Mawson Infrastructure (MIGI) - 2021 Q4 - Annual Report

PART I ITEM 1. BUSINESS. Mawson is a Digital Asset Infrastructure business focused on Bitcoin mining and hosting solutions, operating MDCs in the U.S. and Australia with a commitment to renewable energy. - Mawson transitioned to a 'Digital Asset Infrastructure' business focused on Bitcoin mining and hosting after acquiring Mawson AU on March 9, 2021[20][28][53] - The company operates modular data centers (MDCs) and ASIC computers for Bitcoin mining in the U.S. (Georgia, Pennsylvania) and Australia (New South Wales)[21][24][28] Miner Fleet Status as of December 31, 2021 | Category | Count | | :----------------- | :---- | | Total miners online | 10,302 | | Total miners in Transit | 4,704 | | Total miners on order | 18,528 | | Total miners in storage | 5,691 | | Total miners | 39,225 | - Mawson offers hosting services to other digital asset businesses, with 5 customers and 2MW installed capacity as of December 31, 2021[27][37] - The company's policy is to liquidate mined Bitcoin promptly, operating as a mining operation rather than a cryptocurrency investment company[32] - Mawson is committed to powering operations with renewable energy and has offset its 2020 carbon footprint, assessing its 2021 footprint[35][36] - Mawson holds a 20.06% interest in DSS, a Filecoin mining business, and an interest in Cosmos Asset Management with AUD$8.65 million in funds under management[38][40] - The company's R&D program focuses on improving hardware, software, and MDC efficiency, including liquid immersion cooling technology[41][42] - The cryptocurrency mining industry is highly competitive, with Mawson competing for Miners, capital, and low-cost electricity against rivals like Core Scientific and Marathon Digital Holdings[46][47][56] ITEM 1A. RISK FACTORS. Mawson faces significant risks from operating losses, capital needs, supply chain disruptions, Bitcoin price volatility, cybersecurity threats, and evolving digital asset regulations. - Mawson has incurred and expects to continue operating losses, requiring additional capital that may lead to stockholder dilution[59][60] - The business is highly dependent on Bitcoin's volatile market price, influenced by sentiment and liquidations, without a formal hedging strategy[100] - Supply chain disruptions for Miners, containers, and transformers, primarily from China, pose a material adverse impact risk[61][63][64] - Access to reliable and reasonably priced electricity is critical, as energy-intensive digital mining faces risks from economic, environmental, and regulatory events[69][70][71] - Cybersecurity threats like hacking and malware pose risks to digital assets and reputation, with irreversible transactions meaning potential unrecoverable losses[72][74][79] - The company may not secure adequate business insurance, and uninsured digital assets could lead to unrecoverable losses[80][81][82] - The digital asset industry faces increasing government regulation, potentially leading to new classifications, licensing, and tax treatments that could impose significant costs[123][124][127] - Changes to digital asset network protocols or a '51% attack' could adversely affect Bitcoin network integrity and Mawson's mining operations[101][102][103] - A material weakness in internal control over financial reporting was identified due to inadequate segregation of duties, insufficient accounting personnel, and IT control deficiencies[136][237][238] ITEM 1B. UNRESOLVED STAFF COMMENTS. No unresolved staff comments are reported. - The company has no unresolved staff comments[147] ITEM 2. PROPERTIES. Mawson's principal executive offices are in North Sydney, Australia, with long-term leases for three mining facilities in the U.S. and Australia. - The principal executive offices are in North Sydney, Australia, occupying approximately 710 square feet of licensed office space[148] - Mawson holds long-term leases for its three mining facilities in Georgia, Pennsylvania (U.S.), and New South Wales (Australia)[148] - Existing facilities are deemed adequate, with the ability to obtain additional or alternative facilities at commercial rates if required[149] ITEM 3. LEGAL PROCEEDINGS. Mawson is not currently a party to any legal proceedings with significant financial or profitability effects, though routine litigation may occur. - Mawson is not currently a party to any legal proceedings significantly affecting its financial position or profitability[150] - The company may face routine litigation incidental to its business in the future[150] ITEM 4. MINE SAFETY DISCLOSURES. Mine Safety Disclosures are not applicable to the company. - Mine Safety Disclosures are not applicable to the company[151] PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Mawson's Common Stock trades on Nasdaq under "MIGI", with 271 stockholders as of March 2022, and no dividends paid or anticipated. - Mawson's Common Stock trades on The Nasdaq Stock Market LLC under the symbol "MIGI"[154] - As of March 15, 2022, there were approximately 271 stockholders of record[155] - The company has never paid cash dividends and does not anticipate doing so, retaining earnings for operations and capital requirements[156] - No unregistered equity securities were sold in 2021, and no securities were repurchased in the fourth quarter[157][158] ITEM 6. [Reserved] This item is reserved and contains no information. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This section reviews Mawson's 2021 financial condition and operations, highlighting revenue growth in crypto mining and hosting, a substantial net loss, and regulatory uncertainties. Overview Mawson is a Digital Asset Infrastructure business focused on Bitcoin mining, operating MDCs in the U.S. and Australia, offering hosting and selling used equipment. - Mawson is a 'Digital Asset Infrastructure' business operating MDCs in the U.S. and Australia, primarily focused on Bitcoin mining[160][161] - The company provides hosting/co-location services and periodically sells used cryptocurrency mining equipment[162][163] Miner Fleet Status as of December 31, 2021 | Category | Count | | :----------------- | :---- | | Total miners online | 10,302 | | Total miners in Transit | 4,704 | | Total miners on order | 18,528 | | Total miners in storage | 5,691 | | Total miners | 39,225 | Prior LO2A Business Prior to March 2021, Mawson was a biopharmaceutical company; its LO2A business was fully impaired and expensed for $23.96 million in 2021. - Prior to March 9, 2021, Mawson's primary business was a clinical-stage biopharmaceutical company focused on ophthalmic disorders[166][167] - The LO2A business's economic benefits were assigned to CVR holders, leading to a $23.96 million write-off in 2021 as its fair value was assessed as nil[167] Recent Developments. Mawson's recent developments include acquiring Luna Squares, Nasdaq listing, securing significant financing, expanding hosting, and a related-party lease in Pennsylvania. - Mawson acquired a 20.06% equity interest in Distributed Storage Solutions Pty Ltd (DSS) in May 2021[168] - Mawson acquired Luna Squares LLC on July 5, 2021, for a total purchase price of $500,000 in cash and common stock[170][172] - Mawson listed its common stock on The Nasdaq Stock Market LLC on September 29, 2021[175] - Luna Squares entered a Co-Location Agreement with Celsius Mining LLC, securing a US$20 million loan and issuing warrants[177] - Luna Squares entered a 5-year lease in Sharon, Pennsylvania, with Vertua Property, Inc., a related party to Mawson's CEO[178] COVID-19. The COVID-19 pandemic caused global economic disruption and supply chain issues, but Mawson does not anticipate a material long-term impact. - The COVID-19 pandemic caused significant global economic disruption and supply chain issues for equipment suppliers[179] - Mawson does not expect a material long-term impact on development, operations, or liquidity from the pandemic, but actively monitors the situation[179] Regulation of Digital Assets The regulatory landscape for digital assets is evolving and uncertain, with anticipated increased regulation potentially impacting Mawson's business model and compliance costs. - The regulatory environment for digital assets and cryptocurrencies is uncertain and evolving, with an expectation of increased industry regulation[180] - Future regulatory changes could make Bitcoin ownership illegal or impose new compliance expenses on Mawson's digital asset business[180] Results of Operations Mawson saw substantial 2021 revenue growth, primarily from 764% increased crypto mining revenue, but a $44.96 million net loss due to higher operating costs and the LO2A write-off. Revenue Performance (Year Ended December 31) | Revenue Type | 2021 (Millions USD) | 2020 (Millions USD) | Change (%) | | :-------------------------------- | :------------------ | :------------------ | :--------- | | Cryptocurrency mining revenue | $38.45 | $4.45 | 764% | | Hosting Co-Location revenue | $0.85 | $0.00 | N/A | | Sale of crypto currency mining equipment | $2.16 | $0.00 | N/A | | Other revenue (R&D tax refund) | $2.41 | $0.00 | N/A | | Total revenues | $43.86 | $4.45 | 885% | - Bitcoin production increased by 94% to 808.88 in 2021, with maximum hash rate reaching 0.83 EH[182] Operating Costs and Expenses (Year Ended December 31) | Expense Category | 2021 (Millions USD) | 2020 (Millions USD) | Change (Millions USD) | | :-------------------------------- | :------------------ | :------------------ | :-------------------- | | Cost of revenues (excluding depreciation) | $9.90 | $3.16 | +$6.74 | | Selling, general and administrative | $16.06 | $2.48 | +$13.58 | | LO2A write off | $23.96 | $0.00 | +$23.96 | | Share based payments | $22.49 | $0.00 | +$22.49 | | Depreciation and amortization | $14.11 | $4.62 | +$9.49 | | Total operating expenses | $76.63 | $7.10 | +$69.53 | - Net loss attributable to shareholders increased significantly from $5.03 million in 2020 to $44.96 million in 2021[197][279] Non-GAAP Financial Measures Mawson uses adjusted EBITDA as a non-GAAP measure, which was $17.90 million in 2021, a significant improvement from negative $1.19 million in 2020. - Mawson uses adjusted EBITDA as a non-GAAP financial measure to assess performance, excluding interest, taxes, depreciation, amortization, share-based compensation, and the LO2A write-back[198][200] Reconciliation of Non-GAAP Adjusted EBITDA (Year Ended December 31) | Metric | 2021 (USD) | 2020 (USD) | | :------------------------------------------------- | :----------- | :----------- | | Net loss | (45,461,664) | (5,061,314) | | Share of net loss of associates | 368,426 | - | | Depreciation and amortization | 14,113,730 | 4,620,725 | | Share based payments | 22,491,100 | - | | Unrealized and realized losses/(gain) | 932,866 | (797,464) | | Other non-operating revenue | (902,629) | (108,812) | | Other non-operating expenses | 2,114,699 | 28,102 | | Tax | 277,717 | 128,659 | | LO2A write-back | 23,963,050 | - | | EBITDA (non-GAAP) | $17,897,295 | $(1,190,104) | Liquidity and Capital Resources In 2021, Mawson financed operations with $22.95 million from operating activities, $37.43 million from private placement, $41.23 million from IPO, and various debt financings. - For 2021, Mawson financed operations with $22.95 million in net cash provided by operating activities[202] - Significant capital raises included $3.00 million from a 2020 private placement, $37.43 million from a 2021 private placement, and $41.23 million (net) from its IPO[202] - Debt financing included $1.06 million from Foundry Digital LLC, an additional $13.19 million expansion, and an AUD$20 million secured loan from Marshall Investments[202][207] - The company generated $1.02 million from the sale of shares in Bonus Bio Group[203] Working Capital and Cash Flows Mawson's cash increased to $5.47 million in 2021, but working capital was negative $8.63 million due to increased borrowings, with operating cash flow at $22.95 million and investing cash flow at $(128.25) million. Working Capital and Cash Flow Summary (Year Ended December 31) | Metric | 2021 (Millions USD) | 2020 (Millions USD) | | :------------------------------------------ | :------------------ | :------------------ | | Cash and cash equivalents | $5.47 | $1.11 | | Trade and other receivables | $5.61 | $0.62 | | Trade and other payables | $7.75 | $1.88 | | Short-term borrowings | $11.10 | $0.29 | | Long-term borrowings | $7.64 | $0.00 | | Negative Working Capital | $(8.63) | $(0.46) | | Net cash provided by/(used in) operating activities | $22.95 | $(0.19) | | Net cash used in investing activities | $(128.25) | $(5.54) | | Net cash provided by financing activities | $109.85 | $6.23 | - The decrease in working capital was primarily due to an increase in the company's short-term and long-term borrowings in 2021[207] - The increase in net cash provided by operating activities was primarily due to timing differences in trade and other receivables and payables[207] - The significant increase in net cash used in investing activities was primarily due to the acquisition of cryptocurrency mining equipment[208] Recently Issued Accounting Pronouncements Mawson adopted several ASUs (2016-13, 2019-12, 2020-10, 2021-10) with no material impact, and is evaluating ASU 2020-06 and 2021-04. - Mawson adopted ASU 2016-13, 2019-12, 2020-10, and 2021-10, none of which had a material impact on its financial statements[346][347][348][350][210] - The company does not expect a material impact from ASU 2020-06 and is evaluating ASU 2021-04 and its disclosures[349][351] Critical Accounting Policies Mawson's critical accounting policies include revenue recognition for digital asset mining (fair market value upon receipt), property and equipment depreciation, and accounting for reverse asset acquisitions and share-based payments. - Revenue recognition for digital asset mining involves significant judgment, recognized at fair market value upon cryptocurrency receipt due to lack of specific U.S. GAAP guidance[213][214][215] - Property and equipment are stated at cost and depreciated over estimated useful lives, such as Miners over 2 years and MDCs over 5 years[216][217][218] - Effective October 1, 2021, Mawson capitalized freight costs for processing machines, increasing balance sheet assets by $2.59 million and 2021 depreciation by $0.14 million[220] - The acquisition of Mawson AU on March 9, 2021, was accounted for as a reverse asset acquisition, with Mawson AU as the accounting acquirer[222] - Share-based payments are expensed over the service period based on grant-date fair value, determined using the Black-Scholes model[224] ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. As a smaller reporting company, Mawson has elected not to provide market risk disclosures. - As a smaller reporting company, Mawson has elected not to provide disclosures regarding quantitative and qualitative market risk[226] ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. All required financial statements and supplementary data are incorporated by reference from Item 15 of Part IV. - All required financial statements and supplementary data are included in Item 15 of Part IV of this Annual Report[227] ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. No changes in or disagreements with accountants on accounting and financial disclosure are reported. - There are no changes in or disagreements with accountants on accounting and financial disclosure[228] ITEM 9A. CONTROLS AND PROCEDURES. Mawson's disclosure controls and procedures were ineffective as of December 31, 2021, due to material weaknesses in internal control over financial reporting, including inadequate segregation of duties and IT control deficiencies. - Management concluded that disclosure controls and procedures were not effective as of December 31, 2021, due to material weaknesses[229] - Identified material weaknesses include inadequate segregation of duties due to significant reliance on key individuals[237] - Further weaknesses were found in the financial statement close process due to insufficient accounting personnel and in IT general controls[238][239] - The company lacked controls to ensure completeness and accuracy of third-party data used for revenue and cryptocurrency asset determination[240] - Mawson is undertaking remediation efforts, including developing formal policies, improving control activities, and hiring additional finance personnel, but cannot assure immediate effectiveness[243] ITEM 9B. OTHER INFORMATION. No other information is reported under this item. - No other information to report[246] ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. No disclosures are provided regarding foreign jurisdictions that prevent inspections. - There are no disclosures regarding foreign jurisdictions that prevent inspections[247] PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 proxy statement. - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 annual stockholder meeting proxy statement[250] ITEM 11. EXECUTIVE COMPENSATION. Information on executive compensation is incorporated by reference from the 2022 annual stockholder meeting proxy statement. - Information on executive compensation is incorporated by reference from the 2022 annual stockholder meeting proxy statement[251] ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. Information on security ownership and related stockholder matters is incorporated by reference from the 2022 annual stockholder meeting proxy statement. - Information on security ownership of beneficial owners and management, and related stockholder matters, is incorporated by reference from the 2022 proxy statement[252] ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, DIRECTOR INDEPENDENCE. Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2022 proxy statement. - Information on certain relationships and related transactions, and director independence, is incorporated by reference from the 2022 proxy statement[253] ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Information on principal accountant fees and services is incorporated by reference from the 2022 annual stockholder meeting proxy statement. - Information on principal accountant fees and services is incorporated by reference from the 2022 annual stockholder meeting proxy statement[254] PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES This section indexes the financial statements, schedules, and exhibits, including consolidated financial statements and their notes, filed as part of the Annual Report. (a) Index to Exhibit and Financial Statement Schedules This sub-section lists the consolidated financial statements and their page numbers, including the Independent Auditor's Report and various financial statements. - The index includes the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Comprehensive Loss, Changes in Stockholders' Equity, Cash Flows, and Notes[259] Report of Independent Registered Public Accounting Firm (PCAOB ID Number 6714) LNP Audit issued an unqualified opinion on Mawson's 2021 and 2020 financial statements, with digital currency mining revenue recognition as a critical audit matter. - LNP Audit and Assurance International Pty Ltd issued an unqualified opinion on Mawson's 2021 and 2020 consolidated financial statements[263] - A critical audit matter was the evaluation of digital currency mining revenue recognition and disclosure, due to lack of specific U.S. GAAP guidance and significant management judgment[269][272] - Audit procedures included site visits, IT general controls evaluation, independent confirmation of digital currency data, comparison to blockchain records, and assessment of accounting rationale and disclosures[274] Consolidated Balance Sheets Mawson's total assets significantly increased from $9.80 million in 2020 to $145.29 million in 2021, driven by property and equipment, with equity growing to $114.75 million. Consolidated Balance Sheet Highlights (as of December 31) | Item | 2021 (USD) | 2020 (USD) | | :------------------------------------ | :----------- | :----------- | | Cash and cash equivalents | $5,467,273 | $1,112,811 | | Total current assets | $11,447,007 | $1,754,517 | | Property and equipment, net | $76,936,850 | $7,015,285 | | Equipment deposits | $51,369,216 | - | | Total assets | $145,294,372 | $9,796,741 | | Total current liabilities | $20,072,863 | $2,193,725 | | Total liabilities | $30,713,783 | $2,231,862 | | Total stockholders' equity | $114,745,215 | $7,591,945 | - The substantial increase in total assets was primarily driven by property and equipment acquisitions and significant equipment deposits[276] Consolidated Statements of Operations Mawson's total revenues increased to $43.86 million in 2021, but operating expenses surged to $76.63 million, resulting in a $44.96 million net loss for the year. Consolidated Statements of Operations Highlights (Year Ended December 31) | Item | 2021 (USD) | 2020 (USD) | | :------------------------------------------ | :----------- | :----------- | | Total revenues | $43,862,656 | $4,448,876 | | Gross profit | $33,958,383 | $1,293,275 | | Total operating expenses | $76,628,968 | $7,104,104 | | Loss from operations | $(42,670,585) | $(5,810,829) | | Net Loss attributed to Mawson Infrastructure Group shareholders | $(44,963,720) | $(5,034,248) | | Net Loss per share, basic & diluted | $(0.80) | $(0.71) | - The substantial increase in total operating expenses was primarily driven by a $23.96 million LO2A write-off and $22.49 million in share-based payments in 2021[279] Consolidated Statements of Comprehensive loss Mawson reported a net loss of $45.46 million in 2021, with comprehensive loss attributable to common stockholders at $44.14 million after currency adjustments. Consolidated Statements of Comprehensive Loss (Year Ended December 31) | Item | 2021 (USD) | 2020 (USD) | | :------------------------------------------ | :----------- | :----------- | | Net Loss | $(45,461,664) | $(5,061,314) | | Foreign currency translation adjustment | $820,732 | $(996,644) | | Comprehensive loss | $(44,640,932) | $(6,057,958) | | Comprehensive loss attributable to common stockholders | $(44,142,988) | $(6,030,892) | Consolidated Statements of Changes in Stockholders' Equity Mawson's total stockholders' equity significantly increased to $114.75 million in 2021, primarily driven by common stock issuances from the Cosmos Transaction, PIPE agreements, and the IPO. - Total stockholders' equity increased from $7.59 million in 2020 to $114.75 million in 2021[284] - Key drivers of equity increase include common stock issuance from the Cosmos Transaction, PIPE agreements, and the IPO[284] - The company reported a net loss of $44.96 million for 2021, which reduced accumulated deficit[284] Consolidated Statements of Cash Flows Mawson's operating cash flow improved to $22.95 million in 2021, while investing activities used $128.25 million, and financing activities provided $109.85 million, resulting in a $4.35 million net cash increase. Consolidated Statements of Cash Flows Highlights (Year Ended December 31) | Cash Flow Activity | 2021 (USD) | 2020 (USD) | | :------------------------------------------ | :----------- | :----------- | | Net cash provided by/(used in) operating activities | $22,953,792 | $(185,097) | | Net cash used in investing activities | $(128,247,751) | $(5,536,836) | | Net cash provided by financing activities | $109,854,460 | $6,229,882 | | Net increase in cash and cash equivalents | $4,354,462 | $533,521 | | Cash and cash equivalents at end of period | $5,467,273 | $1,112,811 | - The significant increase in net cash used in investing activities was primarily due to $76.80 million in property and equipment purchases and $51.37 million in fixed asset deposits[290] - Net cash provided by financing activities was largely driven by $85.10 million from common share issuances and $14.27 million from borrowings[290] Notes to Consolidated Financial Statements These notes detail Mawson's financial statements, covering accounting policies, going concern status, revenue recognition, property and equipment, acquisitions, capital structure, debt, and related party transactions. NOTE 1:- GENERAL Mawson transitioned to a Digital Asset Infrastructure business in March 2021, reports going concern doubts due to operating losses, and completed an IPO raising $41.23 million. - Mawson Infrastructure Group, Inc. transitioned to a 'Digital Asset Infrastructure' business after acquiring Mawson AU on March 9, 2021[293][295] - The company reports substantial doubt about its going concern ability due to a $42.67 million operating loss and $8.63 million net current liabilities[295] - Management plans to alleviate going concern doubts through new capital raises and improved profitability and cash flow[296] - Mawson completed an IPO on September 28, 2021, raising $41.23 million in net proceeds[296] NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES This note outlines Mawson's significant accounting policies, including estimates, consolidation (reverse asset acquisition), revenue recognition for crypto mining, digital currency classification, property and equipment, share-based payments, and recently adopted ASUs. - Financial statements are prepared under U.S. GAAP, requiring significant management estimates and judgments, including going concern assumptions and asset useful lives[299] - The acquisition of Mawson AU on March 9, 2021, was accounted for as a reverse asset acquisition, with Mawson AU as the accounting acquirer[303] - Cryptocurrency mining revenue is recognized under ASC 606 at fair market value upon receipt, due to a lack of specific U.S. GAAP guidance[309][310][311] - Digital currencies are classified as indefinite-lived intangible assets, assessed for impairment, with a policy to quickly dispose of Bitcoin production to minimize risk[326][327][330] - Property and equipment are stated at cost and depreciated; a policy change from October 1, 2021, capitalizes freight costs for processing machines[335][336][338] - The company adopted ASU 2016-13, 2019-12, 2020-10, and 2021-10 with no material impact, and is evaluating ASU 2020-06 and 2021-04[346][347][348][349][350][351] NOTE 3:- BASIC AND DILUTED LOSS PER SHARE: Mawson's basic and diluted loss per share was $(0.80) in 2021, up from $(0.71) in 2020, with dilutive securities excluded due to net loss. Basic and Diluted Loss Per Share (Year Ended December 31) | Item | 2021 | 2020 | | :------------------------------------------ | :----- | :----- | | Net loss | $(44,963,720) | $(5,034,248) | | Weighted average common shares - basic and diluted | 56,303,827 | 7,097,883 | | Net loss per share of Common Stock, basic and diluted | $(0.80) | $(0.71) | - Potentially dilutive securities (totaling 6,835,413 in 2021) were excluded from diluted EPS calculations as they were anti-dilutive due to the net loss[355] - Comparative weighted average common shares for 2020 were revised due to the reverse asset acquisition and a 10-for-1 reverse stock split in August 2021[355] NOTE 4:- ACQUISITIONS Mawson's 2021 acquisitions include a 20.06% interest in DSS and Luna Squares LLC, with the Mawson AU acquisition treated as a reverse asset acquisition and a $23.96 million LO2A write-off. - Mawson acquired a 20.06% equity interest in Distributed Storage Solutions Pty Ltd (DSS) on March 1, 2020[363] - The acquisition of Mawson AU on March 9, 2021, was accounted for as a reverse asset acquisition, with Mawson AU determined to be the accounting acquirer[363] - The fair value of consideration for the Mawson AU acquisition was $26.11 million, based on Mawson common stock's closing share price[362] - The LO2A IPR&D intangible asset was fully expensed, resulting in a $23.96 million write-off in 2021[365] - On July 5, 2021, Mawson acquired Luna Squares LLC for a total purchase price of $500,000 in cash and common stock[367] NOTE 5:- TRADE AND OTHER RECEIVABLES Mawson's trade and other receivables significantly increased to $5.61 million in 2021, primarily due to higher trade receivables, R&D tax credits, and GST refunds. Trade and Other Receivables (as of December 31) | Item | 2021 (USD) | 2020 (USD) | | :-------------------------------- | :----------- | :----------- | | Trade receivables | $977,498 | $55,675 | | Research and development tax credit | $2,785,748 | $386,412 | | Goods and service tax refund | $1,843,534 | $173,058 | | Total | $5,606,780 | $615,145 | - The substantial increase in trade and other receivables was primarily due to higher trade receivables and significant increases in R&D tax credits and GST refunds[366] NOTE 6:- PROPERTY AND EQUIPMENT Mawson's net property and equipment significantly increased to $76.94 million in 2021, driven by additions of Miners and MDCs, with $14.11 million in depreciation expense. Property and Equipment, Net (as of December 31) | Item | 2021 (USD) | 2020 (USD) | | :------------------------------------ | :----------- | :----------- | | Cost (total) | $83,325,158 | $12,236,111 | | Accumulated depreciation (total) | $(18,213,672) | $(5,220,826) | | Closing balance, net | $76,936,850 | $7,015,285 | - Additions to property and equipment in 2021 totaled $83.33 million, primarily for processing machines (Miners) and modular data centers[369] - Depreciation and amortization expense increased from $4.62 million in 2020 to $14.11 million in 2021[370] - No impairment charges were recognized for property and equipment in 2021 or 2020[370] NOTE 7:- DEPOSIT, PROPERTY AND EQUIPMENT Mawson made $51.37 million in equipment deposits for future ASIC Miners, including payments for two long-term purchase contracts with Canaan Convey Co Ltd. - As of December 31, 2021, Mawson recorded $51.37 million in cash paid for equipment as a deposit[376] - The company entered two long-term purchase contracts with Canaan for 26,760 Avalon A1246 ASIC Miners, totaling $33.97 million and $73.62 million respectively[371][375] - In 2021, $30.80 million was paid for the first contract (8,232 Miners delivered), and $39.33 million for the second, with no deliveries by year-end[374][375] NOTE 8:- SECURITY DEPOSITS Mawson's security deposits increased to $1.25 million in 2021, classified as non-current assets, primarily paid to location providers. Security Deposits (as of December 31) | Item | 2021 (USD) | 2020 (USD) | | :---------------- | :----------- | :----------- | | Security deposits | $1,246,236 | $969,423 | - Security deposits are refundable upon cessation of services and are classified as non-current assets[377] NOTE 9:- LEASES Mawson accounts for leases under ASC 842, with total 2021 lease costs of $453,588 and operating lease liabilities of $4.19 million as of December 31, 2021. - Mawson accounts for leases under ASC 842, recognizing ROU assets and lease liabilities for operating and finance leases[344] - Luna Squares LLC leases 16.35 acres in Georgia until 2038, and the company also leases its Australian headquarters and a Pennsylvania site[378][379] Lease Costs and Liabilities (as of December 31, 2021) | Item | Operating Leases (USD) | Finance Leases (USD) | | :------------------------------------------ | :--------------------- | :------------------- | | Total lease costs recognized (2021) | $452,479 | $1,109 | | Total undiscounted lease obligations | $4,773,578 | $56,843 | | Total present value of lease liabilities | $4,185,147 | $46,869 | | Non-current lease liabilities | $2,962,765 | $38,764 | | Weighted-average remaining lease term (years) | 3.25 | 4.92 | | Weighted-average discount rate (%) | 8.0% | 8.0% | NOTE 10:- TRADE AND OTHER PAYABLES Mawson's trade and other payables significantly increased to $7.75 million in 2021, primarily due to higher trade payables, accrued expenses, and employee payables. Trade and Other Payables (as of December 31) | Item | 2021 (USD) | 2020 (USD) | | :---------------- | :----------- | :----------- | | Trade payables | $4,778,784 | $1,294,459 | | Accrued expenses | $1,790,921 | $284,589 | | Employee payables | $754,376 | $139,134 | | Tax payables | $422,907 | $164,065 | | Total | $7,746,988 | $1,882,247 | - The increase in trade and other payables was primarily due to growth in trade payables, accrued expenses, and employee payables[386] NOTE 11:- SHORT-TERM BORROWINGS Mawson's short-term borrowings increased to $11.10 million in 2021, primarily due to an expanded equipment finance agreement with Foundry Digital LLC for $16.48 million in Whatsminers. - Short-term borrowings increased to $11.10 million in 2021 from $0.29 million in 2020[276] - The increase was primarily due to an expanded equipment finance agreement with Foundry Digital LLC for 2,000 Whatsminers M30's totaling $16.48 million[390] - An initial $1.06 million loan from Foundry Digital LLC for 500 Whatsminer M30S machines was fully repaid in January 2022[390] NOTE 12:- LONG-TERM BORROWINGS Mawson's long-term borrowings increased to $7.63 million in 2021, primarily from a Secured Loan Facility Agreement with Marshall Investments MIG Pty Ltd at a 12.00% interest rate. - Long-term borrowings increased to $7.63 million in 2021 from $0 in 2020[276] - The primary long-term borrowing is a $7.63 million Secured Loan Facility Agreement with Marshall Investments MIG Pty Ltd, maturing in 2023 at a 12.00% annual interest rate[388] - Mawson also holds a $14,000 PPP loan from 2020, maturing in 2022 with a 1.0% interest rate[389] NOTE 13:- SIGNIFICANT TRANSACTIONS Significant 2021 transactions include the Mawson AU reverse asset acquisition, $37.43 million from PIPE Agreements, $41.23 million from IPO, and a $7.63 million secured loan. - The reverse asset acquisition of Mawson AU occurred on March 9, 2021[392] - The 2021 PIPE Agreements were finalized on August 6, 2021, raising gross proceeds of $37.43 million[392] - The company completed an IPO on September 28, 2021, generating net proceeds of $41.23 million[392] - A Secured Loan Facility Agreement with Marshall Investments MIG Pty Ltd was entered into in December 2021, providing $7.63 million[392] - Cosmos Infrastructure LLC entered into two long-term purchase contracts with Canaan for ASIC Miners[392] NOTE 14:- TAXES ON INCOME Mawson reported a $(45.18) million loss before taxes in 2021, with an income tax expense of $(277,717), and $13.13 million in deferred tax assets offset by a valuation allowance. Income Tax Expense (Year Ended December 31) | Item | 2021 (USD) | 2020 (USD) | | :---------------- | :----------- | :----------- | | Current Foreign Tax | $(277,717) | - | | Total Income Tax Expense | $(277,717) | - | - The federal tax on a $(45.8) million pretax loss was offset by a $9.27 million change in valuation allowance, resulting in a total income tax expense of $(277,717)[393][396] Deferred Tax Assets and Liabilities (as of December 31) | Item | 2021 (USD) | 2020 (USD) | | :-------------------------------- | :----------- | :----------- | | Total deferred tax assets | $13,128,139 | $3,261,270 | | Total deferred tax liabilities | $920,775 | $249,361 | | Valuation allowance | $(12,207,364) | $(3,011,909) | | Net deferred tax assets | - | - | - Mawson had approximately $14.4 million in federal and $10.7 million in Australian NOLs with indefinite carryforward lives as of December 31, 2021[397] NOTE 15:- COMMITMENTS AND CONTINGENCIES Mawson's commitments include a CVR agreement for LO2A monetization (not reliably measurable) and outstanding obligations from two long-term purchase contracts with Canaan for ASIC Miners. - A CVR agreement for LO2A business monetization is classified as a contingent liability, as its cost cannot be reliably measured and payment is not probable[403] - Mawson has outstanding commitments from two long-term purchase contracts with Canaan for 11,760 and 15,000 Avalon A1246 ASIC Miners, totaling $33.97 million and $73.62 million respectively[403] NOTE 16:- STOCKHOLDERS' EQUITY Mawson's stockholders' equity saw significant 2021 activity, including share issuances for the Cosmos Transaction, PIPE Agreements, and IPO, alongside a 10-for-1 reverse stock split. - On March 9, 2021, Mawson issued 428,270,616 shares (pre-split) to Mawson AU shareholders as part of the Cosmos Transaction[405] - The company finalized 2021 PIPE Agreements, raising $37.43 million in gross proceeds, and completed an IPO, generating $41.23 million in net proceeds[408][411][412] - A 10-for-1 reverse stock split was executed on August 13, 2021, reducing authorized common stock to 120,000,000 shares[409] - As of December 31, 2021, 17,628,737 restricted shares from the Cosmos Transaction remained, with no Series A Preferred Stock outstanding[415][416] Common Stock Warrants Status (as of December 31, 2021) | Item | Count | | :-------------------------------- | :------ | | Outstanding as of December 31, 2020 | 14,219 | | Issued | 5,518,886 | | Exercised | (2,008,916) | | Outstanding as of December 31, 2021 | 3,524,189 | | Weighted Average Exercise Price | $8.77 | | Weighted Average Remaining Contractual Life (years) | 2.78 | NOTE 17:- RELATED PARTY TRANSACTIONS In 2021, Mawson received and repaid $360,320 in related-party loans from Georgina Manning Pty Ltd, and the Sharon lease is also a related-party transaction. - Mawson received and repaid $360,320 in loans from Georgina Manning Pty Ltd, a related party, incurring $4,529 in interest[420] - The Sharon lease, entered into on March 16, 2022, is a related party transaction involving CEO James Manning's interest in Vertua Ltd[421][423] NOTE 18:- SUBSEQUENT EVENTS Subsequent events include Luna Squares' Co-Location Agreement with Celsius Mining LLC, a US$20 million loan, warrant issuance, and a 5-year related-party lease in Sharon, Pennsylvania. - On February 23, 2022, Luna Squares LLC entered a Co-Location Agreement with Celsius Mining LLC, receiving a US$20 million loan at 12% annual interest[422] - Mawson issued warrants to Celsius Mining to purchase up to 3,850,000 shares of common stock at an exercise price of US$6.50 per share[422] - On March 16, 2022, Luna Squares LLC entered a 5-year lease in Sharon, Pennsylvania, with Vertua Property, Inc., a related party to Mawson's CEO[423] (2) Financial Statement Schedules. All financial statement schedules are omitted as the information is either not applicable, not required, or already included. - All financial statement schedules are omitted because the information is either not applicable, not required, or already included[424] (3) Exhibits. This section lists various exhibits filed with the SEC, including key agreements and corporate documents, many incorporated by reference from previous filings. - Exhibits include key agreements such as the Bid Implementation Agreement, Membership Interest Purchase Agreements, and Warrant Agreements[425][427][428][430] - Many exhibits are incorporated by reference from previous SEC filings, providing a comprehensive record of documents[425][427][428][430] ITEM 16. FORM 10-K SUMMARY. No Form 10-K Summary is provided for this item. - No Form 10-K Summary is provided[432]