Home » MAWSON INFRASTRUCTURE GROUP INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

MAWSON INFRASTRUCTURE GROUP INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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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. The following discussion and
analysis of our financial condition and results of operations should be read
together with the interim condensed consolidated financial statements and
related notes included elsewhere in this Quarterly Report on Form 10-Q, as well
as our audited consolidated financial statements and related notes as disclosed
in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
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., a Delaware corporation, and its direct and
indirect subsidiaries, including Mawson Infrastructure Group Pty Ltd, an
Australian company ("Mawson AU"), Cosmos Trading Pty Ltd, Cosmos Infrastructure
LLC, Cosmos Manager LLC, Cosmos MIG No.1 Pty Ltd, Mawson AU Limited, Luna
Squares LLC, Luna Squares Texas, Luna Squares Repairs LLC, Luna Squares Property
LLC, Mawson Midland LLC, Mawson Ohio LLC and Mawson Mining LLC . Wize NC Inc,
Ocuwize Ltd and Wize Pharma Ltd are subsidiaries of Mawson however these
companies have not been consolidated into the financial statements are not
included when referring to we, us, our or the Company or Mawson as these are
subject to contingent value rights ("CVR"), refer to NOTE 11 of the financial
statements.



Pursuant to that certain Certificate of Amendment to the Certificate of
Incorporation of the Company dated August 11, 2021, Mawson executed a 1-for-10
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 filed with the SEC on August 16, 2021. Unless otherwise specified,
all Mawson share numbers in this Quarterly Report on Form 10-Q reflect
post-reverse stock split numbers.



NOTICE OF FORWARD-LOOKING STATEMENTS




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, 2021, 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, 2021, 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.



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

? The company has suffered an operating loss and may continue to suffer losses in the future.

    foreseeable future;



? the Company’s ability to raise additional capital (through the sale of assets or

     raising equity or debt capital), under favorable terms or at all, and
     continue as a going concern;

  ?  meet future liquidity requirements and comply with covenants in our
     indebtedness;

  ?  attract and retain employees, officers and directors;

  ?  increase brand awareness;

? Upgrading and maintaining effective business management and information technology

     systems;

  ?  acquire and protect intellectual property;

  ?  anticipate the impact of, and respond to, new accounting standards;

predict the impact of U.S. federal income tax laws, including the impact on

     deferred tax assets

  ?  that we may never become profitable;

  ?  competition and technological challenges we may face;

? slowing down or stopping the development or acceptance of digital assets?

     systems;

  ?  changes to the Bitcoin network's protocols and software;

  ?  any decrease in the incentive for Bitcoin mining;

? Increases the difficulty of the Bitcoin network (which is usually

     Bitcoin rewards for the same effort);

  ?  growth challenges we may face;




  ? our ability to obtain and maintain adequate insurance;



? We may be subject to existing or future government regulations.

Increase the cost of doing business or cause us to discontinue some or all of our business

    our operations;




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  ? our exposure to fluctuations in the market value of digital assets, in

Certain Bitcoins, and the Relative Attractiveness of Their Digital Assets

Investors, speculators, and users pay network services more than any other

solution;

? Reliance on third-party manufacturers for miners and other infrastructure

New miner hardware and expected delivery times.

? Default risk of counterparties and customers due to the cryptocurrency market

volatility and confusion;

? Increased input costs such as energy and hardware price hikes

infrastructure costs;

? Risks associated with supply chain disruptions due to the COVID-19 pandemic,

shortages (computer chips), and geopolitical tensions (e.g. China trade ban,

    war in Ukraine);



? Climate and climate change risks, including direct storm risk

Implementation of policies that may lead to higher risks than just floods

    energy costs;



? Political or economic crises that motivate large-scale sales of digital assets.

? regulatory risks, including local and global government regulations; or

Prohibition, bitcoin or bitcoin mining.

? the effect of the success or failure of the business on the value of the common property;

    stock;

  ? the impact of future stock sales on our stock price;

  ? the potential lack of liquidity, or volatility, of our common stock and
    warrants;

? Possibility of inability to maintain effective internal controls over finances

    reporting;

  ? the existence of anti-takeover provisions in our charter documents and
    Delaware law;

  ? that we do not intend to pay dividends on our common stock;

? Companies and technologies that are competitive both inside and outside the industry

(such as central bank digital currencies and quantum computing); and

 ? the potential inability to maintain compliance with Nasdaq Listing Rules



                                       28




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



Mawson is a 'Digital Asset Infrastructure' business, which owns and operates
(through its subsidiaries) modular data centers ("MDCs") in the United States
and Australia. We are also developing technology to enable us to own and better
operate MDCs.


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.



In exchange for powering down our systems and curtailing the power we get from
the grid in response to instances of high electricity demand, we receive net
energy benefits. We also have a contract with our energy provider where we can
sell back any power not used at the market rate. We have recognized a derivative
asset on our balance sheet for the contract we have with our energy provider,
which has been measured at fair value with any changes in fair value recognized
in our statement of operations.



 We offer 'hosting' or 'co-location' facilities to other businesses in the
digital asset infrastructure industry to have their Miners located within our
MDCs. These businesses pay us a fee for the use of our facilities and related
services (often based on power consumption).



We also sell new and used crypto currency mining, and MDC equipment on a
periodic basis, subject to prevailing market conditions and our surplus
production capacity.



As of September 30, 2022



                            Existing        Order and        Cumulative
                           Operations        Purchase        Fleet Fully
                             Online         Agreements        Deployed
Total miners online             26,360                -            26,360
Total miners in Transit              -                -                 -
Total miners on order                -                -                 -
Total miners in storage          6,990                -             6,990
Total miners                    33,350                -            33,350




We continue to conduct research and development in relation to our MDCs which we
are actively testing in several configurations and locations to determine the
best configuration for both ASIC and alternate computing uses.



Prior LO2A Business


upon March 9, 2021Accordingly, the Company acquired shares of Mawson AU through a share exchange (“Cosmos Transaction”).




Prior to the Cosmos Transaction our main business undertaking was as a
clinical-stage biopharmaceutical company focused on the treatment of ophthalmic
disorders, including dry eye syndrome (our "LO2A business"). However, as part of
the Cosmos Transaction, substantially all of the economic benefits of any
successful monetization of our LO2A business, if any, will benefit only the
holders of the CVRs. Accordingly, we assessed that the fair value of this asset
at the acquisition date was $0. The asset was therefore assessed as impaired and
the prior carrying amount of $23.96 million has been fully expensed in the
consolidated statements of operations for the year ended December 31, 2021.


                                       29





Recent Developments.



On September 8, 2022, we entered into a (i) Purchase and Sale Agreement with
CleanSpark, and (ii) an Equipment Purchase and Sale Agreement. Pursuant of the
Purchase Agreement, CleanSpark assumed from us a lease for approximately 16.35
acres of real property located in Sandersville, Washington County, Georgia, and
all personal property situated on the Property. This transaction closed on
October 8, 2022, CleanSpark paid the following consideration to the Company
pursuant to the Purchase Agreement: (i) $13.50 million in cash; (ii) 1,590,175
shares of common stock, par value $0.001 per share of CleanSpark (valued at $4.8
million October 7, 2022), and (iii) $6.5 million in Seller financing in the form
of promissory notes. Pursuant to the Equipment Purchase Agreement, CleanSpark
purchased from the Company, 6,468 (which number was later reduced to 6,349)
application-specific integrated circuit miners, this transaction closed on
October 8, 2022 for $9.48 million in cash (which was later reduced to $9.02
million upon reduction in the number of miners). There is also additional
potential consideration payable pursuant to the Purchase and Sale Agreement of;
(i) up to 1,100,890 shares of CleanSpark Common Stock dependent the number of
modular data centers on the Property occupied by the Company being emptied and
made available for use by CleanSpark, and (ii) $2 million in a Seller-financed
earn-out if CleanSpark is able to utilize at least an additional 150 MW of power
on the property by the six month anniversary of the Closing Date.



COVID-19.



The COVID-19 global pandemic has been unpredictable and unprecedented and
continues to result in 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 continue to actively monitor the situation and the possible effects
on our financial condition, liquidity, operations, suppliers, and industry.


Regulation of Digital Assets


Digital assets and cryptocurrencies have been the source of much regulatory
consternation, resulting in differing definitional outcomes without a single
unifying statement. We do not believe our mining activities require registration
to conduct such activities and accumulate digital assets. Nevertheless, it is
likely that regulation in the digital asset industry will increase.



On August 22, 2022, the Australian Government announced that it planned to start
consultation with stakeholders on a framework for industry and regulators, which
allowed consumers to participate in the market while also better protecting
them. The first step would be "token mapping" to help identify how crypto assets
and related services should be regulated.



On September 16, 2022 the U.S. Government released a Fact Sheet which noted that
the President of the United States of America has received 9 reports from
various stakeholders across government, industry, academia and civil society in
response to the Executive Order issued on March 9, 2022, which together creates
a framework for action on cryptocurrencies, with the intention to promote
innovation, but mitigate downside risks.



In the past it has also been noted that the SEC, the Commodity Futures Trading
Commission ("CFTC"), Nasdaq or other governmental or quasi-governmental agency
or organization (including similar authorities in other jurisdictions such as
Australia) may conclude that our digital asset mining activities involve the
offer or sale of "securities", or ownership of "investment securities", and we
may face regulation under the Securities Act of 1933, as amended (the
"Securities Act") or the Investment Company Act of 1940. Such regulation or the
inability to meet the requirements to continue operations, would have a material
adverse effect on business, financial condition, results of operations and
prospects of our business. Currently in Australia, Bitcoin itself is not
considered a financial product nor are digital assets regarded as money or
currency for the purpose of Australian law. The effect of any future regulatory
change on digital assets or an entity dealing in or holding digital assets is
impossible to predict, but such change could be substantial and adverse to
our
financial returns.



                                       30




Operational Results – 3 Months End September 30, 2022 compared to the ending 3 months September 30, 2021



                                                                 For the three months ended
                                                                        September 30,
                                                                    2022              2021
Revenues:
Cryptocurrency mining revenue                                       5,913,031       10,151,579
Hosting Co Location revenue                                         5,726,064          796,207
Sale of equipment                                                  10,388,223                -
Power curtailment revenue                                           6,301,108                -
Total revenues                                                     28,328,426       10,947,786
Less: Cost of revenues (excluding depreciation)                    18,183,524        2,499,837
Gross profit                                                       10,144,902        8,447,949
Selling, general and administrative                                 5,001,553        5,147,183
Share based payments                                                  797,830        1,425,000
Depreciation and amortization                                      16,252,106        4,129,862
Total operating expenses                                           22,051,489       10,702,045
Change in fair value of derivative asset                            3,669,547                -
Loss from operations                                               (8,237,040 )     (2,254,096 )
Non-operating income/(expense):
Loss on foreign currency transactions                              (7,320,412 )       (360,187 )
Interest expense                                                   (1,559,104 )       (362,900 )
Loss on re-classification to assets held for sale                  (4,195,046 )              -
Other income                                                           59,819           32,431
Share of net loss of associates accounted for using the
equity method                                                               -         (153,123 )
Loss before income taxes                                          (21,251,783 )     (3,097,875 )
Income tax expense                                                         
-                -
Net Loss                                                          (21,251,783 )     (3,097,875 )




                                       31





Revenues



Cryptocurrency mining revenues from production for the three months ended
September 30, 2022 and 2021 were $5.91 million and $10.15 million respectively.
This represented a decrease of $4.24 million or 42%. The decrease in mining
revenue for the three months ended September 30, 2022, from the three months
ended September 30, 2021,was primarily attributable to the decrease in average
price of Bitcoin, in the 2022 period the average price was $21,293 whereas in
the 2021 period the average price was $41,877. This decrease is offset by an
increase in the Bitcoin produced, in total 282.99 were produced in 2022 compared
with 251.52 in the 2021 period, or an increase of 12.5% of Bitcoin produced
over
the respective periods.



Hosting co-location revenue for the three months ended September 30, 2022 and
2021 were $5.73 million and $0.80 million respectively. This increase is due to
an increase in the number of co-location customers that we hosted during the
period ended in September 2022.



3 months worth of virtual currency mining equipment sales end September 30, 2022 And in 2021 $10.39 million When $0Respectively.

Net energy benefits for the three months ended September 30, 2022 and 2021, were
$6.30 million and $0 respectively. This increase is due to there being no income
from energy contracts in the 2021 period because we did not offer this service
at that time.


Given subsequent sale transactions of real estate and assets located in
sandersville georgiawhich may affect future earnings.



Operating Cost and Expenses


Our operating expenses and expenses include revenue expenses. Selling, general and administrative expenses. stock-based payments; and depreciation.




Cost of revenues.



Our cost of revenue primarily consists of direct power costs associated with cryptocurrency mining and the cost of mining equipment sold.




Cost of revenues for the three months ended September 30, 2022 and 2021 were
$18.18 million and $2.50 million, respectively. The increase in cost of revenue
was primarily attributable to: an increase in power costs, and increased
deployment of cryptocurrency mining hardware. Included in our cost of revenues
is any costs associated with offsetting carbon emissions.



Given subsequent sale transactions of real estate and assets located in
sandersville georgiawhich may affect future earnings.

sales, general and administration.

Our selling, general and administrative expenses consist primarily of professional and administrative expenses related to accounting, payroll, auditing and legal affairs. equipment repair; marketing; consultancy and general office expenses.




Selling, general and administrative expenses for the three months ended
September 30, 2022 and 2021 were $5.0 million and $5.15 million respectively.
Selling, general and administrative expenses overall remained static, but there
were a number of expenses movements which were offset with one another. Payroll
expenses increased by $1.5 million due to an increase in employee numbers;
property tax expense decrease by $1.20 million, equipment repair costs increased
by $0.46 million; freight costs decreased by $0.79 million, and research and
development costs decreased by $0.57 million.

Given subsequent sale transactions of real estate and assets located in
sandersville georgiawhich may affect future earnings.



Share based payments.


Share based payments expenses for the three months ended September 30, 2022 and
2021 were $0.80 million and $1.43 million respectively. In the three months
ended September 30, 2022, share based payments were largely attributable to
costs recognized for warrants issued to Celsius Mining LLC amounting to $0.50
million and $0.3 million in relation to long-term incentives for the Company's
leadership team.



                                       32




depreciation expense.

Depreciation primarily consists of depreciation of cryptocurrency mining hardware and MDC equipment.

Depreciation and amortization for the three months ended September 30, 2022 and
2021 were $16.25 million and $4.13 million, respectively. The increase is
primarily attributable to new machines and MDCs which were procured and have
come into the ownership of the Company and the application of the diminishing
value method, resulting in a higher depreciation expense in the initial months
of mining equipment operation.



Given subsequent sale transactions of real estate and assets located in
sandersville georgiawhich may affect future depreciation expense.

Changes in fair value of derivative assets

During the three months ended September 30, 2022, there was a change in the fair
value of the derivative asset by $3.67 million in relation to our Power Supply
Agreement with Energy Harbor LLC.



Non-operating expense


Non-operating expenses primarily consist of interest expense, loss on classification of assets held for sale and loss on foreign currency transactions.




Interest expense for the three months ended September 30, 2022 and 2021 were
$1.56 million and $0.36 million, respectively. This was an increase of $1.2
million which was attributable to the interest costs charged on the loans taken
out with Celsius Mining LLC, W Capital Advisors Pty Ltd and the Secured
Convertible Promissory Notes issued in July of 2022.



3 months ended September 30, 2022realized and unrealized losses on foreign currency transactions are $7.32 millionand for the three months ended September 30, 2021 there was a loss of $360,000.

losses due to the reclassification to held-for-sale assets. $4.2 million
Recognized in connection with the sale of miners to CleanSpark in a 3-month period September 30, 2022.

Net loss available to ordinary shareholders

As a result of the above, the Company recognized a net loss. $21.86 million 3 months ended September 30, 2022compared to the net loss of
$2.5 million 3 months ended September 30, 2021.



                                       33




Operational Results – 9 Months End September 30, 2022 compared to the ending 9 months September 30, 2021



                                                                  For the nine months ended
                                                                        September 30,
                                                                   2022              2021
Revenues:
Cryptocurrency mining revenue                                     40,909,399        21,029,492
Hosting Co Location revenue                                        9,842,924         1,020,424
Sale of equipment                                                 10,479,768         2,157,651
Net energy benefits                                                6,301,108                 -
Total revenues                                                    67,533,199        24,207,567
Less: Cost of revenues (excluding depreciation)                   40,954,957         6,218,145
Gross profit                                                      26,578,242        17,989,422
Selling, general and administrative                               20,882,237        10,256,952
LO2A write backs                                                           -        23,963,050
Share based payments                                               2,124,674        21,779,898
Depreciation and amortization                                     46,061,673         7,977,800
Total operating expenses                                          69,068,584        63,977,700
Change in fair value of derivative asset                          21,383,904                 -
Loss from operations                                             (21,106,438 )     (45,988,278 )
Non-operating income/(expense):
Gain / (loss) on foreign currency transactions                    (6,362,594 )      (1,082,649 )
Interest expense                                                  (4,360,817 )      (1,077,599 )
Impairment of financial assets                                    (1,134,547 )               -
Loss on re-classification to assets held for sale                 (4,195,046 )               -
Other income                                                       1,931,952           502,673
Share of net loss of associates accounted for using the
equity method                                                              -          (277,817 )
Loss before income taxes                                         (35,227,490 )     (47,923,670 )
Income tax expense                                                        
-                 -
Net Loss                                                         (35,227,490 )     (47,923,670 )




Revenues



Cryptocurrency mining revenues from production for the nine months ended
September 30, 2022 and 2021 were $40.91 million and $21.02 million respectively.
This represented an increase of $19.88 million or 95% for the nine months ended
September 30, 2022, over the nine months ended September 30, 2021. The increase
in mining revenue was primarily attributable to an increase in the total Bitcoin
produced. Bitcoin produced totaled 1,231.26 in the nine months ended September
30, 2022 compared with 501.74 in the nine months ended September 30, 2021, or an
increase of 145% of Bitcoin produced over the respective periods. This increase
was offset by the decrease in the average price of Bitcoin. During the 2022
period the average Bitcoin price was $31,620 whereas during the 2021 period
the
average price was $45,521.



Hosting co-location revenue for the nine months ended September 30, 2022 and
2021 were $9.84 million and $1.02 respectively. This increase is due to an
increase in the number of co-location customers that we hosted during the period
ended in September 2022.


End of equipment sales for 9 months September 30, 2022It was $10.48 million When $2.16 million Respectively.




Net energy benefits for the nine months ended September 30, 2022, were $6.30
million and $0, respectively. This increase is due to there being no income from
energy contracts in the prior period because we did not offer this service
at
that time.


Given subsequent sale transactions of real estate and assets located in
sandersville georgiawhich may affect future earnings.



Operating Cost and Expenses


Our operating expenses and expenses include revenue expenses. Selling, general and administrative expenses. stock-based payments; and depreciation.




Cost of revenues.



Our cost of revenue primarily consists of direct power costs associated with cryptocurrency mining and the cost of mining equipment sold.

Cost of revenues for the nine months ended September 30, 2022 and 2021 were
$40.95 million and $6.22 million, respectively. The increase in cost of revenue
was primarily attributable to: an increase in power costs, increase in the
deployed operations of cryptocurrency mining hardware. Included in our cost of
revenues is any costs associated with offsetting carbon emissions.



Given subsequent sale transactions of real estate and assets located in
sandersville georgiawhich may affect future earnings.



                                       34




sales, general and administration

Our selling, general and administrative expenses consist primarily of professional and administrative expenses related to accounting, payroll, auditing and legal affairs. equipment repair; marketing; consultancy and general office expenses.




Selling, general and administrative expenses for the nine months ended September
30, 2022 and 2021 were $20.88 million and $10.26 million respectively. The
increase in selling, general and administrative expenses were attributable to a
number of factors; payroll expenses increased by $5.40 million due to an
increase in employee numbers during the period; equipment repair costs increased
by $2.36 million; marketing costs increased by $1.06 million and operating lease
expense increased by $1.24 million due to the new lease agreements entered
into
during the period.


Given subsequent sale transactions of real estate and assets located in
sandersville georgiawhich may affect future earnings.



Share based payments


Share based payments expenses for the nine months ended September 30, 2022 and
2021 were $2.12 million and $21.78 million respectively. In the nine months
ended September 30, 2022, share based payments were largely attributable to
costs recognized for warrants issued to Celsius Mining LLC amounting to $1.17
million and $0.87 million in relation to long-term incentives for the Company's
leadership team. The prior period contained a $5.53 million fair value
modification to warrants issued, another $6.18 million warrants were issued, and
$8.58 million share-based payments were made under an Incentive Compensation
Program in relation to the Bid Implementation Agreement.



depreciation

Depreciation primarily consists of depreciation of cryptocurrency mining hardware and MDC equipment.

Depreciation and amortization for the nine months ended September 30, 2022 and
2021 were $46.06 million and $7.98 million, respectively. The increase is
primarily attributable to new machines and MDCs which were procured and have
come into the ownership of the Company and the application of the diminishing
value method, resulting in a higher depreciation expense in the initial months
of mining equipment operation.



Given subsequent sale transactions of real estate and assets located in
sandersville georgiawhich may affect future depreciation expense.

Changes in fair value of derivative assets

During the nine months ended September 30, 2022, there was a change in the fair
value of the derivative asset of $21.38 million recognized in relation to our
Power Supply Agreement with Energy Harbor LLC.



Non-operating expense


Non-operating expenses mainly consist of interest expenses, impairment losses on financial assets, losses on classification of assets held for sale, and losses on foreign currency transactions.

Interest expense for the nine months ended September 30, 2022 and 2021 were
$4.36 million and $1.08 million, respectively. This was an increase of $3.28
million which was attributable to the interest costs charged on the loans taken
out with Celsius Mining LLC, W Capital Advisors Pty Ltd and the Secured
Convertible Promissory Notes issued in July of 2022.



Impairment of financial assets related to equity method investments Cosmos Asset Management Pty Ltd of $1.11 million 9 months until September 30, 2022.




There was a loss on re-classification to assets held for sale of $4.20 million
recognized in relation to the sale of the miners to CleanSpark in the nine month
period ending September 30, 2022.



During the nine months ended September 30, 2022, the realized and unrealized
loss on foreign currency transactions was $6.36 million, and for the nine months
ended September 30, 2021 there was a loss of $1.08 million.



Non-operating income


9 months ended September 30, 2022and other income recognized primarily from the sale of our intellectual property
$1.12 million When $590,000 for reduced income.

Net loss available to ordinary shareholders

As a result of the above, the Company recognized a net loss. $34.32 million 9 months ended September 30, 2022compared to the net loss of
$47.26 million 9 months ended September 30, 2021.



                                       35




Liquidity and funding sources



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 month period ended September 30, 2022, we
financed our operations primarily through:



  1.   Net cash provided by operating activities of $25.14 million;

2. ON October 15, 2021an extension of Equipment Finance and Security

signed an agreement with Foundry Digital LLC (“Foundry”)

A further 2000 Whatsminers M30 were delivered. October 2021. in total

$13,185,062 Borrowed from Foundry, of which $1.42 is paid in September

30th March 2022. October 17, 2022;

3. ON December 9, 2021MIG No.1 limited company Participated in secured loan system

contract with Marshall Investments MIG Pty Ltd (“Marshall”) Total

A$20 million loan facility (US$12.98 million).principal repayment

       will begin in January 2023. On November 11, 2022 $3 million of this loan
       was repaid, this has been disclosed in NOTE 14 Subsequent events.

  4.   On February 23, 2022, Luna Squares LLC entered into the Co-Location

contract with Celsius Mining LLCin connection with this Agreement,

Loaned by Celsius Mining Luna Squares LLC principal of US$20,000,000,

for the purpose of funding the infrastructure necessary to meet a portion of

Colocation Agreement Obligations.secured promissory note

As proof of this loan, you will accrue daily interest at an annual rate of 12%.Luna

Squares LLC The loan must be written off quarterly at a rate of 15%.

       with principal repayments starting in the third quarter following the
       closing. This Secured Promissory Note has a maturity date of August 23,

Balance as of 2023 September 30, 2022 teeth $17.59 million.

5. ON July 8, 2022the Company issued a secured and convertible promissory note

Total Principal Investor $3,600,000 in return

collection of $3,600,000A secured convertible promissory note is

at the price of and convertible at the owner’s option $0.85 per share

our common stock. A secured convertible promissory note is

20% (20%) per annum.Half of the interest accrued respectively

The monthly amount of the secured convertible promissory note must be paid monthly.all

unpaid principal and unpaid interest and

Other amounts payable under the secured convertible promissory note are:

You will be obligated to pay if it is not converted according to the Terms of Use.

(i) secured convertible promissory note for one year, whichever comes first;

after issuance, or (ii) after a default event.

6. ON September 2, 2022, Mawson Infrastructure Group Pty Ltd It has entered

Secured Loan Facility Agreement with W Capital Advisors Pty Ltd with

A$3 million loan facility (US$1.9 million).This has been fixed in

September 29, 2022 Loan facility increased to A$8 million

(US$5.2 million).like September 30, 2022A$7.4 million (US$4.80

1 million) are drawn from this facility.Secured Loan Scheme

12% annual interest accrues daily and is payable monthly.

principal repayment deadline March 2023. upon October 14, 2022 5 million Australian dollars (US dollars)

       $3.2 million) of this loan was repaid.




During the nine months ending September 30, 2022 we repaid $12.69 million of
principal payments against the historical facilities provided by Foundry and
Celsius.



We believe our working capital requirements will continue to be funded through a
combination of the cash we expect to generate from future operations, our
existing funds, external debt facilities available to us and further issuances
of shares. These are expected to be adequate to fund our operations over the
next twelve months. In addition, the Company has access to equity financing
through the ATM offering facility entered in May 2022. For our business to grow
it is expected we will continue investing in mining equipment, but we are likely
to require additional capital in either the short-term or long-term.



                                       36




Working capital and cash flow

Current September 30, 2022When December 31, 2021had a balance of cash and cash equivalents $1.18 million When $5.47 millionRespectively.

Current September 30, 2022When December 31, 2021our accounts receivable balance is $11.79 million When $5.61 millionRespectively.




As of September 30, 2022, we had $31.39 million of outstanding short-term
borrowings, and as of December 31, 2021, we had $11.10 million of short-term
borrowings. The short-term borrowings as of September 30, 2022, relate to the
acquisition of cryptocurrency mining equipment under the Foundry agreements, and
also to the secured loan facilities with Celsius Mining LLC, W Capital Advisors
Pty Ltd, the secured convertible promissory notes issued to investors and
Marshall Investments MIG Pty Ltd. As of September 30, 2022, and as of December
31, 2021, we had $9.11 million and $7.64 million, respectively, of outstanding
long-term borrowings. The long-term borrowings as of September 30, 2022, relate
to the secured loan facility with Marshall Investments MIG Pty Ltd.



As of September 30, 2022, we had negative working capital of $24.69 million and
as at December 31, 2021, we had negative working capital of $8.63 million. The
decrease in working capital was primarily attributable to an increase in the
Company's short term and long-term borrowings during 2022, as compared to 2021.



The following table presents the major components of net cash flows (used in)
provided by operating, investing and financing activities for the nine months
ending September 30, 2022 and 2021:



                                                   Nine Months Ended
                                                     September 30,
                                                2022              2021

Cash flow from operating activities $25,141,208 $8,337,277
Cash flow from investing activities $ (55,466,574 ) $ (62,261,396 )
Cash flow from financing activities $26,240,336 $86,026,426

Net cash from operating activities for the nine months ended 30th 2022 was: $25,141,208 and the 9 months that ended September 30, 2021net cash provided by operating activities is $8,337,277• The increase in net cash from operating activities was primarily due to the timing difference between trade and other receivables and trade and other payables.

9 months ended September 30, 2022 In 2021, net cash used in investing activities will be $55,466,574 When $62,261,396, Respectively.Net cash used for investment activities during the period September 30, 2022 This is mainly due to the acquisition of cryptocurrency mining equipment.

9 months ended September 30, 2022 In 2021, net cash provided by financing activities will be $26,240,336 When $86,026,426, Respectively.Cash received from financing activities during the period September 30, 2022 This was mainly due to borrowing income.



Financial condition



As at September 30, 2022 and December 31, 2021, we had net current liabilities
of $24.69 million and $8.63 million respectively. As at September 30, 2022 and
December 31, 2021, we had net assets of $92.77 million and $176.01 million
respectively. As at September 30, 2022 we had an accumulated deficit of $103.81
million compared to $71.12 million as at December 31, 2021. Our cash position at
September 30, 2022, was $1.18 million in comparison to $5.47 million at December
31, 2022. For the nine month period ending September 30, 2022 and September 30,
2021 the Company incurred a loss after tax of $34.32 million and a loss after
tax of $47.26 million respectively.



                                       37





Our primary requirements for liquidity and capital are working capital, capital
expenditures, public company costs and general corporate needs. We expect these
needs to continue as we further develop and grow our business. Our principal
sources of liquidity have been and are expected to be our cash and cash
equivalents, external debt facilities available to us and further issuances of
shares. In addition, Mawson has an active At The Market (ATM) available for sale
of shares of Common Stock having an aggregate offering price of up to $100.0
million. These are expected to be adequate to fund our operations over the
next
twelve months.



In the event that we require additional capital to respond to competitive
pressure, market dynamics, new technologies, customer demands, business
opportunities, challenges, acquisitions or unforeseen circumstances in either
the short-term or long-term, we may determine to engage in equity or debt
financings or enter into credit facilities for other reasons. If we are unable
to obtain adequate financing on terms satisfactory to us when we require it, our
ability to continue to grow or support our business model and to respond to
business challenges could be significantly limited. In particular, the
widespread COVID-19 pandemic, including rising inflation and interest rates, and
the conflict between Russia and Ukraine have resulted in, and may continue to
result in, significant disruption and volatility in the global financial
markets, reducing our ability to access capital. If we are unable to raise
additional funds when or on the terms desired, our business, financial condition
and results of operations could be adversely affected.



In relation to the Purchase and Sale Agreement and the Equipment Purchase and
Sale Agreement with CleanSpark, the Company received in total $22.52 million in
cash and 1,590,175 shares of common stock, par value $0.001 per share of
CleanSpark during October 2022, and is due to receive $6.5 million in Seller
financing in the form of promissory notes during December 2022, improving our
overall working capital, liquidity and net asset position.



Non-GAAP Financial Measures



The Company utilizes a number of different financial measures, both GAAP and
non-GAAP, in analyzing and assessing its overall business performance, for
making operating decisions and for forecasting and planning future periods. The
Company considers the use of non-GAAP financial measures helpful in assessing
its current financial performance, ongoing operations and prospects for the
future. While the Company uses non-GAAP financial measures as a tool to enhance
its understanding of certain aspects of its financial performance, the Company
does not consider these measures to be a substitute for, or superior to, the
information provided by GAAP financial measures. Consistent with this approach,
the Company believes that disclosing non-GAAP financial measures to the readers
of its financial information provides such readers with useful supplemental data
that, while not a substitute for GAAP financial measures, allows for greater
transparency in the review of its financial and operational performance.
Investors are cautioned that there are inherent limitations associated with the
use non-GAAP financial measures as an analytical tool. In particular, non-GAAP
financial measures are not based on a comprehensive set of accounting rules or
principles and many of the adjustments to the GAAP financial measures reflect
the exclusion of items that are recurring and will be reflected in the company's
financial results for the foreseeable future. In addition, other companies,
including other companies in the Company's industry, may calculate non-GAAP
financial measures differently than the Company does, limiting their usefulness
as a comparative tool.



The Company is providing supplemental financial measures for (i) non-GAAP
adjusted earnings before interest, taxes, depreciation and amortization, or
("adjusted EBITDA") that excludes the impact of interest, taxes, depreciation,
amortization, share-based compensation expense, LO2A write-back, unrealized
gains/losses on share of associates, and certain non-recurring expenses. We
believe that adjusted EBITDA is useful to investors in comparing our performance
across reporting periods on a consistent basis.



                                             For the three months ended           For the nine months ended
                                                    September 30,                       September 30,
                                                2022              2021             2022              2021
Reconciliation of non-GAAP adjusted
EBITDA:
Net loss:                                     (21,251,783 )     (3,097,875 )     (35,227,490 )     (47,923,670 )
Impairment of financial assets                          -                -         1,134,547                 -
Depreciation and amortization                  16,252,106        4,129,862        46,061,673         7,977,800
Share based payments                              797,830        1,425,000         2,124,674        21,779,898
Unrealized and realized losses/(gain)           7,320,412          360,187         6,362,594         1,082,649
Other non-operating revenue                       (59,819 )        (32,431 )      (1,931,952 )        (502,673 )
Other non-operating expenses                    1,559,104          362,900 
       4,360,817         1,355,416
LO2A write-back                                         -                -                 -        23,963,050
Tax                                                     -                -                 -                 -
Loss on classification of assets held
for sale                                        4,195,046                -         4,195,046                 -
EBITDA (non-GAAP)                               8,812,896        3,147,643        27,079,909         7,732,470




                                       38





Critical accounting estimates



The preparation of the financial statements in conformity with U.S. 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 assumption- Management assumes that the Company will continue as a
going concern, which contemplates continuity of operations, realization of
assets, and liquidation of liabilities in the normal course of business. Please
see NOTE 1-GENERAL to the consolidated condensed financial statements in Item 1
of PART I of this Quarterly Report on Form 10-Q for more information about
this
assumption.



Long-lived assets- Management reviews long-lived assets for impairment whenever
events or changes in circumstances have occurred that may affect the
recoverability or the estimated useful lives of long-lived assets. Long-lived
assets include property and equipment and operating lease right-of-use assets. A
long-lived asset may be impaired when the estimated future undiscounted cash
flows are less than the carrying amount of the asset. If that comparison
indicates that the asset's carrying value may not be recoverable, the impairment
is measured based on the difference between the carrying amount and the
estimated fair value of the asset.



Stock based compensation- Management used Black-Scholes to evaluate our awards
and will continue to use judgment in evaluating the assumptions related to our
stock-based compensation on a prospective basis.

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