Mawson Infrastructure (MIGI) - 2024 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION This section provides the unaudited consolidated financial statements and management's discussion and analysis for the quarter Item 1. Financial Statements This section presents the unaudited consolidated condensed financial statements for Q1 2024, covering core financial reports and detailed accounting notes Consolidated Condensed Balance Sheets This section presents the company's financial position, including assets, liabilities, and equity, as of March 31, 2024, and December 31, 2023 Consolidated Condensed Balance Sheets (March 31, 2024 vs. December 31, 2023) | Metric | March 31, 2024 (unaudited) ($) | December 31, 2023 ($) | | :-------------------------------- | :------------------------- | :------------------ | | ASSETS | | | | Cash and cash equivalents | $6,373,082 | $4,476,339 | | Total current assets | $23,858,176 | $20,138,659 | | Property and equipment, net | $36,369,878 | $57,740,291 | | Derivative asset | $5,744,241 | $4,058,088 | | Total assets | $67,710,044 | $84,766,244 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Total current liabilities | $54,244,277 | $53,315,234 | | Total liabilities | $54,695,952 | $54,381,614 | | Total stockholders' equity | $13,014,092 | $30,384,630 | Consolidated Condensed Statements of Operations This section details the company's revenues, expenses, and net loss for the three months ended March 31, 2024, and 2023 Consolidated Condensed Statements of Operations (Three Months Ended March 31, 2024 vs. 2023) | Metric | March 31, 2024 ($) | March 31, 2023 ($) | | :------------------------------------------ | :------------- | :------------- | | Digital currency mining revenue | $7,514,763 | $2,756,000 | | Co-location revenue | $8,234,041 | $4,322,553 | | Net energy benefits | $2,472,505 | $441,055 | | Sale of equipment | $550,000 | $150,997 | | Total revenues | $18,771,309 | $7,670,605 | | Gross profit | $6,985,141 | $2,992,603 | | Loss from operations | $(7,693,190) | $(11,696,850) | | Loss on deconsolidation | $(11,925,908) | - | | Net Loss | $(19,969,285) | $(11,380,958) | | Net Loss attributed to Mawson Infrastructure Group stockholders | $(19,764,199) | $(11,102,025) | | Net Loss per share, basic & diluted | $(1.19) | $(0.80) | Consolidated Condensed Statements of Comprehensive Loss This section outlines the company's comprehensive loss, including net loss and other comprehensive income/loss, for the three months ended March 31, 2024, and 2023 Consolidated Condensed Statements of Comprehensive Loss (Three Months Ended March 31, 2024 vs. 2023) | Metric | March 31, 2024 ($) | March 31, 2023 ($) | | :------------------------------------------ | :------------- | :------------- | | Net Loss | $(19,969,285) | $(11,380,958) | | Foreign currency translation adjustment | $(482,143) | $131,733 | | Comprehensive loss | $(20,451,428) | $(11,249,225) | | Comprehensive loss attributable to common stockholders | $(20,246,342) | $(10,970,292) | Consolidated Condensed Statements of Stockholders' Equity This section presents the changes in stockholders' equity for the three months ended March 31, 2024 Changes in Stockholders' Equity (Three Months Ended March 31, 2024) | Metric | Common Stock () | Common Stock ($) | 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 | 16,644,711 | $16,645 | $211,279,176 | $608,688 | $(182,666,465) | $29,238,044 | $1,146,586 | $30,384,630 | | Deconsolidation of MIG No.1 Pty Ltd | - | - | - | - | - | - | $(889,659) | $(889,659) | | Stock based compensation expense | - | - | $3,970,549 | - | - | $3,970,549 | - | $3,970,549 | | Net loss | - | - | - | - | $(19,764,199) | $(19,764,199) | $(205,086) | $(19,969,285) | | Other comprehensive loss | - | - | - | $(430,302) | - | $(430,302) | $(51,841) | $(482,143) | | Balance as of March 31, 2024 | 16,644,711 | $16,645 | $215,249,725 | $178,386 | $(202,430,664) | $13,014,092 | - | $13,014,092 | Consolidated Condensed Statements of Cash Flows This section details the company's cash flows from operating, investing, and financing activities for the three months ended March 31, 2024, and 2023 Consolidated Condensed Statements of Cash Flows (Three Months Ended March 31, 2024 vs. 2023) | Cash Flow Activity | March 31, 2024 ($) | March 31, 2023 ($) | | :-------------------------------- | :------------- | :------------- | | Net cash provided by operating activities | $1,875,647 | $1,316,591 | | Net cash provided by investing activities | $530,640 | $4,069,294 | | Net cash used in financing activities | $(509,544) | $(4,935,714) | | Net increase in cash and cash equivalents | $1,896,743 | $441,061 | | Cash and cash equivalents at end of period | $6,373,082 | $1,387,326 | NOTE 1 – GENERAL This note describes the company's business, operational focus, and the going concern assessment due to significant losses and financial challenges - Mawson Infrastructure Group Inc. is a US-headquartered digital infrastructure company, incorporated in Delaware in 2012. It operates three primary businesses: digital currency (Bitcoin) self-mining, co-location and related services, and energy markets[23][25][26] - The Company develops and operates digital infrastructure for Bitcoin mining, provides co-location services, and participates in energy markets by curtailing power usage for net energy benefits. It aims to operate with low or zero carbon renewable energy sources[26][27][28] - The Company has disclosed plans to exit certain or all of its Australian entities and holdings, with several Australian subsidiaries (MIG No.1 Pty Ltd, Mawson AU Pty Ltd, Mawson Services Pty Ltd) already placed into court-appointed liquidation processes in March and April 2024[29][101] - The Company's financial statements are prepared on a going concern basis, but management has concluded that conditions raise substantial doubt about its ability to continue as a going concern for at least one year due to a $19.76 million loss after tax, negative working capital of $30.39 million, and an accumulated deficit of $202.43 million as of March 31, 2024[31][33][40] - Key challenges include Bitcoin price volatility, increasing mining difficulty, the April 2024 Bitcoin halving event, and significant outstanding debts and disputes, including $6.95 million owed by Celsius Mining LLC (in bankruptcy) and a $9.09 million loan default by MIG No.1 Pty Ltd[34][35][37] - To mitigate going concern risks, the Company is pursuing new co-location agreements, refinancing debt, raising additional debt or equity, evaluating strategic transactions, monetizing assets (equipment, sites), and implementing operational efficiencies and cost-cutting measures[43] NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the key accounting policies and estimates used in preparing the financial statements, including revenue recognition, asset valuation, and financial instruments - The Company consolidates wholly or majority-owned subsidiaries, eliminating intercompany transactions. Financial statements require management estimates for areas like going concern, asset useful lives, derivative asset valuation, and contingent obligations[44][46] - Revenue recognition follows ASC 606. Digital currency mining revenue is recognized when computing power is provided and digital currency is received, measured at fair market value. Co-location revenue is based on energy usage and facility fees, typically invoiced monthly. Net energy benefits are recognized over the service period based on estimated curtailment. Equipment sales revenue is recognized upon transfer of control[47][49][51][53][56] - Property and equipment are stated at cost, net of accumulated depreciation, and depreciated using straight-line or declining balance methods over estimated useful lives (e.g., miners 2 years, modular data centers 5 years). Assets are reviewed for impairment when circumstances indicate carrying amount may not be recoverable[57][58][60] - Financial instruments are accounted for under ASC 820, Fair Value Measurements, using a three-level hierarchy. The Company's derivative asset (Power Supply Agreement) is classified as Level 3 due to significant unobservable inputs in its valuation model, including a 20% discount rate above observable market inputs for company-specific risk factors[62][63][66] - Digital currencies (bitcoin) are classified as indefinite-lived intangible assets under ASC 350 and are assessed for impairment annually or more frequently. The Company's policy is to dispose of bitcoin received from mining operations at the earliest opportunity, minimizing impairment risk. No impairment charges were recorded in Q1 2024 or Q1 2023[68][70][71] - The Company does not expect ASU 2023-08 (Accounting for and Disclosure of Crypto Assets), effective January 1, 2025, to have a material impact on its financial statements due to its minimal bitcoin holding period[73] NOTE 3 – SUBSIDIARY DECONSOLIDATION This note details the deconsolidation of an Australian subsidiary due to liquidation and its resulting financial impact - On March 19, 2024, the Australian subsidiary MIG No.1 Pty Ltd was placed into court-appointed liquidation due to insolvency and was deconsolidated from the Company's financial statements. This resulted in a loss on deconsolidation of $11.93 million[74] - The Company's investment in MIG No.1 was valued at $0 at deconsolidation. Intercompany payables of $1.24 million owed to MIG No.1 are now treated as external payables[75][76] - MIG No.1 had a $9.09 million secured loan facility with Marshall Investments, for which the Company is a guarantor. Marshall appointed receivers for the secured assets (5,372 miners and 8 modular data centers) held by MIG No.1[77][88] NOTE 4 – BASIC AND DILUTED NET LOSS PER SHARE This note explains the calculation of basic and diluted net loss per share and lists potentially dilutive securities - Basic loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding. Diluted net loss per share does not include dilutive common stock equivalents as they would be anti-dilutive[78] Potentially Dilutive Securities (As of March 31, 2024 vs. 2023) | Security Type | March 31, 2024 () | March 31, 2023 () | | :------------------------------------ | :------------- | :------------- | | Warrants to purchase common stock | 4,904,016 | 2,825,278 | | Options to purchase common stock | 1,750,417 | 417 | | Restricted Stock-Units ("RSUs") | 8,823,321 | 303,450 | | Total Potentially Dilutive Securities | 15,477,754 | 3,129,145 | NOTE 5 – LEASES This note provides details on the company's operating and finance leases, including associated costs and liabilities - The Company's leases consist of operating leases for mining sites and finance leases primarily for plant and equipment. A lease for a non-operating property in Sharon, Pennsylvania was terminated on February 2, 2024[80] Lease Costs (Three Months Ended March 31, 2024 vs. 2023) | Lease Cost Type | March 31, 2024 ($) | March 31, 2023 ($) | | :-------------------------- | :------------- | :------------- | | Operating lease charges | $397,894 | $407,212 | | Amortization of right-of-use assets | $8,143 | $8,143 | | Interest on lease obligations | $1,507 | $2,080 | Lease Liabilities by Contractual Maturity (As of March 31, 2024) | Year | Operating Leases ($) | Finance Leases ($) | | :--- | :--------------- | :------------- | | 2024 | $920,838 | $28,633 | | 2025 | $325,554 | $38,176 | | 2026 | $155,969 | $15,016 | | Total undiscounted lease obligations | $1,402,361 | $81,825 | | Total present value of lease liabilities | $1,298,802 | $75,187 | | Non-current lease liabilities | $410,165 | $41,510 | | Weighted-average remaining lease term (years) | 1.48 | 2.15 | | Weighted-average discount rate (%) | 10.00% | 7.50% | NOTE 6 – PROPERTY AND EQUIPMENT This note presents the breakdown of property and equipment, net of depreciation, and related expenses Property and Equipment, Net (As of March 31, 2024 vs. December 31, 2023) | Asset Class | March 31, 2024 ($) | December 31, 2023 ($) | | :-------------------------- | :------------- | :---------------- | | Processing machines (Miners) | $77,447,520 | $102,984,186 | | Modular data center | $21,346,757 | $25,449,717 | | Total | $119,652,245 | $149,825,787 | | Less: Accumulated depreciation | $(83,282,367) | $(92,085,496) | | Property and equipment, net | $36,369,878 | $57,740,291 | - Depreciation and amortization expense for the quarter ended March 31, 2024, was $7.99 million, compared to $7.96 million for the same period in 2023. No impairment charges were recognized for property and equipment in either period[84] NOTE 7 – INCOME TAXES This note describes the company's income tax accounting policies, deferred tax assets, and effective tax rate - The Company uses the asset and liability method for income taxes, recognizing deferred tax assets and liabilities for temporary differences. A valuation allowance is established if recovery of deferred tax assets is not probable[85] - Management concluded that it is more likely than not that the Company will not realize the benefits of net deferred tax assets as of March 31, 2024, given its history of losses[85] Effective Income Tax Rate (Three Months Ended March 31, 2024 vs. 2023) | Metric | March 31, 2024 (%) | March 31, 2023 (%) | | :-------------------- | :------------- | :------------- | | Effective income tax rate | 0.30% | 0.00% | NOTE 8 – BORROWINGS This note details the company's various loan defaults and the associated financial and legal implications - Marshall loan: MIG No. 1 Pty Ltd's $9.09 million secured loan matured in February 2024 and is in default, with no principal or interest payments since May 2023. Marshall appointed receivers for the secured assets (miners and MDCs) after MIG No.1's liquidation[88] - Celsius loan: Luna Squares LLC's $8.82 million secured promissory note matured on August 23, 2023, and is in default. Celsius Mining LLC, now in Chapter 11 bankruptcy, transferred the note to Celsius Network Ltd. A dispute over a $15.33 million deposit is ongoing, with a civil lawsuit dismissed in favor of arbitration[89] - W Capital loan: The Company guarantees a $1.13 million (AUD $1.77 million) secured working capital loan for Mawson Infrastructure Group Pty Ltd, which expired in March 2023 and is in default. Mawson Infrastructure Group Pty Ltd is in voluntary administration, and W Capital Advisors appointed receivers[90] - Convertible notes: An outstanding balance of $0.91 million as of March 31, 2024, relates to accrued interest on secured convertible promissory notes issued in July 2022, all classified as current liability[91] NOTE 9 – STOCKHOLDERS' EQUITY This note provides information on common stock, outstanding warrants, equity plans, and stock-based compensation expenses - No movement in common stock during Q1 2024. Outstanding stock warrants as of March 31, 2024, totaled 4,904,016, with a weighted average exercise price of $11.07 and a remaining contractual life of 3.40 years[92][93] - The 2021 Equity Plan shares increased to 11,000,000 on January 1, 2024. The Board approved a new 2024 Omnibus Equity Plan with an initial 10,000,000 shares, pending stockholder approval on June 12, 2024[94] Stock-Based Compensation Expense (Three Months Ended March 31, 2024 vs. 2023) | Compensation Type | March 31, 2024 ($) | March 31, 2023 ($) | | :------------------------------------ | :------------- | :------------- | | Performance-based restricted stock awards | $55,983 | $166,779 | | Service-based restricted stock awards | $6,180,528 | $29,995 | | Stock issued to consultants | - | $371,014 | | Warrant expense | - | $500,500 | | Option expense* | $(1,335,027) | - | | Total stock-based compensation | $4,901,484 | $1,068,288 | *Option expense includes a reversal for cancelled option awards from 2023. - As of March 31, 2024, unrecognized compensation costs were approximately $0.06 million for performance-based awards (vesting over ~4 months), $2.88 million for service-based awards (vesting over ~11 months), and $0.54 million for stock options (vesting over ~8 months)[98][99][100] NOTE 10 – SUBSEQUENT EVENTS This note discloses significant events that occurred after the reporting period, including further subsidiary liquidations and new legal claims - In April 2024, two more Australian subsidiaries, Mawson AU Pty Ltd and Mawson Services Pty Ltd, were placed into court-appointed liquidation and wind-up processes[101] - On April 19, 2024, Blockware Solutions, LLC filed a civil suit against Mawson Bellefonte LLC and the Company, claiming $115,500 in merchandise price and incidental damages, $358,689 in consequential damages for lost profits, and other non-specified damages for alleged non-payment. The Company intends to defend against these claims[102] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes Q1 2024 financial condition and operations, highlighting revenue growth, net loss, and liquidity challenges, including non-GAAP measures Company Overview This section provides an overview of Mawson Infrastructure Group Inc.'s business, operations, and strategic focus on digital infrastructure and renewable energy - Mawson Infrastructure Group Inc. is a US-based digital infrastructure company, operating Bitcoin self-mining, co-location services, and energy markets. It focuses on supporting the Bitcoin network with renewable energy sources[111][113][114][116] Recent Developments This section outlines recent corporate developments, including lease terminations, board resolutions, subsidiary liquidations, and new legal challenges - The Company terminated a lease for a non-operational site in Sharon, Pennsylvania on February 2, 2024[119] - Following an Audit Committee investigation into potential undisclosed related party transactions by former CEO James Manning, the Board resolved on February 19, 2024, not to issue certain RSUs, payments, and equity grants provided in his May 2023 Separation Agreement[120] - Several Australian subsidiaries (MIG No.1 Pty Ltd, Mawson AU Pty Ltd, Mawson Services Pty Ltd) were placed into court-appointed liquidation processes in March and April 2024, with the Company announcing a potential exit from all Australian holdings[121][122] - Ryan Costello was appointed Chair of the Board of Directors effective April 9, 2024[121] - A civil suit was filed on April 19, 2024, by Blockware Solutions, LLC against Mawson Bellefonte LLC and the Company, alleging non-payment and claiming over $474,000 in damages[123] Results of Operations – Three months Ended March 31, 2024 compared to the three months ended March 31, 2023 This section compares the company's operational results for Q1 2024 and Q1 2023, analyzing revenue, operating expenses, and non-operating items Revenue Comparison (Three Months Ended March 31, 2024 vs. 2023) | Revenue Type | March 31, 2024 ($) | March 31, 2023 ($) | Change ($) | Change (%) | | :-------------------------- | :------------- | :------------- | :--------- | :--------- | | Digital currency mining revenue | $7,514,763 | $2,756,000 | $4,758,763 | 172% | | Co-location revenue | $8,234,041 | $4,322,553 | $3,911,488 | 90% | | Net energy benefits | $2,472,505 | $441,055 | $2,031,450 | 461% | | Sale of equipment | $550,000 | $150,997 | $399,003 | 264% | | Total revenues | $18,771,309 | $7,670,605 | $11,100,704 | 145% | - Digital currency mining revenue increased by 172% due to the completion of self-mining operations transition to Pennsylvania facilities, a 140% increase in average Bitcoin price ($54,468 in Q1 2024 vs. $22,721 in Q1 2023), and a 16% increase in Bitcoin produced (140.20 in Q1 2024 vs. 121.11 in Q1 2023), partially offset by higher network difficulty[126] - Co-location services revenue increased by 90% due to serving multiple co-location customers in Q1 2024, compared to only one customer in Q1 2023[127] - Net energy benefits revenue surged by 461% due to increased participation in energy programs in Q1 2024, driven by higher power costs[128] Operating Expenses Comparison (Three Months Ended March 31, 2024 vs. 2023) | Expense Type | March 31, 2024 ($) | March 31, 2023 ($) | Change ($) | Change (%) | | :------------------------------------ | :------------- | :------------- | :--------- | :--------- | | Cost of revenues (excluding depreciation) | $11,786,168 | $4,678,002 | $7,108,166 | 152% | | Selling, general and administrative | $3,463,923 | $4,977,417 | $(1,513,494) | -30% | | Stock based compensation | $4,901,484 | $1,068,288 | $3,833,196 | 359% | | Depreciation and amortization | $7,999,076 | $7,962,523 | $36,553 | 0.5% | | Change in fair value of derivative asset | $(1,686,152) | $681,225 | $(2,367,377) | -347% | | Total operating expenses | $14,678,331 | $14,689,453 | $(11,122) | -0.08% | | Loss from operations | $(7,693,190) | $(11,696,850) | $4,003,660 | -34% | - Cost of revenue increased by 152% primarily due to higher power costs for mining and co-location services[130] - Selling, general and administrative expenses decreased by 30% due to cost reduction and optimization actions, including lower payroll, property tax, freight, marketing, rent, and contract labor costs[132] - Stock-based compensation increased by 359% due to costs for long-term incentives for directors, management, and employees in Q1 2024, compared to warrants and shares issued to specific entities and long-term incentives in Q1 2023[133] - A gain on the fair value of the derivative asset of $1.69 million was recognized in Q1 2024 (vs. a $0.68 million loss in Q1 2023) due to an increase in energy costs[135] Non-Operating Income (Expense) Comparison (Three Months Ended March 31, 2024 vs. 2023) | Non-Operating Item | March 31, 2024 ($) | March 31, 2023 ($) | Change ($) | | :------------------------------------ | :------------- | :------------- | :--------- | | Gains (losses) on foreign currency transactions | $169,638 | $(418,216) | $587,854 | | Interest expense | $(734,580) | $(835,107) | $100,527 | | Loss on deconsolidation | $(11,925,908) | - | $(11,925,908) | | Total non-operating income (expense), net | $(12,335,482) | $863,975 | $(13,199,457) | | Net Loss attributed to Mawson Infrastructure Group stockholders | $(19,764,199) | $(11,102,025) | $(8,662,174) | - Interest expense decreased by $0.11 million due to debt paydowns. A significant deconsolidation loss of $11.93 million was recognized in Q1 2024 due to the liquidation of the Australian subsidiary MIG No.1 Pty Ltd[136][137] - The Company reported a net loss of $19.76 million for Q1 2024, an increase from $11.10 million in Q1 2023, primarily driven by the deconsolidation loss[139] Liquidity and Capital Resources This section discusses the company's liquidity position, capital resources, cash flow activities, and material cash requirements, highlighting ongoing financial challenges - For Q1 2024, operations were financed primarily through $1.88 million in net cash provided by operating activities and existing cash reserves. The Company repaid $0.50 million in principal payments against W Capital Advisors Pty Ltd facilities[141] - Sales of common stock through an 'at the market offering' program (up to $9 million) have been inactive since May 2023 and are not expected to resume until at least August 2024, pending eligibility for Form S-3 registration statements[142] - As of March 31, 2024, the Company had $19.13 million in outstanding short-term borrowings, all overdue for repayment, and negative working capital of $30.39 million (compared to $33.18 million at December 31, 2023)[143][145] - The Company's cash and cash equivalents increased to $6.37 million as of March 31, 2024, from $4.48 million at December 31, 2023[145] Major Components of Net Cash Flows (Three Months Ended March 31, 2024 vs. 2023) | Cash Flow Activity | March 31, 2024 ($) | March 31, 2023 ($) | | :-------------------------------- | :------------- | :------------- | | Net cash provided by operating activities | $1,875,647 | $1,316,592 | | Net cash provided by investing activities | $530,640 | $4,069,294 | | Net cash used in financing activities | $(509,544) | $(4,935,714) | - Net cash from operating activities increased due to operations and timing differences in receivables and payables. Net cash from investing activities decreased significantly due to lower proceeds from marketable securities sales (CleanSpark, Inc. shares in 2023). Net cash used in financing activities decreased due to lower repayment of borrowings[147][148][149] - Material cash requirements include overdue loans from Celsius Mining LLC ($8.82 million), Marshall Investments ($9.09 million), W Capital Advisors Pty Ltd ($1.13 million), and accrued interest on convertible notes ($0.91 million)[151][152][154][155] - The Company is in a legal dispute with CleanSpark, Inc. over a $2 million energy earnout payment, which an arbitrator dismissed for lack of jurisdiction, prompting the Company to pursue a civil lawsuit[156] - Additional capital is required for debt repayment, competitive pressures, and business growth. Inability to secure adequate financing could severely limit operations and lead to adverse financial outcomes, including bankruptcy[158] - The Company is actively preserving cash by optimizing costs, negotiating with suppliers, and improving revenue generation through operational efficiency and new co-location customers[159] Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures, specifically Adjusted EBITDA, used by management to assess performance and make operating decisions - The Company uses non-GAAP financial measures, specifically Adjusted EBITDA, to assess performance, make operating decisions, and for forecasting. Adjusted EBITDA excludes interest, income tax, depreciation, amortization, stock-based compensation, change in fair value of derivative asset, impairment, unrealized gains/losses, equity method investment losses, deconsolidation loss, and non-recurring expenses[161][162] Reconciliation of Non-GAAP Adjusted EBITDA (Three Months Ended March 31, 2024 vs. 2023) | Metric | March 31, 2024 ($) | March 31, 2023 ($) | | :------------------------------------ | :------------- | :------------- | | Net loss | $(19,969,285) | $(11,380,958) | | Depreciation and amortization | $7,999,076 | $7,962,523 | | Stock based compensation | $4,901,484 | $1,068,288 | | Change in fair value of derivative asset | $(1,686,152) | $681,225 | | Loss on deconsolidation | $11,925,908 | - | | EBITDA (non-GAAP) | $3,521,218 | $243,263 | Critical accounting estimates This section addresses management's critical accounting estimates, judgments, and assumptions used in financial statement preparation - The preparation of financial statements requires management to make estimates, judgments, and assumptions that affect reported amounts. No material changes to critical accounting policies and estimates were reported compared to the Annual Report on Form 10-K for December 31, 2023[164] Item 3. Quantitative and Qualitative Disclosures About Market Risks As a smaller reporting company, Mawson Infrastructure Group Inc. has elected not to provide the quantitative and qualitative disclosures about market risks - The Company, as a smaller reporting company, has opted not to provide disclosures regarding quantitative and qualitative market risks[165] Item 4. Controls and Procedures This section details the evaluation of disclosure controls and procedures, concluding they were not effective due to material weaknesses, with ongoing remediation efforts yet to be fully tested Evaluation of disclosure controls and procedures This section evaluates the effectiveness of the company's disclosure controls and procedures, noting material weaknesses in internal control over financial reporting - The Company's disclosure controls and procedures were deemed not effective at the reasonable assurance level as of March 31, 2024, due to material weaknesses in internal control over financial reporting[166] - Material weaknesses identified include: (1) Significant Reliance on Certain Individuals due to inadequate segregation of duties and insufficient accounting personnel; (2) Controls over the financial statement close and reporting process, particularly for complex transactions like acquisitions, divestitures, and derivatives; (3) Information and Technology Controls, including lack of controls over program access, changes, and development; (4) Data from third parties, lacking resources to validate completeness and accuracy; and (5) Fixed asset verification, due to insufficient personnel and system limitations[169][170][171][172][173][174] - Despite the material weaknesses, management believes the consolidated condensed financial statements fairly present the Company's financial condition, results of operations, and cash flows, relying on outside advisors for preparation[175] Remediation This section outlines the ongoing remediation efforts to address identified material weaknesses in internal controls, emphasizing that effectiveness is yet to be fully tested - Remediation efforts are ongoing, focusing on risk assessment, developing formal policies and procedures, improving control activities (including segregation of duties), and hiring additional finance personnel[176] - Material weaknesses will not be considered remediated until controls have operated for a sufficient period and have been tested for effectiveness, which has not yet been concluded as of the report date[177] - Future remediation will focus on implementing remaining controls, refining existing ones, and validating effectiveness using COSO criteria. There is no assurance that remediation efforts will be successful or that internal controls will be effective[178] Changes in internal control over financial reporting This section reports on any material changes in internal control over financial reporting during the most recently completed fiscal quarter - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during the most recently completed fiscal quarter, other than the described remedial measures[179] Limitations on Effectiveness of Controls and Procedures and Internal Control over Financial Reporting This section discusses the inherent limitations of controls and procedures, which can only provide reasonable assurance due to resource constraints and judgment - Controls and procedures, regardless of design, can only provide reasonable assurance of achieving objectives due to inherent limitations and resource constraints, requiring management judgment in evaluating cost-benefit relationships[180] PART II – OTHER INFORMATION This section provides additional disclosures not included in the financial statements, covering legal proceedings, risk factors, and other relevant information Item 1. Legal Proceedings This section details ongoing legal proceedings and disputes, including subsidiary liquidations, that could significantly impact the Company's financial position - Celsius Mining LLC filed an adversary proceeding against Mawson and its subsidiaries, claiming $8 million under a promissory note and entitlement to return of a $15.33 million deposit. Mawson successfully compelled arbitration, dismissing the civil lawsuit as of May 1, 2024[182] - Mawson and Luna Squares LLC demanded $2 million from CleanSpark Inc. for breach of an energy earnout provision. An arbitration claim was dismissed for lack of jurisdiction, and the Company intends to pursue a civil lawsuit[183] - W Capital Advisors Pty Ltd filed a civil suit in Australia against Mawson, claiming US$166,219 in unpaid interest under a convertible note and AUD$298,926 under a loan deed, plus interest and costs, based on a corporate guarantee. Mawson is investigating if W Capital is a related party to former director James Manning[184] - Flynt ICS Pty Ltd, a party related to former director James Manning, made a commercial demand of $129,930 to MIG No. 1 Pty Ltd for alleged sums due under a service agreement. MIG No.1 Pty Ltd was subsequently liquidated[186] - A former independent contractor, Noam Danenberg, allegedly filed a civil suit in Israel for $90,000 in fees, though the Company has not been formally served[187] - Mawson Infrastructure Group Pty Ltd (an Australian subsidiary) was placed into voluntary administration on October 30, 2023, and W Capital Advisors appointed receivers on November 3, 2023[188] - Mawson disputes W Capital's claims for an additional AU$1.30 million and 1,500,000 shares, having already paid $0.50 million on a convertible note principal[189] - Two more Australian subsidiaries, Mawson AU Pty Ltd and Mawson Services Pty Ltd, were placed into court-appointed liquidation processes in April 2024[191] Item 1A. Risk Factors This section highlights key risks, especially the uncertain impact of the April 2024 Bitcoin halving event on self-mining revenue and co-location services, potentially affecting financial prospects - The Bitcoin halving event in April 2024, which reduced block rewards by 50%, introduces significant uncertainty. If Bitcoin prices do not sufficiently appreciate, self-mining revenue and co-location services could be materially and adversely impacted, potentially requiring modifications to operating plans and growth strategies[193] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities This section confirms no unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities occurred during the reporting period - No unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities occurred during the period[194] Item 3. Defaults Upon Senior Securities This section details multiple defaults on senior securities, including various loans, exposing the Company to potential creditor actions like accelerated debt repayment or collateral seizure - Luna Squares LLC is in default on the $8.82 million Celsius Promissory Note, which matured on August 23, 2023. Celsius Network Ltd has notified Luna Squares of default interest payable, and a civil lawsuit was dismissed in favor of arbitration[194] - MIG No. 1 Pty Ltd is in default on its $9.09 million secured loan facility with Marshall Investments, having made no principal or interest payments since May 2023. Marshall appointed receivers for the secured assets after MIG No.1's liquidation[195] - The Company is in default on its guarantee for Mawson Infrastructure Group Pty Ltd's $1.13 million (AUD $1.77 million) Secured Loan Facility with W Capital Advisors Pty Ltd, which expired in March 2023 and is in default. W Capital appointed receivers after Mawson Infrastructure Group Pty Ltd entered voluntary administration[197] - The Company is in default on outstanding interest ($0.91 million) on a Secured Convertible Promissory Note with W Capital Advisors Pty Ltd, which matured in July 2023. W Capital is claiming additional amounts and shares, which the Company disputes[198] - These defaults may lead to creditors accelerating debt repayment, pursuing legal action, raising interest rates, or taking measures concerning collateral[199] Item 4. Mine Safety Disclosures This item is not applicable to the Company - This item is not applicable[200] Item 5. Other Information This section reports no director or officer trading arrangement changes and a termination notice for the Perry County, Ohio ground lease, with options under discussion - No director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter ended March 31, 2024[201] - On May 9, 2024, the Company received a termination notice for its ground lease on unimproved property in Perry County, Ohio, and is currently discussing potential options[202] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, equity forms, customer service addendum, SOX certifications, and XBRL financial statements - The exhibits include various corporate governance documents (Certificates of Incorporation, Bylaws), equity-related forms (Common Warrant, Pre-Funded Warrant, Placement Agent Warrant, Warrant Amendment Agreement), a Customer Service Addendum, certifications from principal executive and financial officers (Sarbanes-Oxley Act Sections 302 and 906), and Inline XBRL formatted financial statements[204] Signatures This section contains the signatures of the CEO and President, Rahul Mewawalla, and CFO, William Harrison, certifying the report filing on May 15, 2024 - The report is signed by Rahul Mewawalla, Chief Executive Officer and President, and William Harrison, Chief Financial Officer, on May 15, 2024, certifying its filing on behalf of Mawson Infrastructure Group Inc.[208][209][210]