Mawson Infrastructure (MIGI) - 2022 Q3 - Quarterly Report

Part I – Financial Information Financial Statements Q3 2022 financial statements show a $35.23 million net loss and $24.69 million net current liabilities, raising substantial doubt about its going concern Consolidated Condensed Balance Sheets As of Sep 30, 2022, total assets were $180.6M, liabilities $87.8M, equity $93.3M, with a $24.7M net current liability Consolidated Condensed Balance Sheet Highlights (unaudited) | Balance Sheet Item | Sep 30, 2022 ($) | Dec 31, 2021 ($) | | :--- | :--- | :--- | | Current Assets | | | | Cash and cash equivalents | 1,182,588 | 5,467,273 | | Assets held for sale | 21,646,334 | - | | Total current assets | 37,339,806 | 11,447,007 | | Non-Current Assets | | | | Property and equipment, net | 112,506,552 | 76,936,850 | | Derivative asset | 21,383,904 | - | | Total Assets | 180,601,574 | 145,294,372 | | Current Liabilities | | | | Trade and other payables | 27,529,256 | 7,746,988 | | Borrowings | 31,392,010 | 11,095,388 | | Total current liabilities | 62,029,758 | 20,072,863 | | Total Liabilities | 87,836,065 | 30,713,783 | | Total Stockholders' Equity | 93,274,185 | 114,745,215 | Consolidated Condensed Statements of Operations Q3 2022 net loss widened to $21.3M, while nine-month net loss improved to $35.2M, with total revenues reaching $67.5M Statement of Operations Summary (unaudited) | Metric | Q3 2022 ($) | Q3 2021 ($) | Nine Months 2022 ($) | Nine Months 2021 ($) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | 28,328,426 | 10,947,786 | 67,533,199 | 24,207,567 | | Gross Profit | 10,144,902 | 8,447,949 | 26,578,242 | 17,989,422 | | Loss from Operations | (8,237,040) | (2,254,096) | (21,106,438) | (45,988,278) | | Net Loss | (21,251,783) | (3,097,875) | (35,227,490) | (47,923,670) | | Net Loss per share | (0.27) | (0.04) | (0.47) | (0.27) | Consolidated Condensed Statements of Stockholders' Equity Total stockholders' equity decreased to $93.3M by Sep 30, 2022, due to a $34.3M net loss, partially offset by stock issuances - Total stockholders' equity decreased to $93.3 million as of September 30, 2022, down from $114.7 million at December 31, 2021[10][20] - The decrease in equity was driven by a net loss of $34.3 million for the nine-month period, which was partially offset by stock and warrant issuances[20] Consolidated Condensed Statements of Cash Flows Cash decreased by $4.3M for nine months ended Sep 30, 2022, ending at $1.2M, driven by significant investing outflows Cash Flow Summary (Nine Months Ended Sep 30) | Cash Flow Activity | 2022 ($) | 2021 ($) | | :--- | :--- | :--- | | Net cash provided by operating activities | 25,141,208 | 8,337,277 | | Net cash used in investing activities | (55,466,574) | (62,261,396) | | Net cash provided by financing activities | 26,240,336 | 86,026,426 | | Net (decrease)/increase in cash | (4,284,685) | 31,270,586 | | Cash at end of period | 1,182,588 | 32,383,397 | Notes to Consolidated Condensed Financial Statements Notes disclose a 'Going Concern' warning due to $35.23M net loss and $24.69M net current liabilities, an asset sale, and new borrowings - Going Concern: The company reported a net loss of $35.23 million for the nine months ended Sep 30, 2022, and net current liabilities of $24.69 million, raising substantial doubt about its ability to continue as a going concern[29] - Management believes it can continue as a going concern by improving profitability, using proceeds from the CleanSpark asset sale, and accessing debt and equity funding, including an ATM offering of up to $100 million[30][31][32] - Asset Sale: On September 8, 2022, the company agreed to sell its Sandersville, Georgia facility and 6,349 miners to CleanSpark. The transaction closed on October 8, 2022. Assets and liabilities related to this sale were reclassified as 'held for sale'[79][111] - An impairment charge of $4,195,046 was recognized on the processing machines (miners) included in the sale to CleanSpark[53][116] - Borrowings: The company entered into several new loan agreements in 2022, including a $20 million loan from Celsius Mining, a secured facility with W Capital Advisors, and $3.6 million in secured convertible promissory notes[131][133][134] - Subsequent Events: The sale to CleanSpark closed on October 8, 2022, providing consideration of $13.5 million in cash, 1.59 million CleanSpark shares, and $6.5 million in seller financing notes. The company also made early loan repayments in October and November 2022[139][140][141] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses digital asset infrastructure, noting increased nine-month revenue to $67.5M, strained liquidity, and $8.8M adjusted EBITDA Overview and Recent Developments Mawson operates as a 'Digital Asset Infrastructure' business focused on Bitcoin mining, recently selling its Georgia facility to CleanSpark - The company's primary business is owning and operating ASIC miners for Bitcoin, with three sites in the USA and Australia[154][155] - As of September 30, 2022, Mawson had a total of 33,350 miners, with 26,360 online and 6,990 in storage[158] - The company sold its Sandersville, Georgia facility and 6,349 miners to CleanSpark. The deal closed on October 8, 2022, with consideration including $13.5M cash, 1.59M CleanSpark shares, and $6.5M in seller financing notes[161] Results of Operations Q3 2022 total revenue doubled to $28.3M, net loss widened to $21.3M, while nine-month revenue grew to $67.5M with narrowed net loss Q3 2022 vs Q3 2021 Results of Operations ($) | Metric | Q3 2022 | Q3 2021 | | :--- | :--- | :--- | | Cryptocurrency mining revenue | 5,913,031 | 10,151,579 | | Hosting Co Location revenue | 5,726,064 | 796,207 | | Sale of equipment | 10,388,223 | - | | Net energy benefits | 6,301,108 | - | | Total revenues | 28,328,426 | 10,947,786 | | Cost of revenues | 18,183,524 | 2,499,837 | | Gross profit | 10,144,902 | 8,447,949 | | Net Loss | (21,251,783) | (3,097,875) | - Q3 2022 cryptocurrency mining revenue decreased by 42% YoY due to a lower average Bitcoin price ($21,293 vs $41,877), despite producing more Bitcoin (282.99 vs 251.52)[169] Nine Months 2022 vs 2021 Results of Operations ($) | Metric | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | | Cryptocurrency mining revenue | 40,909,399 | 21,029,492 | | Hosting Co Location revenue | 9,842,924 | 1,020,424 | | Total revenues | 67,533,199 | 24,207,567 | | Cost of revenues | 40,954,957 | 6,218,145 | | Gross profit | 26,578,242 | 17,989,422 | | Net Loss | (35,227,490) | (47,923,670) | - For the nine months ended Sep 30, 2022, cryptocurrency mining revenue increased 95% YoY, driven by a 145% increase in Bitcoin produced, which offset a lower average Bitcoin price[191] Liquidity and Capital Resources The company faces significant liquidity pressure with $1.18M cash and $24.69M negative working capital, relying on new borrowings and asset sale proceeds - As of Sep 30, 2022, the company had a cash balance of $1.18 million and a negative working capital of $24.69 million[217][220] - The company financed operations through $25.1M in cash from operations and new borrowings, including from Celsius ($20M), Marshall Investments (AUD$20M facility), and W Capital (AUD$8M facility)[216][220] - The company has an active At The Market (ATM) offering agreement to sell up to $100.0 million in common stock to raise capital[224] - The post-quarter sale to CleanSpark, which included $22.52 million in cash and CleanSpark stock, is expected to improve the company's working capital and liquidity[226] Non-GAAP Financial Measures The company reports non-GAAP adjusted EBITDA of $8.8M for Q3 2022 and $27.1M for the nine-month period Reconciliation of Net Loss to Non-GAAP Adjusted EBITDA ($) | Period | Net Loss | Adjusted EBITDA (non-GAAP) | | :--- | :--- | :--- | | Three Months Ended Sep 30, 2022 | (21,251,783) | 8,812,896 | | Three Months Ended Sep 30, 2021 | (3,097,875) | 3,147,643 | | Nine Months Ended Sep 30, 2022 | (35,227,490) | 27,079,909 | | Nine Months Ended Sep 30, 2021 | (47,923,670) | 7,732,470 | Quantitative and Qualitative Disclosures about Market Risks As a smaller reporting entity, the company elected not to provide required market risk disclosures - The company has opted out of providing this disclosure as permitted for a smaller reporting company[234] Controls and Procedures Management concluded disclosure controls and procedures were ineffective as of Sep 30, 2022, due to material weaknesses, with remediation underway - Management concluded that disclosure controls and procedures were not effective as of September 30, 2022[235] - Several material weaknesses were identified, including: - Inadequate segregation of duties due to lack of sufficient accounting personnel - Poorly designed controls over the financial statement close and reporting process - Deficient IT general controls over access, program changes, and development - Lack of controls to ensure accuracy of data received from third parties - Failure to properly execute physical asset verification at US mining sites[238][239][241][242][243] - Remediation efforts are underway, including performing a risk assessment, designing new controls, and implementing formal policies and procedures[245] Part II – Other Information Legal Proceedings The company is not currently involved in any material legal proceedings - The company is not involved in any material legal proceedings[249] Risk Factors Key risk factors include Nasdaq delisting, crypto downturn, Celsius bankruptcy, rising inflation/interest rates, and critical capital needs for going concern - Nasdaq Listing: The company is not in compliance with Nasdaq's minimum bid price and audit committee requirements, posing a risk of delisting[251] - Industry Downturn: The significant drop in Bitcoin's price and the bankruptcy of a major customer, Celsius Mining LLC, negatively impact revenue and create counter-party risk[252] - Economic Risks: Rising global inflation increases operating costs, and rising interest rates could make future financing more expensive[253][255] - Operational Risks: The company is subject to risks from its need for significant, cost-effective electrical power and the increasing difficulty of the Bitcoin network, which reduces mining rewards[256][257] - Going Concern Risk: The company states it may need to raise additional capital or significantly curtail operations to remain a going concern, given its net losses and low cash position[259][260] Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the period - None[262] Defaults Upon Senior Securities There were no defaults upon senior securities during the period - None[262] Mine Safety Disclosure This item is not applicable to the company - Not applicable[262] Other Information The company eliminated the Chief Commercial Officer role, with the departing officer providing transition services and retaining unvested RSUs - The role of Chief Commercial Officer was eliminated, effective November 18, 2022[263] - The departing officer, Nicholas Hughes-Jones, will provide transition services for at least 6 months and will not forfeit his unvested RSUs[263] Exhibits This section lists all exhibits filed with the Form 10-Q, including agreements, corporate governance documents, officer certifications, and XBRL data - The report includes exhibits such as the Purchase and Sale Agreement with CleanSpark, officer certifications under the Sarbanes-Oxley Act, and financial data in Inline XBRL format[266]