Mawson Infrastructure Group Inc

Overview

General

Mawson Infrastructure Group Inc. (“Mawson,” the “Company,” “we,” “us,” and “our”) is a corporation incorporated in Delaware in 2012. Shares of Mawson’s common stock, par value $0.001 per share (“Common Stock”) have been listed on The Nasdaq Capital Market since September 29, 2021. Mawson was previously known as Wize Pharma Inc, and changed its name on March 17, 2021, after the acquisition of Mawson Infrastructure Group Pty Ltd (then known as Cosmos Capital Limited), a digital infrastructure provider.

Mawson is a ‘Digital Infrastructure’ Company, which operates (through its subsidiaries) data centers for the generation of Bitcoin cryptocurrency (also known as “Bitcoin mining”), in the United States. Because Mawson takes part in Bitcoin mining, it is often referred to as a Bitcoin miner. The Company has 3 primary businesses – digital currency or Bitcoin self-mining, customer co-location and related services, and energy markets.

As of the date of this Annual Report, we operate two data center facilities in Pennsylvania, USA, and have rights to develop other sites of various sizes in Ohio.

We seek to power our operations and facilities with renewable or sustainable power to further support our sustainability priorities.

We may also operate in related and adjacent businesses, including transacting in new and used crypto-currency mining and modular data centers (“MDCs”) equipment on a periodic basis, subject to prevailing market conditions and any surplus we may be experiencing.

Our Products and Services

Mawson’s business

Mawson has three main businesses through which it generates its revenue:

Bitcoin Self-Mining

Bitcoin mining involves the use of specialized computers (“Miners”) to solve algorithmic problems in order to update the distributed or decentralized ledger of Bitcoin transactions securely. In return for providing this security to the Bitcoin ledger, Bitcoin miners are rewarded with Bitcoin. The decentralized ledger is the key innovation of the Bitcoin protocol. It is a public ledger that can be viewed by anyone with specialist knowledge and is typically kept by more than one entity. An example of a centralized ledger would be a ledger of bank account transactions kept by a financial institution.

Miners perform computational operations to solve specific computing problems in support of the Bitcoin network. The computing power is called “hash rate” and is measured in “hashes per second.” A “hash” is the computation run by the mining hardware in support of the blockchain security; therefore, a Miner’s “hash rate” refers to the rate at which it is capable of solving such computations. The original equipment used for mining Bitcoin utilized the Central Processing Unit (“CPU”) of a computer to mine various forms of cryptocurrency. Due to performance limitations and growing competition to mine Bitcoin, CPU mining was rapidly replaced by the Graphics Processing Unit (“GPU”), which was in turn replaced by Application-Specific Integrated Circuit (“ASIC”) Miners. These ASIC Miners are designed specifically for the task of solving computing problems in support of the Bitcoin network, which maximizes the rate of hashing operations.

Hash rate is a measure of the processing speed of a Miner. Mawson’s hash rate is the sum total of its Miners’ hash rates. Similarly, the sum total of all Miners actively trying to solve a block in the Bitcoin network is known as the “Network Hash Rate”. If Mawson’s proportion of the Network Hash Rate grows, then Mawson’s chance of solving a block on the Bitcoin’s blockchain should increase and, therefore, Mawson’s chance of earning a Bitcoin reward should increase.

If more competitors add hash rate to the Network Hash Rate, then Mawson must also increase its own hash rate if it wants to ensure that the amount of rewards it receives over time remains the same or similar. Mawson can increase its hash rate in a number of ways, including by acquiring and operating more Miners, ensuring that as many of its Miners are online and operational at all times, and by increasing the hashing capability of its Miners (for example, by providing optimal operating conditions and maintenance). By operating more Miners, Mawson will also most likely increase the amount of power it requires to operate the Miners, thus increasing its costs. The Network Hash Rate can also decline from time to time, which means that Mawson’s hash rate relative to the Network Hash Rate would increase (if Mawson continued to deploy the same amount of hash rate), increasing the chance that Mawson will be rewarded with Bitcoin.

As Mawson increases its hash rate it increases its chance of solving a particular problem and earning the right to place a block on the blockchain and at the same time earning a Bitcoin reward, as well as any potential transaction fee. As the global network has modernized and become more efficient, the hash rate required to regularly solve for a block (that is, the ‘network difficulty’) has increased significantly, leading to Bitcoin miners acquiring larger fleets of more efficient Miners. The expanding fleets of Miners generally require more electrical power. Increased use of electrical power increases the cost of solving a block and, therefore, the relative cost of mining for Bitcoin. This increase in network difficulty also means that it can become harder for individual mining operations to find a block and earning any reward or transaction fees for their mining efforts. Individual Bitcoin Miners risk going for extended periods of time without earning any Bitcoin rewards.

To facilitate the earning of Bitcoin rewards, most miners, including Mawson, will join a ‘mining pool’ (that is a group of other miners). A large group of miners with greater hashing power is more likely to earn a cryptocurrency reward. The members of the mining pool then receive Bitcoin rewards on a pro rata basis based on total hashing capacity they contributed to the mining pool. This is intended to reduce the variance of our Bitcoin rewards, and therefore revenue, generation.

As of the date of this Annual Report, Mawson operates its own miners in two data center facilities located in Midland and Bellefonte Pennsylvania, USA, that have been leased on long-term arrangements. The Midland site currently has 100MW of capacity available for both self-mining and co-location services and is capable of further development. The Bellefonte site currently has 8.8MW of capacity that is used entirely for self-mining and is also capable of expansion. As noted below, Mawson’s lease for property in Sharon, Pennsylvania was terminated and Mawson has moved completely out of the facility, which was a non-operating site.

Part of Mawson’s strategy is to identify and secure new development sites for future data center facilities which meet our investment criteria. Before committing to a site, Mawson considers a range of investment criteria, including factors such as climate, community acceptance of Bitcoin mining operations, secure tenure through long term leases, or the ability to acquire sites, the existence of energy demand response programs which Mawson can participate in, the ability to secure low cost, stable, low carbon or carbon-neutral sustainable power, labor and skills availability, local taxation regimes, and proximity to Mawson’s existing supply chains and operations.

We generate revenue through the mining of Bitcoin and then selling the Bitcoin that we mine. During the year ended December 31, 2023, we mined 741.33 Bitcoin and sold 741.33 Bitcoin resulting in revenues totaling $21.59 million.

Mawson at this time typically liquidates any mined Bitcoin within a reasonable time after receipt. Mawson does not hold any material amount of Bitcoin on its balance sheet. Mawson’s strategy is to operate as a mining operation, rather than a cryptocurrency investment company. This means that Mawson regularly liquidates its Bitcoin holdings for traditional fiat currency. Mawson has established relationships with several digital currency exchanges through which Mawson sells Bitcoin on a regular basis.

Customer Co-location Services

Mawson offers other businesses and customers in the digital assets industry the opportunity to have their Miners and other equipment located within our facilities. Mawson generates revenue from these customers for their use of our co-location services and facilities. The customer typically keeps all Bitcoin mined in this manner, while paying Mawson for providing co-location services. This kind of arrangement is known as ‘co-location’ and can be customized for each customer’s situation and their and Mawson’s strategy and allows Mawson to supplement or diversify its income streams, while adjusting its risk profile. For example, customers may agree to be charged upfront infrastructure fees, minimum fees, and maintenance fees. Such fees can provide upfront benefits, which helps decrease risk in the business, and potentially enables Mawson to have different types of revenue streams. Minimum fees can help generate revenue during periods when our Bitcoin self-mining may not be as profitable (for example, due to high energy prices, high network difficulty, and low Bitcoin prices). Counter-party risk is a key issue when entering into co-location arrangements with customers, and Mawson employs a number of mitigation strategies to decrease the risks arising from counter-parties, including requiring deposits and charging upfront fees.

Energy Markets Program

Mawson has developed an Energy Markets Program. To power all the miners at its facilities, Mawson uses substantial amounts of energy. This means that energy is a material input cost for Mawson’s operations. If energy prices are higher, then the cost of mining may be too high to make Bitcoin mining economical. This is especially true at times when Bitcoin prices are low, and network difficulty is high. Mawson uses proprietary financial models, which it is constantly refining, that highlight to Mawson when participation in the Energy Markets Program should create greater value than operating is self-mining. Mawson then decides whether to mine or to curtail its energy usage, by switching off its miners.

If Mawson decides to curtail its energy use, then during these periods Mawson’s Bitcoin revenue may be significantly reduced but should be supplemented by the payments provided by the Energy Markets Program revenue for curtailment activity. In addition to energy hedges and derivatives that Mawson may be able to purchase, Mawson participates in demand response programs. Demand response programs leverage the timely reduction of energy use by our facilities to benefit other power customers. These demand response programs may compensate Mawson for periods of curtailment and can generate additional revenues for Mawson during times of higher energy prices.

Further, because Mawson can be flexible in the way it operates its Bitcoin mining data centers and how it uses energy, Mawson can contribute to electricity grid stability by providing demand for energy producers when aggregate power demand is low, and then lowering its own usage when aggregate power demand is high.

Factors Affecting Profitability of Bitcoin Self-Mining business

The main factors affecting Mawson’s self-mining profitability are (in no particular order):

There is a risk that a change in any of these factors could have a detrimental effect on Mawson’s business. While Mawson takes steps to mitigate these risks, they cannot be avoided altogether. In particular, the market price of Bitcoin can be volatile, sometimes being subject to major changes in value in short time periods. In addition, the reward for Bitcoin mining is scheduled to halve approximately every 4 years. This phenomenon, which is a feature of the Bitcoin protocol, is known as ‘halving’. The Bitcoin blockchain has undergone halving three times since its inception, on November 28, 2012, July 9, 2016, and May 11, 2020. The original reward was 50 Bitcoin per block, but after the last halving the reward was reduced to its current level of 6.25 Bitcoin per block. The next halving for the Bitcoin blockchain is anticipated to occur in or around April 2024. This process will re-occur until the total amount of Bitcoin currency rewards issued reaches 21 million and the theoretical supply of new Bitcoin is exhausted, which is expected to occur in or around 2140. The value of Bitcoin has historically risen after each halving event, due to the reduced supply of Bitcoin, however, there can be no guarantee that this will occur again in the future, or the timing known if such an event were to happen.

Factors Affecting Profitability of Customer Co-location Services business

The main factors affecting Mawson’s co-location profitability are (in no particular order):

Mawson has taken a number of steps to attempt to mitigate the risks inherent to the co-locations services business. The Company currently has three co-location services customers that it believes should help reduce the risk of exposure to a single customer. Additionally, Mawson has service agreements in place with its customers that it believes provides the terms and protections to drive the profitability of the co-location business, Mawson also has power agreements in the Pennsylvania-New Jersey-Maryland Interconnection (“PJM”) markets that provide it the competitive pricing needed for its customers. The PJM Energy Market procures electricity to meet consumers’ demands both in real time and in the near term. Mawson works with the communities in which it is involved to attract and retain the employees needed to run this business. While none of these are guarantees, Mawson believes it has put necessary measures in place to minimize the risk associated with its co-location services business.

Factors Affecting Profitability of Energy markets business

The main factors affecting Mawson’s Energy management profitability are (in no particular order):

Mawson works closely with the PJM power providers and other power consultants to help ensure they stay up to date with the latest power provider programs. Mawson closely monitors the power markets and pricing in order to identify ways to maintain or enhance its profitability from potential opportunities. Mawson is in contact with various local, state and federal agencies to monitor changes in the regulatory environment that could potentially impact the energy management business.

Environment and Sustainability

Digital asset mining requires a large amount of computing power, which in turn requires a large amount of electricity. At Mawson we recognize the important role digital asset mining can play in supporting the energy grid and we seek to utilize and support renewable or sustainable energy sources. We hope to support the growth of further renewable or sustainable power into the grid. We also enter into arrangements where we may be compensated in certain circumstances if we curtail or reduce or cease our energy usage. Typically, this will occur when energy prices spike, and the mining of Bitcoin may become unprofitable. In this way we can provide stability to the energy grid by reducing our demand on renewable or sustainable energy at times of peak usage, or low supply, potentially reducing prices for other users.

Other products and services

Mawson will from time to time opportunistically sell hardware that it has acquired, whether used or unused, which is surplus to its requirements, or in order to fund newer and better equipment. Hardware that Mawson would typically sell includes miners, transformers and/or MDCs.

Suppliers

Mawson engages a range of suppliers for access to hardware and software required to mine Bitcoin, provide co-location services and for its energy markets program. This includes the manufacturers of the Miners, MDCs, and transformers. Mawson enters into Power Purchase Agreements (“PPA”) with its power suppliers that set out the terms and duration of the supply or power. The Company currently has the following principal suppliers:

Government Regulation

Government regulation of blockchain and cryptocurrency is being actively considered by the United States of America (both at the federal and state levels) and by non-US governments, and their agencies and regulatory bodies.

Regulations may substantially change in the future, and it is presently not possible to know how regulations will apply to our businesses, or when they will be effective. As the regulatory and legal environments evolve, we may become subject to new laws, further regulation by the SEC and other agencies, which may affect our mining and other activities. For additional discussion regarding the potential risks existing and future regulation pose to our business, see the Section entitled “Risk Factors” herein.

Co-location customers

Mawson has three co-location customers that in total represent approximately 82 MW and approximately 25,284 miners. One of the customers is a wholly owned subsidiary of Consensus Technology Group (“CTG”) that currently uses approximately 70 MW and approximately 21,756 miners. Should something negative happen to this customer and or its relationship with Mawson, the Company could lose a significant amount of revenue that it may not be able be unable to replace in a timely fashion. Currently, market demand for co-location services outweighs supply and between finding new or with its other two co-location customers, Mawson believes that the Company could replace the customer’s position.

Competition

• *The cryptocurrency industry, in particular Bitcoin mining, is dynamic and global. The Bitcoin mining network is made up of a variety of competitors, from individual ’sub-scale’ hobbyists to large, publicly listed mining operations. We compete with the other publicly listed mining companies directly for the acquisition of new Miners and raising capital. Bitcoin miners, including Mawson, also compete with more traditional industries, for example, when obtaining the lowest cost, sustainable electricity, or access to sites with reliable sources of power. Many Bitcoin mining operations are not publicly operated, and therefore data is not readily available.

Publicly Listed companies operating comparable businesses include:

Human Capital

Our employees are critical to our success. As of March 1, 2024, we had 30 plus full time employees. We also use contractors where practical and further rely on the extensive expertise of our external advisers, including legal, audit, financial, IT and compliance consultants, who may be engaged on a time basis, or on a project basis.

Our future success has significant dependence on the performance and continued service of our management team and key employees. Our success and growth may be influenced by our ability to attract, retain and motivate qualified personnel. We compete for scarce qualified management and other personnel in a highly competitive workforce environment. Our competitors may offer higher compensation or better opportunities than we can. We may need to hire additional qualified personnel and any failure to attract, retain or motivate key personnel could adversely affect our business and operating results. Currently we have limited personnel in our organization to meet our organizational, operating and administrative demands.

ESG

Governments around the world have been introducing new energy policies and legislation in response to climate change and energy security.

Any legislative changes regarding climate change or energy security could add significant burden and costs to our business, including taxes, or other costs related to making our energy consumption more efficient and lower impact on the environment, environmental monitoring and reporting, and other costs to comply with such changes. Further, there could be reputational damage to our business caused by increased negative publicity surrounding cryptocurrency and the apparent effects on the environment. If power costs rise so high as to put certain industries at risk, legislators may intervene in energy markets to direct energy to certain industries. Price caps could be introduced which may have long-term effects on power prices. If fossil fuel projects are not allowed to proceed, then this may have an effect on power prices if sustainable or renewable energy is insufficient or unreliable.

Corporate Information

Our principal place of business is 950 Railroad Avenue, Midland, Pennsylvania 15059. Our contact email is info@mawsoninc.com, and our website is www.mawsoninc.com.

Shares of our Common Stock, par value $0.001 per share (“Common Stock”), have been listed on The Nasdaq Capital Market since September 29, 2021.

Available Information

Our investor relations website is available at www.mawsoninc.com. The information on, or that may be accessed from, our website is not a part of this Annual Report. Investors can find a range of information about us there. Available on this website, free of charge, are the reports that we file or furnish with the Securities and Exchange Commission (“SEC”), corporate governance information (including our Code of Business Conduct and Ethics) and select press releases and other relevant information.