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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2023

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

For the transition period from             to

Commission file number 001-41163

TERAWULF INC.

(Exact name of registrant as specified in its charter)

DE

87-1909475

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

9 Federal Street

21601

Easton

MD

(Address of principal executive offices)

(State)

(Zip Code)

(410) 770-9500

(Registrant’s telephone number, including area code)

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

Title of each class:

    

Trading Symbol(s)

    

Name of each exchange on which registered:

Common Stock, $0.001 par value per share

WULF

The Nasdaq Stock Market LLC

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

There were 221,132,914 shares of Common Stock outstanding as of August 11, 2023.

Table of Contents

TERAWULF INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

TABLE OF CONTENTS

    

Page

Forward-Looking Statements

3

PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements

Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022

5

Consolidated Statements of Operations for the three and six months ended June 30, 2023 and 2022

6

Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2023 and 2022

7

Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022

8

Notes to Consolidated Financial Statements

9

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

38

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

50

ITEM 4. Controls and Procedures

50

PART II — OTHER INFORMATION

ITEM 1. Legal Proceedings

51

ITEM 1A. Risk Factors

51

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

52

ITEM 3. Defaults Upon Senior Securities.

52

ITEM 4. Mine Safety Disclosures.

52

ITEM 5. Other Information.

52

ITEM 6. Exhibits

53

SIGNATURES

54

2

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Forward-Looking Statements

This Quarterly Report contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management, and expected market growth are forward-looking statements. These forward- looking statements are contained principally in the sections entitled Risk Factors and Managements Discussion and Analysis. Without limiting the generality of the preceding sentence, any time we use the words expects, intends, will, anticipates, believes, confident, continue, propose, seeks, could, may, should, estimates, forecasts, might, goals, objectives, targets, planned, projects, and, in each case, their negative or other various or comparable terminology and similar expressions, we intend to clearly express that the information deals with possible future events and is forward-looking in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. For TeraWulf, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include, without limitation:

conditions in the cryptocurrency mining industry, including any prolonged substantial reduction in cryptocurrency prices, and specifically, the value of bitcoin, which could cause a decline in the demand for TeraWulfs services;
competition among the various providers of data mining services;
the need to raise additional capital to meet our business requirements in the future, which may be costly or difficult to obtain or may not be obtained (in whole or in part) and, if obtained, could significantly dilute the ownership interests of TeraWulf’s shareholders;
the ability to implement certain business objectives and the ability to timely and cost-effectively execute integrated projects;
adverse geopolitical or economic conditions, including a high inflationary environment;
security threats or unauthorized or impermissible access to our datacenters, our operations or our digital wallet;
counterparty risk with respect to our digital asset custodian and our mining pool provider;
employment workforce factors, including the loss of key employees;
changes in governmental safety, health, environmental and other regulations, which could require significant expenditures;
liability related to the use of TeraWulfs services;
currency exchange rate fluctuations; and
other risks, uncertainties and factors included or incorporated by reference in this Quarterly Report, including those set forth under Risk Factors and those included under the heading Risk Factors in our annual report on Form 10-K, filed with the U.S. Securities and Exchange Commission (the SEC) on March 31, 2023 (the Original 10-K), as amended by our annual report on Form 10-K/A, filed with the SEC on May 5, 2023, for the fiscal year ended December 31, 2022 (the 10-K/A and together with the Original 10-K, the Annual Report on Form 10-K).

These forward-looking statements reflect our views with respect to future events as of the date of this Quarterly Report and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report and, except as required by law, we undertake no obligation to update or review publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Quarterly Report. We anticipate that subsequent events and developments will cause our views to change. You should read this Quarterly Report completely and with

3

Table of Contents

the understanding that our actual future results may be materially different from what we expect. Our forward-looking statements do not reflect the potential impact of any future acquisitions, merger, dispositions, joint ventures or investments we may undertake. We qualify all of our forward-looking statements by these cautionary statements.

4

Table of Contents

PART I: FINANCIAL INFORMATION
ITEM 1.Financial Statements

TERAWULF INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2023 AND DECEMBER 31, 2022

(In thousands, except number of shares and par value)

    

June 30, 2023

    

December 31, 2022

(unaudited)

ASSETS

 

  

 

  

CURRENT ASSETS:

 

  

 

  

Cash and cash equivalents

$

8,241

$

1,279

Restricted cash

 

7,044

Digital currency, net

708

183

Prepaid expenses

 

3,472

5,095

Other current assets

 

1,938

543

Total current assets

 

14,359

14,144

Equity in net assets of investee

 

111,446

98,741

Property, plant and equipment, net

 

161,776

191,521

Right-of-use asset

 

11,443

11,944

Other assets

 

798

1,337

TOTAL ASSETS

$

299,822

$

317,687

LIABILITIES AND STOCKHOLDERS' EQUITY

 

  

 

  

CURRENT LIABILITIES:

 

  

 

  

Accounts payable

$

17,303

$

21,862

Accrued construction liabilities

 

95

2,903

Other accrued liabilities

 

7,883

14,963

Share based liabilities due to related party

 

15,000

14,583

Other amounts due to related parties

 

3,172

3,295

Contingent value rights

 

1,302

10,900

Current portion of operating lease liability

 

45

42

Insurance premium financing payable

352

2,117

Convertible promissory notes

3,416

Current portion of long-term debt

36,532

51,938

Total current liabilities

 

81,684

 

126,019

Operating lease liability, net of current portion

 

924

947

Long-term debt

 

82,396

72,967

TOTAL LIABILITIES

 

165,004

 

199,933

Commitments and Contingencies (See Note 12)

 

  

 

  

STOCKHOLDERS' EQUITY:

 

  

 

  

Preferred stock, $0.001 par value, 100,000,000 and 25,000,000 authorized at June 30, 2023 and December 31, 2022, respectively; 9,566 issued and outstanding at June 30, 2023 and December 31, 2022; aggregate liquidation preference of $10,873 and $10,349 at June 30, 2023 and December 31, 2022, respectively

 

9,273

9,273

Common stock, $0.001 par value, 400,000,000 and 200,000,000 authorized at June 30, 2023 and December 31, 2022, respectively; 216,055,887 and 145,492,971 issued and outstanding at June 30, 2023 and December 31, 2022, respectively

 

216

145

Additional paid-in capital

 

355,600

294,810

Accumulated deficit

 

(230,271)

(186,474)

Total stockholders' equity

 

134,818

 

117,754

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

299,822

$

317,687

See Notes to Consolidated Financial Statements.

5

Table of Contents

TERAWULF INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(In thousands, except number of shares and loss per common share; unaudited)

Three Months Ended

Six Months Ended

    

June 30, 

    

June 30, 

2023

2022

2023

2022

Revenue

$

15,456

$

1,385

$

26,989

$

1,602

Cost of revenue (exclusive of depreciation shown below)

 

5,113

591

10,115

623

Gross profit

 

10,343

 

794

 

16,874

 

979

Cost of operations:

 

  

 

  

 

  

 

  

Operating expenses

 

468

948

776

1,428

Operating expenses – related party

639

147

1,236

209

Selling, general and administrative expenses

 

5,878

4,334

12,370

10,319

Selling, general and administrative expenses – related party

2,676

2,423

5,574

5,239

Depreciation

6,428

200

11,861

204

Realized gain on sale of digital currency

(583)

(1,186)

Impairment of digital currency

682

558

1,309

563

Total cost of operations

 

16,188

 

8,610

 

31,940

 

17,962

Operating loss

 

(5,845)

(7,816)

(15,066)

(16,983)

Interest expense

 

(8,450)

(4,139)

(15,284)

(9,461)

Other income

54

54

Loss before income tax and equity in net loss of investee

 

(14,241)

 

(11,955)

 

(30,296)

 

(26,444)

Income tax (expense) benefit

 

Equity in net loss of investee, net of tax

 

(3,296)

(1,084)

(13,463)

(1,872)

Loss from continuing operations

 

(17,537)

 

(13,039)

 

(43,759)

 

(28,316)

Loss from discontinued operations, net of tax

 

(3)

(630)

(38)

(3,536)

Net loss

(17,540)

(13,669)

(43,797)

(31,852)

Preferred stock dividends

(265)

(239)

(524)

(284)

Net loss attributable to common stockholders

$

(17,805)

$

(13,908)

$

(44,321)

$

(32,136)

Loss per common share:

 

  

 

  

 

  

 

  

Continuing operations

$

(0.08)

$

(0.13)

$

(0.24)

$

(0.28)

Discontinued operations

 

-

 

(0.01)

 

-

 

(0.03)

Basic and diluted

$

(0.08)

$

(0.14)

$

(0.24)

$

(0.31)

Weighted average common shares outstanding:

 

Basic and diluted

 

210,421,237

104,119,328

187,843,663

102,131,393

See Notes to Consolidated Financial Statements.

6

Table of Contents

TERAWULF INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(In thousands, except number of shares; unaudited)

Additional

Common

Preferred Stock

Common Stock

    

Paid-in

    

Stock to

Accumulated

    

  

Number

    

Amount

    

Number

    

Amount

    

Capital

    

be Issued

Deficit

    

Total

Balances as of March 31, 2023

9,566

$

9,273

186,268,682

$

186

$

345,195

$

4,390

$

(212,731)

$

146,313

Warrant exercise

-

-

25,647,821

26

3,487

-

-

3,513

Common stock offering, net of issuance costs

-

-

3,048,196

3

6,036

-

-

6,039

Common stock to be issued, net of issuance costs

-

-

-

-

-

(4,390)

-

(4,390)

Stock-based compensation expense and issuance of stock

-

-

1,591,682

1

1,734

-

-

1,735

Tax withholdings related to net share settlements of stock-based compensation awards

-

-

(500,494)

-

(852)

-

-

(852)

Net loss

-

-

-

-

-

-

(17,540)

(17,540)

Balances as of June 30, 2023

9,566

$

9,273

216,055,887

$

216

$

355,600

$

-

$

(230,271)

$

134,818

Additional

Common

Preferred Stock

Common Stock

    

Paid-in

    

Stock to

Accumulated

    

  

Number

    

Amount

    

Number

    

Amount

    

Capital

    

be Issued

Deficit

    

Total

Balances as of December 31, 2022

9,566

$

9,273

145,492,971

$

145

$

294,810

$

$

(186,474)

$

117,754

Common stock reacquired in exchange for warrants

(12,000,000)

(12)

(12,479)

 

(12,491)

Warrant issuance in conjunction with debt modification

16,036

16,036

Warrant offerings

14,991

14,991

Warrant exercise

25,647,821

26

3,487

3,513

Common stock offering, net of issuance costs

43,812,902

44

32,304

32,348

Convertible promissory notes converted to common stock

11,762,956

12

4,693

4,705

Stock-based compensation expense and issuance of stock

1,839,731

1

2,610

2,611

Tax withholdings related to net share settlements of stock-based compensation awards

(500,494)

(852)

(852)

Net loss

(43,797)

 

(43,797)

Balances as of June 30, 2023

9,566

$

9,273

216,055,887

$

216

$

355,600

$

$

(230,271)

$

134,818

Additional

Common

Preferred Stock

Common Stock

    

Paid-in

    

Stock to

Accumulated

    

  

Number

    

Amount

    

Number

    

Amount

    

Capital

    

be Issued

Deficit

    

Total

Balances as of March 31, 2022

9,566

$

9,273

100,790,239

$

101

$

225,545

$

$

(113,911)

$

121,008

Common stock offering, net of issuance costs

4,178,960

4

27,147

27,151

Stock-based compensation expense

482

482

Preferred stock dividends

284

(239)

45

Net loss

(13,669)

(13,669)

Balances as of June 30, 2022

9,566

$

9,557

104,969,199

$

105

$

253,174

$

$

(127,819)

$

135,017

Additional

Common

Preferred Stock

Common Stock

    

Paid-in

    

Stock to

Accumulated

    

  

Number

    

Amount

    

Number

    

Amount

    

Capital

    

be Issued

Deficit

    

Total

Balances as of December 31, 2021

$

99,976,253

$

100

$

218,762

$

$

(95,683)

$

123,179

Issuance of Series A Convertible Preferred Stock, net of issuance costs

9,566

9,273

9,273

Common stock offering, net of issuance costs

4,992,946

5

33,930

33,935

Stock-based compensation expense

482

482

Preferred stock dividends

284

(284)

Net loss

(31,852)

(31,852)

Balances as of June 30, 2022

9,566

$

9,557

104,969,199

$

105

$

253,174

$

$

(127,819)

$

135,017

See Notes to Consolidated Financial Statements.

7

Table of Contents

TERAWULF INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(In thousands; unaudited)

Six Months Ended

    

June 30, 

    

2023

2022

CASH FLOWS FROM OPERATING ACTIVITIES:

  

  

Net loss

$

(43,797)

$

(31,852)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

Amortization of debt issuance costs, commitment fees and accretion of debt discount

 

8,307

4,435

 

Related party expense to be settled with respect to common stock

417

Common stock issued for interest expense

26

Stock-based compensation expense

2,610

482

Depreciation

11,861

204

Amortization of right-of-use asset

501

41

Increase in digital currency from mining and hosting services

(24,206)

(1,214)

Impairment of digital currency

1,309

563

Realized gain on sale of digital currency

(1,186)

Proceeds from sale of digital currency

28,501

Equity in net loss of investee, net of tax

 

13,463

1,872

 

Loss from discontinued operations, net of tax

 

38

3,536

 

Changes in operating assets and liabilities:

 

 

Decrease (increase) in prepaid expenses

 

1,623

(2,864)

 

Decrease in amounts due from related parties

815

Increase in other current assets

 

(1,347)

(344)

 

Decrease (increase) in other assets

 

28

(951)

 

Decrease in accounts payable

 

(3,812)

(398)

 

(Decrease) increase in other accrued liabilities

 

(2,330)

1,876

 

(Decrease) increase in other amounts due to related parties

 

(1,290)

351

 

Decrease in operating lease liability

 

(20)

(42)

 

Net cash used in operating activities from continuing operations

 

(9,304)

 

(23,490)

 

Net cash provided by (used in) operating activities from discontinued operations

 

294

(45)

 

Net cash used in operating activities

 

(9,010)

 

(23,535)

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

  

 

  

 

Investments in joint venture, including direct payments made on behalf of joint venture

 

(2,845)

(36,367)

 

Reimbursable payments for deposits on plant and equipment made on behalf of a joint venture or joint venture partner

 

(11,622)

 

Reimbursement of payments for deposits on plant and equipment made on behalf of a joint venture or joint venture partner

 

11,540

 

Purchase of and deposits on plant and equipment

 

(15,990)

(45,469)

 

Payment of contingent value rights liability

(9,598)

Net cash used in investing activities

 

(28,433)

 

(81,918)

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

  

 

  

 

Proceeds from insurance premium and property, plant and equipment financing

790

4,706

Principal payments on insurance premium and property, plant and equipment financing

(2,450)

(3,127)

Proceeds from issuance of common stock, net of issuance costs paid of $1,051 and $142

 

36,123

34,075

 

Proceeds from warrant issuances

2,500

Payments of tax withholding related to net share settlements of stock-based compensation awards

(852)

Proceeds from issuance of preferred stock

 

9,566

 

Proceeds from issuance of convertible promissory note

1,250

14,700

Net cash provided by financing activities

 

37,361

 

59,920

 

Net change in cash and cash equivalents and restricted cash

 

(82)

 

(45,533)

 

Cash and cash equivalents and restricted cash at beginning of period

 

8,323

46,455

 

Cash and cash equivalents and restricted cash at end of period

$

8,241

$

922

Cash paid during the period for:

 

  

 

  

Interest

$

11,252

$

4,946

Income taxes

$

$

See Notes to Consolidated Financial Statements.

8

Table of Contents

TERAWULF INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1 – ORGANIZATION

Organization

TeraWulf, Inc. (“TeraWulf” or the “Company”) is a digital asset technology company with a core business of digital infrastructure and energy development to enable sustainable bitcoin mining. TeraWulf’s principal operations consist of operating, developing and constructing bitcoin mining facilities in the United States that are fueled by clean, low cost and reliable power sources. The Company operates a portfolio of bitcoin mining facilities, either wholly-owned or through joint ventures, that each deploy a series of powerful computers that solve complex cryptographic algorithms, which computing power is provided to a mining pool operator to mine bitcoin and validate transactions on the bitcoin network. TeraWulf’s revenue is substantially derived from pay-per-share base amounts and transaction fee rewards earned in bitcoin from the mining pool as compensation for providing the computing power. The Company also leverages its available digital infrastructure to provide miner hosting services to third parties whereby the Company holds an option to purchase the hosted miners in the future. While the Company may choose to mine other cryptocurrencies in the future, it has no plans to do so currently.

TeraWulf’s two bitcoin mining facilities are in New York (the “Lake Mariner Facility”) and Pennsylvania (the “Nautilus Cryptomine Facility”). Mining operations commenced at the Lake Mariner Facility in March 2022 and the Company has energized buildings one and two as of June 30, 2023. The Nautilus Cryptomine Facility, which has been developed and constructed through a joint venture (see Note 11), commenced mining operations in February 2023 and achieved full energization of the Company’s allotted infrastructure capacity in April 2023. The Lake Mariner Facility is wholly-owned.

On December 13, 2021, TeraWulf Inc. completed a strategic business combination (the “Merger”) with IKONICS Corporation, a Minnesota corporation (“IKONICS”) pursuant to which, among other things, the Company effectively acquired IKONICS and became a publicly traded company on the National Association of Securities Dealers Automated Quotations (“Nasdaq”), which was the primary purpose of the business combination. IKONICS’ traditional business was the development and manufacturing of high-quality photochemical imaging systems for sale primarily to a wide range of printers and decorators of surfaces. Customers’ applications were primarily screen printing and abrasive etching. TeraWulf initially classified the IKONICS business as held for sale and discontinued operations in its consolidated financial statements. During the year ended December 31, 2022, the Company completed sales of substantially all of IKONICS’ historical net assets (see Note 3). Subsequent to the asset sales, IKONICS’ name was changed to RM 101 Inc. (“RM 101”).