Big Digital Energy, Inc.: Form 10-Q for the period ended Mar 31, 2025

Management’s Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of our balance sheets, statements of operations and cash flows. The following discussion and analysis of our financial condition and results of operations should be read together with the unaudited consolidated condensed 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 the 2024 Form 10-K. All amounts are in U.S. dollars.

Throughout this report, unless otherwise designated, the terms “we,” “us,” “our,” the “Company,” and “Mawson,” refer to Mawson Infrastructure Group Inc., a Delaware corporation, Cosmos Trading Pty Ltd, Cosmos Infrastructure LLC, Cosmos Manager LLC, MIG No.1 Pty Ltd (on March 19, 2024, MIG No.1 Pty Ltd was placed into a court appointed liquidation and wind-up process), MIG No.1 LLC, Mawson AU Pty Limited (on April 23, 2024, Mawson AU Pty Ltd was placed into a court appointed liquidation and wind-up process), Mawson Services Pty Ltd (on April 29, 2024, Mawson Services Pty Ltd was placed into a court appointed liquidation and wind-up process), Mawson Bellefonte LLC, Luna Squares LLC, Luna Squares Repairs LLC, Luna Squares Property LLC, Mawson Midland LLC, Mawson Ohio LLC, Mawson Hosting LLC and Mawson Mining LLC.

Cautionary Note Regarding 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. Forward-looking statements can be identified by the use of forward-looking words such as “believe”, “expect”, “intend”, “plan”, “may”, “should”, “could” 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 United States Securities and Exchange Commission (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 factors summarized below.

This report and the 2024 Form 10-K identify important factors which could cause our actual results to differ materially from those indicated by the forward-looking statements, including those set forth under Item 1A. “Risk Factors” below.

The risk factors included in this Quarterly Report on Form 10-Q and on the 2024 Form 10-K 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, you are cautioned not to place undue reliance on such forward-looking statements. The following important factors, among others, could affect future results and events, causing those results and events to differ materially from those expressed or implied in our forward-looking statements:

• continued evolution and uncertainty related to technologies and digital infrastructure;
• access to reliable and reasonably priced electricity sources;
• operational, maintenance, repair, safety, and construction risks;
• the failure or breakdown of mining equipment, or internet connection failure;
• our reliance on key management personnel and employees;
• our ability to attract or retain the talent needed to sustain or grow the business;
• our ability to develop and execute on our business strategy and plans;
• counterparty risks related to our customers, agreements and/or contracts;
• adverse actions by creditors, debt providers, or other parties;
• continued evolution and uncertainty related to growth in blockchain and Bitcoin and other digital assets’ usage;
• high volatility in Bitcoin and other digital assets’ prices and in value attributable to our business;
• our need to, and difficulty in, raising additional debt or equity capital and the availability of financing opportunities;
• failure to maintain required compliance to remain eligible for the most cost-effective forms of raising additional equity capital;
• the evolution of AI and HPC market and changing technologies;
• the slower than expected growth in demand for AI, HPC and other accelerated computing technologies than expected;
• the ability to timely implement and execute on AI and HPC digital infrastructure contracts or deployment;
• the ability to timely complete the digital infrastructure build-out in order to achieve its revenue expectations for the periods mentioned;
• downturns in the digital assets industry;
• counterparty risks and risks of delayed or delinquent payments from customers and others;
• inflation, economic or political environment;
• cyber-security threats;
• our ability to obtain proper insurance;
• banks and other financial institutions ceasing to provide services to our industry;
• changes to the Bitcoin and/or other networks’ protocols and software;
• the decrease in the incentive or increased network difficulty to mine Bitcoin;
• the increase of transaction fees related to digital assets:
• the fraud or security failures of large digital asset exchanges;
• the regulation and taxation of digital assets like Bitcoin;
• our ability to timely and effectively implement controls and procedures required by Section 404 of the Sarbanes-Oxley Act of 2002; and
• material litigation, investigations, or enforcement actions, including by regulators and governmental authorities.

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, the risk factors set out in Item 1A. Risk Factors and in our 2024 Form 10-K.

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. We undertake no obligation 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.

Company Overview

We are a technology company focused on digital infrastructure platforms.

The Company develops and operates digital infrastructure platforms for enterprise customers and for its own purposes. The Company’s digital infrastructure platforms can be used to operate computing resources for a number of applications, and are offered across artificial intelligence (“AI”), high-performance computing (“HPC”), digital assets, and other computing applications. The Company also has an energy management business, which utilizes software and analysis, to generate revenue when the Company participates in energy management programs related to the real-time needs of the power grid.

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

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

Recent Developments

On March 21, 2025, Mawson Hosting LLC (the “Host”), a subsidiary of the Company, and Cantaloupe Digital LLC (the “Client”), a subsidiary of Canaan Inc., a NASDAQ-listed publicly traded company, entered into a Master Colocation Agreement (the “Canaan Agreement”). The Canaan Agreement has an initial term of three years, and the parties can extend upon mutual agreement. Under the terms of the Agreement, the Host will provide the Client approximately 64 MW of colocation capacity at the Company’s facilities. The Host will also provide the Client with digital colocation services pursuant to the Canaan Agreement.

Results of Operations – Three months Ended March 31, 2025 compared to the three months ended March 31, 2024

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Revenues

Digital Co-location revenues for three months ended March 31, 2025 and 2024, were $10.4 million and $8.2 million, respectively. This represented a 27% revenue increase or an increase of $2.2 million, compared to the same period in 2024. The increase in revenue was due to the Company enhancing its digital colocation capabilities, expanding its number of digital colocation customers, increasing the number of machines using our digital colocation infrastructure services, and growing its digital colocation business.

Energy management revenues for the three months ended March 31, 2025 and 2024, were $3.1 million and $2.5 million, respectively. This represented a 24% revenue increase or an increase of $0.6 million, compared to the same period in 2024. This increase is due to the Company’s enhanced energy management programs, which utilizes software and analysis, to generate revenue when the Company adapts its power usage to the real-time needs of the grid and enhanced participation in energy programs in the 2025 period than in the 2024 period.

Digital assets mining revenues from self-mining of bitcoin for the three months ended March 31, 2025 and 2024, were $0.3 million and $7.5 million, respectively, representing a decrease of $7.2 million. The decrease for the three months ended March 31, 2025 compared to the same period in 2024, was due to a number of factors, including the impact of the April 2024 halving industry event, and a higher global network difficulty rate, which led to lower bitcoin production from self-mining. In the three months ended March 31, 2025, compared to the same period in 2024, the Company also significantly expanded and grew its digital colocation services business across multiple customers reallocating some of its digital asset mining capacities.

Cost of revenue

Our cost of revenue consists primarily of direct power costs related to digital asset mining and co-location services and cost of mining equipment sold.

Cost of revenue for the three months ended March 31, 2025 and 2024, were $7.9 million and $11.8 million, respectively. The decrease in cost of revenue was primarily attributable to a decrease in power costs related to the energy used to operate the Company mining equipment and co-located mining equipment within our facilities.

Operating Expenses

Our operating expenses include: selling, general and administrative expenses; stock-based compensation; change in fair value of derivative asset; and depreciation and amortization.

Selling, general and administrative

Our selling, general and administrative expenses consist primarily of audit, legal, and other professional fees, employee compensation, director fees, equipment repairs, marketing, freight, insurance, consultant fees, lease amortization and general expenses.

Selling, general and administrative expenses for the three months ended March 31, 2025 and 2024 were $5.8 million and $3.5 million, respectively, which is an increase of $2.3 million from period to period, primarily due to increased legal and litigation related expenses, employee compensation and provision for doubtful accounts.

Stock based compensation

Stock based compensation expenses for the three months ended March 31, 2025 and 2024 were $2.1 million and $4.9 million, respectively. The decrease was primarily due to a reduction in new issuances of long-term incentives for the Company’s directors, management, and employees in the quarter ended March 31, 2025.

Depreciation and amortization

Depreciation consists primarily of depreciation of digital asset mining hardware and MDC equipment.

Depreciation and amortization for the three months ended March 31, 2025 and 2024, were $1.5 million and $8.0 million, respectively. The lower depreciation and amortization expense is the result of an increased number of the Company’s digital asset mining hardware being fully depreciated in prior periods.

Change in fair value of derivative asset

During the three months ended March 31, 2025 and 2024, there was a gain on the fair value of the derivative asset of $4.1 million and $1.7 million, respectively, in relation to our power supply arrangements. The change in fair value between March 31, 2025 and 2024 is primarily due to an increase in the forward market prices between 2025 and 2024.

Non-operating income (expense)

Non-operating income (expense) consist primarily of interest expenses, loss on deconsolidation, gain (loss) on foreign currency transactions, and other income and expenses.

Interest expenses for the three months ended March 31, 2025 and 2024, were $0.8 million and $0.7 million, respectively. This increase of $0.05 million was attributable to the increase in interest rates during 2024 and 2025.

During the three months ended March 31, 2025, loss on foreign currency transactions was $0.09 million. During the three months ended March 31, 2024, gain on foreign currency transactions was $0.2 million. This difference was due mostly to the movement in foreign exchange rates.

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 three months ended March 31, 2025, we financed our operations primarily through cash flow provided by operating activities and other cash reserves.

On December 13, 2024, the Company entered into a Sales Agreement (the “Sales Agreement”) with Roth Capital Partners, LLC (the “Lead Agent”) and A.G.P./Alliance Global Partners (collectively with the Lead Agent, the “Agents” and individually an “Agent”), to sell shares of our Common Stock (the “Shares”), having an aggregate sales price of up to $12 million, from time to time, through an “at the market offering” program under which the Agents will act as sales agent. The sales, if any, of the Shares made under the Sales Agreement will be made by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 promulgated under the Securities Act.

We believe our near-term 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 that may be available to us, future issuances of shares, and other potential sources of capital, monetization, or funds. We believe a combination of these opportunities are expected to be adequate to fund our long-term operations needed over the next twelve months. For our business growth, it is expected we may continue investing in expanding our infrastructure, expanding and/or upgrading our infrastructure and/or other equipment and will require additional working capital in the short-term and long-term. As of March 31, 2025, we had an aggregate of $21.8 million of debt, all of which is overdue for repayment unless we refinance, renegotiate the terms, or prevail in our disputes and/or related claims and/or counterclaims. In addition, the Celsius deposit of $15.3 million is the subject of an ongoing legal dispute in arbitration with Mawson and Celsius having claims and counterclaims. See Note 9 – Commitments and Contingencies, Celsius Promissory Note and Digital Colocation Agreement.

We will need to raise substantial additional capital to continue our operations, execute our business strategy and meet our debt service obligations. We may not be able to raise adequate capital on a timely basis, on favorable terms, or at all. Our inability to raise sufficient capital would have a material adverse effect on our financial condition and business.

Working Capital and Cash Flows

As of March 31, 2025 and December 31, 2024, we had a cash and cash equivalent balance of $5.5 million and $6.1 million, respectively. As of March 31, 2025 and December 31, 2024, the trade receivables balance was $10.9 million and $15.2 million, respectively. As of March 31, 2025, we had $21.8 million of outstanding short-term loans, and as of December 31, 2024, we had $20.9 million of short-term loans. The short-term loans as of March 31, 2025, relate to the Celsius Promissory Note, W Capital Loan, Secured Convertible Promissory Notes and Marshall Loan (these loans are currently in default, refer to Material Cash Requirements section below for more information). As of March 31, 2025 and December 31, 2024, we had negative working capital of $36.7 million and $35.9 million, respectively.

The following table presents the major components of net cash flows (used in) provided by operating, investing and financing activities for the three months ended March 31, 2025 and 2024:

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For the three months ended March 31, 2025, net cash used in operating activities was $0.5 million and for the three months ended March 31, 2024, net cash provided by operating activities was $1.9 million. We had a net loss of $0.3 million for the three months ended March 31, 2025, which included $4.1 million of gain on derivative asset, $2.1 million of stock based compensation, $1.5 million of depreciation and amortization expense, $1.0 million of provision for doubtful accounts and $0.8 million of non-cash interest expense. We had a net loss of $20.0 million for the three months ended March 31, 2024, which included $11.9 million of loss on deconsolidation, $8.0 million of depreciation and amortization expense, $4.0 million of stock based compensation expense, and $1.7 million of gain on derivative asset.

For the three months ended March 31, 2025, net cash used in investing activities was $0 and for the three months ended March 31, 2024, net cash provided by investing activities was $.5 million. The net cash provided by investing activities during the three months ended March 31, 2024, was primarily due to proceeds from sale of property, plant and equipment.

For the three months ended March 31, 2025 and 2024, net cash used in financing activities was $0.1 million and $0.5 million, respectively. The cash used in financing activities during the three months ended March 31, 2024, was primarily attributable to loan payments.

Material Cash Requirements

The following discussion summarizes our material cash requirements from contractual and other obligations. For more information on these matters, please see Note 9 – Commitments and Contingencies.

The Company is included as a guarantor of the Marshall Loan. The loan matured in February 2024 and bears interest at a rate of 12% per annum (with an overdue rate provision of an additional 500bps), payable monthly with interest payments that commenced in December 2021. This loan facility is secured by direct assets of MIG No.1 and a general security agreement given by the Company. Principal repayments began during November 2022. There has been no principal and interest payments made since May 2023. The outstanding balance including interest is $10.4 million as of March 31, 2025, all of which is currently classified as a current liability.

The Company is included as a guarantor of the W Capital Loan. As of March 31, 2025, the balance was AUD $2.2 million (USD $1.3 million) representing outstanding interest, all of which is currently classified as a current liability. The W Capital Loan accrues interest daily at a rate of 12% per annum (with an overdue rate provision of an additional 800bps). The W Capital Loan expired in March 2023.

On February 23, 2022, Luna Squares entered into the Digital Colocation Agreement with Celsius Mining LLC. In connection with this agreement, Celsius Mining LLC loaned Luna Squares a principal amount of $20.0 million, for the purpose of funding the infrastructure required to meet the obligations of the Digital Colocation Agreement, for which Luna Squares issued the Celsius Promissory Note for repayment of such amount. The Celsius Promissory Note accrues interest daily at a rate of 12% per annum (with an overdue rate provision of an additional 200bps). Luna Squares is required to amortize the loan at a rate of 15% per quarter, principal repayments began at the end of September 2022. The Celsius Promissory Note had a maturity date of August 23, 2023. The outstanding balance including interest is $9.9 million as of March 31, 2025, all of which is currently classified as a current liability.

On July 8, 2022, the Company issued the Secured Convertible Promissory Notes in exchange for an aggregate of $3.6 million in cash. On September 29, 2022, the Company entered into a letter variation relating to some of the Secured Convertible Promissory Notes, with an aggregate principal amount of $3.1 million, which gave those holders the option to elect for pre-payment (including accrued interest to maturity) subject to certain conditions. All of the investors included in this letter variation elected for the pre-payment option and therefore there were $3.1 million principal repayments made during November 2022. The final convertible noteholder who was not a party to this variation opted to enter into an arrangement whereby it received pre-payment of interest but agreed that repayment of the principal was not required therefore the remaining $0.50 million had been classified as a current liability. The convertible note matured in July 2023. Interest has been accrued from July onwards and therefore the outstanding balance is $0.1 million as of March 31, 2025, all of which is classified as a current liability. During 2024 the principal amount outstanding of $0.50 million was repaid to the investor.

Financial condition

As of March 31, 2025, and December 31, 2024, we had net current liabilities of $56.9 million and $61.9 million, respectively. As of March 31, 2025, and December 31, 2024, we had negative net assets of $1.4 million and $3.2 million, respectively. As of March 31, 2025, we had an accumulated deficit of $229.1 million compared to $228.8 million as of December 31, 2024. Our cash position of March 31, 2025, was $5.5 million in comparison to $6.1 million as of December 31, 2024.

For the three-month period ended March 31, 2025 and 2024, the Company incurred a loss after tax of $0.3 million and $20.0 million, a decrease in financial loss of $19.7 million, respectively.

Our primary requirements for liquidity and capital are working capital, capital expenditures, public company costs and general corporate needs. In particular, we have large power usage costs, and other significant costs include our lease, operational, general costs and employee costs. We expect these capital and liquidity 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.

We require additional capital to respond to near-term debt repayment obligations, competitive pressure, market dynamics, new technologies, customer demands, business opportunities, challenges, potential acquisitions or unforeseen circumstances, and we will likely need to determine to engage in equity or debt financings in the short term. If we are unable to obtain adequate financing on terms satisfactory to us when we require it, our ability to continue to fund, grow or support our business model and to respond to business challenges could be significantly limited, our business, financial condition and results of operations could be adversely affected, and this may result in bankruptcy or our ceasing operations.

The Company continues to take steps to preserve cash by optimizing costs and negotiating with its suppliers to improve or extend their terms of trade. The Company has been improving its revenue generation by improving the efficiency of its operations and adding multiple, institutional co-location services customers. The Company will continue to seek to optimize its cashflows through these and other initiatives.

Non-GAAP Financial Measures

The Company reports all financial information required in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The Company believes, however, that evaluating its ongoing operating results will be enhanced if it also discloses certain non-GAAP information. Adjusted EBITDA, which is a non-GAAP financial measure, is defined by the Company as net loss plus income tax, depreciation and amortization, further adjusted by stock based compensation, gain/loss on foreign currency, other non-operating income and expenses, change in fair value of derivative asset, provision for doubtful accounts, net of recoveries and loss on deconsolidation.

Adjusted EBITDA should not be considered an alternative to net income, operating income, net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted EBITDA may have material limitations as a performance measure because it excludes items that are necessary elements of our costs and operations. In addition, Adjusted EBITDA presented by other companies may not be comparable to our presentation, since each company may define these terms differently.

(unaudited)

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Critical accounting estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of income and expenses during the reporting periods. Actual results could differ from those estimates. There have been no material changes to our critical accounting policies and estimates as set forth in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the 2024 Form 10-K.

Celsius Mining LLC loaned $20.00 million to Luna Squares through the Celsius Promissory Note, which had a maturity date of August 23, 2023, and a total outstanding balance as of March 31, 2025 of $9.9 million. Luna Squares has not repaid the loan as required on the maturity date and is claimed by Celsius to be in default. Celsius Mining LLC transferred to benefit of the Celsius Promissory Note to Celsius Network Ltd. Celsius Network Ltd has notified Luna Squares the default interest is payable. On November 23, 2023, Celsius filed an adversary proceeding against Mawson, its subsidiaries Luna Squares and Cosmos, asserting various claims related to the alleged breach of the Celsius Colocation Agreement. The Company is pursuing counter claims against Celsius.

The Marshall Loan matured in February 2024 and the total outstanding balance is $10.4 million as of March 31, 2025. MIG No. 1, an Australian entity, has not made a payment on principal and interest since May 2023, despite such payments falling due, and is therefore in default under the Marshall Loan. MIG No. 1 is also in default of a number of other covenants under the terms of the loan. On March 19, 2024, Mig No.1 was placed into an Australian court appointed liquidation and wind-up process and was deconsolidated for the group from this date.

On March 19, 2024, Marshall appointed receivers and managers in Australia under the terms of their security relating to the Marshall Loan. The direct assets that secure this loan include 5,372 miners and 8 MDCs. These assets are held by the MIG No.1 and therefore were included in the deconsolidation. The receiver’s statutory duty includes the obligation to sell the secured assets at market value or, if market value is not known, at the best price reasonably obtainable to maximize the prospects of there being sufficient proceeds available to satisfy the balance of the outstanding secured debt. It is therefore expected that this loan balance will be offset in the future by the amount received from the sale of these miners and MDCs. On June 25, 2024, Marshall inspected and inventoried the miners and MDCs located at the Company’s Midland facilities. The Company is currently not utilizing these miners or MDCs for its operations and has asked Marshall to take these assets out of the Company’s storage. Marshall has not responded to the Company’s request for these miners and MDCs to be removed from the Company’s storage. The Company also reserves and retains all rights against Marshall.

The Company is the guarantor of the W Capital Loan. As of March 31, 2025, AUD $2.2 million (USD $1.3 million) has been drawn down from this facility. The W Capital Loan expired in March 2023 and the Company did not extend the maturity date and has not repaid the loan amount. The Company is therefore in default. This W Capital Loan was originally with Mawson PL, an Australian entity which was placed into voluntary administration under Australian law on October 30, 2023, and on November 3, 2023, W Capital Advisors appointed receivers and managers in Australia under the terms of their security relating to their working capital facility.

The Company has a Secured Convertible Promissory Note (the “Convertible Note”) with W Capital Advisors Pty Ltd with an outstanding balance of $0.1 million as of March 31, 2025. The Convertible Note matured in July 2023. W Capital Advisors did not convert the note, and the Company has repaid the principal balance of the Convertible Note.

For more information on the above matters, refer to Note 9 - Commitments and Contingencies to the unaudited consolidated condensed financial statements included in Item 1. “Financial Statements” of this Quarterly Report. The disclosure set forth in Note 9 relating to such legal matters is incorporated herein by reference.

Evaluation of disclosure controls and procedures

Our Board of Directors, the Committee(s) thereof and our management team, including our Chief Executive Officer and President (principal executive officer) and Chief Financial Officer (principal financial officer), have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a- 15(e)) and 15d- 15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report. Our Board of Directors and management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based on this evaluation, our Chief Executive Officer and President and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of March 31, 2025, including the material weaknesses in our internal control over financial reporting described below. Management’s assessment of the effectiveness of our disclosure controls and procedures is expressed at a level of reasonable assurance because management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Segregation of Duties and Staff Turnover. There is inadequate segregation of duties in place related to our financial reporting and other review and oversight procedures due to the lack of sufficient accounting and other personnel. This is not inconsistent with similar sized and small organizations. This gives rise to the risk of lack of ability to react in a timely manner to operations issues and to fully meet the requirements of the SEC, GAAP, and the Sarbanes-Oxley Act of 2002. In addition, this poses the risk that compliance and other reporting obligations are not dealt with in an adequate manner.

Controls over the financial statement close and reporting process. Controls were not adequately designed or implemented in the financial statement close and reporting process. This includes controls related to complex and judgmental accounting transactions including business acquisitions and divestures, derivatives, manual journal entries, account reconciliations and financial statement policies and disclosures.

Information and Technology Controls. There are control deficiencies related to information technology (“IT”) general controls that in the aggregate constitute a material weakness. Deficiencies identified include lack of controls over access to programs and data, program changes, program development and general IT controls.

Data from third parties. The Company does not have the resources and personnel to fully execute its designed controls to ensure that data received from third parties is validated, complete and accurate. Such data is relied on by the Company in determining amounts pertaining to mining and co-location revenue, net energy benefits, and digital currency assets.

Fixed asset verification. The Company does not have the resources and personnel to fully execute its designed controls around physical asset verification. Together with system limitations, restricting tracking of fixed asset movements, there is a risk around the existence of fixed assets.

Notwithstanding the identified material weaknesses and management’s assessment that our disclosure controls and procedures were not effective as of March 31, 2025, management believes that the consolidated condensed financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows as of and for the periods presented in accordance with generally accepted accounting principles. We rely on the assistance of outside advisors with expertise in these matters in preparing the financial statements.

Remediation

Our Board of Directors and management take internal control over financial reporting and the integrity of our financial statements seriously. Our management continues to work to find ways to improve its controls related to our material weaknesses. With the oversight of the Board of Directors, the Board Committee(s) and management, the Company plans to continue to progress the remediation of the underlying causes of the identified material weaknesses, primarily through the performance of a risk assessment process; the development and implementation of formal, documented policies and procedures, improved processes and control activities (including an assessment of the segregation of duties); as well as the hiring of additional finance and other personnel for specific roles including financial reporting.

Whilst controls have been implemented across all business processes and are operating, the material weaknesses in our internal control over financial reporting and information technology will not be considered remediated until controls have operated for a sufficient period of time and have been tested for and concluded on for effectiveness. As operating effectiveness testing has not been concluded as of the date of this report, we continue to disclose the material weaknesses.

Remediation efforts for upcoming quarters will be focused on progressing the implementation of the remainder of controls, refining existing controls and validating the effectiveness of implemented controls using criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control. We cannot provide any assurance that our remediation efforts will be successful or that our internal control over financial reporting and other business processes will be effective as a result of these efforts. In addition, as we continue to evaluate and work to improve our internal control over financial reporting related to the identified material weaknesses, management may determine to take additional measures to address material weaknesses or determine to modify or update the remediation plan described above.

Changes in internal control over financial reporting

Except for the remedial measures described above, there have been no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures and Internal Control over Financial Reporting

In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, the Board of Directors and management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints, and that the Board of Directors and management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

The information in this Form 10-Q should be read in conjunction with the risk factors and information disclosed in the 2024 Form 10-K. Except as set forth below, there have been no material changes to the primary risks related to our business and securities as described in the 2024 Form 10-K under “Risk Factors” in Item 1A.

Risks Associated with the Chapter 11 Involuntary Petition Filed Against Us

Certain of our creditors have filed an Involuntary Petition seeking entry of an order for relief, which if entered over our expected opposition, would impose on us a Chapter 11 reorganization proceeding under the U. S. Bankruptcy Code. Such proceeding could lead to a reorganization or a liquidation which would raise substantial doubt about our ability to continue as a going concern.

On December 4, 2024, certain of our creditors filed an Involuntary Petition against us seeking an order for relief by the Delaware Bankruptcy Court placing us in Chapter 11 reorganization under the U.S. Bankruptcy Code. No such order for relief with regard to the Involuntary Petition has been entered by the Bankruptcy Court, and the Company intends to vigorously oppose any such relief. However, if such relief is eventually ordered, such an event could raise substantial doubt about our ability to continue as a going concern and could affect our assets, business, operations, earnings, properties, condition (financial and otherwise), prospects, stockholders’ equity and results of operations.

As with any judicial proceeding, there are risks with an involuntary Chapter 11 proceeding, including uncertainty, cost and unavoidable delay. Further, should the Delaware Bankruptcy Court enter an order for relief in connection with the Involuntary Petition, there would be additional associated risks operating under an involuntary Chapter 11 reorganization. Throughout the course of an involuntary Chapter 11 proceeding, the effects of an involuntary Chapter 11 proceeding, including increased legal and other professional costs, on the Company’s liquidity (including the availability of operating capital during the pendency of an involuntary Chapter 11 proceeding), results of operations or business prospects; the effects of an involuntary Chapter 11 proceeding on the interests of various constituents and financial stakeholders; the length of time that the Company could operate under Chapter 11 protection and the continued availability of operating capital during the pendency of an involuntary Chapter 11 proceeding; objections to the Company’s restructuring process, or other pleadings filed that could protract an involuntary Chapter 11 proceeding; risks associated with third-party motions in an involuntary Chapter 11 proceeding; Bankruptcy Court rulings in an involuntary Chapter 11 proceeding and the outcome of an involuntary Chapter 11 proceeding in general; the Company’s ability to comply with the restrictions imposed by the terms and conditions of a plan of reorganization; employee attrition and the Company’s ability to retain senior management and other key personnel due to the distractions and uncertainties; the Company’s ability to maintain relationships with suppliers, customers, employees and other third parties and regulatory authorities as a result of an involuntary Chapter 11 proceeding; the impact and timing of any cost-savings measures and related local law requirements in various jurisdictions; finalization of the Company’s annual and quarterly financial statements (including finalization of the Company’s impairment tests), completion of standard annual and quarterly-close processes; risks relating to the delisting of the Company’s common stock from Nasdaq and future quotation of the Company’s common stock; the effectiveness of the Company’s internal control over financial reporting and disclosure controls and procedures, and the potential for additional material weaknesses in the Company’s internal controls over financial reporting or other potential weaknesses, all pose added risks and uncertainties.

These risks and uncertainties could affect our business and operations in various ways. For example, negative events or publicity associated with an involuntary Chapter 11 proceeding could adversely affect our relationships with our suppliers, customers and employees. In particular, critical vendors, suppliers, and/or customers may determine not to do business with us due to the involuntary Chapter 11 proceeding and we may not be successful in securing alternative sources of financing. Also, transactions outside the ordinary course of business are subject to the prior approval of the Bankruptcy Court, which may limit our ability to respond timely to certain events or take advantage of opportunities that might otherwise exist outside of Chapter 11. Additionally, uncertainty with respect to intercompany transactions may negatively impact our captive insurance companies’ ability to meet insurance regulatory requirements. There may be objections from certain stakeholders, including objections from the holders of unsecured claims as well as other risks associated with any business reorganizing under Chapter 11 to our business activities or any plan of reorganization developed as part of the Chapter 11 reorganization. Because of the risks and uncertainties associated with an involuntary Chapter 11, we cannot predict or quantify the ultimate impact that events occurring during the Chapter 11 process may have on our business, financial condition and results of operations, and there is no certainty as to our ability to successfully emerge from any such proceeding as a going concern.

A prolonged continuation of the Chapter 11 proceeding could impact the value of our assets and our business.

Furthermore, if an order for relief is entered (or ultimately consented to) and the Company is operating in Chapter 11, we could be required to incur substantial additional costs for professional fees and other expenses associated with the administration of the Chapter 11 proceedings.

Finally, we again note that notwithstanding the filing of the Involuntary Petition, we continue to operate in the ordinary course of business as authorized pursuant to 11 U.S.C. § 303(f), and no trustee, interim trustee or examiner has been appointed in connection with the pending Involuntary Petition. Pursuant to 11 U.S.C. § 303(g), at any time before the entry of an order for relief with respect to the Involuntary Petition, on request of the petitioning creditors or any other party in interest to the Delaware Bankruptcy Case, following notice to the debtor and a hearing, and if necessary to preserve the property of the debtor’s estate or to prevent loss to the debtor’s estate, the Delaware Bankruptcy Court may order the United States trustee to appoint an interim trustee to take possession of the property of the debtor’s estate and to operate the business of the debtor. The Company would have the right to oppose any such interim trustee request, and even if an interim trustee were to be appointed pending the determination on the Involuntary Petition, the debtor may regain possession of its assets or property by posting a sufficient bond as may be required by the Delaware Bankruptcy Court.

We are in the process of opposing the Involuntary Petition for Chapter 11 reorganization under the U.S. Bankruptcy Code, which may cause our common stock to decrease in value or may render our common stock worthless.

Since the Involuntary Petition under Chapter 11 of the Bankruptcy Code in the Delaware Bankruptcy Court was filed against us, the price of our common stock has been volatile and the common stock price may continue to decrease in value and/or become worthless. Accordingly, any trading in our common stock during the pendency of the determination of the Involuntary Petition is highly speculative and poses substantial risks to purchasers of our common stock. On February 6, 2025, the Company received the Bid Price Notice from the Staff of Nasdaq notifying the Company that for the last 30 consecutive business days prior to the date of the Bid Price Notice, the closing bid price of Company’s Common Stock was less than the $1.00 per share minimum bid price required for continued listing on Nasdaq, as required by the “Bid Price Rule. In the event the Company does not regain compliance with the Bid Price Rule prior to the expiration of the Bid Price Compliance Period and is not granted an additional 180-day compliance period, it will receive written notification that its securities are subject to delisting. Delisting our common stock may adversely impact our liquidity, impair our stockholders’ ability to buy and sell our common stock, impair our ability to raise capital, and the market price of our common stock could decrease.

Should the Delaware Bankruptcy Court enter an order for relief placing us in Chapter 11, recoveries for holders of common stock, if any, may depend upon our ability to negotiate and confirm a Chapter 11 plan of reorganization or liquidation, the terms of such plan, the value of our assets, the recovery of our business from any adverse effects of these proceedings or other adverse industry conditions, if any, which may arise. Although we cannot predict how our common stock will ultimately be treated if the Involuntary Petition is not dismissed by the Delaware Bankruptcy Court, we expect that common stockholders may not receive any recovery through a Chapter 11 plan (if any) unless the holders of more senior claims and interests, such as secured and unsecured indebtedness, are paid in full. Our stockholders’ equity could decrease as we use cash on hand to support our operations in bankruptcy. Consequently, should the Involuntary Petition not be dismissed, there is a significant risk that the holders of our common stock would receive no recovery and that our common stock could be worthless.

As a result of the filing of an Involuntary Petition by petitioning creditors, we are subject to the risks and uncertainties associated with reorganization under an involuntary Chapter 11 and operating under Chapter 11 may restrict our ability to pursue strategic and operational initiatives.

If we are unsuccessful in dismissing the Involuntary Petition filed against us, for the duration of the Chapter 11, our operations and our ability to execute our business strategy could be subject to the risks and uncertainties associated with bankruptcy. These risks include:

• our ability to obtain Bankruptcy Court approval with respect to motions filed in the Chapter 11 case from time to time;
• our ability to comply with and operate under the requirements and constraints of the Bankruptcy Code and under any cash management, cash collateral, adequate protection, or other orders entered by the Delaware Bankruptcy Court from time to time;
• our ability to engage in intercompany transactions and to fund operations from cash on hand or from financings and, in the event of such financings, our ability to comply with the terms of such financings;
• our ability to locate, obtain and close bankruptcy DIP financing;
• our ability to negotiate and consummate a Chapter 11 plan;
• our ability to develop, fund, and execute our business plan; and
• our ability to continue as a going concern.

We may not be able to raise additional capital to meet our liquidity needs, which could have a material adverse impact on the Company.

Outside of revenue generated by our ongoing operations, the Company’s primary sources of capital to fund ongoing operations and other capital needs includes corporate financing as well as the sale of equity through such mechanisms as the “at the market offering” under this prospectus supplement. The ability to engage in these activities may be limited, if available at all, in light of the Involuntary Petition and related court process in connection therewith.

In the event that cash on hand, cash flow from operations are not sufficient to meet these liquidity needs, the Company may be required to seek additional financing or sale of equity or debt financing, and can provide no assurance that additional financing or equity sales or debt financing may be available or, if available, offered on acceptable terms.

Defense of and responding to the pending Involuntary Petition has consumed and may continue to consume a substantial portion of the time and attention of our management, which may have an adverse effect on our business and results of operations, and we may face increased levels of employee attrition.

While the determination as to whether the Involuntary Petition satisfies the requirements of the Bankruptcy Code for entry of an order for relief continues, our management may be required to spend a significant amount of time and effort focusing on this Involuntary Bankruptcy Case. This diversion of attention may materially adversely affect the conduct of our business, and, as a result, our financial condition and results of operations, particularly if our opposition to the entry of any order for relief with regard to the Involuntary Petition is protracted. During these proceedings (and any related Chapter 11 or Chapter 7 bankruptcy proceeding), our employees may face considerable distraction and uncertainty, and we may experience increased levels of employee attrition. A loss of key personnel or material erosion of employee morale could have a materially adverse effect on our ability to meet customer expectations, thereby adversely affecting our business and results of operations. The failure to retain or attract members of our management team and other key personnel could impair our ability to execute our strategy and implement operational initiatives, thereby having a material adverse effect on our financial condition and results of operations.

If an order for relief is entered with regard to the Involuntary Petition and we are forced to operate in Chapter 11 and are unable to negotiate and confirm a Chapter 11 plan of reorganization, we could be required to liquidate under Chapter 7 (“Chapter 7”) of the Bankruptcy Code in which case our common stock could be worthless.

We are not yet ordered into Chapter 11 by the Bankruptcy Court in response to the Involuntary Petition, but if an order for relief is entered and we are so ordered, we may need or attempt to develop a plan of reorganization. If we are unable to negotiate a plan of reorganization that results in our remaining a going concern, upon a showing of cause, the Bankruptcy Court may dismiss or convert the Chapter 11 proceedings to proceedings under Chapter 7 of the Bankruptcy Code. In the event of conversion of the proceedings to Chapter 7, a Chapter 7 trustee could be appointed or elected to liquidate our assets for distribution to creditors in accordance with the priorities established by the Bankruptcy Code. Holders of our common stock would most likely lose their entire investment in a Chapter 7 bankruptcy, as most Chapter 7 bankruptcy proceedings render shares of a debtor’s common stock worthless.

If we are unsuccessful in dismissing the Involuntary Petition filed against us and we are ordered into an involuntary Chapter 11, we may be subject to claims that may not be discharged in the involuntary Chapter 11, which could have a material adverse effect on our financial condition and results of operations.

The Bankruptcy Code provides that the confirmation of a Chapter 11 plan of reorganization discharges a debtor from substantially all debts arising prior to confirmation. With few exceptions, all claims that arose prior to confirmation of the plan of reorganization (i) may be subject to compromise and/or treatment under the plan of reorganization and (ii) may be discharged in accordance with the Bankruptcy Code and the terms of the plan of reorganization. Any claims not ultimately discharged through a Chapter 11 plan of reorganization could be asserted against us and may have an adverse effect on our financial condition and results of operations on a post-reorganization basis.

Operating in bankruptcy for a long period of time may harm our business.

If we are unsuccessful in dismissing the Involuntary Petition filed against us and are ordered into an involuntary Chapter 11, we may be subject to a long period of operations in the Chapter 11 which may have a material adverse effect on our business, financial condition, results of operations, and liquidity. So long as the Chapter 11 continues, senior management may be required to spend a significant amount of time and effort dealing with the reorganization instead of focusing exclusively on business operations. A prolonged period of operating under Bankruptcy Court protection also may make it more difficult to retain management and other key personnel necessary to the success of our business. In addition, the longer the Chapter 11 continues, the more likely it is that customers and suppliers may lose confidence in our ability to reorganize our business successfully and may seek to establish alternative commercial relationships.

So long as the Chapter 11 case continues, we may be required to incur substantial costs for professional fees and other expenses associated with the administration of the Chapter 11, including potentially the cost of litigation. In general, litigation can be expensive and time consuming to bring or defend against. Such litigation may result in settlements or damages that may significantly affect our financial results. It is also possible that certain parties may commence litigation with respect to the treatment of their claims under a plan. It is not possible to predict the potential litigation that we may become a party to, nor the final resolution of such litigation. The impact of any such litigation on our business and financial stability, however, may be material.

Should the Chapter 11, assuming an order for relief is entered, be protracted, we may also need to seek new financing to fund operations. If we are unable to obtain such financing on favorable terms or at all, the chances of confirming a Chapter 11 plan may be seriously jeopardized and the likelihood that we may instead be required to liquidate our assets could increase.

The price of our common stock has and may continue to fluctuate significantly, which could negatively affect us and holders of our common stock.

The market price of our common stock has and may continue to fluctuate significantly as a result of many factors, including the pending Involuntary Petition. Our results may also fluctuate due to factors such as the following:

• investors’ perceptions of our equity value in light of the pending, unresolved Involuntary Petition;
• investors’ perceptions of us and/or the industry’s risk and return characteristics relative to other investment alternatives;
• investors’ perceptions of the prospects of the market in which we operate;
• differences between actual financial and operating results and those expected by investors and analysts;
• changes in analyst reports, recommendations or earnings estimates regarding us, other comparable companies or the industry generally, and our ability to meet those estimates;
• actual or anticipated fluctuations in quarterly financial and operating results;
• volatility in the equity securities market;
• sales, or anticipated sales, of large blocks of our common stock; and
• other factors described under “Cautionary Note Regarding Forward-Looking Statements” in this prospectus supplement.

The Delaware Bankruptcy Court could enter an order imposing trading restrictions with respect to our common stock.

If the Delaware Bankruptcy Court enters an order for relief with regard to the Involuntary Petition, the debtor may seek entry of an order that, among other things, imposes trading restrictions on some or all of our holders of our common stock. Restrictions such as these are often entered in order to preserve the value of certain assets, including things like tax attributes, including net operating losses and carryforwards.

The filing of the Involuntary Petition may adversely impact our U.S. subsidiary businesses and affiliates, which may themselves become subject to Chapter 11 or other insolvency proceedings.

We have significant subsidiary businesses and affiliates. The filing of the Involuntary Petition and the possibility that, despite our anticipated objections to the entry of any order for relief, such petition leads to us being placed into Chapter 11, may result in negative consequences to our subsidiaries’ and affiliates’ business operations and possibly force them into the Chapter 11 proceedings or other insolvency proceedings.

An impairment of our goodwill and other indefinite-lived intangible assets could have a material impact to our results of operations.

As a result of the stigma to our reputation and material effect on our business operations and vendor and customer relations, our goodwill and indefinite-lived intangible assets may become impaired leading to a loss of value to our stock price as well as a significant decline in revenues and cash flow.

The filing of the Involuntary Petition potentially places us in material breach of certain contracts and debt obligations of the Company.

The filing of the Involuntary Petition may constitute defaults, termination events and/or amortization events with respect to certain of the Company’s existing leases, contracts, and debt obligations.

The Company may need to seek waivers or other remedies under law related to the filing of the Involuntary Petition under its leases and contracts which may automatically deem such petition filed against the Company a default upon the filing of such bankruptcy petition, but it may not be successful in doing so. Such an inability to obtain waivers could cause such leases and contracts to terminate, imposing material and adverse effect on our operations, financial condition, business, and reputation.

The filing of the Involuntary Petition seeking relief under Chapter 11 of the U. S. Bankruptcy code could adversely affect our business and relationships.

It is possible that the filing of the Involuntary Petition or ultimately being placed in Chapter 11 could adversely affect our business and relationships with vendors, suppliers, service providers, customers, employees and other third parties. Due to uncertainties, many risks exist, including the following:

• key suppliers could terminate their relationship or require financial assurances or enhanced performance;
• the ability to renew existing contracts and compete for new business may be adversely affected;
• the ability to attract, motivate and/or retain key executives and employees may be adversely affected;
• employees may be distracted from performance of their duties or more easily attracted to other employment opportunities; and
• competitors may take business away from us, and our ability to attract and retain customers may be negatively impacted.

The occurrence of one or more of these events could have a material and adverse effect on our results of operations, financial condition, business and reputation. We cannot assure you that being the subject of an Involuntary Petition for relief may not adversely affect our future operations, financial condition, and business.

The filing of the Involuntary Petition for relief under Chapter 11 of the U. S. Bankruptcy code could materially and adversely affect our public stockholders.

Holders of our secured debt would have priority over unsecured creditors, and unsecured creditors would have priority over holders of our common stock, in the event of any bankruptcy, liquidation or any similar proceeding under the Bankruptcy Code.

If the Involuntary Petition filed against us is not dismissed, the claims of creditors in such a bankruptcy proceeding may have priority over the claims of our stockholders and the per-share amount that may otherwise be received by our stockholders in connection with bankruptcy, liquidation or any similar proceeding may be reduced or eliminated. For the avoidance of doubt, there is a risk that the holders of our common stock will receive no recovery under any Chapter 11 cases, and that our common stock will be worthless.

Risk Factors Involving Winding Up Proceedings Under Australian Law

One of our Australian creditors has obtained an order to wind up the Company under Australian law before the Federal Court in New South Wales, Australia, which raises substantial doubt about our ability to continue as a going concern.

On or about October 3, 2024, certain of our Australian creditors filed an application for winding up order against us in the matter entitled “In re Mawson Infrastructure Group, Inc.” Action No. NSD1395/2024, in the Federal Court of new South Wales in Sydney, Australia, seeking a determination of insolvency and order of liquidation against us under Australian law before the Federal Court in New South Wales, Australia. The applicants who filed this Australian application are the same parties who filed the above referenced involuntary Chapter 11 proceedings against the Company for the same remedy and for the same alleged debts. We have responded to the application, opposing any such determination. We have not been ordered to wind up by the Australian Court as there must be a trial before such a determination, but regardless of our efforts, on February 11, 2025, the Australian Court issued an order to wind up the Company under Australian law because the Company no longer is carrying on business in Australia, which is grounds under Australian law for winding it up. The Australian Court allowed the petitioning creditors to appoint an Australian liquidator. This order raises substantial concern about our ability to continue as a going concern, including uncertainty, cost, and unavoidable delay, if such an order were enforceable in the United States.

These risks and uncertainties could affect our business and operations in various ways. For example, negative events or publicity associated with Australian winding up application proceedings could adversely affect our relationships with our suppliers, customers and employees. In particular, critical vendors, suppliers, and/or customers may determine not to do business with us due to Australian winding up application proceedings and we may not be successful in securing alternative sources. Because of the risks and uncertainties associated with this Australian winding up application, we cannot predict or quantify the ultimate impact that events occurring during the Australian winding up application process may have on our business, financial condition and results of operations, and there is no certainty as to our ability to continue as a going concern.

A prolonged continuation of the Australian winding up application proceedings could impact the value of our assets and our business. Furthermore, so long as the Australian winding up application proceedings continue, we could be required to incur substantial costs for professional fees and other expenses associated with the administration of the Australian winding up application proceedings.

However, the order of winding up in Australia does not pose immediate risk to the Company as the Company has no assets in Australia, nor does it have employees, revenue, or even ongoing business in Australia. Further, the Australian order is contrary to and in violation of the automatic stay protecting the Company as it continues to oppose the Chapter 11 involuntary petition filed by the same Australian creditors. Thus, to make any Australian order of winding up enforceable against the assets of the Company, the Australian liquidator must file appropriate legal proceedings in the U.S. to have such a determination recognized and enforced. The liquidator has joined the Petitioning Creditors in the involuntary Chapter 11 proceedings filed in Delaware. The effect of such recognition is unclear as the U.S. courts do not have to accept the determination of insolvency of the Company by a foreign court. Any proceeding brought in the US affords the Company the opportunity to raise affirmative defenses against such a foreign determination under US law which were not available to the Company in the Australian Court system. These defenses include a more robust procedural and evidentiary system, including US discovery and due process which was not available to the Company in Australia to develop its defenses. Further, the Company has raised affirmative defenses to the insolvency claims of the petitioner including rights of offset, counterclaims for damages, lack of due process, fraud, bad faith, and proof that the Company, as a US company, is not insolvent under applicable U.S. law.

We are opposing the Australian winding up order in the involuntary Chapter 11 petition proceedings filed in Delaware; however, if we are unsuccessful in defending the Company in the involuntary Chapter 11 petition proceedings, and are ordered to file a plan of reorganization, our common stock could be materially devalued or even made worthless.

The Australian appointed liquidators have joined as Petitioning Creditors the involuntary Chapter 11 petition filed in Delaware under U.S. law against the Company. The risk factors associated with a Chapter 11 are as set forth above. Holders of our common stock could lose their entire investment if a plan of reorganization would not be successfully adopted and/or the matter be converted to a Chapter 7 bankruptcy.

If the Australian winding up order filed against us was made enforceable in the U.S. against the Company and its assets, our operations and our ability to execute our business strategy could be subject to the risks and uncertainties as would be associated with proceedings of a U.S. Chapter 11 or 7 bankruptcy. In such event, the imposition of a Chapter 11 proceeding would entail the same risks as set forth above. If forced into a Chapter 7, a Chapter 7 trustee would be appointed or elected to liquidate our assets for distribution in accordance with the priorities established by the Bankruptcy Code, or otherwise disposed of in a distressed fashion over a short period of time rather than in a controlled manner and as a going concern as with a Chapter 11.

Defending against the Australian winding up proceedings has consumed and may continue to consume a substantial portion of the time and attention of our management, which may have an adverse effect on our business and results of operations, and we may face increased levels of employee attrition.

With the determination of the Australian winding up order made, and its pursuit by the Australian Creditors continues, our management may be required to spend a significant amount of time and effort focusing on the case. This diversion of attention may materially adversely affect the conduct of our business, and, as a result, our financial condition and results of operations, particularly if the Australian winding up application proceeding is protracted. During these proceedings, our employees may face considerable distraction and uncertainty, and we may experience increased levels of employee attrition. A loss of key personnel or material erosion of employee morale could have a materially adverse effect on our ability to meet customer expectations, thereby adversely affecting our business and results of operations. The failure to retain or attract members of our management team and other key personnel could impair our ability to execute our strategy and implement operational initiatives, thereby having a material adverse effect on our financial condition and results of operations.

Additional risk factors associated with these proceedings are similar to those outlined above regarding the Involuntary Petition.

Additional risk factors associated with these proceedings are similar to those outlined above regarding the Involuntary Petition, including but not limited to:

• The Australian winding up order in the Australian Court system may cause our common stock to decrease in value or may render our common stock worthless.
• Operating during the pendency of the Australian winding up process for a long period of time may harm our business.
• The Australian creditors’ attempts to execute the Australian winding up order may adversely impact our U.S. subsidiary businesses and affiliates, which may themselves become subject to Australian winding up application or other insolvency proceedings.
• An impairment of our goodwill and other indefinite-lived intangible assets could have a material impact to our results of operations.
• The Australian winding up order potentially places us in material breach of certain contracts and debt obligations of the Company.
• Execution of the Australian winding up order in the U. S. could adversely affect our business and relationships.
• Execution of the Australian winding up order in the U. S. could materially and adversely affect our public stockholders.

Other Risks

Changes in our business strategy or restructuring of our businesses may increase our costs or otherwise affect our businesses.

We continually review our operations with a view toward reducing our cost structure, including, but not limited to, reducing our labor cost-to-revenue ratio, improving process and system efficiencies and increasing our revenues and operating margins. Despite these efforts, we have needed and may continue to need to adjust our business strategies to meet these changes, or we may otherwise find it necessary to restructure our operations or particular businesses or assets. When these changes or events occur, we may incur costs to change our business strategy and may need to write down the value of assets or sell certain assets. Additionally, any of these events could result in disruptions or adversely impact our relationships with our workforce, suppliers and customers. In any of these events our costs may increase, and we may have significant charges or losses associated with the write-down or divestiture of assets and our business may be materially and adversely affected.