TERAWULF INC

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 data center operations. TeraWulf’s principal business consists of developing and operating purpose-built digital infrastructure currently supporting bitcoin mining loads in the United States that are fueled by predominantly clean, low cost and reliable power sources. The Company generates revenue in the form of bitcoin by providing hash computation services to a mining pool operator to mine bitcoin and validate transactions on the global bitcoin network using application-specific integrated circuit computers (“ASIC” or “miners”) owned by the Company. The earned bitcoin are routinely sold for U.S. dollars. In 2024, 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 intended to support a broader high-performance computing (“HPC”) initiative, strategically aimed at diversifying the Company’s revenue streams. Given the increasing demand from high density compute loads, the Company's assets are well positioned to supply energy infrastructure targeting low cost, predominantly zero-carbon power. While the Company may choose to mine other digital currencies, it has no plans to do so currently.

As of September 30, 2024, TeraWulf owned and operated, either independently or through a joint venture, two bitcoin mining facilities: the Lake Mariner Facility located in upstate New York (the “Lake Mariner Facility”) and the Nautilus Cryptomine Facility located in central Pennsylvania (the “Nautilus Cryptomine Facility”). The Company’s wholly-owned Lake Mariner Facility began mining bitcoin in March 2022 and, as of September 30, 2024, the Company has energized four buildings and infrastructure comprising approximately 195 MW of capacity. The Nautilus Cryptomine Facility, which has been developed and constructed through a joint venture (see Note 11), commenced mining operations in February 2023 and, in April 2023, achieved full energization of the Company’s allotted infrastructure capacity of 50 MW. On October 2, 2024, the Company sold its entire 25% equity interest in the joint venture which owns the Nautilus Cryptomine Facility.

On December 13, 2021, TeraWulf Inc. completed a strategic business combination (the “Merger”) with IKONICS Corporation (“IKONICS”), a Minnesota corporation, 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. As of the date of the Merger, TeraWulf classified the IKONICS business as held for sale and discontinued operations in its condensed consolidated financial statements. During the year ended December 31, 2023, 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”).

NOTE 2 –SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. In the opinion of the Company, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments, consisting of only normal recurring adjustments, considered necessary for a fair statement of such interim results. All intercompany balances and transactions have been eliminated.

The results for the unaudited interim condensed consolidated statements of operations are not necessarily indicative of results to be expected for the year ending December 31, 2024 or for any future interim period. The unaudited interim condensed consolidated financial statements do not include all the information and notes required by U.S. GAAP for complete presentation of annual financial statements. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Use of Estimates in the Financial Statements

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used for (but are not limited to) such items as the fair values of contingent consideration issued in a business combination, the establishment of useful lives for property, plant and equipment and intangible assets, the fair value of equity securities or warrants to purchase common stock issued individually or as a component of a debt or equity offering, the fair value of changes to the conversion terms of embedded conversion features, the fair value and requisite service periods of stock-based compensation, the fair value of assets received in nonmonetary transactions, the establishment of right-of-use assets and lease liabilities that arise from leasing arrangements, the timing of commencement of capitalization for plant and equipment, impairment of indefinite-lived intangible assets, impairment of long-lived assets, recoverability of deferred tax assets, amortization of deferred issuance costs and debt discount, and the recording of various accruals. These estimates are made after considering past and current events and assumptions about future events. Actual results could differ from those estimates.

Significant Accounting Policies

Except for the updates noted below, see the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 for a detailed discussion of the Company’s significant accounting policies.

Revenue Recognition

Mining Pool

The Company has entered into an arrangement with a cryptocurrency mining pool (the Foundry USA Pool) to perform hash computation (i.e. hashrate) for the mining pool in exchange for consideration. Providing hash computation services to a mining pool is an output of the Company’s ordinary activities. The provision of such hash computation services is the sole performance obligation. The mining pool arrangement is terminable at any time without substantial penalty by Foundry USA Pool and may be terminated without substantial penalty by the Company upon providing one Contract Day’s, as defined, prior written notice. The Company’s enforceable right to compensation only begins when and continues while the Company provides hash computation services to its customer, the mining pool operator. Accordingly, the contract term with Foundry USA Pool is deemed to be less than 24 hours and to continuously renew throughout the day. Additionally, the Company concluded that the mining pool operator’s (i.e., the customer’s) renewal right is not a material right because the renewal rights do not include any discounts; that is, the terms, conditions, and compensation amounts are at the then-current market rates.

There is no significant financing component in these transactions.

The mining pool applies the Full Pay Per Share (“FPPS”) payout model. Under the FPPS model, in exchange for providing hash computation services to the pool, the Company is entitled to pay-per-share base amount and transaction fee reward compensation, calculated on a daily basis, at an amount that approximates the total bitcoin that could have been mined and transaction fees that could have been awarded using the Company’s hash computation services, based upon the then current blockchain difficulty. Under this model, the Company is entitled to compensation, payable in bitcoin, regardless of whether the pool operator successfully records a block to the bitcoin blockchain.

The transaction consideration the Company receives, if any, is noncash consideration and is all variable. Because digital currency is considered noncash consideration, fair value of the digital currency award received would generally be determined using the quoted price of the related digital currency in the Company’s principal market at the time of contract inception. The Company has adopted an accounting policy to aggregate individual contracts with individual terms less than 24-hours within each intraday period and apply a consistent valuation point, the start of day Coordinated Universal Time (00:00:00 UTC), to value the related noncash consideration. Revenue is recognized when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur, which is the same day that control of the contracted service transfers to the mining pool, which is the same day as the contract inception. After every 24-hour contract term, the mining pool transfers the digital currency consideration to our designated digital currency wallet.

Consideration payable to the customer in the form of a pool operator fee, which is incurred only to the extent that the Company has generated FPPS consideration, is deducted from the bitcoin the Company receives and is recorded as contra-revenue, as it does not represent a payment for a distinct good or service. During the three and nine months ended September 30, 2024, revenue from mining was $27.1 million and $104.3 million, respectively, as compared to $17.2 million and $40.1 million during the three and nine months ended September 30, 2023, respectively

Data Center Hosting

The Company hadone data center hosting contract which was a service contract with a single performance obligation and for which the quoted price of bitcoin in the Company’s principal market at the time of contract inception was approximately $38,000. The service the Company provided primarily included hosting the customer’s miners in a physically secure data center with electrical power, internet connectivity, ambient air cooling and available maintenance resources. The Company’s data center hosting contract expired in February 2024. The Company recorded miner hosting revenue of $0 and $0.8 million during the three and nine months ended September 30, 2024, respectively, and $1.8 million and $5.8 million during the three and nine months ended September 30, 2023, respectively.

Power Curtailment Credits

Proceeds related to participation in demand response programs are recorded as a reduction in cost of revenue in the condensed consolidated statements of operations in the period corresponding to the underlying associated demand response program period. The Company recorded demand response program amounts of approximately $4.1 million and $7.3 million during the three and nine months ended September 30, 2024, respectively, and $1.7 million and $2.5 million during the three and nine months ended September 30, 2023, respectively.

Cash and Cash Equivalents

Highly liquid instruments with an original maturity of three months or less are classified as cash equivalents. As of September 30, 2024 and December 31, 2023, the Company had cash and cash equivalents of $23.9 million and $54.4 million, respectively.

The Company currently maintains cash and cash equivalent balances primarily at two financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”). The Company’s accounts at these institutions are insured, up to $250,000, by the FDIC. As of September 30, 2024, the Company’s bank balance that exceeded the FDIC insurance limit was $10.7 million. To reduce its risk associated with the failure of such financial institutions, the Company evaluates at least annually the rating of the financial institutions in which it holds deposits.

Supplemental Cash Flow Information

The following table shows supplemental cash flow information (in thousands):

Digital currency

Digital currency is comprised of bitcoin earned as noncash consideration in exchange for providing hash computation services to a mining pool as well as in exchange for data center hosting services which are accounted for in connection with the Company’s revenue recognition policy disclosed above. From time to time, the Company also receives bitcoin as distributions-in-kind from its joint venture. Digital currency is included in current assets in the condensed consolidated balance sheets due to the Company’s ability to sell it in a highly liquid marketplace and because the Company reasonably expects to liquidate its digital currency to support operations within the next twelve months.

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-08, Intangible – Goodwill and Other – Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”). ASU 2023-08 requires entities with certain crypto assets to subsequently measure such assets at fair value, with changes in fair value recorded in net income in each reporting period. Crypto assets that meet all the following criteria are within the scope of the Accounting Standards Codification (“ASC”) 350-60:

•meet the definition of intangible assets as defined in the Codification

•do not provide the asset holder with enforceable rights to or claims on underlying goods, services, or other assets

•are created or reside on a distributed ledger based on blockchain or similar technology

•are secured through cryptography

•are fungible, and

•are not created or issued by the reporting entity or its related parties. In addition, entities are required to provide additional disclosures about the holdings of certain crypto assets.

ASU 2023-08 is effective for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years. Early adoption is permitted and the Company has elected to early adopt ASU 2023-08 effective January 1, 2024, resulting in a cumulative-effect change of $37,000 to increase the balance of digital currency with a corresponding decrease in the opening balance of accumulated deficit in the condensed consolidated balance sheet as of January 1, 2024.

As a result of adopting ASU 2023-08 on January 1, 2024, the Company measures digital currency at fair value as of each reporting period in accordance with ASC 820, Fair Value Measurement (“ASC 820”), based on quoted prices on the active trading platform that the Company normally transacts and has determined is its principal market for bitcoin (Level 1 inputs), based on all information that is reasonably available. Since bitcoin is traded on a 24-hour period, the Company utilizes the price as of midnight UTC time, which aligns with the Company's revenue recognition policy. Gains and losses from the remeasurement of digital currency are included within gain on fair value of digital currency, net in the condensed consolidated statements of operations. The Company sells bitcoin and gains and losses from such transactions, measured as the difference between the cash proceeds and the cost basis of bitcoin as determined on a first-in-first-out basis, are also included within gain on fair value of digital currency, net in the condensed consolidated statements of operations. The Company recorded gain on fair value of digital currency, net of $1.0 million and $1.6 million during the three and nine months ended September 30, 2024, respectively.

Prior to the adoption of ASU 2023-08, the Company accounted for digital currency as intangible assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently if events or changes in circumstances indicate it is more likely than not that the asset is impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. The Company elected to bypass the optional qualitative impairment assessment and to track its bitcoin activity daily for impairment assessment purposes. The Company determined the fair value of its bitcoin on a nonrecurring basis in accordance with ASC 820 based on quoted prices on the active trading platform that the Company normally transacts and has determined is its principal market for bitcoin (Level 1 inputs), based on all information that was reasonably available. The Company performed an analysis each day to identify whether events or changes in circumstances, principally decreases in the quoted price of bitcoin on the active trading platform, indicated that it was more likely than not that its bitcoin were impaired. For impairment testing purposes, the lowest intraday trading price of bitcoin was identified at the single bitcoin level (one bitcoin). The excess, if any, of the carrying amount of bitcoin and the lowest daily trading price of bitcoin represented a recognized impairment loss. To the extent an impairment loss was recognized, the loss established the new cost basis of the asset. Subsequent reversal of previously recorded impairment losses was prohibited. The Company recorded impairment of digital currency of $0.9 million and $2.2 million during the three and nine months ended September 30, 2023, respectively.

Digital currency received as noncash consideration through the Company’s mining activities are included as an adjustment to reconcile net loss to cash provided by (used in) operating activities in the condensed consolidated statements of cash flows. The receipt of digital currency as distributions-in-kind from equity investees are included within supplemental disclosures of noncash investing activities. Prior to the repayment of the Term Loans in July 2024 (see Note 9) proceeds from sales of digital currency were included within cash flows from operating activities in the condensed consolidated statements of cash flows as bitcoin was converted nearly immediately into cash during that period. Subsequently, proceeds from sales of digital currency are included within cash flows from investing activities in the condensed consolidated statements of cash flows as bitcoin has not been converted nearly immediately into cash.

Concentrations

The Company and its joint venture have primarily contracted withtwo suppliers for the provision of bitcoin miners andone mining pool operator. The Company does not believe that these counterparties represent a significant performance risk. Revenue did not exceed 10% for any one data center hosting customer for the three and nine months ended September 30, 2024. Revenue from one data center hosting customer represented 9.5% and 12.7% of consolidated revenue for the three and nine months ended September 30, 2023, respectively. During the three and nine months ended September 30, 2024 and 2023, the Company only operated bitcoin mining facilities; however, the Company has targeted an initial commitment for an allocation of a 2.5 MW power block at the Lake Mariner Facility intended to support a broader HPC initiative and is also constructing a 20 MW colocation project at the Lake Mariner Facility capable of supporting 16 MW of critical IT load with liquid cooling and redundancy requirements typical of a Tier 3 data center. While the Company may choose to mine other digital currencies, it has no plans to do so currently. If the market value of bitcoin declines significantly, the consolidated financial condition and results of operations of the Company may be adversely affected.

Other Income

Other income consists primarily of interest income on bank deposits. For the three and nine months ended September 30, 2023, other income also included $0 and $39,000 related to a disgorgement of short-swing profits arising from trades by a non-management insider under Section 16(b) of the Securities and Exchange Act of 1934.

Loss per Share

The Company computes earnings (loss) per share using the two-class method required for participating securities. The two-class method requires income available to common stockholders for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

Basic loss per share of common stock is computed by dividing the Company’s net loss attributed to common stockholders (adjusted for preferred stock dividends declared or accumulated) by the weighted average number of shares of common stock outstanding during the period. Convertible preferred stock, which are participating securities because they share in a pro rata basis any dividends declared on common stock but because they do not have the obligation to share in the loss of the Company, are excluded from the calculation of basic net loss per share. Diluted loss per share reflects the effect on weighted average shares outstanding of the number of additional shares outstanding if potentially dilutive instruments, if any, were converted into common stock using the treasury stock method or as-converted method as appropriate. The computation of diluted loss per share does not include dilutive instruments in the weighted average shares outstanding, as they would be anti-dilutive. The Company’s dilutive instruments or participating securities as of September 30, 2024 and December 31, 2023 include convertible preferred stock, common stock warrants and restricted stock units (“RSUs”) issued for services. If the entire liquidation preference of the Convertible Preferred Stock (as defined in Note 13) was converted at its conversion price as of September 30, 2024, the Company would issue approximately 1.2 million shares of Common Stock. As of September 30, 2024, Common Stock warrants outstanding were 17,585,781 with a weighted average strike price of $1.39 and total RSUs outstanding were 4,240,313.

Segment Reporting

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision–making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision–making group (“CODM”) is composed of the chief executive officer, chief operating officer and chief strategy officer. As of September 30, 2024, the Company hasone operating segment, as defined, which is the Digital Currency Mining segment. The Company’s mining operations are located in the United States, and the Company has employees only in the United States and views its mining operations asone operating segment as the CODM reviews financial information on a consolidated basis in making decisions regarding resource allocations and assessing performance.

Recently Issued Accounting Pronouncements

The Company continually assesses new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequences of such change to its Condensed Consolidated Financial Statements and assures that there are proper controls in place to ascertain that the Company’s Condensed Consolidated Financial Statements properly reflect the change.

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 is intended to enhance reportable segment disclosures by requiring disclosures of significant segment expenses regularly provided to the chief operating decision maker ("CODM”), requiring disclosure of the title and position of the CODM and explanation of how the reported measures of segment profit and loss are used by the CODM in assessing segment performance and allocation of resources. ASU 2023-07 is effective for fiscal years beginning after December 31, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is evaluating the impact the updated guidance will have on its disclosures.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 expands existing income tax disclosures for rate reconciliations by requiring disclosure of certain specific categories and additional reconciling items that meet quantitative thresholds and expands disclosures for income taxes paid by requiring disaggregation by certain jurisdictions. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The Company is evaluating the impact the updated guidance will have on its disclosures.

NOTE 3 –BUSINESS COMBINATION, ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

On December 13, 2021, the Company completed the Merger with RM 101 (formerly known as IKONICS Corporation) pursuant to which, among other things, the Company effectively acquired RM 101 and became a publicly traded company on the Nasdaq. The consideration in the Merger included, among other things, contractual contingent value rights (“CVR”) per a Contingent Value Rights Agreement (the “CVR Agreement”), pursuant to which each shareholder of RM 101 as of immediately prior to the Merger, receivedone non-transferable CVR for each outstanding share of common stock of RM 101 then held. The holders of the CVRs were entitled to receive 95% of the Net Proceeds (as defined in the CVR Agreement), if any, from the sale, transfer, disposition, spin-off, or license of all or any part of the pre-merger business of RM 101.

In August 2022, RM 101 sold certain property for net sales proceeds of $13.2 million with certain indemnifications that expired in February and August 2023. During the nine months ended September 30, 2023, the Company made payments of the CVR liability related to proceeds from sales of net assets held for sale of $9.6 million. Additionally, the Company made payments of the CVR liability of $1.4 million in November 2023 such that as of December 31, 2023, the Company had made all of the aggregate required distributions of $11.0 million of proceeds to the CVR Holders and the CVR Agreement was deemed terminated.

Upon acquisition, the RM 101 business met the assets held-for-sale and discontinued operations criteria and is reflected as discontinued operations held for sale in these condensed consolidated financial statements. The loss from discontinued operations, net of tax presented in the condensed consolidated statements of operations included immaterial selling, general and administrative, and was $68,000 and $106,000 for the three and nine months ended September 30, 2023, respectively. The Company reportedno loss from discontinued operations, net of tax for the three and nine months ended September 30, 2024. Total cash flows provided by operating activities from discontinued operations was $0 and $0.3 million in the condensed consolidated statements of cash flows for the nine months ended September 30, 2024 and 2023, respectively.

NOTE 4 –FAIR VALUE MEASUREMENTS

The following table presents the Company’s financial instruments measured at fair value on a recurring basis and their level within the fair value hierarchy as of September 30, 2024 (in thousands):

The carrying values of cash and cash equivalents, prepaid expenses, other receivables, other current assets, accounts payable, accrued construction liabilities, other accrued liabilities and other amounts due to related parties are considered to be representative of their respective fair values principally due to their short-term maturities. There were no additional material non-recurring fair value measurements as of September 30, 2024 and December 31, 2023, except for (i) the calculation of fair value of Common Stock warrants issued in connection with amendments to the Company’s long-term debt agreement (see Note 9), in connection with the issuance of Common Stock (see Note 14), in connection with a Common Stock exchange agreement and on a standalone basis, (ii) the change in fair value of embedded derivatives in certain of the Company’s convertible promissory notes (see Note 14) and (iii) the calculation of fair value of nonmonetary assets distributed from the Company’s joint venture (see Note 11). The Company utilized a Black-Scholes option pricing model to value its Common Stock warrants issued except as discussed for warrants issued in connection with the Term Loans (as defined in Note 9) and to value the change in fair value of embedded derivatives in certain of the Company’s convertible promissory notes.

NOTE 5 –BITCOIN

The following table presents information about the Company’s bitcoin holdings for the nine months ended September 30, 2024 and September 30, 2023, respectively (in thousands, except for quantity of bitcoin):

(1) Prior to the adoption of ASU 2023-08 on January 1, 2024, the carrying value of bitcoin represents the post-impairment value of all bitcoin held. After the adoption of ASU 2023-08 the cost basis of bitcoin represents the valuation of bitcoin at the time the Company earns the bitcoin through mining activities.

(2) Bitcoin is sold on a first in, first out (FIFO) basis. During the three and nine months ended September 30, 2024, realized net gains are included in gain on fair value of digital currency, net in the condensed consolidated statements of operations.

The Company’s bitcoin holdings are not subject to contractual sale restrictions. As of September 30, 2024, the Company held no other digital currency.

NOTE 6 –PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, net consisted of the following (in thousands):

The Company capitalizes a portion of the interest on funds borrowed to finance its capital expenditures. Capitalized interest is recorded as part of an asset’s cost and is depreciated over the same period as the related asset. Capitalized interest costs were $0 and $2.2 million for the three and nine months ended September 30, 2023, respectively. The Company capitalizedno interest costs during the three and nine months ended September 30, 2024.

Depreciation expense was $15.6 million and $44.9 million for the three and nine months ended September 30, 2024, respectively, and $8.2 million and $20.1 million for the three and nine months ended September 30, 2023, respectively. During the three and nine months ended September 30, 2024, the Company recorded accelerated depreciation expense of $0 and $5.1 million, respectively, related to certain miners of which the Company shortened their estimated useful lives based on replacement by April 30, 2024.

In September 2024, the Company entered into certain sales agreements to sell 1,200 miners for proceeds of $0.2 million. The miners were transferred to the buyer in October 2024. As of September 30, 2024, the miners were classified as held for sale included in other current assets in the condensed consolidated balance sheet. The Company recorded an impairment loss of $0.4 million during the three and nine months ended September 30, 2024 for the excess of the carrying amount of the miners over the fair value less cost to sell, which was included in impairment of property, plant, and equipment in the condensed consolidated statements of operations. The Company recordedno impairment during the three and nine months ended September 30, 2023.

NOTE 7 –LEASES

In May 2021, the Company entered into a ground lease (as amended from time to time, the “Ground Lease”), related to the Lake Mariner Facility in New York with a counterparty which is a related party due to control by a member of Company management. The Ground Lease includes fixed payments and variable payments, including an annual escalation factor as well as the Company’s proportionate share of the landlord’s cost to own, operate and maintain the premises. The Ground Lease has a term ofeight years and a renewal term offive years at the option of the Company, subject to the Company not then being in default, as defined. The Ground Lease, which is classified as an operating lease, was remeasured as of the date of the second amendment in July 2022, utilizing a discount rate of 12.6%, which was an estimate of the Company’s incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at the remeasurement date. Upon expiration of the lease, the buildings and improvements on the premises will revert to the landlord in good order.

For the three and nine months ended September 30, 2024, the Company recorded operating lease expense of $0.3 million and $1.0 million, respectively, including contingent expense of $0.1 million and $0.2 million, respectively, in operating expenses – related party in the condensed consolidated statements of operations and made cash lease payments of $0.1 million and $0.2 million during the three and nine months ended September 30, 2024, respectively. For the three and nine months ended September 30, 2023, the Company recorded operating lease expense of $0.3 million and $1.0 million, respectively, including contingent expense of $37,000 and $0.1 million, respectively, in operating expenses – related party in the condensed consolidated statements of operations and made cash lease payments of $0.2 million and $0.8 million, respectively. The remaining lease term based on the terms of the amended Ground Lease as of September 30, 2024 is 9.7 years.

The following is a maturity analysis of the annual undiscounted cash flows of the estimated operating lease liabilities as of September 30, 2024 (in thousands):

A reconciliation of the undiscounted cash flows to the operating lease liabilities recognized in the condensed consolidated balance sheet as of September 30, 2024 follows (in thousands):

As of September 30, 2024 and December 31, 2023, the Company was not a counterparty to any finance leases.

On October 9, 2024, the Company terminated the Ground Lease and entered into a new ground lease with the same related party counterparty (the “New Ground Lease”) related to the Lake Mariner Facility which expanded the acreage of real property as compared to the Ground Lease for the purposes of cryptocurrency mining and HPC co-location data center hosting operations. The New Ground Lease includes fixed and variable payments, including an annual escalation factor as well as the Company’s proportionate share of the landlord’s cost to own, operate and maintain the premises and has an initial term of 35 years, commencing on October 9, 2024, and will automatically renew for up tonine additional periods offive years each unless the Company provides written notice to terminate the New Ground Lease at leastsix months prior to the expiration of the initial term lease or the then-current renewal term. Upon expiration of the New Ground Lease, the buildings and improvements on the premises will revert to the landlord in good order. As consideration for the termination of the Ground Lease and entering into the New Ground Lease, the Company issued 20 million shares of the Company’s Common Stock and paid $12 million in cash to the parent company of the counterparty in October 2024.

NOTE 8 –INCOME TAXES

The Company’s tax provision or benefit from income taxes for interim periods is determined using an estimate of the Company’s annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. The Company has an effective tax rate of 0% for each of the three and nine months ended September 30, 2024 and 2023. The Company’s effective rate differs from its statutory rate of 21% primarily due to the recording of a valuation allowance against its deferred tax assets.

ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of available evidence, it is more likely than not that some or a portion or all the deferred tax assets will not be realized. As of September 30, 2024 and 2023, the Company estimated a portion of its deferred tax assets will be utilized to offset the Company’s deferred tax liabilities. Based upon the level of historical U.S. losses and future projections over the period in which the remaining deferred tax assets are deductible, at this time, management believes it is more likely than not that the Company will not realize the benefits of the remaining deductible temporary differences, and as a result the Company has recorded a valuation allowance as of September 30, 2024 and December 31, 2023 for the amount of deferred tax assets that will not be realized.

The Company hasno unrecognized tax benefits as of September 30, 2024 and December 31, 2023. The Company’s policy is to recognize interest accrued and penalties related to unrecognized tax benefits in tax expense. No accrued interest or penalties were recorded during the three and nine months ended September 30, 2024 and 2023.

NOTE 9 –DEBT

Long-term debt consists of the following (in thousands):

On December 1, 2021, the Company entered into a Loan, Guaranty and Security Agreement (the “LGSA”) with Wilmington Trust, National Association as administrative agent, which was subsequently amended in 2022 and 2023 and consisted of total Term Loans of $146.0 million (the “Term Loans”) with an interest rate of 11.5% and a maturity date of December 1, 2024.

Subsequent to an amendment to the LGSA in March 2023 (the “Fifth Amendment”), the Company was required to pay amounts subject to an excess cash flow sweep, as defined, on a quarterly basis which automatically extended to the maturity of the Term Loans in the event the Company repaid at least $40.0 million of the principal balance of the Term Loans by April 1, 2024, which the Company did in February 2024. Interest payments were due quarterly in arrears prior to the Fifth Amendment and were due monthly in arrears subsequent to the Fifth Amendment. The Company had the option to prepay all or any portion of the Term Loans in increments of at least $5.0 million subject to certain prepayment fees equal to an amount of 2% of the prepaid principal, applicable to 85% of the outstanding principal. Certain events, as described in the LGSA, required mandatory prepayment.

The Company madeno repayments on the principal balance of the Term Loans during the three and nine months ended September 30, 2023. During the fourth quarter of 2023, the Company repaid $6.6 million of the outstanding principal balance of the Term Loans which represented the excess cash flow sweep for the quarter ended September 30, 2023. As of December 31, 2023, certain of the investors in the Term Loans were related parties due to cumulative voting control by members of the Company’s management and an individual who was then a member of the Company’s board of directors. The outstanding principal amounts under the Term Loans held by related party entities were $12.9 million as of December 31, 2023. During the three and nine months ended September 30, 2024, the Company repaid $75.8 million and $139.4 million of the principal balance of the Term Loans, respectively, including voluntary prepayments of $56.0 million and $74.5 million, respectively. In connection with the voluntary prepayments, the Company recorded a loss on extinguishment of debt of $4.3 million and $6.3 million, respectively, which is included in the condensed consolidated statement of operations for the three and nine months ended September 30, 2024, consisting of $1.0 million and $1.3 million of prepayment fees, respectively, and the immediate write-off of $3.3 million and $5.0 million, respectively, of unamortized debt discount associated with the principal repaid. The Company has fully repaid the principal balance of the Term Loans as of September 30, 2024.

In 2022, in connection with First and Third Amendments to the LGSA, the Company issued warrants to the lenders to purchase 8,455,410 shares of Common Stock at $0.01 per share. During the three and nine months ended September 30, 2023,1,610,184 and 2,740,587 warrants issued in connection with the LGSA, respectively, were exercised for issuance of the same number of shares of Common Stock for aggregate proceeds to the Company of $16,000 and $27,000, respectively. In March 2023, in connection with the Fifth Amendment to the LGSA the Company entered into a warrant agreement (the “Warrant Agreement”) to issue the following warrants to the lenders: (i)27,759,265 warrants to purchase an aggregate number of shares of the Company’s Common Stock equal to 10.0% of the fully diluted equity of the Company as of the Fifth Amendment effective date with an exercise price of $0.01 per share of the Company’s Common Stock (the “Penny Warrants”) and (ii)13,879,630 warrants to purchase an aggregate number of shares of the Company’s Common Stock equal to 5.0% of the fully diluted equity of the Company as of the Fifth Amendment effective date with an exercise price of $1.00 per share of the Company’s Common Stock (the “Dollar Warrants”). The Penny Warrants are exercisable during the period beginning on April 1, 2024 and ending on December 31, 2025, and the Dollar Warrants are exercisable during the period beginning on April 1, 2024 and ending on December 31, 2026. In March 2023, in connection with the issuance of the warrants pursuant to the Warrant Agreement, the Company entered into a registration rights agreement pursuant to which the Company has agreed to provide customary shelf and piggyback registration rights to the LGSA lenders with respect to the common stock issuable upon exercise of the warrants described above.

During the three and nine months ended September 30, 2024,2,292,200 and 31,534,861 warrants issued in connection with the LGSA, respectively, were exercised for issuance of the same number of shares of Common Stock, comprising 0 and 27,617,539 Penny Warrants, respectively, and 2,292,200 and 3,917,322 Dollar Warrants, respectively, for aggregate proceeds to the Company of $2.3 million and $4.2 million, respectively. All warrants granted by the Company as a component of debt transactions are classified as equity in the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023.

In connection with the Term Loans under the LGSA, the Company issued to the holders of the Term Loans certain shares of Common Stock, warrants to purchase shares of Common Stock and incurred issuance costs and up front fees, which included $29.8 million in December 2021 in connection with the original issuance, $3.5 million in July 2022 in connection with the First Amendment, $2.9 million in October 2022 in connection with the Third Amendment, and $16.0 million in March 2023 in connection with the Fifth Amendment. These amounts represented debt issuance costs and debt discount which were being amortized as an adjustment of interest expense over the term of the LGSA.

During the three and nine months ended September 30, 2024, the Company amortized total debt issuance costs and debt discount of $0.2 million and $10.9 million, respectively, which was recorded as interest expense in the condensed consolidated statements of operations. During the three and nine months ended September 30, 2023, the Company amortized total debt issuance costs and debt discount of $6.0 million and $16.0 million, respectively, of which $6.0 million and $14.3 million, respectively, was recorded as interest expense in the condensed consolidated statements of operations, $0 and $1.2 million, respectively, was capitalized interest in property, plant and equipment, net in the condensed consolidated balance sheet, and $0 and $0.5 million, respectively, was capitalized interest in equity in net assets of investee in the condensed consolidated balance sheet. In connection with the voluntary prepayments of the LGSA, the Company wrote-off unamortized debt discount $3.3 million and $5.0 million during the three and nine months ended September 30, 2024, respectively, which is included in loss on extinguishment of debt in the condensed consolidated statement of operations for the three and nine months ended September 30, 2024

NOTE 10 –CONVERTIBLE PROMISSORY NOTES

In November 2022, the Company issued convertible promissory notes (the “Convertible Notes”) in an aggregate principal amount of approximately $3.4 million to certain accredited investors, including to members of Company management in the amount of $1.7 million. The Convertible Notes were issued in privately negotiated transactions as part of a private placement exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). In December 2022, the Company amended the Convertible Notes to (a) change the conversion date to March 1, 2023 and (b) allow for the conversion price to be reduced if an additional Qualified Financing were to occur prior to the conversion date at a price lower than the then existing Convertible Note conversion price. As a result of a private placement which was a Qualified Financing, the conversion price was $0.40 per share of Common Stock. In January 2023, the Convertible Notes were amended to change the conversion date to the third business day following the Shareholder Approval Date (as defined in Note 14). In March 2023, the Convertible Notes and accrued but unpaid interest were converted into 8,628,024 shares of Common Stock.

In January 2023, the Company entered into a convertible promissory note (the “January Convertible Note”) with an accredited investor in a privately negotiated transaction as part of a private placement exempt from registration under Section 4(a)(2) and/or Regulation D under the Securities Act in an aggregate principal amount of $1.3 million. The January Convertible Note had a maturity date of April 1, 2025 and accrued annual interest at a rate of 4.0%. The January Convertible Note was automatically convertible into Common Stock on the third business day following a shareholder meeting ultimately held in February 2023 at a conversion price equal to the lowest price per share paid by investors purchasing equity securities in any sale of equity securities by the Company between November 25, 2022 and the date of the shareholder meeting held in February 2023 with an aggregate gross sales price of not less than $5 million, subject to certain exclusions set forth in the January Convertible Note. The conversion price was $0.40 per share of Common Stock upon issuance. In March 2023, the January Convertible Note and accrued but unpaid interest were converted into 3,134,932 shares of Common Stock.

NOTE 11 –JOINT VENTURE

In May 2021, the Company and a subsidiary of Talen Energy Corporation (“Talen”) (each a “Member” and collectively the “Members”) entered into a joint venture, Nautilus Cryptomine LLC (“Nautilus”), to develop, construct and operate up to 300 MW of zero-carbon bitcoin mining in Pennsylvania (the “Joint Venture”) which was subsequently amended in August 2022 (the “A&R Nautilus Agreement”) and March 2023 (the “Second A&R Nautilus Agreement”). In connection with the Joint Venture, Nautilus simultaneously entered into (i) a ground lease (the “Nautilus Ground Lease”), which includes an electricity supply component, with a related party of Talen, (ii) a Facility Operations Agreement (the “FOA”), currently with a related party of Talen and (iii) a Corporate Services Agreement (the “CSA”) with a related party of Talen. Pursuant to the Second A&R Nautilus Agreement, as of September 30, 2024, the Company held a 25% equity interest in Nautilus and Talen held a 75% equity interest in Nautilus, each subject to adjustment based on relative capital contributions.

The Nautilus Cryptomine Facility initially required 200 MW of electric capacity. Prior to May 13, 2024, the Company had the option to expand the energy requirement of the Nautilus Cryptomine Facility by up to 50 MW, funded solely by the Company. In February 2024, the Company exercised its election to expand the energy requirements of the Nautilus Cryptomine Facility by an additional 50 MW. The expansion of energy requirements of the Nautilus Cryptomine Facility had not occurred as of September 30, 2024.

In March 2024, a subsidiary of Talen sold substantially all its assets to an unaffiliated third party, including the land that Nautilus utilizes pursuant to the Nautilus Ground Lease. In connection with the sale, the Nautilus Ground Lease was assigned from Talen to the purchaser of the assets.

On October 2, 2024, the Company sold its entire 25% equity interest in Nautilus to the Talen Member for $85.0 million in cash, subject to a customary working capital adjustment (the “Nautilus Sale”). In connection with the Nautilus Sale, Nautilus transferred to the Company all of Nautilus’ right, title and interest in and to all of its miners, including miners contributed by the Talen Member, as well as certain other related equipment owned by Nautilus. The Nautilus Sale included customary representations and warranties and customary covenants, including, among others, that the Talen Member will pay to the Company 25% of the net proceeds received in excess of $300.0 million in the aggregate in any future sale of all or substantially all of the assets, or a majority of the equity interests of Nautilus.

The Company capitalized a portion of the interest on funds borrowed to finance its investments in Nautilus prior to Nautilus commencing its principal operations. Capitalized interest costs were $0 and $0.9 million for the three and nine months ended September 30, 2023, respectively. The Company capitalizedno interest costs for the three and nine months ended September 30, 2024.

Distributions were made periodically in accordance with each Member’s respective hashrate contributions after deducting primarily each Member’s share of power and operational costs. The Company received bitcoin distributions from Nautilus with a fair value of $22.5 million and $11.7 million during the nine months ended September 30, 2024 and 2023, respectively.

Nautilus was a variable interest entity accounted for using the equity method of accounting. The table below summarizes the Company’s interest in Nautilus and the Company’s maximum exposure to loss as a result of its involvement with the VIE as of September 30, 2024 (in thousands, except for percentages):

(1)The maximum exposure at September 30, 2024 is determined by adding the Company’s variable interest in the entity and any explicit or implicit arrangements that could require the Company to provide additional financial support. The amount represents the contractually required capital contributions of the Company which were required for the initial phase of the Nautilus Cryptomine Facility buildout.

In August 2022, due to the change in Member ownership percentage and governance rights under the A&R Nautilus Agreement, Talen determined it controlled the Joint Venture from an accounting perspective and thereby was required to fair value the identifiable assets and liabilities of the Joint Venture for its internal accounting purposes. Under the CSA, Talen is responsible for maintaining the books and records of the Joint Venture and elected to push down the fair value adjustments to Nautilus’ books and records. The Company accounted for its interest in Nautilus as an equity method investment and the change in ownership percentage did not impact the Company’s method of accounting or basis. Therefore, there was a basis difference between the books and records of Nautilus and the Company’s accounting basis in the Joint Venture.

The condensed results of operations for the three and nine months ended September 30, 2024 and 2023 and the condensed financial position as of September 30, 2024 and December 31, 2023 of Nautilus are summarized below (in thousands):

(1)The condensed statements of operations information for the three and nine months ended September 30, 2024 and 2023 and the condensed balance sheet information as of September 30, 2024 and December 31, 2023 reflect the impact of the Talen-estimated fair value measurements of Nautilus which, resulting from the application of ASC 805, Business Combinations, have been pushed down to the books and records of Nautilus by Talen, as discussed above. The Company’s basis in the assets and liabilities of Nautilus continued to be recorded at historical value on the accompanying condensed consolidated balance sheets.

During the nine months ended September 30, 2023, the Company, as allowed under the A&R Nautilus Agreement, transferred control of approximately 4,900 MinerVA miners from Nautilus to its Lake Mariner Facility, including certain miners that had yet to be shipped from MinerVA. Accordingly, the Company recorded the miners at an estimated fair value of $6.9 million, determined based on a contemporaneous observed market price for similar assets, in property, plant and equipment, net and the Company reduced the equity in net assets of investee balance by $20.5 million, the book value of the miners in Nautilus’ books and records, in the condensed consolidated balance sheet as of December 31, 2023 and recorded a loss of $0 and $13.6 million as a component of equity in net loss of investee, net of tax in the condensed consolidated statement of operations during the three and nine months ended September 30, 2023, respectively.

As contemplated in the A&R Nautilus Agreement, members were allowed to make contributions of miners up to the effective electrical capacity of their owned infrastructure percentage. During the nine months ended September 30, 2023, the Company contributed to Nautilus certain miners with a fair value, determined based on miner vendor contracts, of $36.7 million. Accordingly, as of September 30, 2023, the Company increased the equity in net assets of investee balance by $36.7 million and reduced the property, plant and equipment, net balance by the same amounts in the condensed consolidated balance sheet.

NOTE 12 –COMMITMENTS AND CONTINGENCIES

Litigation

The Company is not a party to any material legal proceedings and is not aware of any pending or threatened claims. From time to time, the Company may be subject to various legal proceedings, regulatory inquiries and claims that arise in the ordinary course of its business activities.

Bitmain Miner Purchase Agreements

In March 2024, the Company entered into a Future Sales and Purchase Agreement (the “March 2024 Bitmain Purchase Agreement”) with Bitmain Technologies Delaware Limited (“Bitmain Delaware”) for the purchase of 5,000 S21 miners for a total purchase price of $17.5 million which was fully paid during the nine months ended September 30, 2024. The March 2024 Bitmain Purchase Agreement also provides the Company the right, but not the obligation, to purchase up to an additional 6,000 PH (approximately 30,000 miners), pursuant to certain payment timing conditions, by December 31, 2024 for a purchase price of $96.0 million (“Bitmain Call Option”). Pursuant to the Bitmain Call Option, the Company paid $9.6 million, calculated as 10% of the purchase price, as consideration for the Bitmain Call Option during the nine months ended September 30, 2024.

In May 2024, the Company entered into a Supplemental Agreement with Bitmain Delaware to amend certain terms of the March 2024 Bitmain Purchase Agreement by modifying the type of miners to be purchased under the Bitmain Call Option from the S21 model to the upgraded S21 Pro model. The purchase price increased to $112.3 million for approximately 30,000 units (a new total of 7,020 PH), an incremental $16.3 million over the initial Bitmain Call Option price. In relation to the Supplemental Agreement, the Company paid Bitmain Delaware an additional $1.6 million, calculated as 10% of the incremental purchase price, for a total payment of $11.2 million (the “Call Option Fee”). The Call Option Fee shall be applied to the settlement of future down payments of purchases under the Bitmain Call Option, in whole or in part in proportion to the ratio of quantity to be purchased to the maximum PH available under the Bitmain Call Option.

In May 2024, the Company exercised an option pursuant to the Bitmain Call Option to purchase 5,000 S21 Pro units and paid Bitmain Delaware an additional $16.8 million for these units. In October 2024, the Company exercised an option pursuant to the Bitmain Call Option to purchase 10,600 S21 Pro units and paid Bitmain Delaware an additional $35.7 million for these units. In October 2024, the Company entered into an agreement to sell 3,200 S21 Pro units to a third party for a purchase price of $12.0 million.

NOTE 13 –CONVERTIBLE PREFERRED STOCK

In March 2022, TeraWulf entered into Series A Convertible Preferred Stock Subscription Agreements (the “Subscription Agreements”) with certain accredited and institutional investors (collectively, the “Holders”). Pursuant to the Subscription Agreements, the Company sold 9,566 shares (of 10,000 shares authorized) of Series A Convertible Preferred Stock, par value $0.001 per share (the “Convertible Preferred Stock”) to the Purchasers for an aggregate purchase price of $9.6 million. The Subscription Agreements contain customary representations, warranties, covenants and agreements of the Company. The offer and sale of the Convertible Preferred Stock were made pursuant to the prospectus and prospectus supplement forming a part of the 2022 Registration Statement.

Holders of the Convertible Preferred Stock will accumulate cumulative dividends at an annual rate of 10.0% on the stated amount per share plus the amount of any accrued and unpaid dividends on such share, accumulating on a daily basis and payable quarterly on March 31st, June 30th, September 30th and December 31st, respectively, in each year and commencing June 30, 2022. Commencing June 30, 2022, unpaid dividends will be accreted to the liquidation preference. The initial liquidation preference is $1,000 per share. Holders of the Convertible Preferred Stock will also be entitled to such dividends paid to holders of the Company’s Common Stock, if applicable, as if such holders of the Convertible Preferred Stock had converted their Preferred Shares into Common Stock (without regard to any limitations on conversions) and had held such shares of the Company’s Common Stock on the record date for such dividends and distributions. If applicable, such payments will be made concurrently with the dividend or distribution to the holders of the Company’s Common Stock. Upon liquidation, the Convertible Preferred Stock will rank senior to the Company’s Common Stock, and will have the right to be paid, out of the assets of the Company legally available for distribution to its stockholders, an amount equal to the Liquidation Preference (as defined in the Company’s Series A Convertible Preferred Certificate of Designations) per share of the Convertible Preferred Stock. Holders of Convertible Preferred Stock will not generally have the right to vote at any meeting of stockholders, except for certain protective voting rights, as defined. The Convertible Preferred Stock does not have a maturity date.

The Holders of the Convertible Preferred Stock will have a right to effect an optional conversion of all or any whole number of shares of the Convertible Preferred Stock at any time and from time to time. The Company will have a right to effect a mandatory conversion of the Convertible Preferred Stock after the third anniversary of the issuance date if the Last Reported Sale Price (as defined in the Company’s Series A Convertible Preferred Certificate of Designations) per share of Common Stock exceeds 130% of the Conversion Price, as defined, on each of at least five (5) trading days (whether or not consecutive) during thefifteen consecutive trading days ending on, and including, the trading day immediately before the mandatory conversion notice date for such mandatory conversion. The number of shares of Common Stock issuable upon conversion will be equal to the liquidation preference, including accumulated and unpaid dividends, divided by the Conversion Price, as defined. The Conversion Price is determined by dividing $1,000 by the Conversion Rate, as defined, which is initially 100 shares of Common Stock per $1,000 liquidation preference of Convertible Preferred Stock. The Conversion Rate will be adjusted for certain customary events, including (but not limited to) stock dividends, stock splits or combinations, tender offers or exchange offers and, additionally, for Fundamental Changes, as defined, to include (but are not limited to) a change in control of the Company, disposition of substantially all assets of the Company, the Company’s Common Stock holders approve a plan of liquidation or dissolution or the Company’s Common Stock cease to be listed on the Nasdaq Capital Market. A Fundamental Change will adjust the Conversion Rate based on the date of the Fundamental Change and the Stock Price, as defined, on such date. The Conversion rate will not exceed 125 shares of Common Stock per $1,000 liquidation preference of Convertible Preferred Stock. If any Convertible Preferred Stock is to be converted pursuant to a Holder’s optional conversion, the Company will have the option to settle such conversion in cash, as defined.

No dividends were paid during the nine months ended September 30, 2024 and 2023. Cumulative dividends of $2.7 million were accumulated and accreted to liquidation preference as of September 30, 2024. As of September 30, 2024, the aggregate liquidation preference of the Convertible Preferred Stock was approximately $12.3 million. If the entire liquidation preference of the Convertible Preferred Stock was converted at the Conversion Price, the Company would issue approximately 1.2 million shares of Common Stock.

NOTE 14 –COMMON STOCK

On April 16, 2024, the Company held its 2024 Annual Meeting of Stockholders (the “2024 Annual Meeting”). As a result of the matters submitted to a stockholder vote at the 2024 Annual Meeting, the Company's stockholders adopted a charter amendment increasing the number of authorized shares of the Company’s Common Stock from 400,000,000 to 600,000,000. Consequently, as of September 30, 2024, TeraWulf’s Certificate of Incorporation provides for authorized shares of 700,000,000, divided into (a)600,000,000 shares of Common Stock, with par value of $0.001 per share and (b)100,000,000 shares of Preferred Stock, with par value of $0.001 per share. Each holder of a share of Common Stock shall be entitled toone vote of each common share held. Each holder of a share of Preferred Stock shall not be entitled to any voting powers, except as provided in an applicable Certificate of Designations. The board of directors may authorize one or more series of Preferred Stock and may fix the number of shares in such series and the designation, powers, preferences, rights, qualifications, limitations and restrictions in respect of the shares of such series. One series of preferred stock, the Convertible Preferred Stock, was authorized as of September 30, 2024.

In April 2022, the Company entered into a sales agreement with Cantor Fitzgerald & Co. (“Cantor”), B. Riley Securities, Inc. (“B. Riley Securities”) and D.A. Davidson & Co. (“D.A. Davidson”), pursuant to which the Company may offer and sell, from time to time, through or to the agents thereunder, shares of the Company’s Common Stock, par value $0.001 per share, having an aggregate offering price of up to $200.0 million. The April 2022 sales agreement was amended in August 2023 to terminate the agreement with respect to D.A. Davidson and add Northland Securities, Inc. (“Northland”) and Compass Point Research & Trading, LLC (“Compass Point”) as agents (as so amended, the “Original ATM Sales Agreement“). The Company incurs a commission up to 3.0% of the gross sales price from each sale of shares.

In May 2024, the Company and B. Riley Securities mutually agreed to terminate the Original ATM Sales Agreement with respect to B. Riley Securities and the Company entered into Amendment No. 2 to the Original ATM Sales Agreement with Cantor, Northland, Compass Point ATB Capital Markets USA Inc. (“ATB Capital Markets”), Roth Capital Partners, LLC (“Roth Capital Partners”), Stifel Nicolaus Canada Inc. (“Stifel Canada”) and Virtu Americas LLC (each, individually, an “Agent” and, collectively, the “ATM Agents”) pursuant to which the Company may offer and sell, from time to time, through or to the ATM Agents, shares of the Company’s Common Stock, par value $0.001 per share, having an aggregate offering price of up to $200.0 million (the “Amended ATM Sales Agreement,” together with the Original ATM Sales Agreement, the “ATM Program”). The Company incurs a commission up to 3.0% of the gross sales price from each sale of shares. The Company is not obligated to sell any shares under the ATM Program. The issuance and sale of the shares by the Company under the ATM Program are made pursuant to the Company’s effective registration statement on Form S-3 (Registration statement No. 333-262226), including final prospectus supplements dated April 26, 2022 and May 23, 2024.

During the three and nine months ended September 30, 2024, the Company sold 3,546,036 and 67,368,125 shares of Common Stock, respectively, pursuant to the ATM Program for net proceeds of $15.5 million and $189.4 million, respectively. During the three and nine months ended September 30, 2023, the Company sold 10,850,699 and 13,898,895 shares of Common Stock, respectively, pursuant to the ATM Program for net proceeds of $21.8 million and $27.0 million, respectively. As of September 30, 2024, the remaining capacity of the ATM Program to offer and sell shares of Common Stock is $87.1 million.

In October 2022, the Company entered into unit subscription agreements with certain accredited investors in privately negotiated transactions (collectively, the “October Purchasers”) as part of a private placement (the “October Private Placement”) exempt from registration under the Securities Act. Pursuant to the Unit Subscription Agreements, the Company sold 7,481,747 units, each consisting ofone share of the Common Stock andone warrant (the “October Warrants”), exercisable at a price of $1.93 per Common Share, to the October Purchasers for an aggregate purchase price of approximately $9.4 million. Approximately $3.5 million of the aggregate purchase price related to investments by entities controlled by members of Company management. The Company allocated the proceeds between the Common Stock and the October Warrants based on the relative fair values of the financial instruments, with $5.1 million allocated to the Common Stock and $4.3 million allocated to the October Warrants. As of September 30, 2024, there were 7,481,747 of the October Warrants outstanding. All warrants granted by the Company to date are classified as equity.

No dividends were declared during the nine months ended September 30, 2024 and 2023.

NOTE 15 –STOCK-BASED COMPENSATION

In May 2021, the Company made effective the 2021 Omnibus Incentive Plan (the “Plan”) for purpose of attracting and retaining employees, consultants and directors of the Company and its affiliates by providing each the opportunity to acquire an equity interest in the Company or other incentive compensation in order to align the interests of such individuals with those of the Company’s stockholders. The Plan provides for a maximum number of shares to be issued, limitations of shares to be delivered for incentive stock options and a maximum compensation amount for any non-employee member of the board of directors, among other provisions. The form of grants under the Plan includes stock options, stock appreciation rights, restricted stock and RSUs. As of September 30, 2024, the Company hadnot issued stock options. Additionally, during the three and nine months ended September 30, 2024 the Company issued 27,811 and 112,428 shares of Common Stock, respectively, to Board of Director members for payment of quarterly fees in lieu of cash payments. For the three and nine months ended September 30, 2024, stock-based compensation expense was $2.4 million and $14.2 million, respectively. For the three and nine months ended September 30, 2023, stock-based compensation expense was $1.4 million and $4.0 million, respectively.

The following table summarizes the activities for unvested Company RSUs granted to employees and Board of Directors members during the nine months ended September 30, 2024:

RSUs granted as set out in the table above include RSUs representing 4,197,000 shares with vesting based on market conditions tied to the Company’s stock price (the “PSUs”). The PSUs are subject to performance-based vesting conditions measured over athree-year performance period and vest based on the Company’s achievement of certain stock price hurdles by certain determination dates, subject to the respective employee’s continued service through the applicable determination date. The stock price hurdle represents the average closing price of the Company’s Common Stock on Nasdaq during the 45 trading days immediately preceding the applicable determination date. Any unvested PSUs will be forfeited if the performance targets are not achieved within three years of the grant date. The requisite service period for RSUs is betweenone andthree years. As of September 30, 2024, there was $3.5 million of unrecognized compensation cost related to unvested RSUs granted to employees and Board of Directors members. The amount is expected to be recognized over a weighted average period of 0.4 years.

The following table summarizes the activities for unvested Company RSUs granted to non-employees, excluding Board of Directors members, during the nine months ended September 30, 2024:

The requisite service period for grants, including derived service periods for RSUs with market conditions, is generally betweenone andthree years. As of September 30, 2024, there was $1.3 million of unrecognized compensation cost related to unvested non-employee, excluding Board of Director members, RSUs. The amount is expected to be recognized over a weighted average period of 1.0 year.

NOTE 16 –RELATED PARTY TRANSACTIONS

In April 2021, the Company entered into an Administrative and Infrastructure Services Agreement (the “Services Agreement”) with Beowulf Electricity & Data Inc. (“Beowulf E&D”), a related party due to control by a member of Company management. Under the Services Agreement, Beowulf E&D will provide, or cause its affiliates to provide, to TeraWulf certain services necessary to construct and operate certain bitcoin mining facilities developed or anticipated to be developed by the Company and support the Company’s ongoing business, including, among others, services related to construction, technical and engineering, operations and maintenance, procurement, information technology, finance and accounting, human resources, legal, risk management and external affairs consultation. The Services Agreement has an initial term offive years and provides for certain fixed, passthrough and incentive payments to Beowulf E&D, including issuing to certain designated employees of Beowulf E&D awards with respect to shares of TeraWulf Common Stock upon the consummation of an initial public offering of TeraWulf or the consummation of a merger following which TeraWulf is listed on a nationally recognized securities exchange and, thereafter, upon achievement of certain milestones regarding bitcoin mining capacity deployed at the bitcoin mining facilities.

For the base fee, the Company originally agreed to pay Beowulf E&D in monthly installments an annual fee for the first year in the amount of $7.0 million and, thereafter, an annual fee equal to the greater of $10.0 million or $0.0037 per kilowatt hour of electric load utilized by the bitcoin mining facilities. In March 2023, TeraWulf and Beowulf E&D entered into an Amendment No. 1 to the Services Agreement, pursuant to which TeraWulf agreed to pay Beowulf E&D, effective as of January 1, 2023, a reduced annual base fee equal to $8.5 million payable in monthly installments, until all obligations under the Company’s LGSA, as amended and restated from time to time, are either indefeasibly repaid in full or refinanced, at which point the annual base fee will increase to $10.0 million which occurred in July 2024. The Services Agreement also provides for reimbursement of cost and expenses incurred in connection with providing the services. For the nine months ended September 30, 2024 and 2023, the Company paid Beowulf E&D $11.2 million and $16.4 million, respectively, under the Services Agreement, including payments related to construction agreements with contractors at the Lake Mariner Facility which were passed through at cost. For the three and nine months ended September 30, 2024, selling, general and administrative expenses – related party in the condensed consolidated statements of operations includes $3.0 million and $8.4 million, respectively, and operating expenses – related party in the condensed consolidated statements of operations includes $0.5 million and $1.6 million, respectively, in each case related to the base fee and reimbursement of costs and expenses. For the three and nine months ended September 30, 2023, selling, general and administrative expenses – related party in the condensed consolidated statements of operations includes $4.5 million and $10.1 million, respectively, and operating expenses – related party in the condensed consolidated statements of operations includes $0.5 million and $1.0 million, respectively, in each case related to the base fee and reimbursement of costs and expenses. As of September 30, 2024, $0.8 million is included in prepaid expenses, $0.4 million is included in other amounts due to related parties and $0.4 million is included in property, plant and equipment, net in the condensed consolidated balance sheet. As of December 31, 2023, $0.7 million is included in prepaid expenses, $1.0 million is included in amounts due to related parties and $6.6 million is included in property, plant and equipment, net in the condensed consolidated balance sheet.

The Services Agreement also provides for performance-related milestones and related incentive compensation. In connection with the listing of its Common Stock on a nationally recognized stock exchange in December 2021, pursuant to the Services Agreement, the Company agreed to issue awards valued at $12.5 million with respect to shares of its Common Stock to certain designated employees of Beowulf E&D in accordance with TeraWulf’s then effective Plan. Additionally, once the mining facilities have utilized 100 MW of cryptocurrency mining load in the aggregate, and for every incremental 100 MW of cryptocurrency mining load deployed thereafter, TeraWulf agreed to issue additional awards of shares of TeraWulf Common Stock each in the amount of $2.5 million to certain designated employees of Beowulf E&D in accordance with TeraWulf’s then effective Plan. The first performance milestone of 100 MW of mining load deployed by the mining facilities was met in April 2023 and the Company recorded performance milestone expense related to this milestone of $0 and $0.4 million included in selling, general and administrative expense – related party in the condensed consolidated statement of operations for each of the three and nine months ended September 30, 2023, respectively. In September 2023, the Company and Beowulf E&D agreed to settle the then outstanding $15.0 million share based liabilities due to related party by issuing 2,460,513 shares of the Company’s Common Stock with a fair value of $3.4 million and the Company recorded the remaining reduction to the share based liabilities to related party of $11.6 million to additional paid-in capital during each of the three and nine months ended September 30, 2023. In July 2023, the Company considered it probable that the second performance milestone of incremental 100 MW of mining load deployed by the mining facilities would be met by December 2023. Accordingly, the Company recognized $2.5 million in share based liabilities due to related party in the condensed consolidated balance sheet as of December 31, 2023. During the nine months ended September 30, 2024, the Company issued 1,083,189 shares of the Company’s Common Stock with a fair value of $2.5 million to settle the share based liabilities due to related party. The Company recordedno performance milestone expense for the three and nine months ended September 30, 2024.

NOTE 17 –SUBSEQUENT EVENTS

On October 23, 2024, the Company’s board of directors approved a share repurchase program authorizing the Company to repurchase up to $200.0 million of the Company’s outstanding shares of Common Stock through December 31, 2025. As of November 12, 2024, the Company has repurchased 17,968,750 shares of its Common Stock for approximately $115.0 million.

On October 25, 2024, the Company completed a private offering of 2.75% Convertible Senior Notes due 2030 (the “2030 Convertible Notes”). The 2030 Convertible Notes were sold under a purchase agreement, dated as of October 23, 2024, entered into by and between the Company and Cantor as representative of the several initial purchasers named therein (the “Initial Purchasers”), for resale to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act. The aggregate principal amount of notes sold in the offering was $500.0 million, which includes $75.0 million aggregate principal amount of notes issued pursuant to an option to purchase additional notes granted to the Initial Purchasers under the purchase agreement, which the Initial Purchasers exercised in full on October 24, 2024 and which additional purchase was completed on October 25, 2024.

The notes were issued at a price equal to 100% of their principal amount. The net proceeds from the sale of the notes were approximately $487.1 million after deducting the Initial Purchasers’ discounts and commissions and estimated offering expenses payable by the Company. The Company used approximately $60 million of the net proceeds from the sale of the notes to pay the cost of certain capped call transactions and intends to use the remainder for general corporate purposes, which may include working capital, strategic acquisitions, expansion of data center infrastructure to support high-performance computing activities and expansion of existing assets.