Mawson Infrastructure Group Inc

CONSOLIDATED CONDENSED BALANCE SHEETS

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE LOSS

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE 1 – GENERAL

Nature of Operations

Mawson Infrastructure Group Inc. (“Mawson,” the “Company,” “we,” “us,” and “our”) is a technology company focused on digital infrastructure platforms, headquartered in the United States of America.

The Company is a corporation incorporated in Delaware in 2012. On March 9, 2021, the Company acquired the shares of Cosmos Capital Limited in a stock for stock exchange. This transaction has been accounted for as a reverse asset acquisition. The Company was previously known as Wize Pharma Inc and changed its name on March 17, 2021. Shares of the Company’s common stock, par value $0.001 per share (“Common Stock”) have been listed on The Nasdaq Capital Market since September 29, 2021.

The Company develops and operates digital infrastructure platforms for enterprise customers and for its own purposes. The Company’s digital infrastructure platforms can be used to operate computing resources for a number of applications, and are offered across digital assets, artificial intelligence (AI), high-performance computing (HPC) and other computing applications. The Company also has an energy management business, which utilizes software and analysis, to generate revenue when the Company adapts its power usage to the real-time needs of the grid. The Company may also transact in digital computational machines, data center infrastructure, and related equipment periodically, subject to business and commercial opportunities.

The Company has a strategy to prioritize the usage of carbon-free energy sources, including nuclear energy, to power its digital infrastructure platforms and computational machines.

The Company manages and operates digital infrastructure platforms delivering a total current capacity of approximately 129 megawatts (MW) with its current operational sites with an additional 24 MW of future capacity that is under development, all strategically located in locations served by the PJM Energy Market in the United States. The PJM Energy Market is the largest wholesale power market in North America.

Previously, the Company also had interests in the Australian market, however for strategic and commercial reasons, the Company is currently focused on advancing its interests in North America. The Company currently operates facilities in the United States of America and does not have operating sites in Australia. The Company has previously reported through an 8-K filing on March 29, 2024 that the Company may seek to exit certain or all of its entities and holdings in Australia. The accompanying consolidated condensed unaudited interim financial statements, including the results of a number of the Company’s Australian subsidiaries: Cosmos Trading Pty Ltd, Cosmos Infrastructure LLC, Cosmos Manager LLC, MIG No.1 Pty Ltd (on March 19, 2024, MIG No.1 Pty Ltd was placed into a Australian court appointed liquidation and wind-up process), MIG No.1 LLC, Mawson AU Pty Ltd (on April 23, 2024, Mawson AU Pty Ltd was placed into a Australian court appointed liquidation and wind-up process, as disclosed in note 3), an Australian entity Mawson Services Pty Ltd (on April 29, 2024, Mawson Services Pty Ltd was placed into a Australian court appointed liquidation and wind-up process, as disclosed in note 3), Luna Squares LLC, Mawson Bellefonte LLC, 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 of America (“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, 2023, and the notes thereto, included in the Company’s Annual Report on Form 10-K filed with the SEC on April 1, 2024. Accordingly, they do not include all the information and footnotes required by 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, 2024. These consolidated, condensed unaudited 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 consolidated, condensed unaudited interim financial statements have been prepared assuming the Company will continue on a going concern basis and in accordance with GAAP. 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 nine-months ended September 30, 2024, the Company incurred a loss after tax of $41.61 million, and as of September 30, 2024, had negative working capital of $36.09 million, had stockholders’ deficit of $1.56 million and had an accumulated deficit of $224.28 million. The Company’s cash position as of September 30, 2024, was $5.76 million.

The Company’s revenue is dependent on a number of external factors, including commercial terms, payments from customers, payments from partners, counterparty risks, and market conditions, including those related to digital assets, artificial intelligence, high-performance computing and other markets. These 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. In addition, the Company’s equipment and infrastructure will require replacement over time as they come to the end of their useful lives to ensure that the Company can continue to operate competitively and efficiently

Celsius Colocation Agreement Dispute

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” (the “Celsius Collocation Agreement Dispute”). The Company opposes the claim in arbitration and on August 12, 2024, filed responsive pleadings denying the claims and asserting affirmative defenses, including set off against the claims, and the Company asserted cross-claims against Celsius for sums due to the Company in excess of $115.00 million. This includes counter claims asserted by the Company against Celsius Network Ltd., Celsius Mining LLC and Ionic Digital Mining LLC in excess of $115.00 million for damages due to the Company, including but not limited to, for breach of the Digital Colocation Agreement by Celsius. The matter is proceeding through the arbitration process. 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. A preliminary hearing was held on October 30, 2024 before the arbitrator to establish an arbitration schedule. Company plans to pursue its claims again Celsius and to defend against claims alleged by Celsius.

Loan Disputes with Australian Entities (W Capital and Marshall)

The Company is the guarantor of a Secured Loan Facility Agreement by MIG No. 1 Pty Ltd (“MIG No.1”) with Marshall Investments GCP Pty Ltd ATF for the Marshall Investments MIG Trust (“Marshall”). The loan matured in February 2024 and the total outstanding balance is $10.53 million as of September 30, 2024. There have been no principal and interest payments made since May 2023. This Secured Loan Facility Agreement 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 18, 2024. On May 28, 2024, Marshall submitted a statutory demand for payment under Australian law. On June 17, 2024, the Company responded, objecting to the demand under Australian law. Subsequently, on October 3, 2024, a proceeding before the Federal Court of Australia, New South Wales entitled “In The Matter Of Mawson Infrastructure Group Inc. (ARBN 649 261 861)”, File No. NSD1395/2024” was filed by W Capital against the Company, seeking a hearing on November 29, 2024 to determine the Company’s solvency under Australian law. Marshall Investments GCP Pty Ltd gave formal notice that it intends to appear before the court (the “Marshall and W Capital Australian Loan Disputes”). The current proceeding is in Australian courts and there are no associated proceedings in the United States. The Company believes that W Capital and Marshall are using this proceeding in Australia as a bad faith attempt to gain leverage in ongoing legal disputes between the parties.

The Company is the guarantor on of a Secured Loan Facility Agreement for working capital by Mawson Infrastructure Group Pty Ltd with W Capital Advisors Pty Ltd. As of September 30, 2024, AUD $1.95 million (USD $1.35 million) has been drawn down from this facility. The Secured Loan Facility expired in March 2023. This Secured Loan Facility Agreement was entered into with an Australian entity Mawson Infrastructure Group Pty Ltd, this company was placed into Australian voluntary administration on October 30, 2023, and on November 3, 2023, W Capital Advisors appointed receivers and managers in Australia under the terms of their security relating to their working capital facility.

The Company, or its subsidiaries, have not fulfilled specific payment obligations related to the Celsius Promissory Note, the Marshall loan and the W Capital Working Capital Loan 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.

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 consolidated financial statements.

To mitigate 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:

Mawson successfully expanded its Midland Facility by 20 MW in June 2024, increasing its total operating capacity to about 129 MW from about 109 MW. In August 2024, Mawson expanded into Perry County, Ohio securing an initial 24 MW of capacity that could expand Mawson’s operating capacity to 153 MW once completed.

The Company also announced in June 2024 that it had executed a new digital colocation agreement for about 20 MW, or about 5,880 mining units at its Midland facilities. This agreement helped further diversify our customer base and expand our digital colocation services.

Although the Company may have access to capital, equity, debt, and/or 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 and the Company’s current stockholders. 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.

As previously reported, the Company obtains advice from outside resources, however, it is important to note that strategic and other initiatives may not lead to any transaction or other outcome.

These consolidated, condensed unaudited interim 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.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Preparation

The accompanying unaudited consolidated condensed financial statements of the Company include the accounts of the Company and its wholly or majority owned and controlled subsidiaries. Intercompany investments, balances and transactions have been eliminated in consolidation. Non–controlling interests represent the minority equity investment in the Company’s subsidiaries, plus the minority investors’ share of the net operating results and other components of equity relating to the non–controlling interest.

Any change 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 stockholders, 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.

Use of Estimates and Assumptions

The preparation of the financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of income and expenses during the reporting periods. Actual results could differ 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 fixed assets, realization of long-lived assets, unrealized tax positions, valuing the derivative asset classified under Level 3 fair value hierarchy, and the contingent obligation with respect to future revenues.

Revenue recognition

Digital colocation revenue

The Company additionally charges colocation fees for the use of the facilities, and other related fees. Digital colocation customers typically pay for energy used in connection with the customer colocation services agreement on a pass-through basis, which may be on a fixed or variable basis calculated on the portion of energy used by the customer on the site. Revenue is typically received monthly from the customer based on the power usage at the rates outlined in each customer contract.

The customer contracts contain variable consideration to be allocated to and recognized in the period to which the consideration relates. Usually this is when it is invoiced, rather than obtaining an estimation of variable consideration at the beginning of the customer contracts.

Energy management revenue

The Company also has an energy management business to generate revenue when the Company adapts its power usage to the real-time needs of the grid.

Revenue for curtailing power is recognized over the period that the services are being provided. The Company estimates the amount of curtailable power and the expected payment for that curtailment and recognizes revenue based on the proportion of the service that has been provided. In this arrangement, the Company is considered the principal and revenue is recognized on a gross basis.

Revenue through the Company’s power pricing arrangement is recognized over the period that the services are being provided. The Company estimates the amount of energy available for sale and the expected payment for that energy, and recognizes revenue based on the proportion of the service that has been provided. In this arrangement, the Company is considered the principal and revenue is recognized on a gross basis.

Digital mining revenue

The Company recognizes revenue under ASC 606,Revenue from Contracts with Customers. The core principle of ASC 606 is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Five steps are required to be followed in evaluating revenue recognition: (i) identify the contract with the customer; (ii) identity the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price; and (v) recognize revenue when or as the entity satisfies a performance obligation.

In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met: the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct), and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract).

The Company has a contract with mining pools and has undertaken the performance obligation of providing computing power in exchange for non-cash consideration in the form of digital assets. The provision of computing power is the only performance obligation in the Company’s contract with its pool operators. Where the consideration received is variable (for example, due to payment only being made upon successful mining), it is recognized when it is highly probable that the variability is resolved, which is generally when the digital asset is received.

The Company measures the non-cash consideration received at the fair market value of the digital asset received. Management estimates fair value on a daily basis, as the quantity of digital assets received multiplied by the price quoted on the exchange that the Company uses to dispose of digital assets.

Equipment sales

The Company had previously earned revenues from the sale of equipment and/or infrastructure (collectively, “Hardware”). Revenue from the sale of Hardware is recognized upon transfer of control of the Hardware to the customer. At the date of sale, the net book value is expensed in cost of revenues.

Property, Plant, and Equipment

Property, plant and equipment (PP&E) are stated at cost, net of accumulated depreciation. All other repair and maintenance costs are charged to operating expenses as incurred. The present value of the expected cost for the decommissioning of an asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met. Property, plant and equipment transferred from customers is initially measured at the fair value at the date on which control is obtained.

PP&E are depreciated on a straight-line or declining balance basis based on the asset classification, over their useful lives to the economic entity commencing from the time the assets arrive at their destination where they are ready for use. Low-cost assets are capitalized and immediately depreciated. Depreciation is calculated over the following estimated useful lives:

PP&E are derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is included in the consolidated statement of operations.

The residual values, useful lives and methods of depreciation of PP&E are reviewed at each financial year end and adjusted prospectively, if appropriate.

The Company’s long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such an asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Fair value of financial instruments:

The Company accounts for financial instruments under ASC 820,Fair Value Measurements. This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements, ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

Level 1**—**quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 — observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and

Level 3 — assets and liabilities whose significant value drivers are unobservable. Observable inputs are based on market data obtained from independent sources, while unobservable inputs are based on the Company’s market assumptions. Unobservable inputs require significant management judgment or estimation. In some cases, the inputs used to measure an asset or liability may fall into different levels of the fair value hierarchy. In those instances, the fair value measurement is required to be classified using the lowest level of input that is significant to the fair value measurement. Such determination requires significant management judgment.

Level 3 Assets:

In June 2022, the Company entered into a Power Supply Agreement with Energy Harbor LLC, the energy supplier to the Company’s Midland, Pennsylvania facility, to provide the delivery of a fixed portion of the total amount of electricity for a fixed price through to December 2026. There were five amendments to the contract with Energy Harbor LLC entered into in November 2023, December 2023, January 2024, April 2024 and May 2024 all the contracts were to purchase additional electricity at a fixed price for the months of December 2023, January 2024, February 2024, April 2024, May 2024 and June 2024. If the Midland, Pennsylvania facility uses more electricity than contracted, the cost of the excess is incurred at a new price quoted by Energy Harbor LLC.

While the Company participates in energy management programs at its Midland, Pennsylvania facility, the Company does not consider such actions as trading activities. That is, the Company does not engage in speculation in the power market as part of its ordinary activities. Because the sale of any electricity under a curtailment program allows for net settlement, the Company has determined the Power Supply Agreement meets the definition of a derivative under ASC 815,Derivatives and Hedging. However, because the Company has the ability to sell the power back to the grid rather than take physical delivery, physical delivery is not probable through the entirety of the contract and therefore, the Company does not believe the normal purchases and normal sales scope exception applies to the Power Supply Agreement. Accordingly, the Power Supply Agreement (the non-hedging derivative contract) is recorded at estimated fair value each reporting period with the change in the fair value recorded in “change in fair value of derivative asset” in the consolidated statements of operations.

The Power Supply Agreement was classified as a derivative asset beginning in the quarter ended September 30, 2022, and measured at fair value on the date of Power Supply Agreement, with changes in fair value recognized in the accompanying consolidated statements of operations. The estimated fair value of the Company’s derivative asset is classified in Level 3 of the fair value hierarchy due to the significant unobservable inputs utilized in the valuation. Specifically, the Company’s discounted cash flow estimation models contain quoted commodity exchange spot and forward prices and are adjusted for basis spreads for load zone-to-hub differentials through the term of the Power Supply Agreement, which expires in December 2026. In addition, the Company adopted a discount rate of approximately 20% above the terminal value of the observable market inputs, but also includes unobservable inputs based on qualitative judgment related to company-specific risk factors. The terms of the Power Supply Agreement require pre-payment of collateral, calculated as forward cost based on the market cost rate of electricity versus the fixed price stated in the contract.

Stock based compensation

The Company follows ASC 718-10,Compensation-Stock Compensation. The Company expenses stock-based compensation to directors, employees, and non-employees over any requisite service period based on the grant-date fair value of the awards. The Company determines the grant-date fair value of options using the Trinomial Lattice Method. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. These assumptions are the expected stock volatility, the risk–free interest rate, the expected life of the option, and the expected forfeiture rate. Expected volatility computes stock price volatility over expected terms based on its historical common stock trading prices. Risk–free interest rates are calculated based on the yield of a 3-year or 5-year United States Treasury constant maturity bond, depending on the agreement.

Digital assets

Digital assets are included in current assets in the consolidated balance sheets. Digital assets are classified as indefinite-lived intangible assets in accordance with ASC 350,Intangibles – Goodwill and Other, and are accounted for in connection with the Company’s revenue recognition policy detailed above.

The following table presents the Company’s digital assets (such as bitcoin) activities for the three-months and nine-months ended September 30, 2024:

Digital assets are 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 likely 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 Company’s policy is to typically dispose of bitcoin received from mining operations at the earliest opportunity, therefore the holding period is generally minimal, usually no more than a few days. Due to the short period for which bitcoin is held prior to sale and the consequent small numbers held, the risk of impairment is not material. No impairment charges have been recorded during the nine-month periods ended September 30, 2024 and 2023.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption.

In December 2023, the FASB issued ASU 2023-08, Intangibles—Goodwill and Other—Crypto Assets (Topic 3580-60): Accounting for and Disclosure of Crypto Assets. Under the new guidance, an entity would be required to subsequently measure certain crypto assets at fair value, with changes in fair value included in net income in each reporting period. The proposed set of rules would also require presentation of crypto assets and related fair value changes separately in the balance sheet and income statement and require various disclosures in interim and annual periods. The Company does not expect the adoption of ASU 2023-08 to have a material impact on its consolidated financial statements since the Company’s policy is to dispose of bitcoin received from mining operations at the earliest opportunity, therefore the holding period is minimal, usually no more than a few days. ASU 2023-08 is effective for fiscal years beginning after December 15, 2024 and interim periods within those fiscal years. The Company will adopt ASU 2023-08 on January 1, 2025.

NOTE 3 – AUSTRALIAN SUBSIDIARIES DECONSOLIDATION

Previously, the Company also had interests in the Australian market, however for strategic and commercial reasons, the Company is currently focused on advancing its interests in North America. The Company has previously reported through an 8-K filing on March 29, 2024 that the Company 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 operating sites in Australia.

MIG No.1 (Australian Entity)

Liquidation and Deconsolidation of an Australian entity MIG No.1

On March 19, 2024, the Company’s subsidiary and an Australian entity, MIG No.1 was placed into an Australian court appointed liquidation due to it being deemed insolvent in Australia. The liquidation of an insolvent company in Australia allows an independent registered Australian liquidator (the liquidator) to take control of the Australian entity so its affairs can be wound up in an orderly and fair way and to benefit creditors. In the instance of MIG No.1, it is an Australian court liquidation, where a liquidator is appointed by the Australian court to wind up a company following an application (by a creditor of MIG No.1). As a result of this, the Company ceded authority for managing this Australian entity to the Australian liquidator, and the Company does not carry on MIG No.1’s activities in the ordinary course of business. For these reasons, it was concluded that the Company had ceded control of MIG No.1, and no longer had significant influence over this Australian entity since the liquidator was in control of this Australian entity. Therefore, MIG No.1 loss of control was effective when it was placed into Australian court appointed liquidation on March 19, 2024, and was deconsolidated at this date, in accordance with ASC 810-10-15. In order to deconsolidate this Australian entity, MIG No.1, the carrying values of the assets, liabilities and equity components previously recognized in accumulated other comprehensive income of MIG No.1 were removed from the Company’s consolidated balance sheet as of March 19, 2024, in accordance with ASC 810,Consolidation. The net impact of removing the assets and liabilities resulted in a loss on deconsolidation of $12.36 million being recorded in the condensed, consolidated statement of operations.

Investment in the Australian entity MIG No.1

The investment in this Australian entity, MIG No.1, held by the Company was accounted for under ASC 321,Investments — Equity Securities as it was concluded the Company did not have significant influence over MIG No.1 from March 19, 2024. The fair value of MIG No.1 was estimated to be $0, as at the time of the deconsolidation.

The Company had total payables owed to MIG No.1 of $1.24 million. These payables have been treated as external payables from the date of liquidation, March 19, 2024.

Australian entity MIG No.1 Secured Loan Facility Agreement

MIG No. 1 has a Secured Loan Facility Agreement with Marshall. The loan matured in February 2024 and the total outstanding balance is $10.53 million as of September 30, 2024. The Company is a guarantor of this loan.

Mawson AU Pty Ltd (Australian Entity)

Liquidation and Deconsolidation of an Australian entity Mawson AU Pty Ltd

On April 23, 2024, the Company’s Australian entity and a subsidiary, Mawson AU Pty Ltd was placed into an Australian court appointed liquidation. The liquidation of an insolvent Australian company in Australia allows an independent registered Australian liquidator (the liquidator) to take control of the Australian entity so its affairs can be wound up in an orderly approach. In the instance of Mawson AU Pty Ltd, it is an Australian court liquidation, where a liquidator is appointed by the Australian court to wind up a company. As a result of this the Company ceded authority for this Australian entity to the Australian liquidator, and the Company does not carry on Mawson AU Pty Ltd’s activities in the ordinary course of business. For these reasons, it was concluded that the Company had ceded control of Mawson AU Pty Ltd, and no longer had significant influence over this Australian entity since the liquidator was in control of this Australian entity. Therefore, Mawson AU Pty Ltd loss of control was effective when it was placed into Australian court appointed liquidation on April 23, 2024, and was deconsolidated at this date, in accordance with ASC 810-10-15. In order to deconsolidate this Australian entity, Mawson AU Pty Ltd, the carrying values of the assets, liabilities and equity components previously recognized in accumulated other comprehensive income of Mawson AU Pty Ltd were removed from the Company’s consolidated balance sheet as of April 23, 2024, in accordance with ASC 810,Consolidation. The net impact of removing the assets and liabilities resulted in a gain on deconsolidation of $3.49 million being recorded in the condensed, consolidated statement of operations.

Investment in the Australian entity Mawson AU Pty Ltd

The investment in this Australian entity, Mawson AU Pty Ltd, held by the Company was accounted for under ASC 321,Investments — Equity Securities as it was concluded the Company did not have significant influence over Mawson AU Pty Ltd from April 23, 2024. The fair value of Mawson AU was estimated to be $0, as at the time of the deconsolidation.

The Company had total receivables owed from Mawson AU Pty Ltd of $3.77 million. In accordance with ASC 310, these receivables have been treated as external receivables from the date of liquidation, April 23, 2024, and written off in the condensed, consolidated financial statements.

Mawson Services Pty Ltd (Australian Entity)

Liquidation and Deconsolidation of an Australian entity Mawson Services Pty Ltd

On April 29, 2024, the Company’s Australian entity and a subsidiary, Mawson Services Pty Ltd was placed into an Australian court appointed liquidation. The liquidation of an insolvent company in Australia allows an independent registered Australian liquidator (the liquidator) to take control of the Australian entity so its affairs can be wound up in an orderly approach As a result of this the Company ceded authority for this Australian entity to the Australian liquidator, and the Company does not carry on Mawson Services Pty Ltd’s activities in the ordinary course of business. For these reasons, it was concluded that the Company had ceded control of Mawson Services Pty Ltd, and no longer had significant influence over this Australian entity since the liquidator was in control of this Australian entity. Therefore, Mawson Services Pty Ltd loss of control was effective when it was placed into Australian court appointed liquidation on April 29, 2024, and was deconsolidated at this date, in accordance with ASC 810-10-15. In order to deconsolidate this Australian entity, Mawson Services Pty Ltd, the carrying values of the assets, liabilities and equity components previously recognized in accumulated other comprehensive income of Mawson Services Pty Ltd were removed from the Company’s consolidated balance sheet as of April 29, 2024, in accordance with ASC 810,Consolidation. The net impact of removing the assets and liabilities resulted in a gain on deconsolidation of $0.19 million being recorded in the condensed, consolidated statement of operations

Investment in the Australian entity Mawson Services Pty Ltd

The investment in this Australian entity, Mawson Services Pty Ltd, held by the Company was accounted for under ASC 321,Investments — Equity Securities as it was concluded the Company did not have significant influence over Mawson Services Pty Ltd from April 29, 2024. The fair value of Mawson Services Pty Ltd was estimated to be $0, as at the time of the deconsolidation.

The Company had no payables or receivables owed to Mawson Services Pty Ltd at the date of liquidation, April 29, 2024.

NOTE 4 – BASIC AND DILUTED NET LOSS PER SHARE

Net loss per common share is calculated in accordance with ASC 260,Earnings Per Share. 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 as of September 30, 2024 and 2023, are as follows:

NOTE 5 – LEASES

The Company’s operating leases are for digital mining and colocation sites and its finance leases are primarily for related plant and equipment.

The Company’s lease costs recognized in the consolidated condensed statements of operations consist of the following:

The following is a schedule of the Company’s lease liabilities by contractual maturity as of September 30, 2024:

Other lease information as of September 30, 2024:

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, net, consisted of the following:

The Company incurred depreciation and amortization expenses in the amounts of $3.61 million and $11.88 million for the three-month period ended September 30, 2024 and 2023, respectively. The Company incurred depreciation and amortization expenses in the amounts of $16.21 million and $28.63 million for the nine-month periods ended September 30, 2024 and 2023, respectively. There wereno impairment charges recognized for property, plant and equipment for either the nine-month periods ended September 30, 2024 and 2023.

NOTE 7 – INCOME TAXES

The Company records income taxes using the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax effects attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax credit carryforwards. The Company establishes a valuation allowance if management believes it is more likely than not that the deferred tax assets will not be recovered based on an evaluation of objective verifiable evidence. Management has considered the Company’s history of book and tax income and losses incurred since inception, and the other positive and negative evidence, and has concluded as of this time that it is more likely than not that the Company will not realize the benefits of the net deferred tax assets as of September 30, 2024.

The Company recorded income tax benefit (expense) of approximately 5.10% and 0.0% of loss before income tax expense for the three-month periods ended September 30, 2024 and 2023, respectively.

As of September 30, 2024, the Company had no unrecognized tax benefits and does not anticipate any significant change to the unrecognized tax benefit balance.

NOTE 8 – BORROWINGS

W Capital loan

The Company is the guarantor of a Secured Loan Facility Agreement for working capital by Mawson Infrastructure Group Pty Ltd with W Capital Advisors Pty Ltd. As of September 30, 2024, AUD $1.95 million (USD $1.35 million) has been drawn down from this facility, all of which is classified as a current liability. The Secured Loan Facility accrues interest daily at a rate of 12% per annum (with an overdue rate provision of an additional 800bps) and is paid monthly. Principal repayments are paid ad hoc in line with the loan facility agreement. The Secured Loan Facility expired in March 2023. This Secured Loan Facility Agreement was originally with Mawson Infrastructure Group Pty Ltd and this Australian entity was placed into Australian voluntary administration on October 30, 2023 and on November 3, 2023, W Capital Advisors 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 Advisory Pty Ltd and/or its representatives, the Company’s ongoing significant concerns about W Capital Advisory Ptv Ltd and James Manning, a former board director and executive of the Company, being related parties. W Capital Advisory Pty has not responded to the Company’s concerns in a manner satisfactory to the Company.

Marshall loan

The Company is the guarantor of a Secured Loan Facility Agreement by MIG No. 1 with Marshall. The loan matured in February 2024 and bears interest at a rate of 12% per annum (with an overdue rate provision of an additional 500bps), payable monthly with interest payments that commenced in December 2021. This loan facility is secured by direct assets of MIG No.1 Pty Ltd and a general security agreement given by the Company. Principal repayments began during November 2022. The outstanding balance including interest is $10.53 million as of September 30, 2024, all of which is classified as a current liability. There has been no principal and interest payments made since May 2023. This Secured Loan Facility Agreement was entered into with an Australian entity MIG No.1, this company 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 modular data centers (“MDCs”), these assets are held by the 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 is currently not utilizing these miners or MDCs for its operations and has asked Marshall to take these assets out of the Company’s storage. Marshall has not responded to the Company’s ask for these miners and MDCs to be removed from the Company’s storage. The Company is reserving all its rights and remedies against Marshall.

Celsius loan

On February 23, 2022, Luna entered into a Digital Colocation Agreement with Celsius Mining LLC. In connection with this agreement, Celsius Mining LLC loaned Luna a principal amount of $20.00 million, for the purpose of funding the infrastructure required to meet the obligations of the Digital Colocation Agreement, for which Luna issued a Secured Promissory Note for repayment of such amount. The Secured Promissory Note accrues interest daily at a rate of 12% per annum (with an overdue rate provision of an additional 200bps). Luna is required to amortize the loan at a rate of 15% per quarter, principal repayments began at the end of September 2022. The Secured Promissory Note had a maturity date of August 23, 2023, the outstanding balance including interest is $9.38 million as of September 30, 2024, all of which is classified as a current liability. Celsius Mining LLC transferred the benefit of the promissory note to Celsius Network Ltd. Celsius Mining LLC and Celsius Network Ltd filed for Chapter 11 bankruptcy protection on July 13, 2022. Under the Digital Colocation Agreement, Celsius Mining LLC advanced $15.33 million to Luna that were 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 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”. For more details on this dispute, please see the Celsius Collocation Agreement Dispute found in Part I. Financial Information, Item 1. Financial Statements, contained in this Form 10-Q and made part here of and incorporated herein by reference.

Convertible notes

On July 8, 2022, the Company issued secured convertible promissory notes to investors in exchange for cash. The outstanding balance relates to the interest on the convertible note which has been accrued from July 2022 onwards and therefore the outstanding balance is $0.11 million as of September 30, 2024, all of which is classified as a current liability. On March 28, 2024, the Company was made a defendant in a civil suit before the Supreme Court of NSW in Sydney Australia, 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.”, Docket No. 2024/00117331, alleging a claim to seek USD $0.17 million as unpaid interest under a convertible note after the Company paid in full the principal of $0.50 million, and AUD $0.30 million under a loan deed, plus interest and costs for sums due claiming corporate guarantee by the Company for a “Variation Deed to Loan Deed” dated September 29, 2022, executed by its Australian entity, Mawson Infrastructure Group Pty Ltd. The Company sought dismissal of the Australian proceedings arguing jurisdiction of any claims against the Company should be in the United States as set forth in the agreements between the parties. Despite its objections, the Australian court ruled in favor of the Australian claimant and rendered a judgment against the Company under Australian law for US $0.17 million as unpaid interest under a convertible note after the Company paid in full the principal of $0.50 million, and AUD $0.30 million under a loan deed, plus interest and costs for sums due.

On June 12, 2024, W Capital issued a statutory demand under Australian Law to the Company seeking USD $0.17 million as unpaid interest under a convertible note after the Company paid in full the principal of $0.50 million, and AUD $0.30 million under a loan deed. The Company rejected this demand. Subsequently, on October 3, 2024, a proceeding before the Federal Court of Australia, New South Wales was filed by W Capital against the Company, seeking a hearing in Australia on November 29, 2024 regarding its claims related to Company’s solvency under Australian law. The current proceeding is in Australian courts and there are no associated proceedings in the United States. The Company believes that W Capital and Marshall are using this proceeding in Australia as a bad faith attempt to gain leverage in ongoing legal disputes between the parties. For further information, please reference the Marshall and W Capital Australian Loan Disputes found in Part I. Financial Information, Item 1. Financial Statements, made part here of and incorporated herein by reference.

NOTE 9 – STOCKHOLDERS’ EQUITY

Common Stock

During the nine-month period ended September 30, 2024, vested and outstanding restricted stock units were exercised for 2,062,903 shares of common stock of the Company.

Common Stock Warrants

The Company’s outstanding stock warrants have not changed during the nine-months ended September 30, 2024. The outstanding stock warrants as of September 30, 2024 are 4,904,016 with a weighted average remaining contractual life (in years) of 2.90 and a weighted average exercise price of $11.07, all of which are exercisable.

Stock-Based Compensation:

Equity plans

Under the 2018 Equity Plan, the number of shares issuable under the Plan on the first day of each fiscal year increase by an amount equal to the lower of (i) 100,000 shares (after a later 10 for 1 stock split) or (ii) 5% of the outstanding shares on the last day of the immediately preceding fiscal year. At the Company’s annual meeting on May 17, 2023, the stockholders approved an amendment to the 2021 Equity Plan that, amongst other things, increased the number of the shares available under the 2021 Equity Plan to 10,000,000 shares, and the shares available under the 2021 Equity Plan increased by 1,000,000 shares on January 1, 2024 to 11,000,000. Upon review of the previously granted shares in previous years and the availability of shares, on April 9, 2024, the Board of Directors approved the 2024 Omnibus Equity Plan (the “2024 Plan”) which will provide an initial 10,000,000 shares of common stock available for grant per the terms of the 2024 Plan and provides alignment with long-term stockholder value creation. The 2024 Omnibus Equity Plan was approved by the stockholders at the Company’s annual general meeting held on June 12, 2024. The 2024 Plan replaced and succeeded the Company’s 2018 Equity Incentive Plan and 2021 Equity Incentive Plan. The 2024 Plan provides that awards issued under the 2024 Plan, the 2018 Plan or the 2021 Plan that expire, lapse or are terminated, surrendered or canceled without having been fully exercised or are forfeited in whole or in part, in any case in a manner that results in any share of Common Stock covered by such award being reacquired by the Company or otherwise not being issued, such share of Common Stock shall again be available for the grant of awards under the 2024 Plan. Further, shares of Common Stock delivered (either by actual delivery or attestation) to the Company by a participant to (1) satisfy the applicable exercise or purchase price of an award, and/or (2) satisfy any applicable tax withholding obligation, in each case, shall be added to the number of shares of Common Stock available for the grant of awards under the 2024 Plan. Therefore, an additional 5,000,000 shares of Common Stock are being registered hereunder for those purposes, for an aggregate of 15,000,000 shares of Common Stock being registered hereunder.

The Company recognized stock-based compensation expense during the three and nine months ended September 30, 2024 and 2023, as follows:

Performance-based awards

Performance-based awards generally vest over a three-year performance period upon the successful completion of specified market and performance conditions.

The following table presents a summary of the Company’s performance-based awards restricted stock awards activity:

Service-based restricted stock awards

Service-based awards generally vest over a specified time period pursuant to the grant by the Compensation Committee of the Board of Directors and as specified in the award agreements or employment agreements.

The following table presents a summary of the Company’s service-based awards activity:

As of September 30, 2024, there was approximately $20.54 million of unrecognized compensation cost related to the service-based restricted stock awards, which is expected to be recognized over a remaining weighted-average vesting period of approximately four years.

Stock options awards

Stock options awards vest upon the successful completion of specified stock price threshold conditions.

The following table presents a summary of the Company’s Stock options awards activity:

As of September 30, 2024, there was approximately $0.61 million of unrecognized compensation cost related to the stock options awards, which is expected to be recognized over a remaining weighted-average vesting period of approximately eight months.

NOTE 10 – SUBSEQUENT EVENTS

Effective September 6, 2024, the Company terminated the At the Market Offering Agreement with H.C. Wainwright & Co., LLC dated May 27, 2022. The Company filed an 8K on October 25, 2024 announcing this termination. This filing is incorporated herein by reference.

On October 3, 2024, a proceeding before the Federal Court of Australia, New South Wales was filed by W Capital against the Company, seeking a hearing on November 29, 2024 regarding its claims related to Company’s solvency under Australian law. The current proceeding is in Australian courts and there are no associated proceedings in the United States. The Company believes that W Capital and Marshall are using this proceeding in Australia as a bad faith attempt to gain leverage in ongoing legal disputes between the parties. For further information, please reference the Marshall and W Capital Australian Loan Disputes found in Part I. Financial Information, Item 1. Financial Statements, made part here of and incorporated herein by reference.

On October 17, 2024, the Company filed a complaint in The Court of Common Pleas of Mercer County, Pennsylvania (file number 2024-2332), against Vertua Property, Inc. as landlord for the Company’s Sharon, PA property for breach of the lease agreement and wrongful termination of the lease, as well as for tortious interference with a business relationship, seeking reinstatement of the lease, compensatory damages, disgorgement of revenue, and exemplary and punitive damages, as well as reimbursement for Plaintiffs’ costs and expenses including attorneys’ fees and costs of suit. Vertua Property, Inc. is a company affiliated to Darron Wolter of W Capital and to James Manning, a former board director and executive of the Company.