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Commitments and Contingencies | 3 Months Ended
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Mar. 31, 2025
Commitments and Contingencies [Abstract] |
COMMITMENTS AND CONTINGENCIES | NOTE 9 – COMMITMENTS AND CONTINGENCIES The Company accounts for its contingent liabilities in accordance with ASC 450 Contingencies. A provision is recorded when it is both probable that a liability has been incurred, and the amount of the loss can be reasonably estimated. With respect to legal matters, provisions are reviewed and adjusted to reflect the impact of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. Legal costs incurred in connection with loss contingencies are expensed as incurred. The Company is subject to the various legal proceedings and claims discussed below (and in Note 1) that have not been fully resolved and that have arisen in the ordinary course of business. In the opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss, or a material loss in excess of a recorded accrual, with respect to loss contingencies. However, the outcome of legal proceedings and claims brought against the Company is subject to significant uncertainty. Therefore, although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be materially adversely affected. Marshall Loan and W Capital Loan The Marshall Loan was entered into with an Australian entity MIG No.1, which was placed into a court appointed liquidation and wind-up process and was deconsolidated from the Group on March 19, 2024. On March 19, 2024, Marshall appointed receivers and managers in Australia under the terms of their security relating to their secured loan facility. The direct assets that secure this loan include 5,372 miners and 8 MDCs. These assets are held by MIG No.1 and therefore were included in the deconsolidation. The receiver’s statutory duty includes the obligation to sell the secured assets at market value or, if market value is not known, at the best price reasonably obtainable to maximize the prospects of there being sufficient proceeds available to satisfy the balance of the outstanding secured debt. It is therefore expected that this loan balance will be offset in the future by the amount received from the sale of these miners and MDCs. On June 25, 2024, Marshall inspected and inventoried the miners and MDCs located at the Company’s Midland facilities. The Company had asked Marshall to take these assets out of the Company’s facilities. Marshall has not responded to the Company’s request for these miners and MDCs to be removed from the Company’s facilities. The Company is reserving all its rights and remedies against Marshall. The W Capital Loan was originally with Mawson PL and this Australian entity was placed into Australian voluntary administration on October 30, 2023 and on November 3, 2023, W Capital appointed receivers and managers in Australia under the terms of their security relating to their working capital facility. The Company has corresponded with W Capital and/or its representatives, the Company’s ongoing significant concerns about W Capital and James Manning, a former board director and Chief Executive Officer of the Company (“Manning”), being related parties. W Capital has not responded to the Company’s concerns in a manner satisfactory to the Company. On October 3, 2024, a proceeding was filed by W Capital and Marshall against the Company before the Federal Court of Australia, New South Wales (the “Australian Court”), in the matter entitled W Capital Advisors Pty Ltd, in its capacity as Trustee for the W Capital Advisors Fund, v. Mawson Infrastructure Group, Inc., No. NSD 1395/2024. In an effort to force the Company to pay the W Capital Loan and the Marshall Loan, W Capital and Marshall sought to have the Company declared insolvent under Australian law on the grounds that the Company failed to pay W Capital the sums it claims the Company owed it under the aforesaid Australian judgment. On February 11, 2025, the Australian Court declared that Mawson be “wound up” under Australian law. However, Mawson has no assets, revenue or other business in Australia subject to Australian jurisdiction. It is unclear as to any adverse effect this ruling has on Mawson in the US. This Australian ruling completely disregarded the automatic stay in place as established by the involuntary Chapter 11 petition. The Company has communicated its objections and concerns to these Australian liquidator and entities. Concurrently with the above Australian litigation, on December 4, 2024, Marshall, W Capital, and Rayra Pty Ltd, as Trustee for the Mountainview Trust (“Rayra” and together with Marshall and W Capital, collectively, the “Petitioners”), all Australian entities, concurrently filed an involuntary petition (the “Involuntary Petition”) in the matter entitled In Re Mawson Infrastructure Group, Alleged Debtor, Case No. 1:24-bk-12726, under chapter 11 (“Chapter 11”) of title 11, 11 U.S.C. § 101 through 1330 (the “Bankruptcy Code”), seeking a determination of the court to force the Company into a Chapter 11 proceeding. The Petitioners have claimed in the Involuntary Petition that they have debts aggregating AUD$13.7 million (approximately USD$8.9 million). The Company is disputing this and the validity of the Involuntary Petition and the Petitioners’ debt claims, and expects to and seek other remedies against the Petitioners for bad faith, pursue sanctions, and other damages as may be allowed by applicable law. On January 10, 2025, the Company filed an answer to the Involuntary Petition. No order for relief has been entered by the Delaware Bankruptcy Court to date, and we continue to operate in the ordinary course of business as authorized pursuant to 11 U.S.C. § 303(f). Nonetheless, under applicable federal law, all collection efforts by the Company’s creditors, including W Capital and Marshall, are stayed pending final resolution of the Involuntary Petition. The matter continues in discovery phase. Both parties have filed pretrial motions seeking various remedies including dismissal prior to trial, sanctions and attorney fees, which are pending. A motion to compel discovery was filed by Mawson and was heard on May 9, 2025. On May 9, 2025, the Court granted Mawson’s motions for discovery from the Petitioners and paved pathway for discovery of Manning—including from Australia if needed. The Court further directed the parties to mediate and agreed to reach out to a sitting judge to act as mediator. Celsius made an appearance on its motions for sanctions and requested to be part of the mediation as well, which the Court allowed. The Court denied Celsius’ previously filed motion for sanctions. The trial date has been continued indefinitely to allow for the completion of discovery and the opportunity for the parties to mediate. As previously noted, the Company believes that W Capital and Marshall are using these proceedings in Australia and the United States as a bad faith attempt to gain leverage in ongoing legal disputes between the parties. The Company believes that W Capital and Marshall were using the Involuntary Petition and the Australian insolvency proceedings against the Company in an improper attempt to gain leverage in ongoing legal disputes between the parties. The Company believes that the filing of the Involuntary Petition is an extension of the ongoing disputes, including with Manning, and a continuation of the pattern of bad faith actions, by Manning and the Petitioners, with the improper intention of harassing and intimidating the Company. The Company’s counsel plans to propound discovery requests to the Petitioners, including the depositions of the Petitioners’ principals. In addition, Manning, who the Company believes has close ties to these Australian creditors, remains the subject of an investigation by the Audit Committee of the Company’s Board of Directors, including related to his dealings with W Capital, current litigation with an entity related to Manning, Vertua Property Inc. (“Vertua”), alleged self-dealing, breach of contract, and tortious interference with a business relationship. The Company had previously reported that it may seek to exit certain or all of its entities and holdings in Australia. The Company currently operates facilities in the United States of America and does not have any operating sites or assets in Australia. The Company expects to vigorously pursue sanctions, attorney fees, general and punitive damages against these Australian Petitioners, as available to the full extent of the law. The Company expects to continue to operate as usual and execute its business plan accordingly. Celsius Promissory Note and Digital Colocation Agreement Luna Squares has not repaid the Celsius Promissory Note as required on its stated maturity date and is claimed by Celsius Mining LLC and Celsius Network Ltd (collectively, “Celsius”) to be in default. Celsius Mining LLC transferred the benefit of the Celsius Promissory Note to Celsius Network Ltd. and Celsius Network Ltd has notified Luna Squares that the default interest is payable. On November 23, 2023, Celsius filed an adversary proceeding against Mawson and its subsidiaries Luna Squares and Cosmos, asserting various claims related to the alleged breach of a Digital Colocation Agreement. Celsius filed for Chapter 11 bankruptcy protection on July 13, 2022. Under the Digital Colocation Agreement, Celsius Mining LLC advanced $15.3 million to Luna Squares that was held as a deposit. Whether that amount has been forfeited or must be returned to Celsius Mining LLC is the subject of a dispute between the parties. Pursuant to a court order dated April 22, 2024, the Celsius civil lawsuit against Luna Squares and Mawson has been dismissed pursuant to the Company’s successful motion to compel arbitration. On July 18, 2024, Celsius Network, LLC filed for arbitration of its claims against the Company with the American Arbitration Association in the matter entitled Celsius Network Ltd., Celsius Mining LLC and Ionic Digital Mining LLC v. Mawson Infrastructure Group, Luna Squares LLC and Cosmos Infrastructure LLC - Case 01-24-0006-4462. An arbitrator was appointed on September 30, 2024 and the parties submitted their respective positions on October 25, 2024 regarding the scheduling of the arbitration. The matter is temporarily stayed as to Mawson pending determination of automatic stay in favor of the Company as a result of the Involuntary Petition. However, the stay does not apply to Luna Squares or Cosmos. On January 23, 2025, the arbitrator issued a Partial Final Award (the “Partial Final Award”) granting in part Celsius’ claim against Luna Squares on the outstanding promissory note executed by Luna Squares in favor of Celsius. The Partial Final Award granted Celsius monetary damages in the amount of $8.1 million, plus interest and attorney fees. The ruling does not directly affect the Company, however, Celsius has been granted an order by the Delaware Bankruptcy Court for relief from the lift stay to file a Rule 34 motion on its claims against Mawson under a Corporate Guarantee. Thereafter, Celsius filed a motion for and obtained an award from the arbitrator against Mawson under the Corporate Guarantee, but the execution of which remained stayed. The matter remains ongoing. In addition, Celsius filed a motion for sanctions in the Bankruptcy Court against the Company due to the Court’s denial of the Company’s motion objecting to Celsius’ stay motion. On May 9, 2025 following hearing, the Court denied Celsius motion for sanctions. In addition, on request of the Company, the court directed the parties, including the Petitioners and Celsius, to mediate with the Company to try to find a global resolution out of court. The Court agreed to appoint a sitting judge as mediator. Otherwise, the Company’s counterclaims and damages against Celsius are still in litigation and the Company continues to expeditiously pursue its counterclaims and damages against Celsius. The Company and/or its applicable subsidiaries have not fulfilled specific payment obligations related to the Marshall Loan, the W Capital Loan and the Celsius 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 or its subsidiaries for payment default, raising interest rates to the default or overdue rate, or taking appropriate measures concerning collateral (including appointing a receiver), if applicable. Blockware On April 19, 2024, a civil suit entitled Blockware Solutions, LLC v. Mawson Bellefonte LLC and Mawson Infrastructure Group, Inc. was filed in the US District Court, Southern District of New York. The parties have unsuccessfully concluded the court’s Mediation Program and the matter remains ongoing before the court. CleanSpark On July 16, 2024, the Company filed a civil lawsuit for its claims against CleanSpark, Inc (CleanSpark”) and CSRE Properties Sandersville, LLC with the United States District Court for the Southern District of New York in the matter entitled “Mawson Infrastructure Group, Inc. and Luna Squares, LLC v. CleanSpark, Inc. and CSRE Properties Sandersville, LLC”, Civil Action No. 1:24-cv-5379, for at least $2.0 million for breach of contract of a Bill of Sale dated October 1, 2022, between the parties. The matter is proceeding through the court system. On September 13, 2024, the defendants filed a motion to dismiss the proceedings. The parties briefed their positions, and a determination remains before the Court. At this time, the matter is pending. Vertua On March 16, 2022, Luna Squares entered into a lease with respect to a property in the City of Sharon, Mercer County, Pennsylvania (the “Sharon Lease”) with Vertua Property, a subsidiary entity in which Vertua Ltd has a 100% ownership interest. Manning is a director of Vertua Ltd and has a material interest in the Sharon lease as a significant stockholder of Vertua Ltd. On September 6, 2024, Luna Squares filed a praecipe of lis pendens for the property leased in Sharon, Pennsylvania in the Court of Common Pleas of Mercer County, Pennsylvania in the matter entitled Luna Squares Property, LLC v. Vertua Property, Inc. Case No 2024-2332. It did so to also provide third parties such as Bitfarms Ltd. notice that the property is encumbered by a lease between Luna Property and Vertua. This property is the subject of a current civil lawsuit between the Company and Luna Property against Vertua. On October 17, 2024, the Company filed several claims in the matter captioned above against Vertua, including claims for breach of the lease agreement and wrongful termination of the lease, as well as for tortious interference with a business relationship. The Company is seeking reinstatement of the lease, compensatory damages, disgorgement of revenue, and exemplary and punitive damages, as well as reimbursement for its costs and litigation expenses. Vertua is a company related to Manning and also affiliated with Darron Wolter of W Capital. The matter has since been removed to federal court and is pending before the United States Bankruptcy Court for the Western District of Pennsylvania, under adversary proceeding number 25-01003-JCM. The matter remains ongoing. Consensus Colocation Agreement On October 12, 2023, the Company entered into a Service Framework Agreement with a wholly owned subsidiary of Consensus Technology Group, Consensus Colocation PA LLC, for co-location services for approximately 15,876 Bitmain Antminer S19 XP miners or approximately 50 MW at Mawson’s Midland, Pennsylvania facilities (the “Service Framework Agreement”). On March 6, 2025, a complaint was filed by Consensus Colocation PA LLC and Stone Ridge Ventures II LLC (collectively, “CTG”) with Court of Chancery of the State of Delaware, under C.A. No. 2025-0252-MTZ seeking (i) a temporary restraining order (“TRO”) to terminate Mawson’s redirection of CTG’s miners following a fee dispute and (ii) authority to remove its miners from Mawson’s facility prior to the termination of the Service Framework Agreement. The matter went to hearing on the TRO on March 13, 2025 and by joint stipulation the parties agreed to terminate the redirection of the miners but that the Service Framework Agreement remained active, and the miners could not be removed before March 20, 2025. All servers were removed by April 15, 2025 and by agreement, the TRO was dismissed. The parties reserved all other rights. On April 25, 2025, CTG filed an arbitration demand with the American Arbitration Association for damages stemming from Mawson’s redirection of its miners following the parties’ contractual dispute Mawson has retained legal counsel, categorically denies the allegations of the demand, and intends to pursue its claims and counterclaims against CTG, including but not limited to the Company’s Right of First Refusal (ROFR) related damages claims against CTG. No further filings or hearings have been made or set at this time. The matter remains ongoing.

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