MAWSON INFRASTRUCTURE GROUP INC. 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
Throughout this report, unless otherwise designated, the terms "we," "us,"
"our," the "Company," "Mawson," "our company" and the "combined company" refer
to
Pursuant to that certain Certificate of Amendment to the Certificate of
Incorporation of the Company dated
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
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
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:
? We may be unable to raise additional capital needed to grow our business.
? The slowing or stopping of the development or acceptance of digital asset
systems.
? Changes to any digital asset network's protocols and software.
? Any decrease in the incentive for Bitcoin mining.
? Further or new regulation of digital assets such as Bitcoin as securities or
investment securities or of our activities that would require further
registration or compliance with additional regulations and laws.
? Global climate changes and related environmental regulations, or pandemic or
similar items and events.
? Political or economic crises motivating large-scale sales of digital assets.
? Electricity costs.
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.
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Overview
General. Mawson (formerly known as
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
As ofSeptember 30, 2021 Existing Order and Cumulative Operations Purchase Fleet Fully Online Agreements Deployed Total miners online 5,600 - 5,600 Total miners in Transit - 2,352 2,352 Total miners on order - 24,408 24,408 Total miners in storage 4,400 - 4,400 Total miners 10,000 26,760 36,760 2,312 Total theoretical production hashrate 750 PH/s PH/s 3,062 PH/s
We continue to conduct research and development into our
In addition, our indirect subsidiary,
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
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Through a strategic partnership with
As of
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
We have partnered with leading design firms in both
Recent Developments.
Mawson listed its common stock on
On
Pursuant to the Hoffman MIPA, on
Pursuant to the TRS MIPA, on
Pursuant to the TRS MIPA, on
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.
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Results of Operations - Three months Ended
For the three months ended
September 30,
2021 2020
Revenues:
Cryptocurrency mining revenue 10,151,579 966,574
Hosting Co-Location revenue 796,207 -
Total revenues 10,947,786 966,574
Operating cost and expenses:
Cost of revenues 2,499,837 922,502
Selling, general and administrative 5,510,083 745,243
LO2A write backs - -
Share based payments 1,425,000 -
Depreciation and amortization 4,129,862 2,592,352
Total operating expenses 13,564,782 4,260,097
Loss from operations (2,616,996 ) (3,293,523 )
Other income (expense):
Realized gain/(losses) on foreign currency transactions (8,625 ) 754
Unrealized gain/(losses) on foreign currency remeasurement (351,562 ) (255,471 )
Share of net profit (loss) of associates accounted for using the
equity method (153,123 ) -
Other income 32,431 -
Loss before income taxes (3,097,875 ) (3,548,240 )
Income tax expenses - -
Net Loss (3,097,875 ) (3,548,240 )
Revenues
Cryptocurrency mining revenues for the three months ended
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.
For the three months ended
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Selling, general and administrative.
Our selling, general and administrative expenses consist primarily of: professional and management fees relating to accounting, audit, and legal; research and development; and general office expenses.
Selling, general and administrative expenses for the three months ended
Share based payments.
Share based payments consist of: an accrual of
Depreciation and amortization.
Depreciation consists primarily of depreciation of cryptocurrency mining hardware and modular data center (MDC) equipment.
Depreciation and amortization for the three months ended
Other income (expenses)
Our other income (expenses) consists of: net realized gains (losses) on foreign currency transactions; net unrealized gains (losses) on foreign currency remeasurement; realized gains (losses) on sale of digital currencies; and other income. Other income consists of sales for hosting clients, investment management fees, unrealized fair value on investments and other minor income events.
Net loss available to Common Shareholders
As a result of the foregoing, the Company recognized a net loss of
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Results of Operations - Nine months ended
For the nine months ended
September 30,
2021 2020
Revenues:
Cryptocurrency mining revenue 21,029,492 2,850,086
Hosting Co-Location revenue 1,020,424 -
Sale of crypto currency mining equipment 2,157,651 -
Total Revenues 24,207,567 2,850,086
Operating cost and expenses:
Cost of revenues 6,218,145 2,210,113
Selling, general and administrative 11,334,551 1,743,353
LO2A write backs 23,963,050 399
Share based payments 21,779,898 -
Depreciation and amortization 7,977,800 5,047,917
Total operating expenses 71,273,444 9,001,782
Loss from operations (47,065,877 ) (6,151,696 )
Other income (expense):
Realized gain/(losses) on foreign currency transactions 838,230 (288 )
Unrealized gain/(losses) on foreign currency remeasurement (1,920,879 ) (88,502 )
Share of net profit/(loss) of associates accounted for using the
equity method (277,817 ) -
Other income 502,673 108,895
Loss before income taxes (47,923,670 ) (6,131,591 )
Income tax expenses - -
Net Loss (47,923,670 ) (6,131,591 )
Revenues
Cryptocurrency mining revenues for the nine months ended
Sales of hardware for the nine months ended
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.
Cost of revenues for the nine months ended
Selling, general and administrative.
Our selling, general and administrative expenses consist primarily of: professional and management fees relating to: accounting, audit, and legal; research and development; and general office expenses.
Selling, general and administrative expenses for the nine months ended
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Share based payments.
Share based payments consist of: the value of shares required to be issued to
Incentive Compensation Program participants under the Cosmos Transaction Bid
Implementation Agreement; and the value of warrants issued to
Share based payments expenses for the nine months ended
Depreciation and amortization.
Depreciation consists primarily of depreciation of cryptocurrency mining hardware and modular data center (MDC) equipment.
Depreciation and amortization for the nine months ended
Other income (expenses)
Our other income (expenses) consists of: net realized gains (losses) on foreign currency transactions; net unrealized gains (losses) on foreign currency remeasurement; realized gains (losses) on sale of digital currencies; and other income. Other income consists of sales for hosting clients, investment management fees, unrealized fair value on investments and other minor income events.
Net loss available to Common Shareholders
As a result of the foregoing, the Company recognized a net loss for the nine
months ended
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Liquidity and Capital Resources
General
Liquidity is the ability of a company to generate funds to support its current
and future operations, satisfy its obligations, and otherwise operate on an
ongoing basis. Significant factors in the management of liquidity are funds
generated by operations, levels of accounts receivable and accounts payable and
capital expenditures. For the nine months ended
1. entering into Securities Purchase Agreements (the "PIPE Agreements") on
December 31, 2020 , with certain accredited investors (the "PIPE
Investors "), whereby we agreed to sell to the PIPE Investors , in a
private placement, an aggregate of 25 million shares of common stock
for aggregate gross proceeds of $3.0 million ;
2. the issuance on March 9, 2021 , of convertible notes with an aggregate
principal amount of $21.56 million ;
3. net cash provided by operating activities of $10.93 million ;
4. Net cash from the proceeds of the sale of shares in Bonus Bio Group of
$1.022 million ;
5 entering into Securities Purchase Agreements (the "PIPE Agreements") on
August 5, 2021 , 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 46,789,019
shares of common stock for a purchase price of $0.80 per share giving
rise to gross proceeds of $37.43 million ; and
6. entering into an underwriting agreement with H.C. Wainwright & Co. LLC
as representative (the "Representative"), of the several underwriters
(the "Underwriters"), 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.
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 $41.23 million , 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. Under the terms of the Underwriting Agreement, the
Company granted the Underwriters 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 .
Working Capital and Cash Flows
As of
As of
As of
As of
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The following table presents the major components of net cash flows (used in)
provided by operating, investing and financing activities for the nine month
ending
Nine Months Ended
September 30,
2021 2020
Net cash provided by/(used in) operating activities
$ (62,261,396 ) $ (2,179,714 ) Net cash provided by financing activities$ 86,026,426 $ 3,836,670
For the nine months ended
For the nine months ended
For the nine months ended
Outlook
According to management estimates, liquidity resources as of
Off-Balance Sheet Arrangements
In connection with the Cosmos Transaction, we issued one contingent value right
("CVR") to each of our securityholders for each outstanding share of common
stock of Mawson, and for each share of common stock of Mawson underlying other
convertible securities and warrants, held immediately before the closing of the
Cosmos Transaction. Each CVR represents the right to receive a pro rata share of
any consideration that we may receive in connection with any successful
monetization of our LO2A business, less transaction expenses and customary
deductions as detailed in the CVR agreement, including a deduction of up to
Other than the CVRs and the Contingent obligation in relation to LO2A, as of
LO2A Business.
Through our holdings in the entities,
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