Mawson Infrastructure Group Inc. - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021 

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission file number 001-40849

Mawson Infrastructure Group Inc.

(Exact name of registrant as specified in its charter)

Level 5, 97 Pacific Highway, North Sydney NSW Australia 2060

(Address of principal executive offices, including zip code)

+61 2 8624 6130

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

As of November 15, 2021, the issuer had a total of 69,001,071 shares of common stock, par value $.001 per share, outstanding.

MAWSON INFRASTRUCTURE GROUP INC.

FORM 10-Q

FOR THE QUARTER ENDED September 30, 2021

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MAWSON INFRASTRUCTURE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

MAWSON INFRASTRUCTURE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

MAWSON INFRASTRUCTURE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

For the Three Months Ended September 30, 2021

For the Three Months Ended September 30, 2020

For the Nine Months Ended September 30, 2021

For the Nine Months Ended September 30, 2020

MAWSON INFRASTRUCTURE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

MAWSON INFRASTRUCTURE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – GENERAL

General

Mawson Infrastructure Group, Inc. (the “Company” or “Mawson” or “the Group”), formerly known as Wize Pharma, Inc was incorporated in the State of Delaware on April 2, 2012. Prior to that, we were originally incorporated under the name Bridge Capital.com, Inc on December 10, 1999.

The accompanying unaudited interim condensed consolidated financial statements, including the results of the Company’s subsidiaries, Mawson Infrastructure Group Pty Ltd (formerly known as Cosmos Capital Limited) (“ Mawson AU”)) and its subsidiaries: Cosmos Trading Pty Ltd, Cosmos Infrastructure LLC, Cosmos Manager LLC, Cosmos Grid Tech Pty Ltd, Cosmos Asset Management Pty Ltd, and Luna Squares LLC (formerly known as Innovative Property Management LLC), (collectively referred to as the “Group”), have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

Since Mawson acquired Mawson AU on March 9, 2021, it has managed most of its activity through Mawson Infrastructure Group Pty Ltd (formerly known as Cosmos Capital Limited), an Australian incorporated company, and its subsidiaries, Cosmos Trading Pty Ltd, Cosmos Infrastructure LLC, Cosmos Manager LLC, Cosmos Grid Tech Pty Ltd, Cosmos Asset Management Pty Ltd, and Luna Squares LLC (formerly known as Innovative Property Management LLC).

Since the acquisition of Mawson AU, Mawson has been treated as the acquiree, with Mawson AU being the acquirer. The result of which is that these financial statements are taken to be a continuation of the Mawson AU financial statements, with Mawson incorporated within the acquisition. For discussion regarding this acquisition and treatment (also referred to as either the “Mawson AU Transaction” or the “Cosmos Transaction”) please refer to the Company’s Quarterly Report on Form 10-Q filed on May 19, 2021, under Note 2: Reverse asset acquisition.

Mawson, through its subsidiary Mawson AU, is a ‘Digital Asset Infrastructure’ business, which owns and operates modular data centers (MDCs) based in the United States. As at September 30, 2021 Mawson AU currently owns and has ordered 35,784 Miners specifically focused on the SHA-256 algorithm, from a variety of manufacturers, including Bitmain Technology Holding Company (“Bitmain”), Canaan Creative (HK) Holdings Limited (“Canaan”) and Shenzhen MicroBT Electronics Technology Co., Ltd (“Whatsminer”). As at September 30, 2021, the operational Miners produce up to 400 Petahash of computing power, with a total capacity upon deployment of all ordered equipment to produce up to a 3,062 Petahash.

Going Concern

Based on internally prepared forecast cash flows, combined with the existing cash reserves, which take into consideration what management of the Group considers reasonable scenarios given the inherent risks and uncertainties described both in this Quarterly Report on Form 10-Q and the Company’s Current Report on Form 8-K/A filed May 13, 2021, management believes that the Group will have adequate cash reserves to enable the Group to meet its obligations for at least one year from the date of approval of the consolidated financial statements, and on this basis the accounts have been prepared on a going concern basis.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and basis of preparation

Pursuant to that certain Certificate of Amendment to the Certificate of Incorporation of the Company dated August 11, 2021, Mawson executed a 10-for-1 reverse stock split of its outstanding common stock and reduced its authorized common stock to 120,000,000 shares, as set forth in the Company’s Current Report on Form 8-K/A filed August 16, 2021. Unless otherwise specified, all Mawson share numbers in the Financial Statements and Notes in this Quarterly Report on Form 10-Q reflect post-reverse stock split numbers.

These consolidated, condensed interim financial statements should be read in conjunction with the audited consolidated financial statements for Cosmos Capital Limited (now known as Mawson Infrastructure Group Pty Ltd) and subsidiaries as of December 31, 2020, and the notes thereto, included in the Company’s Current Report on Form 8-K/A filed May 13, 2021. The results of the interim periods are not necessarily indicative of the results to be expected for the full year ended December 31, 2021. These consolidated condensed interim financial statements reflect all adjustments which, in the opinion of management, are necessary to present fairly the financial position, the results of operations and cash flows of the Company for the periods presented.

Any changes in the Company’s ownership interest in a consolidated subsidiary, through additional equity issuances by the consolidated subsidiary or from the Company acquiring the shares from existing shareholders, in which the Company maintains control is recognized as an equity transaction, with appropriate adjustments to both the Company’s additional paid-in capital and the corresponding non-controlling interest.

On March 9, 2021, Cosmos Capital Limited (now known as Mawson Infrastructure Group Pty Ltd) was acquired by the Company. For accounting purposes, this was accounted for as a reverse asset acquisition with Cosmos Capital Limited (now known as Mawson Infrastructure Group Pty) as the accounting acquirer (refer to significant accounting policies below) and therefore the historical financial information of Cosmos Capital Limited prior to March 9, 2021 became the historical financial information of Mawson Infrastructure Group Pty, which have been consolidated into the financial statements of the Company. The consolidated results of the Company are reported in U.S. Dollars and include the operations of all its subsidiaries. All intercompany balances and transactions have been eliminated in the consolidation.

Use of Estimates and Assumptions

The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the dates of the consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates. The Company has considered the following to be significant estimates made by management, including but not limited to, going concern assumptions, estimating the useful lives of patent assets and fixed assets, realization of long-lived assets, unrealized tax positions and the realization of digital currencies, Business Combinations, Reverse Asset Acquisition, and the Contingent obligation with respect to future revenues.

Critical Accounting Policies

Critical accounting policies are described in the footnotes to the consolidated financial statements for Cosmos Capital Limited (now known as Mawson Infrastructure Group Pty Ltd) and subsidiaries as of December 31, 2020, included in the Company’s Current Report on Form 8-K/A filed May 13, 2021. There have been no changes to critical accounting policies in the three months period ended September 30, 2021 other than as a result of changes to operations as described below.

Reverse Asset Acquisition

On March 9, 2021, the Company acquired the shares of Cosmos Capital Limited (now known as Mawson Infrastructure Group Pty Ltd) in a scrip for scrip exchange. This transaction has been accounted for as a reverse asset acquisition. Full details of the transaction and the impact are included in the Company’s Quarterly Report on Form 10-Q filed on May 19, 2021. This transaction reverse asset acquisition and the associated impact is referred to as the Cosmos Transaction.

Share based payments

Under the terms of the Cosmos Transaction Bid Implementation Agreement, the Company was required to make share based payments consisting of up to 40,000,000 shares under an Incentive Compensation Program and warrants issued to HC Wainwright as a fee related to the acquisition by Mawson of Mawson AU. In addition, Mawson AU had an outstanding obligation to W Capital Advisors Pty Ltd (“W Capital”) for options over the equity of Mawson AU which was terminated for consideration of warrants over the Company’s shares being issued to W Capital.

Share based payments expenses for the nine months ended September 30, 2021 and 2020 were $21.78 million and $nil respectively. In the nine-month period to September 30, 2021, share based payments were largely attributable to HC Wainwright of $6.18 million, W Capital Warrants of $5.56 million and an accrual of $10.00 million for amounts related to the obligation of Mawson to issue RSU’s pursuant to the terms of the Bid Implementation Agreement for the Cosmos Transaction, included in the Company’s Current Report on Form 8-K/A filed May 13, 2021. No share-based payments expenses were recorded in the 2020 period.

Equity accounted investments

Mawson subscribed for 500,000 shares in Distributed Storage Solutions Pty Ltd (DSS) at AUD$1.00 per share on March 1, 2020. As at September 30, 2021, Mawson held 20.06% of the equity in DSS, an Australian private company operating a blockchain based decentralized storage business, based on the IPFS protocol. This investment has been equity accounted, as Mawson has assessed that it has significant influence over the operations of the investee.

Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies to those previously disclosed in the consolidated financial statements as of December 31, 2020, and the notes thereto, included in the Company’s Current Report on Form 8-K/A filed May 13, 2021, other than as a result of changes to operations as described below.  

Revenue recognition – equipment sales

In Q3 2021, the Company earned revenues from the sale of earlier generation cryptocurrency mining units and modular data centers that have been assembled or refurbished for resale (collectively “Hardware”). Revenue from the sale of Hardware is recognized when all of the following conditions are satisfied: (i) persuasive evidence of a sales arrangement exists, (ii) the sales terms are fixed or determinable, (iii) title and risk of loss have transferred, (iv) payment is received. At the date of sale, the net book value is expensed in cost of revenues.

Digital Currencies

Digital currencies are included in current assets in the consolidated balance sheets. Digital currencies are recorded at cost less impairment.

An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.

The following table presents the activities of the digital currencies of the three months and nine months ended September 30, 2021:

Basic and Diluted Net Loss per Share

Net loss per common share is calculated in accordance with ASC Topic 260: Earnings Per Share (“ASC 260”). Basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. The computation of diluted net loss per share does not include dilutive common stock equivalents in the weighted average shares outstanding, as they would be anti-dilutive.

Securities that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share at September 30, 2021 and 2020 are as follows:

The following table sets forth the computation of basic and diluted loss per share:

Comparative weighted average common shares have been revised by the ratio of Mawson AU to the Company shares exchanged in the reverse asset acquisition in March 2021. Pursuant to that certain Certificate of Amendment to the Certificate of Incorporation of the Company dated August 11, 2021, Mawson executed a 10-for-1 reverse stock split of its outstanding common stock and reduced its authorized common stock to 120,000,000 shares, as set forth in the Company’s Current Report on Form 8-K/A filed August 16, 2021. 

Recently Issued Accounting Pronouncements

For information with respect to recent accounting pronouncements, see Note 2 to the consolidated financial statements for Cosmos Capital Limited (now knows as Mawson Infrastructure Group Pty Ltd) and subsidiaries as of December 31, 2020, and the notes thereto, included in the Company’s Current Report on Form 8-K/A filed May 13, 2021. Recent accounting pronouncements include.

Accounting Standards Update (“ASU”) No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”)

Standard/Description– Issuance date: December 2019. This guidance simplifies various aspects of income tax accounting by removing certain exceptions to the general principle of the guidance and also clarifies and amends existing guidance to improve consistency in application.

Effective Date and Adoption Considerations– The guidance was effective January 1, 2021 and early adoption was permitted. The company adopted the guidance on a prospective basis as of the effective date.

Effect on Financial Statements or Other Significant Matters– The guidance did not have a material impact in the consolidated financial results.

Other new pronouncements not applicable to the Company:

Reference Rate Reform (“ASU 2021-01”) issued March 2020, with amendments in 2021; effective March 12, 2020 through December 31, 2022

Simplifying the Test for Goodwill Impairment (“ASU 2017-04”) issued January 2017 effective January 1, 2020;

Financial Instruments - Credit Losses (“ASU 2016-13 / 2018-19 / 2019-04 / 2019-05 / 2019-10 / 2019-11”) issued June 2016 with amendments in 2018, 2019 and 2020; effective January 1, 2020

NOTE 3 – DEPOSIT, PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS

On February 5, 2021, the Cosmos Infrastructure LLC (“Infrastructure”) entered into a Long-Term Purchase Contract with Canaan Convey Co Ltd (“Canaan”) for the purchase of 11,760 next generation Avalon A1246 ASIC Miners (Avalon). The purchase price per unit is $2,889 for a total purchase price of $33,974,640 (the “Canaan Transaction”). There will be a final adjustment to the purchase price in the last delivery due in March 2022 based on the actual tera hash delivered, based on the agreed price per tera hash under the terms of the contract.

The details of the Canaan Transaction were set out in our Quarterly Report on Form 10-Q filed on May 19, 2021. During the third quarter, the Company paid:

As a result of payments pursuant to the Canaan Transaction, Canaan delivered 2,944 Miners in the 3 months ended September 30, 2021. The Company recognized these delivered assets as Property and Equipment on the consolidated balance sheet when the transfer of risk and title occurs for each shipment (i.e., the Miners have been delivered by Canaan to the agreed-upon port of loading in China).

On August 9, 2021, Infrastructure entered into a second Long-Term Purchase Contract with Canaan for the purchase of 15,000 next generation Avalon A1246 ASIC Miners (Avalon). The purchase price per unit is $4,908 for a total purchase price of $73,620,000 (the “2ND Canaan Transaction”). There will be a final adjustment to the purchase price in the last delivery due in May 2022 based on the actual tera hash delivered, based on the agreed price per tera hash under the terms of the contract.

The details of the 2ND Canaan Transaction were set out in our Quarterly Report on Form 8-K filed August 9, 2021. During the third quarter the Company paid $14,724,000 as a deposit against the order.

As of September 30, 2021, approximately $34.63 million cash paid for Miners was recorded as a deposit on the balance sheet.

The Company’s depreciation and amortization expense for the three months ended September 30, 2021 and 2020 were $4.13m and $2.59m respectively. The Company’s depreciation and amortization expense for the nine months ended September 30, 2021 and 2020 were $7.98 million and $5.05 million respectively.

NOTE 4 – STOCKHOLDERS EQUITY

Common Stock

On March 9, 2021, as a part of closing the Cosmos Transaction, Mawson issued a total of 428,270,616 shares to Mawson AU shareholders. There remained 50,558,133 shares that are to be issued once the approval of increase in authorized capital has been finalized. On May 20, 2021, the Authorized Capital increased from 500,000,000 to 800,000,000 shares.

On June 2, 2021, the Company issued 3,475,970 shares to a combination of Mawson AU shareholders, and service providers to Mawson AU, who were eligible for shares on 31 December 2021.

On June 15, 2021, the final 48,983,148 shares under the Cosmos Transaction were issued to Mawson AU shareholders.

On August 6, 2021, the Company finalized Securities Purchase Agreements (the “PIPE Agreements”) with certain accredited investors (the “PIPE Investors”). Pursuant to the PIPE Agreements, the Company agreed to sell to the PIPE Investors, and the PIPE Investors agreed to purchase from the Company, in a private placement, an aggregate of 46,164,019 shares of common stock for a purchase price of $0.80 per share giving rise to gross proceeds of $36,931,215. 

On August 13, 2021, Mawson executed a 10-for-1 reverse stock split of its outstanding common stock and reduced its authorized common stock to 120,000,000 shares and the notes thereto, pursuant to that certain Certificate of Amendment to the Certificate of Incorporation of the Company, dated August 11, 2021, included in the Company’s Current Report on Form 8-K/A filed August 11, 2021.

On August 18, 2021, Mawson performed a share conversion of the outstanding 178 shares of Series A Preferred Stock 17,800 shares of common stock of Mawson.

On August 30, 2021, Mawson issued an additional 62,500 (625,000 pre reverse stock split) shares of common stock for a purchase price of $8.00 per share ($0.80 per share pre reverse stock split) under the PIPE Agreements of August 6, 2021, resulting in an additional $500,000 of gross proceeds under the PIPE Agreements, taking the total raised to $37,431,215.

On September 28, 2021, Mawson Infrastructure Group Inc. (the “Company”) entered into an underwriting agreement (the “Underwriting Agreement”) with H.C. Wainwright & Co., LLC, as representative (the “Representative”), of the sole underwriter (the “Underwriter”), in connection with the Company’s previously announced public offering (the “Offering”) of 3,913,044 shares (the “Firm Shares”) of the Company’s common stock, $0.001 par value per share (the “Common Stock”) and accompanying 3-year warrants to purchase up to 1,956,522 shares of Common Stock with an exercise price of $13.80 (the “Firm Warrants”), at a public offering price of $11.50 per share. Under the terms of the Underwriting Agreement, the Company granted the Underwriter an option, exercisable for 30 days, to purchase up to an additional 586,956 shares of Common Stock at the public offering price, less the underwriting discount and commissions (the “Option Shares,” and together with the Firm Shares, the “Shares”) and 293,478 accompanying warrants (the “Option Warrants,” and together with the Firm Warrants, the “Warrants”). On September 28, 2021, the Representative gave us notice of its exercise of its option to purchase 293,478 Option Warrants for approximately an additional $5,870. The closing of the Offering occurred on October 1, 2021. The net proceeds to the Company from the Offering (including the sale of additional Option Warrants), excluding any exercise by the Underwriters of their option to purchase any of the Option Shares, were approximately $41,234,050, after deducting underwriter fees and estimated offering expenses payable by us. The Company intends to use the net proceeds from the Offering for working capital and general corporate purposes.

Restricted Stock

As of September 30, 2021, 17,628,737 of the 48,072,974 shares of common stock issued as part of the compensation of Cosmos Transaction are restricted in trading under the Restricted Stock Agreement with each shareholder until December 31, 2021.

Series A Preferred Stock

As of September 30, 2021, there are no shares of Series A Preferred Stock outstanding.

Common Stock Warrants

A summary of the status of the Company’s outstanding stock warrants and changes during the nine months ended September 30, 2021, is as follows:  

On September 30, 2021 the Company entered into an underwritten capital raise with the Representative, which resulted in the issuance of 2,250,270 warrants to investors at an exercise price of $13.80 and with an expiry of 30 September 2024. In addition, and as part of the underwriting agreement, the Representative and its designees were issued 273,913 warrants with an exercise price of $14.375 and an expiry of 30 September 2021.

NOTE 5 – DEBT, COMMITMENTS AND CONTINGENCIES

Convertible Note

On February 12, 2021, Mawson AU issued 28,012,364 unsecured convertible promissory notes (the “Mawson AU Notes”), which each mandatorily convert into 0.0424 shares in Mawson AU at the earlier of 6 months from February 12, 2021 or upon the occurrence of certain events. The notes accrue interest at the rate of 8% per annum which may be settled in stock or cash at the option of the Company. The Mawson AU Notes raised net proceeds of $20,275,349 comprising gross proceeds of $21,569,520 less transaction costs.

The Mawson AU Notes automatically converted into convertible notes of Mawson (“Mawson Notes”) upon close of the Cosmos Transaction on March 9, 2021. The Mawson Notes have substantially the same terms as the Mawson AU notes and mandatorily convert into shares of Common Stock of Mawson the earlier of 6 months from February 12, 2021 or upon the occurrence of certain events at an issue price of $0.339 per share of Common Stock and will convert into 63,626,903 shares Common Stock in total. Given the mandatory and fixed conversion features, the Mawson Notes have been accounted for as equity.

On August 13, 2021, all 28,012,364 outstanding “Mawson Notes” were mandatorily converted into 63,626,903 shares of Common Stock at a conversion price of $0.339 per share. The Company also issued 869,061 shares of Common Stock as payment for interest accrued on the convertible notes with a share price of $0.98 per share.

Debt

On June 1, 2021, the Company entered into a working capital facility with Georgina Manning Pty Ltd for up to AUD$1,000,000. As of September 30, 2021, the Company had closed this facility and no longer has any liabilities with Georgina Manning Pty Ltd.

On January 27, 2021, Cosmos Infrastructure LLC (“Cosmos Infrastructure”) entered into an Equipment Purchase and Finance and Security Agreement with Foundry Digital LLC (“Foundry”) to purchase machinery that will be located at a facility hosted by Compute North LLC (“Compute North”). On February 5, 2021, the term of the agreement was further amended to have a final payment due January 27, 2022. Under the terms of the agreement, Cosmos Infrastructure purchased 500 Whatsminer M30S mining machines, paid a deposit of $264,000, and borrowed a total of $1,056,000. The Company plans to repay the facility in full by the last payment date, November 1, 2022.

Leases

As of September 30, 2021, the Company owns 95% of the equity of Luna Squares, LLC. Luna Squares LLC leases a 16.35 acre lot in the State of Georgia referred to as “Luna Squares” from the Development Authority of Washington County. The initial lease held by Luna Squares LLC, is from May 1, 2020 until April 30, 2023. Luna Squares entered into an amendment to the lease and exercised its option for additional land, which was signed and came into effect from February 23, 2021 (“Lease Amendment”). In addition to the extra land occupied, the amendment also includes five, 3-year extension options bringing a total optional lease period until 2038. Luna Squares LLC entered into a second amendment to the lease and exercised its option for additional 11.35 acres of land, which was signed and came into effect from August 24, 2021, and extends the ultimate expiry of the lease until July 31, 2047 (“Second Lease Amendment”).

The Company leases the headquarters of its business operations at Level 5, 97 Pacific Highway, North Sydney NSW 2060 Australia, being 1,076 square feet of office space held under a license agreement.

On September 20, 2021, the Company signed a new lease for 6-acres of land in Pennsylvania for thirty-six months with the option to execute four additional three year extensions as set out in our Current Report on Form 8-K filed September 20, 2021.

Other than the foregoing leases, the Company does not lease any material assets. The Company believes that these offices and facilities are suitable and adequate for its operations as currently conducted and as currently foreseen. In the event additional or substitute offices and facilities are required, the Company believes that it could obtain such offices and facilities at commercially reasonable rates.

NOTE 6 – DEFERRED TAX

We compute our quarterly income tax expense/(benefit) by using a forecasted annual effective tax rate and adjust for any discrete items arising during the interim period. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and carryforward losses. 

The tax effects of temporary differences and tax loss and other credit carry forwards that give rise to significant portions of deferred tax assets and liabilities at September 30, 2021, and December 31, 2020 are comprised of the following:

Significant components of our deferred tax assets and deferred tax liabilities are as follows:

For the nine-month period ended September 30, 2021 the Company recognized $nil income tax expense (September, 30 2020: $nil).

As of September 30, 2021, we had federal and foreign net operating loss carryforwards of approximately $4.98 million and $5.36 million respectively, of which the ability to be carried forward indefinitely is subject to continued and ongoing review.

Utilization of net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations provided by the Internal Revenue Code and similar state provisions. Annual limitations may result in expiration of net operating loss and tax credit carryforwards before some or all of such amounts have been utilized.

The Company and its subsidiaries are subject to United States federal income tax, foreign income and withholding tax and income taxes from state jurisdictions. All tax years are open and subject to inspection by taxing authorities.

NOTE 7 – SUBSEQUENT EVENTS

On October 11, 2021, the Company acquired 2,000 Canaan A1246 for delivery in October 2021 from Canaan for a total consideration of $10,800,000. The Company paid in full for the units and took delivery during the month of October 2021.

On October 15, 2021, the Company acquired 2,000 Whatminers M30’s for delivery in October 2021 from Foundry Digital LLC for a total consideration of $16,481,328. The Company paid a deposit of $3,202,766 and entered into a finance agreement with Foundry for the balance of the consideration over a 12-month term.

On October 22, 2021, MIG No. 1 Pty Ltd (“MIG”), an Australian subsidiary of Mawson Infrastructure Group Inc. (the “Company”), entered into an electricity supply and sale agreement (“Electricity Supply Agreement”) with Cape Byron Management Pty Ltd (“CBM”) to enable the Company to operate its first Australian bitcoin mining site (“Australian Site”). CBM is a subsidiary of Quinbrook Infrastructure Partners Pty Ltd. This Electricity Supply Agreement was filed in the Company’s Current Report on Form 8-K on October 22, 2021.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of our balance sheets, statements of comprehensive income (loss) and cash flows. This section should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (“2020 Form 10-K”) filed with the United States Securities and Exchange Commission(the “SEC”), the Annual Consolidated Financial Statements of Mawson AU included in included in the Company’s Current Report on Form 8-K/A filed May 13, 2021 and our unaudited interim consolidated financial statements and accompanying notes to these Financial Statements included in this Quarterly Report on Form 10-Q. For accounting and financial purposes, Mawson is treated as the “acquired” company by Mawson AU, and historical financial information provided is that of Mawson AU, not Mawson. All amounts are in U.S. dollars.

Throughout this report, unless otherwise designated, the terms “we,” “us,” “our,” the “Company,” “Mawson,” “our company” and the “combined company” refer to Mawson Infrastructure Group Inc. (formerly known as Wize Pharma, Inc.), a Delaware corporation, and its direct and indirect subsidiaries, including Mawson Infrastructure Group Pty Ltd (formerly known as Cosmos Capital Limited), an Australian company (“Mawson AU”), Cosmos Trading Pty Ltd, Cosmos Infrastructure LLC, Cosmos Manager LLC, Cosmos Grid Tech Pty Ltd, Cosmos Asset Management Pty Ltd, and Luna Squares LLC (formerly known as Innovative Property Management LLC).

Pursuant to that certain Certificate of Amendment to the Certificate of Incorporation of the Company dated August 11, 2021, Mawson executed a 10-for-1 reverse stock split of its outstanding common stock and reduced its authorized common stock to 120,000,000 shares, as set forth in the Company’s Current Report on Form 8-K/A filed August 16, 2021. Unless otherwise specified, all Mawson share numbers in this Quarterly Report on Form 10-Q reflect post-reverse stock split numbers.

Forward-Looking Statement Notice

This Quarterly Report on Form 10-Q contains forward-looking statements about our expectations, beliefs or intentions regarding, among other things, our product development efforts, business, financial condition, results of operations, strategies or prospects. In addition, from time to time, our representatives have made or may make forward-looking statements, orally or in writing. Forward-looking statements can be identified by the use of forward-looking words such as “believe,” “expect,” “intend,” “plan,” “may,” “should” or “anticipate” or their negatives or other variations of these words or other comparable words or by the fact that these statements do not relate strictly to historical or current matters. These forward-looking statements may be included in, but are not limited to, various filings made by us with the SEC, press releases or oral statements made by or with the approval of one of our authorized executive officers. Forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements, including, but not limited to, the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2020, in Part II, Item 1A in our Quarterly Reports on Form 10-Q for the period subsequent to our most recent fiscal year end, and in Part II – Item 1A of this report.

This report identifies important factors which could cause our actual results to differ materially from those indicated by the forward-looking statements, particularly those set forth under Item 1A. “Risk Factors” as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, in Part II, Item 1A in our Quarterly Reports on Form 10-Q for the period subsequent to our most recent fiscal year end, and in Part II – Item 1A of this report.

Such risk factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Factors that could cause our actual results to differ materially from those expressed or implied in such forward-looking statements include, but are not limited to:

All forward-looking statements attributable to us or persons acting on our behalf speak only as of the date of this report and are expressly qualified in their entirety by the cautionary statements included in this report. Except as required by applicable law, we undertake no obligations to update or revise forward-looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. In evaluating forward-looking statements, you should consider these risks and uncertainties.

Overview

General. Mawson (formerly known as Wize Pharma, Inc.), through its majority-owned subsidiary, Mawson AU, is a ‘Digital Asset Infrastructure’ business, which owns and operates (through Mawson AU) modular data centers (MDCs) currently based in the United States. and Australia. We are focused on developing the technology to enable us to own and operate MDCs that are both air-cooled and liquid immersion cooled.

Our primary business is the ownership and operation of Application-Specific Integrated Circuit (“ASIC”) computers known as Miners. We currently operate three sites, with two locations in USA, and a location in Australia, from which we operate our combined business. The Miners are predominately focused on the process of digital mining, specifically for Bitcoin.

As of September 30, 2021

We continue to conduct research and development into our Modular Data Centre (MDC) which we are actively testing in several configurations and locations to determine the best configuration for both Application Specific Integrated Circuits (“ASIC”) and alternate computing uses, including both for use in Graphics Processing Units (GPU) systems and traditional CPU based computing systems.

In addition, our indirect subsidiary, Cosmos Asset Management Pty Ltd (“Cosmos Asset Management”), is the investment manager of the Bitcoin Wholesale Access Fund, a wholesale, unregistered managed investment scheme which currently invests in and holds Bitcoin for third party investors, and is the manager of the Cosmos Global Digital Miners Access ETF, listed on Chi-X in Australia under the code DIGA.

Our Products and Services. Our digital asset infrastructure business can be divided into three main activities:

Digital Processing and Hosting Solutions (Mining)

The business of digital processing and mining requires the purchase and ownership of computing hardware and servers specific to the computing problem that a person is seeking to solve, referred to as a “Miner”. Each Miner or component thereof can be specifically specialized to perform a function better than other hardware for the purpose of maximizing the return from any specific processing task.

Mining hardware performs computational operations in support of the blockchain measured in “hash rate” or “hashes per second.” A “hash” is the computation run by mining hardware in support of the blockchain; 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, CPU mining was rapidly replaced by the Graphics Processing Unit (GPU), which offers significant performance advantages over CPUs. General purpose chipsets like CPUs and GPUs have since been replaced in the mining industry by ASIC chips. These ASIC chips are designed specifically to maximize the rate of hashing operations.

Asset Management

We have a dedicated asset management business, which is operated through Cosmos Asset Management, which is involved in the ownership and management of digital assets and infrastructure, and which is the investment manager of the Cosmos Global Digital Miners Access ETF, listed on Chi-X in Australia under the code DIGA Bitcoin Access Wholesale Fund, a wholesale, unregistered managed investment scheme which invests in and holds Bitcoin for third party investors. This business leverages the existing knowledge and infrastructure of our digital asset business to provide its investors exposure to various investment opportunities.

Through a strategic partnership with Independent Reserve Pty Limited, one of Australia’s leading digital exchanges, Cosmos Asset Management has custody agreements and security procedures in place to manage the various risks with investing in digital assets. In addition, Cosmos Asset Management manages a dedicated business in distributed storage infrastructure.

As of September 30, 2021, the funds under management of the asset management business are approximately USD$4.00 million.

Research and Development

Our research and development, or R&D, program is focused on researching and exploring opportunities to improve the efficiency of hardware and software and MDC’s, including the development of technology to enable us to own and operate MDCs that are both air cooled and liquid immersion cooled. We have also begun research into the software element of computing and are in the initial stages of researching a range of programs to improve efficiency through this avenue as well.

We are conducting research in both Australia and the United States. By conducting research in different countries, we are able to research improvements in efficiencies across varying climates. The climate in Nebraska (extremely warm dry summers, extremely cold, windy winters), varies greatly to Georgia (hot, humid summers, cool, still winters) which varies greatly to Sydney (warm, humid summers, mild, windy winters).

We have partnered with leading design firms in both Australia and the United States to ensure the finished products can be deployed in different climates. By using global designers and vendors, it provides us the opportunity to seek to enhance the design to ensure success of the technology in all jurisdictions, climates and scenarios.

Recent Developments.

Mawson listed its common stock on The Nasdaq Stock Market LLC (“Nasdaq”) on September 29, 2021.

On July 5, 2021, the Company consummated the acquisition (“the Acquisition) of all of the outstanding membership interests of Luna Squares LLC, a Delaware limited liability company (f/k/a Innovative Property Management, LLC) (“Luna”) pursuant to the terms of a (i) Membership Interest Purchase Agreement with Kyle Hoffman (the “Hoffman MIPA”) and (ii) Membership Interest Purchase Agreement with TRS Ventures LLC (the “TRS MIPA”). This transaction will be referred to as “the Luna Squares Transaction”. Further information on the Luna Squares Transaction can be found on the Company’s Current Report on Form 8-K filed on July 9, 2021.

Pursuant to the Hoffman MIPA, on July 7, 2021, the Company paid US $50,000 to Mr. Hoffman and on August 2, 2021, the Company issued 5,556 shares of its common stock to Mr. Hoffman (calculated as US $50,000 worth of common stock at a stock price of US $9.00 per share). This relates to Mr. Hoffman’s equity interest of 25% in Luna.

Pursuant to the TRS MIPA, on July 7, 2021, the Company paid US $50,000 to TRS Ventures LLC and on August 2, 2021, the Company issued 11,111 shares of its common stock to TRS Ventures LLC (calculated as US $100,000 worth of common stock at a stock price of US $9.00 per share). This relates to TRS Ventures LLC’s equity interest of 15% in Luna.

Pursuant to the TRS MIPA, on August 12, 2021, the Company paid US $25,000 to TRS Ventures LLC and on August 27, 2021, the Company issued 5,556 shares of its common stock to TRS Ventures LLC (calculated as US $50,000 worth of common stock at a stock price of US $9.00 per share). This relates to TRS Ventures LLC’s equity interest of 5% in Luna.

COVID-19.

The COVID-19 global pandemic has been unpredictable and unprecedented and is likely to continue to result in significant national and global economic disruption, which may adversely affect our business. The Company relies on equipment supplied by third parties which, like many manufacturing businesses globally, are at risk of supply chain issues. We currently do not expect any material impact on our long-term development, operations, or liquidity due to the COVID-19 pandemic. However, we are actively monitoring this situation and the possible effects on our financial condition, liquidity, operations, suppliers, and industry.

Results of Operations – Three months Ended September 30, 2021 compared to the three months ended September 30, 2020

Revenues

Cryptocurrency mining revenues for the three months ended September 30, 2021 and 2020 were $10.15 million and $0.97 million respectively. This represented an increase of $9.18 million or 946% over the same three-month period in 2020. The increase in mining revenue for the three-month period was primarily attributable to an increase in bitcoin mined and higher bitcoin values in the 2021 period, averaging $41,877 per coin as compared to $10,621 per coin in the 2020 period. Bitcoins produced totaled 251.52 and we sold a total of 249.76 in three months to September 30, 2021 as compared to 93.06 sold in the same period in 2020. Hosting Co-location revenue for the three months ended September 30, 2021 and 2020 were $0.80 million and $nil respectively. This increase is due there being no co-location revenue in the prior year.

Operating Cost and Expenses

Our operating cost and expenses include cost of revenues; selling, general and administrative expenses; and depreciation and amortization.

Cost of revenues.

Our cost of revenue consists primarily of: cost of mining equipment sold, and direct power costs related to cryptocurrency mining.