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Summary of Significant Accounting Policies | 3 Months Ended
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Mar. 31, 2021
Accounting Policies [Abstract] |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation and basis of preparation These consolidated, condensed financial statements should be read in conjunction with the consolidated financial statements for Cosmos Capital Limited and subsidiaries as of December 31, 2020, and the notes thereto, included in the Company’s Current Report on Form 8-K/A filed May 13, 2021. The results of the interim periods are not necessarily indicative of the results to be expected for the full year ended December 31, 2021. These consolidated 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. Any changes 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 shareholders, 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. References in these notes to the Company as of a date prior to March 9, 2021, are references to Cosmos Capital Limited and its subsidiaries, not Mawson Infrastructure Group Inc. and its subsidiaries. On March 9, 2021, Cosmos Capital Limited was acquired by the Company. For accounting purposes, this was accounted for as a reverse asset acquisition with Cosmos Capital Limited as the accounting acquirer (refer to significant accounting policies below). Use of Estimates and Assumptions The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the dates of the consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly 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 patent assets and fixed assets, realization of long-lived assets, unrealized tax positions and the realization of digital currencies, Business Combinations, Reverse Asset Acquisition, and the Contingent obligation with respect to future revenues. Critical Accounting Policies Critical accounting policies are described in the footnotes to the consolidated financial statements for Cosmos Capital Limited and subsidiaries as of December 31, 2020, included in the Company’s Current Report on Form 8-K/A filed May 13, 2021. There have been no changes to critical accounting policies in the three months period ended March 31, 2021 other than as a result of changes to operations as described below. Reverse Asset Acquisition On March 9, 2021, the Company acquired the shares of Cosmos Capital Limited in a scrip for scrip exchange. This transaction has been accounted for as a reverse asset acquisition. Under the guidance in ASC 805, Cosmos Capital Limited was determined to be the accounting acquirer based on evaluation of the following facts and circumstances:
| ● | The Cosmos Capital shareholders have the largest voting interest in the post-combination company;
| ● | Cosmos Capital management holds executive management roles for the post-combination company and is responsible for the day-to-day operations;
| ● | Cosmos Capital was significantly larger than the Company by assets, revenue, and employees; and
| ● | The purpose and intent of in combining the groups was to create an operating public company through the Company, with management continuing to use Cosmos Capital’s assets to grow the business;
The application of the initial screen test in ASC 805 determined that the LO2A IPR&D in Mawson International was a single asset and represented substantially all of the fair value of the gross assets acquired. As such, the acquisition is treated as a reverse asset acquisition. Acquired assets and liabilities of the legal parent entity are therefore measured and recognized at their relative fair values as of the date of the transaction. After a reverse asset acquisition, despite that the legal acquirer (the legal parent entity) survives as the legal parent entity and continues to issue financial statements, the financial statements reflect the accounting from the perspective of the accounting acquirer (the legal subsidiary) in that the consolidated entity reflects the accounting acquirer as the accounting parent entity, and the financial statements represent a continuation of those of the accounting acquirer, except for the legal capital, which is retroactively adjusted to reflect the capital of the legal acquirer (legal parent entity) in accordance with ASC 805-40-45-1. The fair value of the consideration given for the acquisition is as follows.
Number of shares issued |  |  | 33,052,951 |
Multiplied by the fair value per share of Mawson common stock (1) |  |  | 0.79 |
Total |  | $ | 26,111,831 |
| (1) | Based on the closing share price of Mawson common stock on the day immediately prior to the close of the transaction.
The fair values of the net tangible assets acquired at the date of acquisition are as follows:
Cash and cash equivalents |  |  | 1,102,943 |
Marketable securities |  |  | 1,096,675 |
Accounts Payable |  |  | (50,836 | )
|  | $ | 2,148,782 |
The difference between the consideration given and the fair values of the net tangible assets acquired of $23,963,050 arises as a result of the intangible asset in relation to In process research and development relating to LO2A. Due to the stage of development of this asset significant risks exist in the absence of successful clinical results and regulatory approval for the asset and that there are no reasonably likely expected alternative future uses associated with the asset and combined with the effect of the CVR instrument at the date of acquisition, management has assessed that the fair value of this asset at the acquisition date was $zero. The asset was therefore assessed as impaired and has been fully expensed as such in the consolidated statements of operations for the period ended March 31, 2021. Contingent obligation in relation to LO2A Following the reverse asset acquisition upon consummation of the share exchange and the signing of the CVR agreement, the historical LO2A assets and liabilities of the Company, are to be managed with a view to disposal within two years. Only CVR holders have an entitlement to any net proceeds from the disposal, not to the post-combination shareholders of the Company. Accordingly, the Company has assessed that the fair value associated with any future benefits accruing to the company in relation to research and development (IPR&D) is nil, and the difference between the fair value of the tangible net assets acquired and the stock issued has been expensed in these financial statements as stated above. Despite this, the LO2A contingent obligation remains, however given that there is now no entitlement to revenue on the company’s behalf, the fair value of the contingent obligation with respect to future revenues has been re-assessed as nil. For further details please refer to the Management Discussion and Analysis. Share based payments Under the terms of the Cosmos Transaction Bid Implementation Agreement the Company was required to make Share based payments consisting of up to 40,000,000 shares required to be issued under a Incentive Compensation Program and warrants issued to HC Wainwright as a fee related to the acquisition by Mawson of Cosmos. Share based payments expenses for the three months ended March 31, 2021 were $14.8 million. Share based payments were split between HC Wainwright $6.18 million and an accrual of $8.58 million for amounts related to the obligation of Mawson to issue RSU’s pursuant to the terms of the Bid Implementation Agreement for the Cosmos Transaction, included in the Company’s Current Report on Form 8-K/A filed May 13, 2021. No expenses were recorded in the 2020 period Significant Accounting Policies There have been no material changes to the Company’s significant accounting policies to those previously disclosed in the consolidated financial statements for Cosmos Capital Limited and subsidiaries as of December 31, 2020, and the notes thereto, included in the Company’s Current Report on Form 8-K/A filed May 13, 2021, other than as a result of changes to operations as described below. Revenue recognition – equipment sales In Q1 2021 the Company began to earn revenues from the sale of earlier generation cryptocurrency mining units that have been assembled or refurbished for resale. Revenue from the sale of cryptocurrency mining units is recognized when: (i) persuasive evidence of a sales arrangement exists, (ii) the sales terms are fixed or determinable, (iii) title and risk of loss have transferred, (iv) collectability is reasonably assured — generally when products are shipped to the customer and (v) payment is received. At the date of sale, the net book value is expensed in cost of revenues. Digital Currencies Digital currencies are included in current assets in the consolidated balance sheets. Digital currencies are recorded at cost less impairment. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted. The following table presents the activities of the digital currencies of the three months ended March 31, 2021;
Digital currencies at December 31, 2020 |  |  | 0.52 |
Additions of digital currencies |  |  | 123.22 |
Sale of digital currencies |  |  | (113.45 | )
Digital currencies at March 31, 2021 |  |  | 10.29 |
Investment in Distributed Storage Solutions Pty Ltd (DSS) Mawson subscribed for 500,000 shares at AUD$1.00 per share on March 1, 2020. As at March 31,2021, Mawson held 28.99% of the equity in DSS, an Australian private company operating a blockchain based decentralized storage business, based on the IPFS protocol. The business utilizes Filcoin as part of its operations to generate revenue. This investment has been equity accounted, as the company has assessed that it has significant influence over the operations of the investee. Basic and Diluted Net Loss per Share Net loss per common share is calculated in accordance with ASC Topic 260: Earnings Per Share (“ASC 260”). Basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. The computation of diluted net loss per share does not include dilutive common stock equivalents in the weighted average shares outstanding, as they would be anti-dilutive. Securities that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share at March 31, 2021 and 2020 are as follows:
|  | As at March 31, |
|  | 2021 |  |  | 2020 |
Common stock due to former Cosmos shareholders to be issued pending approval of increase to authorized capital (Note 4) |  |  | 50,558,133 |  |  |  | - |
Warrants to purchase common stock |  |  | 8,710,982 |  |  |  |  |
Restricted Stock-Units (“RSU”) issued under a management equity plan |  |  | 40,000,000 |  |  |  |  |
Mandatory convertible notes to exchange common stock |  |  | 63,626,903 |  |  |  | - |
Total |  |  | 162,896,018 |  |  |  | - |
The following table sets forth the computation of basic and diluted loss per share:
|  | As at March 31, |
|  | 2021 |  |  | 2020 |
Net loss attributable to common shareholders |  | $ | 38,520,073 |  |  |  | 529,493 |
Denominator: |  |  |  |  |  |  |  |
Weighted average common shares - basic and diluted |  |  | 442,664,781 |  |  |  | 6,578,672 |
Loss per common share - basic and diluted |  | $ | 0.087 |  |  |  | 0.080 |
Comparative average common shares have been revised by the ratio of Cosmos Capital to the Company shares exchanged in the reverse asset acquisition in March 2021. Recently Issued Accounting Pronouncements For information with respect to recent accounting pronouncements, see Note 2 to the consolidated financial statements for Cosmos Capital Limited and subsidiaries as of December 31, 2020, and the notes thereto, included in the Company’s Current Report on Form 8-K/A filed May 13, 2021. Recent accounting pronouncements include. Accounting Standards Update (“ASU”) No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”) Standard/Description– Issuance date: December 2019. This guidance simplifies various aspects of income tax accounting by removing certain exceptions to the general principle of the guidance and also clarifies and amends existing guidance to improve consistency in application. Effective Date and Adoption Considerations– The guidance was effective January 1, 2021 and early adoption was permitted. The company adopted the guidance on a prospective basis as of the effective date. Effect on Financial Statements or Other Significant Matters– The guidance did not have a material impact in the consolidated financial results. Other new pronouncements not applicable to the Company: Reference Rate Reform (“ASU 2021-01”) issued March 2020, with amendments in 2021; effective March 12, 2020 through December 31, 2022 Simplifying the Test for Goodwill Impairment (“ASU 2017-04”) issued January 2017 effective January 1, 2020; Financial Instruments - Credit Losses (“ASU 2016-13 / 2018-19 / 2019-04 / 2019-05 / 2019-10 / 2019-11”) issued June 2016 with amendments in 2018, 2019 and 2020; effective January 1, 2020

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