TERAWULF INC

Overview

TeraWulf Inc. (“TeraWulf,” the “Company,” “our” or “we”) is a leading digital asset technology firm that specializes in digital infrastructure and sustainable energy development. Our primary focus is supporting environmentally conscious bitcoin mining operations by developing and operating state-of-the-art facilities within the United States. Our bitcoin mining facilities are powered by clean, affordable, and reliable energy sources, underscoring our commitment to sustainable practices within the cryptocurrency mining industry.

Revenue Structure

Our primary source of revenue stems from the mining of bitcoin conducted at our sustainable mining facility sites. Additionally, we occasionally generate revenue through the provision of miner hosting services to third-party entities. We exclusively engage in bitcoin mining for our own purposes and do not facilitate bitcoin transactions for external parties.

Our industrial-scale bitcoin mining operations are strategically designed to optimize efficiency. This involves continuously expanding our hash rate, which represents the computational power dedicated to supporting the bitcoin blockchain. By doing so, we enhance our chances of successfully solving cryptographic hashes, thereby generating new blocks on the bitcoin blockchain—a process commonly known as “solving a block.” Typically, a miner’s likelihood of solving a block and earning the block reward is directly linked to the proportion of the bitcoin blockchain’s total network hash rate that its hash rate represents.

Block rewards, which are fixed, undergo periodic reductions through halving events. The most recent halving occurred in May 2020, reducing the block reward from 12.5 to 6.25 bitcoin. Another halving, which is expected in April 2024, will further reduce the block reward to 3.125 bitcoin.

In addition to block rewards, bitcoin miners also earn transaction fees for confirming transactions. By validating unconfirmed transactions and incorporating them into new blocks within the blockchain, miners collect these fees. While miners are not obliged to confirm specific transactions, economic incentives drive them to validate legitimate transactions to earn fees. Historically, miners have accepted relatively low transaction fees, but these fees can vary, making future fee predictions challenging.

Presently, we liquidate the bitcoin mined as part of our routine treasury management processes to acquire U.S. dollars for operational, capital, or other corporate expenses. Our bitcoin holdings are securely stored in a cold storage wallet managed by our custodian, NYDIG Trust Company LLC, a duly chartered New York limited liability trust company (“NYDIG”).

For our bitcoin mining operations, we utilize a third-party mining pool operated by Foundry Digital LLC (“Foundry”). At the close of each day, the bitcoin we have earned is transferred by Foundry to our custodial wallet address at NYDIG. We abstain from engaging in the direct sale of our bitcoin on any exchange. Instead, we rely on NYDIG to handle the sale of our mined bitcoin in accordance with our execution agreement with NYDIG, as detailed further in the “Risk Factors” section herein. Our bitcoin sales occur on a daily, weekly, and monthly basis.

Bitcoin and Blockchain

Bitcoin, introduced in 2008, fundamentally transformed the landscape of digital currency by providing a decentralized mechanism for exchanging and preserving value. It operates on a consensus-based network, utilizing a public ledger termed as the "blockchain" to meticulously record every bitcoin transaction. TeraWulf's fully integrated bitcoin mining facilities capitalize on zero-carbon energy sources, primarily sourced from baseload nuclear and hydroelectric power.

Bitcoin mining involves validating transactions through a proof-of-work consensus method, where miners solve complex mathematical problems to add transactions to the blockchain. TeraWulf invests in computation networks (mining rigs) equipped with application-specific integrated circuit (“ASIC”) chips and secures power to validate transactions and maintain the bitcoin ledger. Factors such as computing capacity, electricity costs, and location play pivotal roles in mining operations.

Our Facilities

TeraWulf currently conducts its bitcoin mining operations at two established data centers: the Lake Mariner facility in upstate New York (the “Lake Mariner Facility”) and the jointly owned Nautilus cryptomine facility located in central Pennsylvania (the “Nautilus Cryptomine Facility”). The Company has a total operational capacity of 210 megawatts (“MW”) and is currently constructing an additional 35 MW at its Lake Mariner Facility, which is expected to be operational in mid-2024.

As of December 31, 2023, 95% of TeraWulf’s mining operations were fueled by zero-carbon energy, reflecting our dedication to sustainability. The Company’s ongoing objective is to achieve complete reliance on zero-carbon energy sources.

Located at a site adjacent to the now decommissioned coal-fired power plant in Barker, New York, the Lake Mariner Facility began sustainably mining bitcoin in March 2022. As of December 31, 2023, the Lake Mariner Facility is operating approximately 160 MW of bitcoin mining capacity at the site. The Company has an agreement in place with the Power Authority of the State of New York (“NYPA”) for 90 MW of high load factor power to support its bitcoin mining operations (the “PPA”). The PPA was executed on February 12, 2022 and has a term of ten years from the date of commencement of NYPA’s power delivery. The Lake Mariner Facility is situated on an expansive site on the shores of Lake Ontario and has the ability to scale up to 500 MW of capacity.

Located in Berwick, Pennsylvania, Nautilus Cryptomine LLC (“Nautilus”) is a joint venture between TeraWulf and a subsidiary of Talen Energy Corporation (“Talen”). Nautilus currently owns a 200 MW bitcoin mining facility located adjacent to the 2.5 gigawatt nuclear-powered Susquehanna Station. The Nautilus Cryptomine Facility represents the first bitcoin mining facility site that is powered by 100% “behind the meter” zero-carbon nuclear energy, which is contracted at a fixed rate of 2.0 cents per kilowatt-hour for a term of five years with two successive three-year renewal options. Under the Nautilus joint venture agreement, the Company holds a 25% equity interest in Nautilus and Talen holds a 75% equity interest, each subject to adjustment based on relative capital contributions. TeraWulf began mining bitcoin at the Nautilus Cryptomine Facility in the first quarter of 2023 and, as of December 31, 2023, had 50 MW of operational bitcoin mining capacity at the Nautilus Cryptomine Facility. On February 28, 2024, the Company exercised its option to increase its energy requirement at the Nautilus Cryptomine Facility by an incremental 50 MW (for a total of 100 MW attributable to TeraWulf).

Environmental Considerations

Bitcoin mining, a process reliant on energy consumption to power computers for verifying and recording cryptocurrency transactions, often raises concerns regarding its environmental impact. Traditional mining operations fueled by fossil fuels contribute to carbon emissions, exacerbating climate change. In contrast, TeraWulf prioritizes sustainable practices, sourcing energy from non-fossil fuel and clean sources such as hydroelectric and nuclear power, which emit no carbon.

Additionally, our Lake Mariner Facility serves as a valuable tool for the grid operator to balance load with increasing contributions of renewable, and by definition intermittent, energy sources. In 2023, the Company participated in three ancillary demand response programs in New York, including the Commercial System Relief Program (CSRP), Demand Side Ancillary Services Program (DSASP), and Special Case Resource (SCR) program.

As of December 31, 2023, 95% of the energy utilized in our mining facilities came from clean sources, primarily hydro and nuclear power, and we are driving to achieve 100% zero-carbon powered operations. Below is a breakdown detailing the energy sources utilized to operate our bitcoin mining facilities for the year ended December 31, 2023:

(1) Source: NYISO’s 2021-2040 System & Resource Outlook.

(2) Zero carbon usage includes hydro, nuclear, solar and wind power resources.

(3) Carbon usage includes coal and gas power resources.

Our Strengths

Vertical Integration

TeraWulf acknowledges the critical significance of owning its bitcoin mining facility sites for operational efficacy, leading to enhanced efficiency and reduced costs. Energy infrastructure assets are inherently complex, requiring specialized equipment, intricate commercial relationships, and engagement with diverse stakeholder groups. Through site ownership, TeraWulf adopts a comprehensive approach, ensuring projects are executed with due regard for safety, timeliness, and reliability. Moreover, vertical integration empowers TeraWulf to uphold environmental responsibility and foster positive community relations. Ownership facilitates active management of site development, project supply chains, and commercial agreements, thereby promoting transparency and accountability for employees, investors, and local communities.

Environmentally Clean

TeraWulf is steadfast in its commitment to spearheading sustainable bitcoin mining practices. Presently, 95% of the energy powering its two mining facilities is derived from zero-carbon sources, with a targeted transition to 100% zero-carbon energy usage. The Nautilus Cryptomine Facility relies exclusively on 100% zero-carbon nuclear energy, while the Lake Mariner Facility draws power from Western New York, where over 93% of energy originates from zero-carbon resources, primarily hydro and nuclear. Recognizing the environmental ramifications of bitcoin mining, TeraWulf regards its access to cost-effective, zero-carbon energy as a significant and enduring competitive advantage relative to industry peers.

Low-Cost Energy Supply

TeraWulf anticipates maintaining one of the industry’s lowest electricity costs, estimated at approximately $0.035 per kilowatt-hour. The Nautilus Cryptomine Facility secures power at a fixed rate of $0.02 per kilowatt-hour for a five-year term, contributing to cost stability. Historically, at the Lake Mariner Facility, the cost of market power has averaged approximately $0.040 per kilowatt-hour. Over the year ended December 31, 2023, the average aggregate power price at the Lake Mariner Facility and the Nautilus Cryptomine Facility was $0.032 per kilowatt-hour. Positioned at structurally congested points within their respective markets, these facilities offer opportunities for power optimization and provision of ancillary services to the electrical distribution grid.

Scale Rapidly with Proprietary Expansion Pipeline

TeraWulf's growth trajectory is underpinned by access to the latest generation miners, competitive power arrangements, and profound expertise in energy infrastructure and operations. The Company’s existing facilities retain significant expansion capacity, with the Lake Mariner Facility capable of scaling up to 500 MW. Furthermore, TeraWulf plans to expand mining capacity at the Nautilus Cryptomine Facility by another 50 MW in 2025, solidifying its position for scalable growth.

Experienced Team

TeraWulf has an experienced executive management team with many years of experience designing, developing and operating energy infrastructure. Additionally, TeraWulf benefits from the support of Beowulf Electricity & Data Inc. (“Beowulf E&D”), overseen by TeraWulf’s CEO, ensuring the efficient development and operation of its mining facilities. With over 30 years of collective experience in overseeing large-scale energy facilities, the Beowulf E&D team brings invaluable expertise to TeraWulf's operations.

Competition

We classify our primary competitors as other publicly traded bitcoin miners due to the availability of information about their operations. Consequently, numerous public companies, both traded in the U.S. and internationally, could be regarded as competitors of TeraWulf. However, we believe that none of these entities, including those listed below, can match our commitment to environmentally sustainable practices and favorable unit economics.

•Marathon Digital Holdings, Inc. (MARA)

•RIOT Platforms Inc. (RIOT)

•Cleanspark Inc. (CLSK)

•Hut 8 Mining Corp. (HUT)

•Hive Blockchain Technologies Ltd. (HIVE)

•Bitfarms LTD . (BITF)

•Iris Energy Limited (IREN)

•Cipher Mining Inc. (CIFR)

•Bit Digital Inc. (BTBT)

With the fluctuation of bitcoin prices, we acknowledge the potential for additional miners to enter the market during periods of price increases. Conversely, during periods of price decline, less efficient miners may find it economically challenging to remain operational. We are confident TeraWulf maintains a competitive advantage by offering some of the most cost-effective unit economics in comparison to other publicly traded bitcoin miners.

Suppliers

We specialize in high-efficiency bitcoin mining through the utilization of ASICs. These dedicated computing machines, commonly referred to as mining rigs, are predominantly produced by a select few manufacturers. The majority of the machines purchased and deployed by TeraWulf were manufactured by Bitmain, recognized as one of the foremost leaders in the production of bitcoin mining rigs worldwide.

Research and Development

In 2023, the Company established WULF Compute as its internal innovation center, with a specific focus on the research, development, and deployment of its expansive and scalable digital infrastructure. Subsequent to a successful pilot phase involving a compact graphics processing unit (GPU) system designed to bolster generative AI and large language model applications, the Company made an initial commitment by allocating a 2 MW power block at the Lake Mariner Facility. This allocation is intended to support a broader high-performance computing (HPC) initiative, strategically aimed at diversifying the Company’s revenue streams.

Regulation

Bitcoin mining currently operates within a predominantly unregulated environment, both at the state and federal levels. We anticipate a heightened focus on regulatory oversight in the near future, and the potential ramifications of forthcoming regulations on our operations remain uncertain.

TeraWulf conscientiously monitors public policy and relevant legislation across all jurisdictions in which we operate. Our primary objective is to provide policymakers with informed insights and advocate for measures that promote the welfare of our employees and align with the overarching goals of the Company. Additionally, we strategically engage with carefully selected industry associations to collaboratively advance our public policy and business objectives.

Intellectual Property

TeraWulf utilizes specific hardware and software tailored for its bitcoin mining operations. Given the prevalence of open-source technology in the blockchain and cryptocurrency sectors, certain source code and software components may be subject to open-source licenses. In such cases, we strictly adhere to the terms outlined in the respective license agreements.

At present, TeraWulf neither possesses nor intends to pursue patents for its existing or planned blockchain and cryptocurrency operations. Instead, we rely on safeguarding our interests through trade secrets, trademarks, service marks, trade names, copyrights, and other intellectual property rights. Additionally, we anticipate procuring licenses for utilizing intellectual property rights owned and managed by third parties. In the future, TeraWulf may develop proprietary software applications tailored for enhancing our blockchain and cryptocurrency operations.

Human Capital Management

As of the filing date, TeraWulf has 10 full-time employees and officers. We recognize the pivotal role played by our workforce in the Company’s success and prioritize their well-being and dedication.

To support our employees, TeraWulf offers a comprehensive benefits program tailored to their needs. This program encompasses a 401(k) retirement plan, flexible work hours, ample leave policies, and initiatives aimed at promoting mental and physical well-being. In accordance with our commitment to employee satisfaction, we conduct annual evaluations of our benefits offerings to ensure they remain aligned with the evolving needs of our workforce. Feedback from employees is actively sought to facilitate continuous improvement of our support systems.

Furthermore, each member of the TeraWulf team holds ownership in the Company through equity awards granted under our 2021 Omnibus Incentive Plan (the “Plan”). The primary objective of the Plan is to attract, retain, and motivate employees, executive officers, and directors through the provision of stock-based compensation awards.

Diversity, Equity and Inclusion

TeraWulf is dedicated to cultivating a diverse and inclusive workforce. We prioritize hiring and recruitment based on merit and qualifications, recognizing the inherent value of varied perspectives and experiences. As the Company expands, our commitment to diversity remains integral across all aspects of our operations.

The Company’s Diversity Policy serves as a fundamental framework, outlining TeraWulf’s commitment to fostering an inclusive environment where all individuals are treated with respect and esteem. We believe that embracing a range of perspectives not only enhances our organizational culture but also bolsters our capacity to respond to change and stimulate innovation.

TeraWulf has adopted a thorough strategy for information security and data governance, incorporating physical, procedural, and technical safeguards. These measures aim to safeguard sensitive information and protect our mining operations against unauthorized access. The Company has established a cybersecurity risk management program detailed in our Information Security and Cybersecurity Policy. This policy is designed to uphold the confidentiality, integrity, and availability of our critical systems and information.

As of the current filing date, we have not encountered significant impacts from recognized cybersecurity threats on our operations, business strategy, financial condition, or results of operations.

Insurance

We have property insurance coverage for our bitcoin miners with a total limit representing their estimated replacement cost. The total replacement cost values are evaluated on an on-going basis for the miners. Our miner insurance coverage also includes limited business interruption coverage for which we are continually evaluating the global market for alternative solutions. Currently, business interruption insurance for bitcoin mining companies is extremely limited. We also maintain replacement cost all-risk coverage (excluding mechanical breakdown) property insurance for our facilities and equipment at our Lake Mariner Facility with a limit of $30 million per occurrence. Furthermore, we maintain a separate cyber liability insurance policy with an aggregate limit of $5 million. We engage our insurance broker annually to solicit underwriters to provide proposals to renew our current coverages or update our policies to meet our needs.

Corporate Information

TeraWulf was incorporated under the laws of the State of Delaware in February 2021 and commenced trading on Nasdaq under the symbol “WULF” on December 14, 2021. Our principal executive offices are located at 9 Federal Street, Easton, Maryland 21601. Our telephone number is (410) 770-9500 and our website address is www.terawulf.com. Please note that the contents of, or information accessible through, our website are not part of this Annual Report on Form 10-K (the “Annual Report”).

Available Information

We maintain a link to investor relations information on our website, www.terawulf.com, where we make available, free of charge, our SEC filings, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. All SEC filings are also available at the SEC’s website at www.sec.gov. Our website and the information contained on or connected to our website are not incorporated by reference herein, and our web address is included as an inactive textual reference only.

Forward-Looking Statements

This Annual 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 Annual 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 “Use of Proceeds.” 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 TeraWulf’s 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 data centers, 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 TeraWulf’s services;

•currency exchange rate fluctuations; and

•other risks, uncertainties and factors included or incorporated by reference in this Annual Report, including those set forth under “Risk Factors” in this this Annual Report.

These forward-looking statements reflect our views with respect to future events as of the date of this Annual 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 Annual 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 Annual Report. We anticipate that subsequent events and developments will cause our views to change. You should read this Annual Report completely and with 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.

Below is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below and should be carefully considered, together with other information included in this Annual Report. See “Item 1A— Risk Factors.”

Risks Related to Our Business

•If we fail to increase our hash rate, we may be unable to compete, and our results of operations could suffer.

•We expect the cost of acquiring new miners to continue to be affected by the ongoing global supply chain crisis.

•We may not be able to timely complete our future strategic growth initiatives or within our anticipated cost estimates, if at all.

•We may be unable to access sufficient additional capital for future strategic growth initiatives.

•Expansion of our Lake Mariner Facility or the Nautilus Cryptomine Facility potentially exposes us to additional risks.

•Since the operation and expansion of the Nautilus Cryptomine Facility is subject to the terms of a joint venture agreement, TeraWulf may have less control over strategic decisions.

•If we are unable to comply with the covenants or restrictions contained in our Loan, Guaranty and Security Agreement (the “LGSA”), the lenders could declare all amounts outstanding under the LGSA to be due and payable and foreclose on their collateral, which could materially adversely affect our financial condition and operations.

•We have financed our strategic growth primarily by issuing new shares of our common stock in public offerings, which dilutes the ownership interests of our current stockholders, and which may adversely affect the market price of our securities.

•We have a history of operating losses, and we may report additional operating losses in the future.

•The lack of regulation of digital asset exchanges which bitcoin, and other cryptocurrencies, are traded on may expose us to the effects of negative publicity resulting from fraudulent actors in the cryptocurrency space and can adversely affect an investment in the Company.

Risks Related to the Price of Bitcoin

•Our ability to achieve profitability is largely dependent on the price of bitcoin, which has historically been volatile.

•Bitcoin market exposure to financially troubled cryptocurrency-related companies may impact our reputation, the price of bitcoin and the profitability of our bitcoin mining operations.

•Bitcoin is subject to halving, and our bitcoin mining operations may generate less revenue as a result.

•Transaction fees may decrease demand for bitcoin and prevent expansion.

•Bitcoin faces significant scaling obstacles that can lead to high fees or slow transaction settlement times.

Risks Related to our Operations

•To remain competitive in our industry, we seek to grow our hash rate to match the growing network hash rate and increasing network difficulty of the bitcoin blockchain, and if we are unable to grow our hash rate at pace with the global network hash rate, our chance of earning bitcoin from our mining operations would decline.

•Because our miners are designed specifically to mine bitcoin and may not be readily adaptable to other uses, a sustained decline in bitcoin’s value could adversely affect our business and results of operations.

•Our reliance on third-party miners may subject our operations to an increased risk of design flaws.

•Our use of a third-party mining pool exposes us to certain risks.

•We may not be able to realize the benefits of forks.

•Cyber-attacks, data breaches or malware may disrupt our operations and trigger significant liability for us, which could harm our operating results and financial condition, and damage our reputation or otherwise materially harm our business.

•Incorrect or fraudulent bitcoin transactions may be irreversible and we could lose access to our bitcoin.

•Our business could be harmed by prolonged power and internet outages, shortages, or capacity constraints.

•Digital assets held by the Company are not subject to FDIC or SIPC protections.

Risks Related to Governmental Regulation and Enforcement

•Changing environmental regulation and public energy policy may expose our business to new risks.

•Regulatory changes or actions may alter the nature of an investment in us or restrict the use of cryptocurrencies in a manner that adversely affects our business, prospects, or operations.

•Our interactions with a blockchain may expose us to specially designated nationals (“SDN”) or blocked persons and new legislation or regulation could adversely impact our business or the market for cryptocurrencies.

•Bitcoin and bitcoin mining, as well as cryptocurrencies generally, may be made illegal in certain jurisdictions, including the ones we operate in, which could adversely affect our business prospects and operations.

Risks Related to Ownership of our Common Stock

•The trading price of shares of our common stock has been subject to volatility.

•We have, primarily, financed our strategic growth through our at-the-market (“ATM”) offerings and issuances of our common stock. Holders of our common stock may experience dilution as a result of such issuances.

•We previously identified material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, any of which may result in material misstatements of our financial statements or cause us to fail to meet our periodic reporting obligations.