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General | 6 Months Ended
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Jun. 30, 2023
General [Abstract] |
GENERAL | NOTE 1 – GENERAL General Mawson Infrastructure Group, Inc. (the “Company” or “Mawson” or “we”), was incorporated in the State of Delaware on February 10, 2012. Mawson, through its subsidiaries, is a ‘Digital Asset Infrastructure’ business, which owns and operates data centers in the United States. As at June 30, 2023, Mawson owned 23,458 Application-Specific Integrated Circuit (“ASIC”) computers known as “Miners,” specifically focused on the SHA-256 algorithm. The accompanying consolidated financial statements, including the results of the Company’s subsidiaries: Mawson Infrastructure Group Pty Ltd (“Mawson AU”), Cosmos Trading Pty Ltd, Cosmos Infrastructure LLC, Cosmos Manager LLC, MIG No.1 Pty Ltd, MIG No.1 LLC, Mawson AU Pty Ltd, Luna Squares LLC, Mawson Bellefonte LLC (formed May 5, 2023), Luna Squares Repairs LLC, Luna Squares Property LLC, Mawson Midland LLC, Mawson Hosting LLC, Mawson Ohio LLC and Mawson Mining LLC (collectively referred to as the “Group”), have been prepared by the Company, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). These consolidated, condensed unaudited interim financial statements should be read in conjunction with the audited consolidated financial statements of the Group as of December 31, 2022, and the notes thereto, included in the Company’s Annual Report on Form 10-K filed with SEC on March 23, 2023. Accordingly, they do not include all the information and footnotes required by U.S GAAP for complete financial statements. The results of the interim period are not necessarily indicative of the results to be expected for the full year ending December 31, 2023. These consolidated, condensed interim financial statements reflect all adjustments which, in the opinion of management, are necessary to present fairly the financial position, the results of operations and cash flows of the Company for the periods presented. Going Concern The accompanying unaudited consolidated condensed financial statements have been prepared assuming the Company will continue as a going concern basis and in accordance with generally accepted accounting principles in the United States of America. The going concern basis of presentation assumes that the company will continue in operation one year after the date these financial statements are issued and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. Pursuant to the requirements of the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date these financial statements are issued. This evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. For the six month period ended June 30, 2023, the Company incurred a loss after tax of $29.03 million, and as at June 30, 2023, had net current liabilities of $32.30 million, had total net assets of $55.33 million and had an accumulated deficit of $150.70 million. The Company’s cash position as at June 30, 2023, was $5.61 million. Bitcoin prices have recovered from their lows of approximately $16,000 in late 2022 to approximately $30,000 recently, however this price is still substantially less than the previous highs of approximately $67,000 in late 2021. In addition, the difficulty of earning Bitcoin is approximately 70% higher than the same time last year, and trending higher, which means the Company typically earns less Bitcoin for the same effort. In addition, the rewards that Bitcoin miners earn are expected to halve (not including transaction fees) in or about April or May 2024. The Company’s miners and other mining equipment will require replacement over time to ensure that the Company can continue to competitively and efficiently produce Bitcoin. These trend factors are outside the Company’s direct control, and the Company may not be able to practically mitigate their impact. The Company cannot predict with any certainty whether these trends will reverse or persist. On July 20, 2023 we received a notice from Celsius Mining LLC that Celsius Mining LLC does not intend to renew its Customer Equipment Co-Location Agreement (“Co-Location Agreement”), under which it receives hosting services from Luna Squares LLC (a subsidiary of the Company), and that it will expire in accordance with its terms. Celsius Mining LLC is currently the Company’s only hosting customer. The Company hosts approximately 20,000 miners for Celsius Mining LLC. In addition, Celsius Mining LLC has made certain allegations against Luna Squares LLC in respect of its performance under the Co-Location Agreement. Luna Squares LLC has made certain allegations against Celsius Mining LLC in respect of its performance under the Co-Location Agreement. There is a risk of a dispute or litigation arising out of these cross allegations, which also relate to the advanced deposit paid by Celsius Mining LLC to Luna Squares LLC valued at $15.33 million (the “Celsius Deposit”) and Luna Squares LLC’s and Celsius Mining LLC’s performance under the Co-Location Agreement. Luna Squares LLC claims, amongst other things, that the deposit, in full or in part, has been forfeited due to Celsius Mining LLC’s breaches and its other actions or inactions under the Co-Location Agreement. If Celsius Mining LLC prevails on the dispute, Luna Squares LLC could be required to return the deposit to Celsius Mining LLC. While this amount is included as a current liability within trade and other payables in the consolidated condensed Balance Sheet, the outcome of the dispute is uncertain. In addition, Celsius Mining LLC has failed to pay approximately $3.40 million worth of pre-petition and post-petition hosting invoices. Celsius Mining LLC and Luna Squares LLC have indicated a willingness to continue discussions for hosting services including related to the Co-Location Agreement, and the timing and outcome of such discussions are uncertain. Hosting revenue accounts for a substantial part of the Company’s revenue. The Company is in active discussions with potential new customers for hosting services to replace Celsius, however there is no certainty that the Company will be able to enter into hosting agreements with new customers in a timely manner, or at all, or that the agreements with the new customers will replace all the revenue that Celsius Mining LLC generates for the Company. The Company may decide to use the hosting infrastructure’s capacity to self-mine or for other purposes, however it will need to raise a potentially significant amount of capital to finance and acquire further hardware (specifically miners) for self-mining and the potential timing and outcome of these other potential options are uncertain. In addition to the Celsius Deposit, in connection with the Co-Location Agreement, Celsius Mining LLC loaned $20 million to Luna Squares LLC, through a Secured Promissory Note (the “Celsius Promissory Note”), which has a maturity date of August 23, 2023, and an outstanding balance as at June 30, 2023, of $11.33 million. On July 18, 2023 Luna Squares LLC paid to Celsius Mining LLC $3.33 million as principal and interest. Celsius Mining LLC is currently in default on payments on the Co-Location Agreement to Luna Squares LLC, and the Company and Luna Squares LLC have reserved all rights. Celsius Mining LLC filed for Chapter 11 bankruptcy protection on July 13, 2022. On July 25, 2023, Celsius Mining LLC filed a Debtors’ Ex Parte Motion for an Order Under Federal Rules of Bankruptcy for Subpoenas for Examination of, and Production of Documents from Mawson Infrastructure Group Inc., Luna Squares LLC, and Cosmos Infrastructure LLC, and the Bankruptcy Court entered an Order on July 26, 2023. Celsius Mining LLC has indicated it intends to use the process of discovery to evaluate the status of the liens securing the Celsius Promissory Note and other potential claims Celsius Mining LLC may have against Mawson and its related entities, including with respect to the Co-Location Agreement. The discovery process is ongoing. The Company has a Secured Loan Facility Agreement with Marshall Investments GCP Pty Ltd ATF for the Marshall Investments MIG Trust (“Marshall”). The loan matures in February 2024 and the outstanding balance is $8.07 million as at June 30, 2023. On June 30, 2023, MIG No. 1 Pty Ltd did not make a principal and interest payment of $0.50 million. MIG No. 1 Pty Ltd and Marshall are in ongoing discussions with respect to the payment, and the loan terms generally. Marshall and MIG No. 1 Pty Ltd have each reserved their rights. A subsidiary of the Company, Mawson Infrastructure Group Pty Ltd (“MIG PL”) has a Secured Loan Facility Agreement for working capital with W Capital Advisors Pty Ltd with a total loan facility of AUD$8 million (USD$5.2 million) (“Working Capital Loan”). As at June 30, 2023, AUD$1.46 million (USD$0.97 million) has been drawn down from this facility. The Secured Loan Facility expired in March 2023 and the Company and W Capital Advisors Pty Ltd are in ongoing discussions regarding the terms and extension of the loan. W Capital Advisors Pty Ltd and MIG PL have each reserved their rights. The Company has a Secured Convertible Promissory Note with W Capital Advisors Pty Ltd with an outstanding balance of $0.50 million as at June 30, 2023. The Convertible Note matured in July 2023 and the Company is in ongoing discussions with the noteholder. W Capital Advisors Pty Ltd and the Company have each reserved their rights. The Company has not fulfilled specific payment obligations related to the Marshall loan, the Working Capital Loan and Secured Convertible Promissory Note mentioned above. Consequently, the creditors associated with these debt facilities may initiate actions as allowed by relevant grace periods. This includes the possibility of opting to expedite the repayment of the principal debt, pursuing legal action against the Company for payment default, raising interest rates to the default rate, or taking appropriate measures concerning collateral, if applicable. The Company has evaluated the above conditions and concluded that these conditions raise substantial doubt regarding our ability to continue as a going concern for a period of at least one year from the date of issuance of these unaudited condensed consolidated financial statements. To alleviate these conditions, the Company has explored various avenues to enhance liquidity, fund the Company’s expenditures, and meet debt servicing requirements. These strategies include, among others:
| ● | Engage in discussions with new and existing lenders, including related to refinancing debt, raising additional debt, or modifying terms of existing debt.
| ● | Considering equity issuances such as capital raises
| ● | Assessing and evaluating corporate and strategic transactions including engaging an investment bank.
| ● | Assessing and evaluating monetizing specific assets, including potential sales of mining infrastructure equipment, miners, operational sites, or expansion locations under consideration.
| ● | Conducting assessments to identify and implement operational efficiencies, cost-cutting measures, and other actions aimed at enhancing revenue and optimizing expenses.
Although the Company may have access to debt, equity and other sources of funding, these may require additional time and cost, may impose operational restrictions and other covenants on the Company, may not be available on attractive terms, and may not be available at all. If the Company raises additional capital or debt, this could cause additional dilution to the Company’s current stockholders. The terms of any future capital raise or debt issuance and the costs of any financing are uncertain and may be unfavorable to the Company. In addition, pursuant to terms and provisions of previous fundraising, the Company is subject to certain restrictive covenants that put restrictions on the Company. Should the Company be unable to source sufficient funding, the Company may not be able to realize assets at their recognized values and fulfill its liabilities in the normal course of business at the amounts stated in these consolidated financial statements. The Company has engaged Needham and Company, an investment bank, and is obtaining advice from outside legal counsel. It is important to note that strategic and other initiatives may not lead to any transaction or other outcome. These condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and other commitments in the normal course of business. They do not include any adjustments relating to the recoverability and carrying amounts of assets and the amounts of liabilities should the Company be unable to continue as a going concern and meet its obligations and debts as and when they fall due.

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