the Australian order is contrary to and in violation of the automatic stay protecting the Company as it continues to oppose the Chapter 11 involuntary petition filed by the same Australian creditors. Thus, to make any Australian order of winding up enforceable against the assets of the Company, the Australian liquidator must file appropriate legal proceedings in the U.S. to have such a determination recognized and enforced. The liquidator has joined the Petitioning Creditors in the involuntary Chapter 11 proceedings filed in Delaware. The effect of such recognition is unclear as the U.S. courts do not have to accept the determination of insolvency of the Company by a foreign court. Any proceeding brought in the US affords the Company the opportunity to raise affirmative defenses against such a foreign determination under US law which were not available to the Company in the Australian Court system. These defenses include a more robust procedural and evidentiary system, including US discovery and due process which was not available to the Company in Australia to develop its defenses. Further, the Company has raised affirmative defenses to the insolvency claims of the petitioner including rights of offset, counterclaims for damages, lack of due process, fraud, bad faith, and proof that the Company, as a US company, is not insolvent under applicable U.S. law.
We are opposing the Australian winding up order in the involuntary Chapter 11 petition proceedings filed in Delaware; however, if we are unsuccessful in defending the Company in the involuntary Chapter 11 petition proceedings, and are ordered to file a plan of reorganization, our common stock could be materially devalued or even made worthless.
The Australian appointed liquidators have joined as Petitioning Creditors the involuntary Chapter 11 petition filed in Delaware under U.S. law against the Company. The risk factors associated with a Chapter 11 are as set forth above. Holders of our common stock could lose their entire investment if a plan of reorganization would not be successfully adopted and/or the matter be converted to a Chapter 7 bankruptcy.
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If the Australian winding up order filed against us was made enforceable in the U.S. against the Company and its assets, our operations and our ability to execute our business strategy could be subject to the risks and uncertainties as would be associated with proceedings of a U.S. Chapter 11 or 7 bankruptcy. In such event, the imposition of a Chapter 11 proceeding would entail the same risks as set forth above. If forced into a Chapter 7, a Chapter 7 trustee would be appointed or elected to liquidate our assets for distribution in accordance with the priorities established by the Bankruptcy Code, or otherwise disposed of in a distressed fashion over a short period of time rather than in a controlled manner and as a going concern as with a Chapter 11.
Defending against the Australian winding up proceedings has consumed and may continue to consume a substantial portion of the time and attention of our management, which may have an adverse effect on our business and results of operations, and we may face increased levels of employee attrition.
With the determination of the Australian winding up order made, and its pursuit by the Australian Creditors continues, our management may be required to spend a significant amount of time and effort focusing on the case. This diversion of attention may materially adversely affect the conduct of our business, and, as a result, our financial condition and results of operations, particularly if the Australian winding up application proceeding is protracted. During these proceedings, our employees may face considerable distraction and uncertainty, and we may experience increased levels of employee attrition. A loss of key personnel or material erosion of employee morale could have a materially adverse effect on our ability to meet customer expectations, thereby adversely affecting our business and results of operations. The failure to retain or attract members of our management team and other key personnel could impair our ability to execute our strategy and implement operational initiatives, thereby having a material adverse effect on our financial condition and results of operations.
Additional risk factors associated with these proceedings are similar to those outlined above regarding the Involuntary Petition.
Additional risk factors associated with these proceedings are similar to those outlined above regarding the Involuntary Petition, including but not limited to:
| ● | The Australian winding up order in the Australian Court system may cause our common stock to decrease in value or may render our common stock worthless. |
| ● | Operating during the pendency of the Australian winding up process for a long period of time may harm our business. |
| ● | The Australian creditors’ attempts to execute the Australian winding up order may adversely impact our U.S. subsidiary businesses and affiliates, which may themselves become subject to Australian winding up application or other insolvency proceedings. |
| ● | An impairment of our goodwill and other indefinite-lived intangible assets could have a material impact to our results of operations. |
| ● | The Australian winding up order potentially places us in material breach of certain contracts and debt obligations of the Company. |
| ● | Execution of the Australian winding up order in the U. S. could adversely affect our business and relationships. |
| ● | Execution of the Australian winding up order in the U. S. could materially and adversely affect our public stockholders. |
Other Risks
Changes in our business strategy or restructuring of our businesses may increase our costs or otherwise affect our businesses.
We continually review our operations with a view toward reducing our cost structure, including, but not limited to, reducing our labor cost-to-revenue ratio, improving process and system efficiencies and increasing our revenues and operating margins. Despite these efforts, we have needed and may continue to need to adjust our business strategies to meet these changes, or we may otherwise find it necessary to restructure our operations or particular businesses or assets. When these changes or events occur, we may incur costs to change our business strategy and may need to write down the value of assets or sell certain assets. Additionally, any of these events could result in disruptions or adversely impact our relationships with our workforce, suppliers and customers. In any of these events our costs may increase, and we may have significant charges or losses associated with the write-down or divestiture of assets and our business may be materially and adversely affected.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
Celsius Mining LLC loaned $20.00 million to Luna Squares through the Celsius Promissory Note, which had a maturity date of August 23, 2023, and a total outstanding balance as of March 31, 2025 of $9.9 million. Luna Squares has not repaid the loan as required on the maturity date and is claimed by Celsius to be in default. Celsius Mining LLC transferred to benefit of the Celsius Promissory Note to Celsius Network Ltd. Celsius Network Ltd has notified Luna Squares the default interest is payable. On November 23, 2023, Celsius filed an adversary proceeding against Mawson, its subsidiaries Luna Squares and Cosmos, asserting various claims related to the alleged breach of the Celsius Colocation Agreement. The Company is pursuing counter claims against Celsius.
The Marshall Loan matured in February 2024 and the total outstanding balance is $10.4 million as of March 31, 2025. MIG No. 1, an Australian entity, has not made a payment on principal and interest since May 2023, despite such payments falling due, and is therefore in default under the Marshall Loan. MIG No. 1 is also in default of a number of other covenants under the terms of the loan. On March 19, 2024, Mig No.1 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 under the terms of their security relating to the Marshall Loan. The direct assets that secure this loan include 5,372 miners and 8 MDCs. These assets are held by the MIG No.1 and therefore were included in the deconsolidation. The receiver’s statutory duty includes the obligation to sell the secured assets at market value or, if market value is not known, at the best price reasonably obtainable to maximize the prospects of there being sufficient proceeds available to satisfy the balance of the outstanding secured debt. It is therefore expected that this loan balance will be offset in the future by the amount received from the sale of these miners and MDCs. On June 25, 2024, Marshall inspected and inventoried the miners and MDCs located at the Company’s Midland facilities. The Company is currently not utilizing these miners or MDCs for its operations and has asked Marshall to take these assets out of the Company’s storage. Marshall has not responded to the Company’s request for these miners and MDCs to be removed from the Company’s storage. The Company also reserves and retains all rights against Marshall.
The Company is the guarantor of the W Capital Loan. As of March 31, 2025, AUD $2.2 million (USD $1.3 million) has been drawn down from this facility. The W Capital Loan expired in March 2023 and the Company did not extend the maturity date and has not repaid the loan amount. The Company is therefore in default. This W Capital Loan was originally with Mawson PL, 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 (the “Convertible Note”) with W Capital Advisors Pty Ltd with an outstanding balance of $0.1 million as of March 31, 2025. 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 Convertible Note.
For more information on the above matters, refer to Note 9 - Commitments and Contingencies to the unaudited consolidated condensed financial statements included in Item 1. “Financial Statements” of this Quarterly Report. The disclosure set forth in Note 9 relating to such legal matters is incorporated herein by reference.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the fiscal quarter
ended March 31, 2025, no director or officer (as defined in Rule 16a-1(f) promulgated under the Exchange Act) of the Company
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Item 6. Exhibits
| * | Filed herewith. |
| ** | Furnished herewith. |
| + | Management compensatory plan. |
| † | Certain portions of this exhibit have been redacted pursuant to Regulation S-K Item 601(b)(10)(iv) because such information is both not material and would likely cause competitive harm to the Company if publicly disclosed. In addition, certain schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the Securities and Exchange Commission upon request; provided, however that the Company may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedule or exhibit so furnished. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Mawson Infrastructure Group Inc. | ||
| Date: May 15, 2025 | By: | /s/ Rahul Mewawalla |
|
Rahul Mewawalla Chief Executive Officer and President | ||
| (Principal Executive Officer) | ||
| Date: May 15, 2025 | By: | /s/ William Regan |
|
William Regan Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
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