# Terawulf Inc.: Form 10-Q for the period ended Mar 31, 2024

- Company: [Terawulf Inc.](/companies/wulf.md) (CIK 1083301)
- Form: 10-Q
- Filed: 2024-05-13
- Accepted by EDGAR: May 13, 2024, 17:08 ET
- Period: 2024-03-31
- Accession: 0001083301-24-000103
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1083301/000108330124000103/wulf-20240331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1083301/000108330124000103/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $42.4m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2024-01-01 to 2024-03-31 | $14.4m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-01-01 to 2024-03-31 | $28.0m | us-gaap:GrossProfit |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | −$2.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $11.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | −$9.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.03 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.03 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 290,602,725 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | $22.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $47.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-03-31 | $45.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $54.4m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $395.4m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $122.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $123.0m | us-gaap:Liabilities |
| Long-term debt | at 2024-03-31 | $47.0k | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-03-31 | $99.4m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-03-31 | $272.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 73,676 characters.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with a review of the other Items included in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. All figures presented below represent results from continuing operations, unless otherwise specified. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the consolidated financial statements. Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to the “Company,” “TeraWulf,” “we,” “us” or “our” refers to TeraWulf Inc. and its consolidated subsidiaries, unless otherwise indicated. Certain statements contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations may be deemed to be forward-looking statements. See “Forward-Looking Statements.”

### Overview

We are 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. 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 with low cost, zero-carbon power.

### Revenue Structure

Our primary source of revenue stems from the mining of bitcoin conducted at our sustainable mining facility site. 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 hashrate, 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 hashrate that its hashrate represents.

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 and weekly 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.

### Bitcoin Reward Halving

On April 20, 2024, the bitcoin rewards issued for each block solved dropped from 6.25 to 3.125, effectively reducing the non-cash consideration received from bitcoin mining by 50% (excluding transactions fee rewards).

### 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 facility located in central Pennsylvania (the “Nautilus Cryptomine Facility”). As of March 31, 2024, 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.

As of March 31, 2024, these two industrial scale projects had a combined operating capacity of 8.0 EH/s with approximately 66,900 miners deployed, comprised of 51,100 operational miners at the Lake Mariner Facility and 15,800 self-miners at the Nautilus Cryptomine Facility. As of the date of this Quarterly Report, 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.

#### The Lake Mariner Facility

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 the date of this Quarterly Report, the Lake Mariner Facility is operating approximately 160 MW of bitcoin mining capacity and 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 in February 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.

As of March 31, 2024, we own approximately 51,100 miners of which approximately 47,200 are operational at the Lake Mariner Facility with the remainder undergoing maintenance, awaiting disposal or on standby to replace miners under repair. These miners were comprised as follows:

| Vendor and Model | Number of miners |
| --- | ---: |
| Bitmain S19 Pro | 6,700 |
| Bitmain S19 XP | 6,300 |
| Bitmain S19j Pro | 11,800 |
| Bitmain S19j XP | 19,400 |
| Bitmain S19k Pro | 1,600 |
| MinerVA MV7 | 4,100 |
| Whatsminer M30S+ | 1,200 |
|  | 51,100 |

38

As of March 31, 2024, our fleet of miners ranged in age from 0.1 to 1.8 years with an average age of approximately 0.7 years. We do not have scheduled downtime for our miners; however, while we periodically perform unscheduled maintenance on our miners, such downtime has not been significant historically. When performing unscheduled maintenance, depending on the length of estimated repair time, we may replace a miner with a substitute miner to limit overall downtime. As of March 31, 2024, our fleet of miners at the Lake Mariner Facility had a range of energy efficiency from 22 to 39 joules per terahash (“"j/th”) and has an average energy efficiency of 25.2 j/th.

#### The Nautilus Cryptomine Facility

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 (“kWh”) 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 March 31, 2024, had an allotted 50 MW of operational bitcoin mining capacity at the Nautilus Cryptomine Facility. Furthermore, TeraWulf plans to expand mining capacity at the Nautilus Cryptomine Facility by another 50 MW in 2025, solidifying its position for scalable growth. Accordingly, in February 2024, the Company exercised its option to increase its energy requirement at the Nautilus Cryptomine Facility by an incremental 50 MW at its own cost (for a total of 100 MW of bitcoin mining capacity attributable to TeraWulf). As of the date of this Quarterly Report, no additional capital calls for expansion have been made and no additional energy supply has been procured.

As of March 31, 2024, approximately 48,000 miners have been deployed at the Nautilus Cryptomine Facility of which 46,000 are operational with the remainder undergoing maintenance or on standby to replace miners under repair. Approximately 15,800 of the deployed miners are attributed to TeraWulf’s contributions to Nautilus in order to utilize TeraWulf's allotted 50 MW of bitcoin mining capacity. These miners are comprised as follows:

| Vendor and Model | Number of miners |
| --- | ---: |
| Bitmain S19 Pro | 6,300 |
| Bitmain S19 XP | 7,100 |
| Bitmain S19j Pro | 2,400 |
|  | 15,800 |

As of March 31, 2024, these miners ranged in age from 1.0 to 1.1 years with an average age of approximately 1.0 year. Nautilus does not have scheduled downtime for our miners; however, while Nautilus periodically performs unscheduled maintenance on miners, such downtime has not been significant historically. When performing unscheduled maintenance, depending on the length of estimated repair time, Nautilus may replace a miner with a substitute miner to limit overall downtime. As of March 31, 2024, these miners had a range of energy efficiency from 22 to 30 j/th and an average energy efficiency of 25.5 j/th. While the Company holds a 25% equity interest in Nautilus, the distributions of mined bitcoin are determined by each of TeraWulf’s and Talen’s respective hashrate contributions. Accordingly, the Company has contributed approximately 1.9 EH/s of a total 5.2 EH/s of miners which results in an approximate 35.7% of the hashrate share attributed to the Company.

#### Combined Facilities

As described above, there are a variety of factors that influence our ability to mine bitcoin profitably, including bitcoin’s value in USD, mining difficulty global hashrate, power prices, fleet energy efficiency, data center energy efficiency and other factors. The energy efficiency of a mining fleet helps drive profitability, because the most significant direct expense for bitcoin mining is power. We believe we operate a highly efficient fleet of miners. The Company uses the following metrics as indicators of operational progress and effectiveness and believes they are useful to investors for the same purposes and to provide comparisons to peer companies.

The table below presents our miner efficiency and computing power as compared to the global computing power as of March 31, 2024 and 2023:

| Combined facilities1 | March 31, 2024 | March 31, 2023 |
| --- | ---: | ---: |
| Global hashrate (EH/s)2 | 566.0 | 335.3 |
| Miner efficiency (j/th)3 | 25.4 | 24.1 |
| TeraWulf combined average operating hashrate (EH/s)4 | 8.0 | 2.8 |
| TeraWulf % of global hashrate | 1.4% | 0.8% |

1 Results reflect hashrate of mining operations at the Lake Mariner Facility and TeraWulf’s net share of hashrate produced at the Nautilus Cryptomine Facility.

2 Total global hashrate obtained from YCHARTS (https://ycharts.com/indicators/bitcoin\_network\_hash\_rate)

3 Joules of energy required to produce each terahash of processing power

4 While nameplate inventory for TeraWulf’s two facilities is 8.0 EH/s, inclusive of gross total hosted miners, actual monthly hashrate performance depends on a variety of factors, including (but not limited to) performance tuning to increase efficiency and maximize margin, scheduled outages (scopes to improve reliability or performance), unscheduled outages, curtailment due to participation in various cash generating demand response programs, derate of ASICS due to adverse weather and ASIC maintenance and repair.

As of March 31, 2024 our operating hashrate was approximately 1.4% of the total global hashrate, and we received approximately the same percentage of the global blockchain rewards, which as of that date, equaled approximately 10 to 13 bitcoin per day. Ultimately, in order to mine profitably, we work to ensure that these mining rewards cover our direct operating costs.

The table below presents the average cost of mining each bitcoin, including bitcoin mined at the Lake Mariner Facility and the Company’s net share of bitcoin mined at the Nautilus Cryptomine Facility, for the three months ended March 31, 2024 and 2023 and the total energy cost per kWh utilized within the facilities:

| Cost of mining - Analysis of costs to mine one bitcoin Cost of mining - Lake Mariner Facility and net share of the Nautilus Cryptomine Facility | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Cost of energy per bitcoin mined | $15,501 | $7,842 |
| Other direct costs of mining - non energy utilities per bitcoin mined | $27 | $56 |
| Cost to mine one bitcoin(1) | $15,529 | $7,897 |
| Value of each bitcoin mined(2) | $53,750 | $23,077 |
| Cost to mine one bitcoin as % of value of bitcoin mined | 28.9% | 34.2% |
| **Statistics** |  |  |
| Lake Mariner Facility and net share of the Nautilus Cryptomine Facility |  |  |
| Total bitcoin mined(3) | 1,051 | 514 |
| Total value of bitcoin mined(2) ($ in thousands) | $56,491 | $11,873 |
| Total kWhs utilized | 393,410,672 | 103,563,770 |
| Total energy expense, net of expected demand response proceeds(4) ($ in thousands) | $16,292 | $4,034 |
| Cost per kWh | $0.041 | $0.039 |
| Energy expense, net as % of value of bitcoin mined | 28.8% | 34.0% |
| Other direct costs of mining ($ in thousands) | $29 | $29 |

(1) “Cost to mine one bitcoin” is a cash cost metric and does not include depreciation. Although the Company recognizes depreciation with respect to its mining assets, it does not consider depreciation in determining whether it is economical to operate its mining equipment. As a result, the Company does not consider the sunk costs or depreciation of past capital investments in its historical or forecasted breakeven analysis. If depreciation of our miner fleet were factored into the above cost of mining analysis, it would add $15,092 and $10,349 per bitcoin mined for the three months ended March 31, 2024 and 2023, respectively, bringing the total “cost to mine one bitcoin” to $30,621 and $18,246 for the three months ended March 31, 2024 and 2023, respectively.

(2) Computed as the weighted-average opening price of bitcoin on each respective day the mined bitcoin is earned. Excludes bitcoin earned from profit sharing associated with a hosting agreement that expired in February 2024 at the Lake Mariner Facility.

(3) Excludes bitcoin earned from profit sharing associated with a hosting agreement that expired in February 2024 at the Lake Mariner Facility of 6 and 20 bitcoin for the three months ended March 31, 2024 and 2023, respectively, and includes TeraWulf’s net share of bitcoin mined at the Nautilus Cryptomine Facility, based on the hashrate share attributed to the Company.

(4) Excludes energy expenses associated with a hosting agreement that expired in February 2024 at the Lake Mariner Facility and includes TeraWulf’s net share of energy expense at the Nautilus Cryptomine Facility, based on aggregate nameplate power consumption of deployed miners attributed to TeraWulf’s contribution to Nautilus.

Power prices are the most significant cost driver for our bitcoin mining operations, and energy costs represented 28.8% and 34.0% as expressed as a percentage of bitcoin mining during the three months ended March 31, 2024 and 2023, respectively.

Energy prices can be highly volatile and global events (including the war in Ukraine and the resulting natural gas shortage) have caused power prices to increase nationwide over the past year. Our wholly-owned Lake Mariner Facility in New York is subject to variable prices and market rate fluctuations with respect to wholesale power costs. Such prices are governed by market power prices and said prices can change hour to hour. While this renders energy prices less predictable, it also gives us greater ability and flexibility to actively manage the energy we consume with an eye towards increasing profitability and energy efficiency. Energy prices are also highly sensitive to weather events, such as winter storms and polar vortices, which increase the demand for power regionally. When such events occur, we may curtail our operations to avoid using power at increased rates or we may be curtailed under demand response programs in which we participate. The average power prices incurred at the Lake Mariner Facility and the Nautilus Cryptomine Facility during each of the three months ended March 31, 2024 and 2023 was $0.041 and $0.039 per kilowatt hour, respectively.

The management team makes real-time determinations on the need and timing during which we should curtail. If not otherwise curtailed under demand response programs, we curtail when power prices exceed the value we would receive for the corresponding fixed bitcoin reward. This means if bitcoin’s value decrease or energy prices increase, our curtailment will increase; likewise, when bitcoin’s value increases and energy prices decrease, our curtailment will decrease. The management team manages this decision on an hour-by-hour basis.

During the three months ended March 31, 2024 and 2023, the Company curtailed operations at the Lake Mariner Facility due to weather events, energy price spikes, and demand response program participation. The Company records expected payments to be received for demand response programs as a reduction in cost of revenue, which amounted to $1.2 million and $0.1 million for the three months ended March 31, 2024 and 2023, respectively.

The Company has purchased all miners with cash and has not used limited recourse equipment financing to complete its miner purchases. The Company has raised capital through both the issuance of equity and corporate level debt. These funds have been utilized to support operations, invest in our joint ventures, and purchase miners and other fixed assets. Costs related to such issuances are not included in this analysis. Additionally, miner acquisition costs, or capital expenditures, are not factored into the above cost of mining analysis as capital expenditures do not impact the marginal cost of production of one bitcoin. Miner acquisition costs, or capital expenditures, are generally recorded at cost in property, plant and equipment in the consolidated balance sheets. Depreciation of property, plant and equipment is computed using the straight-line method over the estimated useful lives of the equipment: generally 4 years for miners and 5 years for computer equipment. Additionally, during the three months ended March 31, 2024, the Company recorded accelerated depreciation expense of $3.8 million related to certain miners of which the Company shortened their estimated useful lives based on expected replacement by April 30, 2024. While we currently depreciate our miners over a 4-year period, given our historical low cost of power ($0.041 and $0.039 per kilowatt-hour for the three months ended March 31, 2024 and 2023, respectively), it is possible the average actual useful life of our miners may exceed the depreciation period in certain circumstances. Nevertheless, if depreciation of our miner fleet were factored into the above cost of mining analysis, it would add $15,092 and $10,349 per bitcoin mined in the three months ended March 31, 2024 and 2023, respectively.

The estimation of asset useful lives requires management judgement, including consideration of historical operating data, which is limited in the industrial-scale bitcoin mining space given the advent of next-generation mining rigs primarily used by the Company’s bitcoin mining operations. Depreciation periods can be adjusted periodically if an event, regulatory action, or change in retirement patterns indicates an update is necessary. Additionally, management considers expected future energy market prices and conditions, operating costs, maintenance practices and capital investment requirements in determining the estimated useful lives of our equipment and reassesses the reasonableness of estimated useful lives whenever events or changes in circumstances warrant. When a determination has been made that an asset will be retired or extended before or after the end of its current estimated useful life, depreciation provisions will be accelerated or extended to reflect the shortened or lengthened estimated useful life, which could have a material unfavorable or favorable impact on future results of operations.

### Recent Developments

On April 8, 2024, the Company repaid $30.2 million of the outstanding principal balance of the term loans in accordance with the excess cash flow sweep provision of the Fifth Amendment to its Loan, Guaranty and Security Agreement, dated as of March 1, 2023 (the “LGSA”), for the quarter ended March 31, 2024.

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 (the “Common Stock”) from 400,000,000 to 600,000,000.

### The Business Combination

TeraWulf completed its business combination with IKONICS Corporation (“IKONICS”) on December 13, 2021 pursuant to which, among other things, the Company effectively acquired IKONICS and became a publicly traded company on the Nasdaq, which was the primary purpose of the business combination. 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 IKONICS as of immediately prior to the Merger, received one non-transferable CVR for each outstanding share of common stock of IKONICS 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 IKONICS. Payments under the CVR Agreement were calculated quarterly, paid on the sixtieth day after the respective quarterly calculation period and were subject to a reserve of up to 10% of the Gross Proceeds (as defined in the CVR Agreement) from such transaction or more under certain conditions. The CVRs did not confer to their holders thereof any voting or equity or ownership interest in TeraWulf, were not transferable, except in limited circumstances, and were not listed on any quotation system or traded on any securities exchange. During the three months ended March 31, 2023, the Company made payments of the CVR liability related to proceeds from sales of net assets held for sale of $3.9 million. Additionally, the Company made payments of the CVR liability of $5.7 million and $1.4 million in May and November 2023, respectively, 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.

### Results of Operations

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 owned by the Company. The earned bitcoin are routinely sold for U.S. dollars. The Company also earned revenue by providing miner hosting services to third parties. While the Company may choose to mine other digital currencies, it has no plans to do so currently. The Company's plan of operation for the next twelve months is to continue to increase the mining capacity at its operating mining facilities, including completion of the construction of the fourth building at its Lake Mariner Facility.

#### Revenue and Cost of Revenue

The following table presents revenue and cost of revenue (exclusive of depreciation) (in thousands):

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Revenue | $42,433 | $11,533 |
| Cost of revenue (exclusive of depreciation) | $14,408 | $5,002 |

42

Revenue for the three months ended March 31, 2024 and 2023 was $42.4 million and $11.5 million, respectively, an increase of $30.9 million due primarily to the increase in mining capacity due to infrastructure constructed and placed in service between March 31, 2023 and March 31, 2024 as well as an increase in the quoted price of bitcoin. The Company began mining bitcoin at the Lake Mariner Facility in March 2022 and, as of March 31, 2024, the Company had energized three buildings and additional infrastructure comprising 160 MW of capacity as compared to 60 MW of capacity as of March 31, 2023. During the three months ended March 31, 2024, revenue from mining was $41.6 million as compared to $9.2 million during the same period in 2023. During the three months ended March 31, 2024, revenue from hosting was $0.8 million as compared to $2.3 million, a decrease of $1.5 million due to the expiration of the Company’s one data center hosting contract with a customer in February 2024.

Cost of revenue (exclusive of depreciation) for the three months ended March 31, 2024 and 2023, was $14.4 million and $5.0 million, respectively, an increase of approximately $9.4 million. The increase was primarily due to the increase in mining and hosting capacity due to infrastructure constructed and placed in service between March 31, 2023 and March 31, 2024. Cost of revenues is primarily comprised of power expense. The Company records proceeds related to participation in demand response programs as a reduction in cost of revenue in the period corresponding to the underlying demand response program period; the amount of aggregate proceeds received or expected to be received were $1.2 million and $0.1 million for the three months ended March 31, 2024 and 2023, respectively. The Company is actively expanding its enrollment in such available programs in New York State.

#### Costs and Expenses

The following table presents operating expenses (in thousands):

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Operating expenses | $785 | $308 |
| Operating expenses – related party | 888 | 597 |
|  | $1,673 | $905 |

Operating expenses (including related party expenses) for the three months ended March 31, 2024 and 2023, were $1.7 million and $0.9 million, respectively, a net increase of $0.8 million. Operating expenses increased due to higher property insurance, miner repair costs, and spare parts. Operating expenses – related party increased due to increased staffing at the Lake Mariner Facility. These increases related to infrastructure constructed and placed in service between March 31, 2023 and 2024.

The following table presents selling, general and administrative expenses (in thousands):

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Selling, general and administrative expenses | $12,289 | $6,492 |
| Selling, general and administrative expenses – related party | 2,620 | 2,898 |
|  | $14,909 | $9,390 |

Selling, general and administrative expenses (including related party expenses) for the three months ended March 31, 2024 and 2023 were $14.9 million and $9.4 million, respectively, a net increase of $5.5 million. Selling, general and administrative expenses are comprised primarily of professional fees, legal fees, employee compensation and benefits, stock-based compensation to employees and consultants, insurance and general corporate expenses. The increase was primarily due to increased expense during the three months ended March 31, 2024 as compared to the same period in the prior year of stock-based compensation of $6.2 million and employee compensation and benefits of $0.3 million. These increases were partially offset by decreased expenses during the three months ended March 31, 2024 as compared to the same period in the prior year of legal fees of $0.2 million and insurance expense of $0.2 million. Selling, general and administrative expenses – related party decreased due to performance milestone expense of $0.3 million under the Administrative and Infrastructure Services Agreement with Beowulf Electricity & Data Inc. As previously disclosed, the Company has undertaken cost reduction initiatives targeted at reducing its overall selling, general and administrative expenses that are expected to benefit its operating profitability going forward.

Depreciation for the three months ended March 31, 2024 and 2023 was $15.1 million and $5.4 million, respectively, an increase of $9.7 million primarily due to the increase in mining capacity due to infrastructure constructed and placed in service between March 31, 2023 and March 31, 2024. Additionally, during the three months ended March 31, 2024, the Company recorded accelerated depreciation expense of $3.8 million related to certain miners of which the Company shortened their estimated useful lives based on expected replacement by April 30, 2024.

Gain on fair value of digital currency, net was $1.3 million during the three months ended March 31, 2024 as a result of the Company adopting Financial Accounting Standards Board (“FASB”) 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”) on January 1, 2024 which 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. Prior to the adoption of ASU 2023-08, the Company recorded Impairment of digital currency and Realized gain on sale of digital currency for the three months ended March 31, 2023 of $0.6 million and $0.6 million, respectively, representing the decline in bitcoin prices during the Company’s holding period of its bitcoin, which was not reversed during its holding period, and gains recognized upon subsequent liquidation of bitcoin held. The Company 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 consolidated balance sheet as of January 1, 2024.

Interest expense was $11.0 million and $6.8 million for the three months ended March 31, 2024 and 2023, respectively, an increase of $4.2 million. Interest expense relates primarily to the Company’s Term Loans which had a principal balance of $106.0 million as of March 31, 2024. The increase in interest expense for the three months ended March 31, 2024 as compared to the same period in the prior year is primarily due to (i) an increase of amortization of debt issuance costs and debt discount of $5.0 million during the three months ended March 31, 2024 as compared to the same period in 2023 due to the recognition of debt discount in March 2023 in connection with the issuance of warrants concurrent with the Fifth Amendment to the LGSA, partially offset by (ii) a decrease of $0.8 million in interest expense related to the stated interest rate, which remained unchanged, on the Term Loans resulting from the reduction in principal balance due to principal repayments made between March 31, 2023 and March 31, 2024. The Company’s term loan financing has a maturity date of December 1, 2024.

Loss on extinguishment of debt was $2.0 million for the three months ended March 31, 2024 related to prepayment fees of $0.3 million incurred to voluntarily prepay $18.6 million of the Company’s Term Loans during the three months ended March 31, 2024 and the derecognition of unamortized debt discount of $1.7 million associated with the principal repaid. The Company made no repayments on the principal balance of the Term Loans during the three months ended March 31, 2023.

Income tax benefit was $0 for the three months ended March 31, 2024 and 2023. Based upon the level of historical U.S. losses and future projections over the period in which the net 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 full valuation allowance against its gross deferred tax assets as of March 31, 2024 and December 31, 2023.

#### Equity in net income (loss) of investee, net of tax

Equity in net income (loss) of investee, net of tax for the three months ended March 31, 2024 and 2023 was $5.3 million and $(10.2) million, respectively, which represents TeraWulf’s proportional share of income or losses of Nautilus, which commenced principal operations in February 2023. For the three months ended March 31, 2023, the amount also includes an impairment loss of $8.9 million on the distribution of miners from Nautilus to the Company whereby the miners were marked to fair value from book value on the date distributed. The impairment loss was the result of decreasing prices for miners between initial purchase and distribution.

### Non-GAAP Measure

To provide investors with additional information in connection with our results as determined in accordance with generally accepted accounting principles in the United States (“GAAP”), we disclose Adjusted EBITDA as a non-GAAP measure. This measure is not a financial measure calculated in accordance with GAAP, and it should not be considered as a substitute for net income, operating income, or any other measure calculated in accordance with GAAP, and may not be comparable to similarly titled measures reported by other companies.

We define Adjusted EBITDA as income (loss) from continuing operations adjusted for (i) impacts of interest, taxes, depreciation and amortization; (ii) preferred stock dividends, stock-based compensation expense and related party expense to be settled with respect to common stock, all of which are non-cash items that the Company believes are not reflective of its general business performance, and for which the accounting requires management judgment, and the resulting expenses could vary significantly in comparison to other companies; (iii) equity in net income (loss) of investee, net of tax, related to Nautilus; (iv) other income which is related to interest income or income for which management believes is not reflective of the Company’s ongoing operating activities; (v) loss on extinguishment of debt, which is not reflective of the Company’s general business performance and (vi) loss from discontinued operations, net of tax, which is not be applicable to the Company’s future business activities. The Company’s Adjusted EBITDA also includes the impact of distributions from investee received in bitcoin related to a return on the Nautilus investment, which management believes, in conjunction with excluding the impact of equity in net income (loss) of investee, net of tax, is reflective of assets available for the Company’s use in its ongoing operations as a result of its investment in Nautilus.

Management believes that providing this non-GAAP financial measure allows for meaningful comparisons between the Company's core business operating results and those of other companies, and provides the Company with an important tool for financial and operational decision making and for evaluating its own core business operating results over different periods of time. In addition to management's internal use of non-GAAP Adjusted EBITDA, management believes that Adjusted EBITDA is also useful to investors and analysts in comparing the Company’s performance across reporting periods on a consistent basis. Management believes the foregoing to be the case even though some of the excluded items involve cash outlays and some of them recur on a regular basis (although management does not believe any of such items are normal operating expenses necessary to generate the Company’s bitcoin related revenues). For example, the Company expects that share-based compensation expense, which is excluded from Adjusted EBITDA, will continue to be a significant recurring expense over the coming years and is an important part of the compensation provided to certain employees, officers, directors and consultants. Additionally, management does not consider any of the excluded items to be expenses necessary to generate the Company’s bitcoin related revenue.

The Company’s Adjusted EBITDA measure may not be directly comparable to similar measures provided by other companies in the Company’s industry, as other companies in the Company’s industry may calculate non-GAAP financial results differently. The Company’s Adjusted EBITDA is not a measurement of financial performance under GAAP and should not be considered as an alternative to operating loss or any other measure of performance derived in accordance with GAAP. Although management utilizes internally and presents Adjusted EBITDA, the Company only utilizes that measure supplementally and does not consider it to be a substitute for, or superior to, the information provided by GAAP financial results. Accordingly, Adjusted EBITDA is not meant to be considered in isolation of, and should be read in conjunction with, the information contained in the Company’s consolidated financial statements, which have been prepared in accordance with GAAP.

The following table is a reconciliation of the Company’s non-GAAP Adjusted EBITDA to its most directly comparable GAAP measure (i.e., net loss attributable to common stockholders) for the periods indicated (in thousands):

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Net loss attributable to common stockholders | $(9,899) | $(26,516) |
| Adjustments to reconcile net loss attributable to common stockholders to non-GAAP Adjusted EBITDA: |  |  |
| Preferred stock dividends | 286 | 259 |
| Loss from discontinued operations, net of tax | — | 35 |
| Equity in net (income) loss of investee, net of tax | (5,275) | 10,167 |
| Distributions from investee, related to Nautilus | 12,022 | — |
| Income tax benefit | — | — |
| Other income | (500) | — |
| Loss on extinguishment of debt | 2,027 | — |
| Interest expense | 11,045 | 6,834 |
| Depreciation | 15,088 | 5,433 |
| Amortization of right-of-use asset | 252 | 250 |
| Stock-based compensation expense | 6,931 | 876 |
| Related party expense to be settled with respect to common stock | — | 313 |
| Non-GAAP Adjusted EBITDA | $31,977 | $(2,349) |

### Liquidity and Capital Resources

As of March 31, 2024, the Company had cash and cash equivalents of $45.8 million, a working capital deficiency of $67.8 million, total stockholders’ equity of $272.3 million and an accumulated deficit of $269.5 million. The Company incurred a net loss attributable to common stockholders of $9.9 million for the three months ended March 31, 2024. The Company began mining bitcoin in March 2022 and had 8.0 EH/s of operating capacity across the Lake Mariner Facility and the Nautilus Cryptomine Facility as of March 31, 2024. To date, the Company has relied primarily on proceeds from its issuances of debt and equity and sale of bitcoin, both self-mined and distributed from the joint venture which owns the Nautilus Cryptomine Facility, to fund its principal operations.

The principal uses of cash are for the operation and buildout of mining facilities, debt service and general corporate activities and, to a lesser extent in 2023, investments in Nautilus joint venture related to mining facility buildout and general corporate activities. Cash flow information is as follows (in thousands):

| Cash provided by (used in): Operating activities: | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Continuing operations | $22,846 | $(8,623) |
| Discontinued operations | — | (90) |
| Total operating activities | 22,846 | (8,713) |
| Investing activities | (46,979) | (12,271) |
| Financing activities | 15,518 | 29,647 |
| Net change in cash and cash equivalents | $(8,615) | $8,663 |

Certain amounts in the unaudited interim consolidated statement of cash flows for the three months ended March 31, 2023 were restated as previously disclosed in the restated unaudited interim consolidated statement of cash flows for the three months ended March 31, 2023 included in the Company’s Amendment No. 1 to its Quarterly Report on Form 10-Q for the period ended September 30, 2023.

Cash provided by (used in) operating activities for continuing operations was $22.8 million and $(8.7) million for the three months ended March 31, 2024 and 2023, respectively. For the three months ended March 31, 2024, cash used in operations resulted from a net loss of $9.6 million less non-cash expenses, net of $16.3 million, adjusted for changes in certain asset and liability balances and increased by proceeds from sale of bitcoin of $54.4 million. The non-cash expenses were primarily comprised of (i) amortization of debt issuance cost, commitment fees and accretion of debt discount of $7.6 million, (ii) stock-based compensation of $6.9 million, (iii) depreciation of $15.1 million, (iv) amortization of right-of-use asset of $0.3 million, (v) increase in digital currency from mining and hosting services of $41.5 million, (vi) gain on fair value of digital currency, net of $1.3 million, (vii) loss on extinguishment of debt of $2.0 million and (viii) $5.3 million related to the Company’s equity in net income, net of tax of Nautilus. The changes in certain assets and liabilities were primarily comprised of a net increase in current assets of $0.2 million (which includes prepaid expenses, other receivables, and other current assets) and a net decrease in current liabilities (which includes accounts payable, other accrued liabilities and other amounts due to related parties) of $5.5 million. For the three months ended March 31, 2023, cash used in operations resulted from a net loss of $26.3 million plus non-cash expenses, net of $10.7 million, adjusted for changes in certain asset and liability balances and increased by proceeds from sale of bitcoin of $10.0 million. The non-cash expenses were primarily comprised of (i) amortization of debt issuance cost, commitment fees and accretion of debt discount of $3.5 million, (ii) related party expense to be settled with respect to common stock of $0.3 million (iii) stock-based compensation of $0.9 million, (iv) depreciation of $5.4 million, (v) amortization of right-of-use asset of $0.3 million, (vi) increase in digital currency from mining and hosting services of $9.9 million, and (vii) $10.2 million related to the Company’s equity in net loss, net of tax of Nautilus. The changes in certain assets and liabilities were primarily comprised of a net decrease in current liabilities (which includes accounts payable, other accrued liabilities and other amounts due to related parties) of $3.5 million, a net decrease in current assets (which includes prepaid expenses and other current assets) of $0.5 million and an increase in other assets of $0.1 million.

Cash used in investing activities for continuing operations was $47.0 million and $12.3 million for the three months ended March 31, 2024 and 2023, respectively. The Company invested $47.0 million and $10.0 million in the buildout of its mining facilities at the Lake Mariner Facility for the three months ended March 31, 2024 and 2023, respectively. Additionally, during the three months ended March 31, 2023, the Company invested $2.3 million, on a net basis, in its joint venture.

Cash provided by financing activities for continuing operations was $15.5 million and $29.6 million for the three months ended March 31, 2024 and 2023, respectively primarily related to proceeds from Common Stock issued or to be issued, net of issuance costs, of $50.7 million and $31.0 million for the three months ended March 31, 2024 and 2023, respectively. The Company made principal payments in excess of proceeds from insurance premium financings of $0.8 million and $1.2 million for the three months ended March 31, 2024 and 2023, respectively. In addition, for the three months ended March 31, 2024, the Company made principal payments on long-term debt of $33.4 million and payments of $0.7 million related to tax withholdings related to net share settlements of stock-based compensation awards. For the three months ended March 31, 2023, the Company (i) received proceeds from warrant issuances of $2.5 million, (ii) received proceeds from issuance of a convertible promissory note of $1.3 million, and (iii) made payments of contingent value rights liability related to proceeds from sale of net assets held for sale of $3.9 million.

#### Contractual Obligations and Other Commitments

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. As of March 31, 2024, the Company made payments of $3.5 million. Subsequent to March 31, 2024 the Company paid the remaining $14.0 million of the purchase price. 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 three months ended March 31, 2024 (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. TeraWulf plans to use the new miners to expand mining capacity at its Lake Mariner Facility.

The Company is counterparty to the Amended and Restated Talen Joint Venture Agreement dated August 27, 2022 (“A/R Joint Venture Agreement”). Under this A/R Joint Venture Agreement, the Company has invested $113.1 million on a net basis and has right-sized its equity ownership interest to 25% of the joint venture. The Company does not expect any additional material capital contributions to be required for the existing operations at the Nautilus Cryptomine Facility.

#### Financial Condition

As of March 31, 2024, the Company had balances of cash and cash equivalents of $45.8 million, a working capital deficiency of $67.8 million, total stockholders’ equity of $272.3 million and an accumulated deficit of $269.5 million. As of March 31, 2024, the working capital deficiency included the then outstanding $106.0 million principal balance of the Company’s Term Loans which mature on December 1, 2024. To date, the Company has relied primarily on proceeds from its issuances of debt and equity and sale of bitcoin, both self-mined and distributed from the joint venture which owns the Nautilus Cryptomine Facility, to fund its principal operations.

During the year ended December 31, 2023, the Company achieved significant milestones by initiating and delivering rapid organic growth at the Lake Mariner Facility, and commencing operations at the Nautilus Cryptomine Facility, resulting in positive cash flows from continuing operations. During the three months ended March 31, 2024, the Company additionally accomplished several notable steps to continue to achieve positive cash flows from operations, namely: (1) the Company repaid $33.4 million of outstanding principal of the Company’s Term Loans to remove the fixed principal amortization and extend the excess cash flow sweep through maturity, (2) the Company received net proceeds of $50.7 million through the issuance of shares of our Common Stock, par value $0.001 per share, (3) the Company received bitcoin distributions of $12.0 million from the joint venture which owns the Nautilus Cryptomine Facility, (4) the Company received substantially all contracted miners from the miner suppliers and has no remaining outstanding financial commitments under the miner purchase agreements for the existing operations at the Lake Mariner Facility and the Nautilus Cryptomine Facility, (5) the construction activities at the Lake Mariner Facility for buildings one, two and three and at the Nautilus Cryptomine Facility are complete as of March 31, 2024, although the Company intends to expand its infrastructure. Additionally, if a business need requires its use, the Company has an active at-the-market sales agreement for sale of shares of Common Stock having an aggregate offering price of up to $200.0 million (the “ATM Sales Agreement”), which had a remaining capacity of $28.9 million as of March 31, 2024. The issuance of Common Stock under this agreement would be made pursuant to the Company’s effective registration statement on Form S-3 (Registration statement No. 333-262226).

The Company is required to pay amounts under its Term Loans subject to an excess cash flow sweep, as defined, on a quarterly basis through the maturity of the Term Loans of December 1, 2024. As of May 13, 2024, the outstanding principal balance of the Term Loans was $75.8 million. The Company has determined that it is probable that it will generate positive cash flows from operations and be able to realize its assets and discharge its liabilities and commitments in the normal course of business, including the Term Loans through maturity, based on its expected range of forecasted bitcoin prices, network hashrate, and power prices and, therefore, there is not substantial doubt about the Company’s ability to continue as a going concern through at least the next twelve months. The consolidated financial statements do not include any adjustments that might result from TeraWulf’s possible inability to continue as a going concern.

### Critical Accounting Policies and Estimates

The above discussion and analysis of the Company’s financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the Company’s consolidated financial statements requires the application of accounting policies and the use of estimates. The accounting policies most important to the preparation of the consolidated financial statements and estimates that require management’s most difficult, subjective or complex judgments are described below.

See Note 2 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q and Note 2 of the Notes to Consolidated Financial Statements included in Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 for a summary of the Company’s significant accounting policies.

#### Revenue Recognition

The Company recognizes revenue under FASB Accounting Standards Codification (“ASC”) 606, *Revenue from Contracts with Customers (“*ASC 606”). The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.

#### 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.

#### Data Center Hosting

The Company’s prior hosting contracts have been service contracts with a single performance obligation. The service the Company provided primarily included hosting the customers’ miners in a physically secure data center with electrical power, internet connectivity, ambient air cooling and available maintenance resources. Hosting revenue was recognized over time as the customer simultaneously receives and consumes the benefits of the Company’s performance. The Company recognized hosting revenue to the extent that a significant reversal of such revenue will not occur. Data center hosting customers were invoiced and payments were due on a monthly basis. While the majority of consideration was paid in cash, certain consideration was payable in digital currency. Because digital currency is considered noncash consideration, fair value of the digital currency award received was determined using the quoted price of the related digital currency in the Company’s principal market at the time of contract inception. The Company had one data center hosting contract with a customer, which expired in February 2024, for which the quoted price of bitcoin in the Company’s principal market at the time of contract inception was approximately $38,000. The Company recorded miner hosting revenue of $0.8 million and $2.3 million during the three months ended March 31, 2024 and 2023, respectively.

#### 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 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 FASB issued ASU 2023-08 which 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 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 consolidated balance sheet as of March 31, 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 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 carrying 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 consolidated statements of operations. During the three months ended March 31, 2024, the Company recognized $1.3 million of gain on fair value of digital currency, net.

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 recognized impairment of digital currency of $0.6 million during the three months ended March 31, 2023.

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 on the 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. Proceeds from sales of digital currency are included within cash flows from operating activities on the consolidated statements of cash flows as bitcoin are converted nearly immediately into cash.

#### Variable Interest Entities

Variable interest entities (“VIE”) are legal entities in which equity investors do not have (i) sufficient equity at risk for the legal entity to finance its activities without additional subordinated financial support, or (ii) as a group, the power, through voting or similar rights, to direct the activities of the legal entity that most significantly impact the entity’s economic performance, or (iii) the obligation to absorb the expected losses of the legal entity or the right to receive expected residual returns of the legal entity. The Company would consolidate any VIE in which it has a controlling financial interest through being deemed to be the primary beneficiary of the VIE. The primary beneficiary of a VIE has both of the following characteristics: (1) the power to direct the activities of the VIE that most significantly impact its economic performance; and (2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could be significant to the VIE. If both characteristics are met, the Company considers itself to be the primary beneficiary and therefore will consolidate that VIE into its consolidated financial statements.

The Company determines whether it is the primary beneficiary of a VIE upon initial involvement with a VIE and reassesses whether it is the primary beneficiary of a VIE on an ongoing basis. The determination of whether an entity is a VIE and whether the Company is the primary beneficiary of a VIE is based upon facts and circumstances for the VIE and requires significant judgments such as whether the entity is a VIE, whether the Company’s interest in a VIE is a variable interest, the determination of the activities that most significantly impact the economic performance of the entity, whether the Company controls those activities, and whether the Company has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE.

In 2021, the Company entered into a joint venture, Nautilus, with an unrelated co-venturer to develop, construct and operate a bitcoin mining facility in Pennsylvania. Due to the initial nature of the joint venture and the continued commitment for additional financing, the Company determined Nautilus is a VIE. While the Company has the ability to exercise significant influence over Nautilus, the Company has determined that it does not have the power to direct the activities that most significantly impact the economic performance of Nautilus. Initially, the power to direct the activities of Nautilus that most significantly impact Nautilus’ economic performance were shared equally by both parties within the joint venture due to the requirement for both equity holders to approve many of the key operating decisions and when not equally shared, were predominantly under the control of the co-venturer, including through the co-venturer’s majority representation on the board of managers. As such, the Company has determined that it is not the primary beneficiary of Nautilus and, therefore, has accounted for this entity under the equity method of accounting. Risks associated with the Company’s involvement with Nautilus include a commitment to potentially fund additional equity investments.

#### Impairment of Long-lived Assets

The Company reviews its long-lived assets, including property, plant and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset, or asset group, may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted cash flows expected to be generated by the asset. Any impairment loss recorded is measured as the amount by which the carrying value of the assets exceeds the fair value of the assets. During the three months ended March 31, 2024 and 2023, the Company recorded $0 impairment charges for long-lived assets.

#### Issuance of Debt with Warrants; Debt Modification

In March 2023, the Company entered into a fifth amendment to the LGSA, which included the issuance of warrants to purchase 27,759,265 shares of Common Stock at $0.01 per share and 13,879,630 shares of Common Stock at $1.00 per share. The accounting for debt modifications is complex and requires significant judgment. Potential accounting outcomes include troubled debt restructuring accounting, extinguishment accounting or modification accounting, each with different implications for the consolidated financial statements. The Company has determined that modification accounting is applicable. Additionally, debt modification accounting requires the determination of the fair value of the warrants issued, which requires significant judgment. As a measure of sensitivity, a 10% change in the estimated fair value of the warrants would result in a $1.6 million change in the recorded value of the borrowing under the Third Amendment.

#### Convertible Instruments

The Company accounts for its issuance of convertible debt and convertible equity instruments in accordance with applicable U.S. GAAP. In connection with that accounting, the Company assesses the various terms and features of the agreement in accordance with ASC 480, *Distinguishing Liabilities from Equity (“*ASC 480”) and ASC 815, *Derivatives and Hedging Activities (“*ASC 815”). ASC 480 requires liability accounting for certain financial instruments, including shares that embody an unconditional obligation to transfer a variable number of shares, provided that the monetary value of the obligation is based solely or predominantly on one of the following three characteristics: (1) a fixed monetary amount known at inception, (2) variations in something other than the fair value of the issuer’s equity shares or (3) variations in the fair value of the issuer’s equity shares, but the monetary value to the counterparty moves in the opposite direction as the value of the issuer’s shares. In accordance with ASC 815, the Company assesses the various terms and features of the agreement to determine whether or not they contain embedded derivative instruments that are required under ASC 815 to be accounted for separately from the host contract and recorded on the balance sheet at fair value. The fair value of derivative liabilities, if any, is required to be revalued at each reporting date, with corresponding changes in fair value recorded in the current period's operating results. The Company did not have any liabilities required to be revalued in accordance with ASC 480 or ASC 815 as of March 31, 2024 or December 31, 2023.

#### Income Taxes

The Company accounts for income taxes pursuant to ASC 740, *Income Taxes (“*ASC 740”), which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred tax asset will not be realized. The Company follows the provision of ASC 740 related to accounting for uncertain income tax positions. When tax returns are filed, it is more likely than not that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely that not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. The tax benefits recognized in the consolidated financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with the tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain tax benefits in the Company’s balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The most critical estimate for income taxes is the determination of whether to record a valuation allowance for any net deferred tax asset, including net loss carryforwards, whereby management must estimate whether it is more likely than not that the deferred tax asset would be realized.

## Controls and procedures

As filed, 1,342 characters.

### Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of such period, are effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act are:

- Recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and
- Accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

### Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the three months ended March 31, 2024 that have materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 981 characters.

Our business faces many risks. Before deciding whether to invest in our Common Stock, in addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in our Annual Report on Form 10-K, which is incorporated herein by reference. If any of the risks or uncertainties described therein actually occurs, our business, financial condition, results of operations or cash flow could be materially and adversely affected. This could cause the trading price of our Common Stock to decline, resulting in a loss of all or part of your investment. The risks and uncertainties we have described are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business operations. There have been no material changes to the risk factors set forth in our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q.

Filed May 13, 2024.
Source: SEC EDGAR, the filing index for accession 0001083301-24-000103. Last ingested by Listed: Nov 6, 2026, 16:44 ET. No prices; not investment advice.