• We believe TeraWulf is a house of cards, used by insiders to enrich themselves to the tune of over $100 million since 2021.
• TeraWulf is a 2021 RTO fueled by crypto hype and generates revenues from mining Bitcoin with operations in Western New York and Central Pennsylvania. The company quickly went public, and first secured Bitcoin miners from a company plagued with operational issues and faulty miners.
• The CEO’s private company, Beowulf provides several critical items to TeraWulf, including leasing the facilities, headquarters, and have agreements to do all the maintenance and upkeep on the facilities. According to our research Beowulf virtually takes care of the entire operations.
  • The two companies’ management teams overlap considerably, suggesting that insiders are simply double-dipping by taking money from both companies.
  • Beowulf has only completed one other crypto-mining project, Marathon’s Hardin Facility, which closed less than two years after opening due to operational issues. By our accounts, it was a very poorly performing crypto mine.
  • The number of related party transactions is so excessive that TeraWulf had more related party costs than revenue in 2022.
• We find that the CEO, Paul Prager, and his friends are using his previously failed business assets from Beowulf to siphon as much money out of the public company as possible. It is a “heads I win, tails you lose” situation for management against shareholders.
• TeraWulf’s second-largest shareholder is an entity controlled by Bryan Pascual, an individual involved in the 2018 Riot Blockchain scandal. He is accused of helping Riot’s management hide related-party transactions.
• Our research uncovers that TeraWulf’s third-largest shareholder is an entity controlled by the wife of John O’Rourke, the disgraced CEO of Riot Blockchain, who was charged for his part of a $27 million “Lucrative Market Manipulation Schemes” by the SEC
  • John O’Rourke has deep ties with stock promoter Barry Honig, who is now barred from offering penny stocks and owning more than 4.99% of any microcap company.
  • O’Rourke has been behind many of the company’s financings, including private placements, preferred stock, and convertible notes, since the very beginning.
  • Companies associated with John O’Rourke and Barry Honig have an average decline of 92%.
• TeraWulf’s core assets are old Bitcoin miners purchased cheaply and with a lack of due diligence to exploit the cryptocurrency hype.
  • The company has a significant portion of its mining portfolio in old, underperforming miners and has not received the majority of the MinerVa miners it has already pre-paid for due to complications with production.
• TeraWulf has missed its original projections by ridiculous margins. In the June 2021 investor deck, the company expected to have mined 16,751 Bitcoins, generating $807 million in revenue in 2023, but in reality, only mined 3,407, generating $69 million in revenue—missing estimates by 79% and 91%, respectively.
• The relatively small, ten-employee team has a history of failure and seems more concerned with maximizing short-term payouts than long-term business value.
  • The ten-employee team is filled with the CEO’s friends and previous business partners, and the CEO’s sister is on the Board of Directors.
  • Most of the management held various high-ranking positions at Bicent Holdings LLC, a company TeraWulf’s CEO Paul Prager created. This company entered Chapter 11 Bankruptcy in 2012 after arbitration cases cost the company millions. The complaint stated that the team “grossly failed, recurrently, chronically, and pervasively, to perform its role”.
• TeraWulf has an unsustainable balance sheet and has relied on at-the-market financings and highly dilutive and destructive debt deals to fund its operations. TeraWulf is one of the worst dilutors in the Crypto mining industry, which directly contradicts management’s statements
  • Since its IPO in late 2021, the company has issued over $500 million in stock through various convertible notes, at-the-market issuance, preferred stock, and other debt deals. The share count ballooned from just under 100 million shares outstanding to nearly 375 million shares (and counting) in a little less than three years.
• The company’s auditor, RSM LLP, was charged by the SEC for failing to properly conduct audits for Revolution Lighting Technologies and failing to adhere to PCAOB auditing and quality control standards. RSM paid a $3.75 million penalty, while three senior-level RSM employees faced sanctions.
• TeraWulf has previously had internal control issues and had to restate most of its 2023 financial results.
• In conclusion, we believe TeraWulf is in the business of selling stock while enriching insiders and not in the business of becoming a legitimate crypto miner.

Introduction

TeraWulf (Nasdaq: WULF) a 2021 Reverse Takeover (RTO) Bitcoin miner that portrays itself as an ESG/sustainable miner, but that cannot be further from reality. We believe that the ten-employee team has no actual crypto mining experience, is nothing more than a related party game that enriches the management team and CEO and has ties to the notorious SEC-charged Honig group that engaged in a “classic pump and dump” scheme.

The incredibly small operating team has a history of large business failures and a history of overpromising and underdelivering, which ultimately cost a previous company controlled and owned by the CEO, Paul Prager, which led to its bankruptcy.

The company currently operates two crypto mining locations, one wholly owned subsidiary in New York called Lake Mariner and their 25% joint venture called Nautilus Cryptomine. Both these facilities have a myriad of related party transactions that have taken out more than $71 million in cash since the company’s inception, alongside over $35 million in stock, with an estimated $15 million in contractual payments for this year.

Where is All the Money Going?

The company’s management team would like to suggest that having very close related parties is a positive thing. However, we believe that they use TeraWulf as their personal bank account. With the company’s access to the public markets and repeated dilution, over $100 million has gone directly back to Beowulf since the company’s 2021 RTO. Beowulf is a company owned and controlled by CEO Paul Prager, one of this first companies, created more than twenty years ago.

These figures do not account for the 4,271,000 shares sold to holding companies controlled by Paul Prager between March 2022 and early 2023 at prices as low as $0.40. Nor does it include the close to 50 million $0.01 warrants given to the “loan, guaranty and security agreement” holders for the five different amendments that happened to the loan facility, of which insiders owned a portion of, as we show later in this report.

Source: Compiled Internally from Company Filings

It appears that Paul Prager and Beowulf have gone to extreme lengths to siphon money from TeraWulf, even resorting to selling “electrical infrastructure and equipment” located at their own facility for a mere $632,000.

Source: TeraWulf 2023 SCHEDULE 14A

TeraWulf “reimbursed” another related party, Heorot Power Holdings LLC, which is also owned by TeraWulf’s CEO Paul Prager, $1.6 million for consulting and legal fees.

Source: TeraWulf 2023 SCHEDULE 14A

The largest agreement is a $60.7 million “Administrative and Infrastructure Services Agreement (pg. 27)” with Beowulf signed on April 27th, 2021, only three months after TeraWulf was formed. This agreement states that Beowulf is to provide “certain services necessary to build and operate certain Bitcoin mining facilities anticipated to be developed by TeraWulf and support TeraWulf’s ongoing business, including, among others, services related to construction, technical and engineering, operations and maintenance, procurement, information technology, regulatory, health and safety, treasury, finance and accounting, human resources, legal, corporate compliance, risk management, ESG, tax compliance, external affairs, corporate communications, public affairs and corporate planning and development.”

From our perspective, it seems that TeraWulf is essentially outsourcing its entire business operations to Beowulf, a company that was founded by CEO Paul Prager.

The term agreement also included that Beowulf provides TeraWulf with corporate office space in Easton, MD, Lafayette, CO, and New York City, NY. Originally, the terms of this agreement included a clause that TeraWulf would pay “Beowulf E&D an annual fee for the first year in the amount of $7.0 million payable in monthly installments, and an annual fee equal to the greater of $10.0 million or $0.0037 per kilowatt-hour of electric load utilized.” This significant financial commitment underscores the importance of this agreement.

TeraWulf has already paid out over $45.7 million via this contract, including 2,460,513 shares, equal to $8.5 million dollars worth of stock in today’s value, and is expecting to pay out another $15.0 million in 2024.

Source: TeraWulf 2024 SCHEDULE 14A

On top of this nearly $70 million dollar agreement, Beowulf and TeraWulf have another agreement, the “Lake Mariner Facility Lease.” TeraWulf agreed to lease from Somerset Operating Company LLC, a holding company owned by Paul Prager, for approximately 79 acres in the Town of Somerset, NY, for an initial term of five years with an option to extend the term for an additional five years.

Source: TeraWulf 2024 SCHEDULE 14A

TeraWulf was expected to pay $150,000 annual rent while being responsible for all costs and expenses related to the premises and the leasehold estate, including, among others, real estate taxes, insurance, maintenance, repair, utilities, and all other obligations.

A year later, the parties made a significant amendment to the contract. This amendment increased the initial term to eight years and adjusted certain non-financial provisions, enhancing environmental obligations, events of default and indemnification, site access rights and leasehold mortgage rights. In relation to this amendment, Beowulf received 8,510,638 shares, or $30 million dollars in today’s market value.

TeraWulf has continued to pay over the $150,000 annual stated amount, which they say includes third-party passthrough costs. For example, in 2023, out of the $887,050 paid, $303,417 was passthrough electricity costs.

According to the Niagara County Assessor database, the Lake Mariner property, located at the address “7725 Lake Rd, Barker, NY 14012”, is currently assessed at $13.333 million and has a full market value of $25.157 million. The facility was bought under undisclosed terms, so the purchase price remains unknown.

Again, it seems like the CEO Paul Prager used TeraWulf to pay himself back whatever the purchase price for this facility was.

The last joint-venture agreement signed between TeraWulf and Beowulf was the “E&D Facility Operations Agreement” dated May 13^th, 2021. Under this agreement, Beowulf undertook to provide or arrange for the provision of certain infrastructure, construction, operations, maintenance, and administrative services to Nautilus Cryptomine, their 25% JV with Talen Energy.

Source: TeraWulf 2024 SCHEDULE 14A

These services were necessary for establishing and operating the Nautilus Cryptomine Facility, which supports Nautilus’s ongoing business operations.

TeraWulf agreed to pay Beowulf an annual fee of $750,000. Additionally, Nautilus will also provide Beowulf reimbursement for all out-of-pocket fees, expenses, and capital costs paid by Beowulf attributable to activities relating to the services, including, among others, the portion of the salaries, wages and related employee benefits and other compensation paid to Beowulf employees directly allocable to the time spent by such Beowulf employees, independent contractors and subcontractors providing the services.

Once again, this suggests that TeraWulf management has wholly outsourced the business to themselves.

Several months later, the two parties made significant changes to the agreement. The amended agreement extended its validity until August 27, 2025, and introduced a termination fee of $1.75 million.

Only six months after this amendment, Beowulf and Nautilus entered into a separate agreement to transfer the services provided by Beowulf to Talen Energy in exchange for $339,200 monthly. This agreement was slated to last six months and equate to a $2 million termination fee, higher than the $1.75 million in the original contract.

All together since 2021, TeraWulf has paid over $55.7 million cash payments, alongside nearly 11 million shares valued at $36 million dollars, with an expected additional $15.3 million in 2024.

This would bring the total compensation purely through these agreements to $107.3 million dollars, a substantial 61% of the revenue generated by TeraWulf since its inception.

Adding to the fact that TeraWulf seems to have all its operations outsourced to related parties that allow them to siphon out money, we found out that these related parties have an alarming track record filled with failure, leaving us with very little hope for the future.

Beowulf and Its Façade of an Operating History

Paul Prager, TeraWulf’s CEO, has continued to mention that his team has been together for 20 to 30 years. While this is true, as the majority of the small team have long-tenured positions at Beowulf, we believe that he is not portraying Beowulf’s true history objectively.

According to their LinkedIn page, Beowulf is a builder and operator of “state-of-the-art digital infrastructure facilities across North America to catalyze, empower, and sustain our shared digital future.” Previously, the business model focused on building, managing, and operating “energy infrastructure facilities that provide power to the electric grid and third-party off-takers” for over 30 years.

Source: Beowulf Website

While the company had operated multiple energy projects of diverse types, such as coal, wind, or gas, in the past (see screenshot above), the truth is that it mostly failed to do it properly. We found in articles 1, 2, 3, 4 that the company got sued and that most of their projects were sold prematurely due to a lack of profit, most probably coming from operational issues that Beowulf oversaw. In addition, Beowulf was mostly just a minority owner in most of their projects. Here is an example of “Heorot Power LLC,” the parent company of multiple projects operated by Beowulf, where Beowulf was a minority owner.

Source: Heorot Power Organization Chart

The ownership of the power plants, previously held by GSO, a Blackstone Group subsidiary, was transferred to Freyr Data Energy Inc. and Mjolnir Energy Inc. in 2020. This change was initiated after GSO lost interest in the projects, encompassing six power plants. As a result, Beowulf has ceased to operate most of the facilities, which are now under the management of other companies. Furthermore, we discovered that most of the subsidiaries in California, if not all, are now dissolved.

All the companies in the screenshot above were incorporated by Paul Prager himself, giving a clear idea of how important it was for his company at the time.

Before the termination of all these companies, the address changed to “1345 Ave of the Americas, 30th floor, NY,” which is the address of Global Infrastructure Partners, a $106B infrastructure investment fund that has made loan investments in Heorot in the past.

It’s crucial to note that the creation of TeraWulf and the cessation of Beowulf’s role as the operator of all these facilities are closely timed. This abrupt change in focus and activity is likely a result of Beowulf’s past operational failures and its search for alternative revenue streams, which may primarily come from WULF investors.

TeraWulf is Saving Failed Beowulf

Paul Prager is the CEO of both Beowulf and TeraWulf.

There is a massive overlap between the TeraWulf and the Beowulf teams, five of the ten employees at TeraWulf were previously apart of both management teams, including the main subsidiaries and promote their tenure at Beowulf on their LinkedIn pages.

Source: TeraWulf Website, TeraWulf’s Business Acquisition Report, News Reports

This is not the only company the team has been apart of in the past, the same team was also apart of a Heorot Power, a company that Paul Prager created. This fact is conveniently left out of the individual’s biography on the TeraWulf website.

The reason why we do not believe Prager and his team like to talk about Beowulf’s history or Heorot Power is because Heorot Power’s subsidiary, Bicent alongside 11 other units ultimately went bankrupt in April 2012 due to “arbitration proceedings against its unit Colorado Energy Management had cost it more than $50 million in cash flow, led to the loss of contracts and made it more difficult to secure new ones.”

We went through the public filings highlighting the reasoning for costly arbitration in which Lea Power Partners, LLC successfully arbitrated against the subsidiary of Bicent, winning over $22 million. The text says that Colorado Energy Management “grossly failed, recurrently, chronically, and pervasively, to perform its role” and “as a result, its failures were grossly negligent, reflecting a repeated reckless indifference to the rights of LPP” and that their negligence led to “a massive cost over-run.”

Once again, TeraWulf is run by a small team of ten employees, according to the 10-K filed with the SEC, with seven being in executive roles. This means a staggering 70% of the company’s employees are at the C-suite level.

This is consistent with Beowulf, which also has an incredibly high percentage of its employees at the C-suite level. Not only are they handing our executive positions like candy, but the overall number of employees is also rather low compared to other publicly traded Bitcoin miners. We also could not identify any employees with real crypto experience outside their work with Beowulf.

Note: Percentages are based on “best estimates” which uses the highest number of employees between SEC reported size and LinkedIn Size.

To us, TeraWulf has outsourced even the most basic business needs Beowulf.

Now, onto modern-day Beowulf. The company touts its work in the crypto industry on its website. It states “The Beowulf E&D team is involved with all facets of every project from day one. This early-stage, hands-on approach allows us to tailor each aspect of the project’s design to best suit the owner’s goals.”

Beowulf and their team have continued to have issues with their projects even as they venture into crypto mining. Looking at Beowulf’s website, the company currently lists four projects:

1. Lake Mariner
2. Nautilus Cryptomine
3. Big Horn Data Hub (Ex-Marathon ($MARA) Facility)
4. WULF Labs

Lake Mariner and Nautilus Cryptomine are both projects of TeraWulf, which has been underperforming management guidance since day one.

WULF Labs, their proprietary facility, is supposedly dedicated to the testing of hardware, software, and protocols that support digital infrastructure. However, there is a lack of clear indication or available material that this is indeed the case.

The company’s last project is Marathon’s ($MARA) old facility, which closed less than two years after the agreement between Beowulf and Marathon was signed.

Source: Marathon Press Release

In the agreement, Beowulf and another company called 2Pl oversaw the design and development of a data center and would oversee its operation and maintenance services.

Less than two years later, Marathon announced that it would be closing the facility due to its transition to becoming 100% carbon neutral by the end of 2022.

Source: Marathon Press Release

The true reason is that the facility was underperforming, is stated in their first quarter 2022 earnings call.

“And so, the Hardin facility in April was really limping essentially. It was operating at about 60% of capacity. So hopefully, those issues are kind of behind us, but I don’t think we have — believe they were behind us a number of times in the past, and issues keep cropping up. And uptime is very important to us. So, we’re eager to do this transition away from Hardin and into an environment where we can have much higher performance and uptime.”

This is another example of the team behind TeraWulf overpromising and underdelivering.

Besides the alarming operational flaws and management’s track record, we yet uncovered worse aspects of the company where the largest shareholders were involved in fraudulent activities and charged by the SEC.

Largest Shareholders Have a History with the Notorious “Classic Pump and Dump” Honig Group.

Pictured: Bryan Pascual, Named in Shareholder Lawsuits against Riot Platforms for his role in Undisclosed Related Party Transactions

Let’s start with TeraWulf’s second-largest shareholder, Bryan Pascual, who invested in TeraWulf through a Puerto Rican company called Bayshore Capital LLC.

Source: TeraWulf 2024 SCHEDULE 14A

Out of the RTO, Bryan Pascual, under the company “AOW CAPITAL LLC” owned 19.8 million shares of the Private TeraWulf, or around 40% of the total number of shares at the time.

After establishing AOW Capital LLC, Bryan Pascual transferred ownership to another LLC, Bayshore Capital. Both these LLCs are registered in Puerto Rico and share the same address: 53 Palmeras St., Suite 601, SAN JUAN, PR, 00901.

Bryan Pascual only has a little internet presence outside this Wall Street Journal article about Tampa, Florida’s real estate sector. We found why he has little to no internet presence, he was named in one shareholder lawsuit against Riot Blockchain after a 2018 exposé into the company by both CNBC and Hindenburg Research, which alleged at the time that then Riot CEO John O’Rourke, alongside individuals such as Barry Honig, was orchestrating a pump and dump scheme while not disclosing related party transactions to investors.

In a report published in early 2018, Hindenburg noted that Pascual, along with another individual named Michael Ho, who was friends with two members of Riot’s advisory board, set up entities that were then used to “middleman” crypto miner purchases.

Michael Ho and Pascual had set up two companies, Ingenium Global Inc. and Kairos Global Technology Inc., of which Pascual was the director and Barry Honig was a shareholder. Later that year, John R. O’Rourke, Honig, among many others would be charged with “Lucrative Market Manipulation Schemes.”

We Found Evidence That TeraWulf’s Third-Largest Shareholder is SEC-Charged John O’Rourke’s Wife

The company’s third-largest shareholder, Revolve Capital LLC, owns 19.7 million shares, roughly 6.6% of TeraWulf. According to SEC filings and registration filings, the company is a three-year-old Puerto Rico LLC registered to the address “339 Dorado Beach East, DORADO, PR, 00646 “and is solely run by an individual named Lauren O’Rourke.

We have found proof that Lauren O’Rourke is the wife of John O’Rourke.

According to the property records relating to the Puerto Rican house registered to Revolve Capital LLC, John O’Rourke and Lauren O’Rourke purchased the home for $10.2 million on May 25th, 2021.

Translation: “BUYER: Property Law Company composed of John Raymond O’Rourke III and Lauren Adams O’Rourke, adults, businessmen and residents of Dorado”

We find it troubling that several of WULF’s key investors have gotten into severe trouble with the SEC and are affiliated with one of the most notorious pump-and-dump rackets of the last decade.

We uncovered a non-profit trust registered in Florida titled “JOHN AND LAUREN O’ROURKE CHARITABLE FOUNDATION, INC.,” set up in January 2016. The registered agent’s name is “O’ROURKE, LAUREN M,” and the President of the fund is “O’ROURKE, JOHN R, III.”

We found a marriage license between JOHN RAYMOND O’ROURKE III and LAUREN MARIE ADAMS in December 2015 in Miami Beach, Florida. We also found another Puerto Rican LLC called “LAN Investments LLC” that has the same phone number found on Revolve Capital’s filings and the same Lauren O’Rourke listed as an officer.

We note that Lauren would interchangeably use her maiden name in filings, such as this case when registering Revolve Capital LLC, which we believe is a hallmark of a fraudster.

It makes sense that John O’Rourke would want to hide his involvement in TeraWulf as he faced severe allegations of manipulation by the SEC and is a known affiliate of Barry Honig.

“In every scheme, Honig, and some combination of Stetson, Brauser, O’Rourke, Groussman and Frost, either explicitly or tacitly agreed to buy, hold or sell their shares in coordination with one another, knowing that a pump and dump was in the offing that would allow them all to profit handsomely.”

Source: 2018 SEC Complaint

As mentioned earlier, John O’Rourke was charged by the SEC, alongside several “South Florida-based microcap fraudsters” like Barry Honig and Phillip Frost, back in September 2018 for Market Manipulation. Notably, the SEC complaint says that the group would do things such as:

• Arrange and pay for the promotion of the stock, directing their co-defendant Ford, or a similar promoter, to write favorable and materially misleading articles about the company whose stock price they wanted to inflate.
• In several instances, to magnify the intended boost to volume and price that would follow a promotional article’s release, Honig, Brauser, O’Rourke, Groussman, Melechdavid and ATG engaged in pre-release manipulative trading to generate a misleading picture of market interest in the company’s stock, priming investor interest.

This resulted in over $27 million in fraudulent stock sale proceeds, and “public investors were left holding virtually worthless stock.”

We have compiled a list of companies that John O’Rourke and Barry Honig have used in their paid promotion ring, with an average decline of 92%.

Source: Compiled From SEC Complaints, News Outlets.

Several amendments and settlements have happened since the first charge. Most importantly, a final judgment was made in early 2020 when the SEC settled with John O’Rourke, confirming that he violated the antifraud and anti-manipulation provisions of the Securities and Exchange Act. He was also served a permanent penny stock bar alongside a $1,153,326 disgorgement, prejudgement interest, and civil penalty fee.

We believe John O’Rourke is hiding his involvement from investors by using his wife as a front.

Pascual and O’Rourke have been attached to the TeraWulf name since the company’s inception. In the “Original Loan, Guarantee, and Security Agreement” document filed with the SEC, we can see that Bayshore Capital LLC provided the company with $6 million and Revolve Capital provided $5.5 million in the form of Promissory Notes between October and November 2021.

We think the close ties between TeraWulf, Bryan Pascual, and John O’Rourke are deeply worrying. The fact that involvements of the real investors seem to be hidden makes it even more problematic.

TeraWulf’s Seems Unable to Conduct Basic Due Diligence on its Mining Equipment

The company’s lack of knowledge about Bitcoin and Bitcoin miners is glaring, as it hastily sought contracts for miners during its initial months. The company’s first Bitcoin miners purchase agreement was with MinerVa, a company that has been plagued by production issues since day one and appears to be a potential scam.

Source: TeraWulf’s Business Acquisition Report

According to shareholder lawsuits against Stronghold Digital Mining (NYSE: SDIG), MinerVa has a history of failing to deliver products and has faced significant challenges at its assembly facility in China. These challenges, including power outages and restrictions, have hindered the assembly of miners, highlighting the difficulties faced by the company.

Additionally, MinerVa could not obtain the essential components required to assemble a considerable portion of the ordered miners. When the company was able to produce its flagship M7 miners, they were plagued with faults and performance issues, with one in three of the miners being non-operational.

To date, TeraWulf has only received 4,100 M7 miners, for which it paid $40.5 million, which equates to roughly $9,800 per miner. This cost is significantly higher than the $3,950 price per miner in the agreement between MinerVa and the joint venture, a fact that has been a source of disappointment for the company.

Source: August 12, 2024 Investor Presentation, page 21

Until the fourth quarter of 2023, the company disclosed that it had contractual obligations to purchase the remaining 25,900 miners for a total of $78 million, but this disclosure is not found in the latest filings.

Source: TeraWulf’s March 20, 2024 – 10-K: Annual report for year ending December 31, 2023

Emailing the company’s IR team has confirmed that the company had parted ways with MinerVa and had terminated the agreement. However, we cannot find an 8-K associated with the termination to update investors with this news. Again, we note a lack of disclosure from the company.

Additionally, TeraWulf’s mining fleet is full of old and underperforming miners that will have to spend millions of dollars to revamp. Money they will most likely get from utilizing their at-the-market program.

Source: https://www.asicminervalue.com/

The company’s fleets consist of all 2020 to 2021-era miners, which severely underperform the new generation of miners. As we show in the table above, the company has a fleet of miners with joules per Terahash (J/TH) between 21.5 and 34 (the lower, the better). The latest generation miners have half the J/TH but will cost the company an estimated $34 million.

Source: TeraWulf’s 10-Q

Overpromise & Underdeliver – Aggressive Financial Projections

“We like to talk about execution a lot, we made a promise, we kept a promise, we delivered on the exahash.“

CEO Paul Prager August 28^th, 2023, NcNallie Money

Note: 2024 Actual Revenue & EBITDA is 1H 2024 Annualized

The company’s June 2021 investment deck, which was used to help push the RTO, provided lofty projections, including its ability to generate over $800 million in annual revenue with a >85% gross margin in 2023 alone.

Source: TeraWulf’s June 2021 Investor Deck, Pg. 17

The company would achieve these projections by increasing its annual hash rate from 0.7 EH/s in 2021 to 13.1 EH/s in 2023. This would equate to annual Bitcoin mining ramping up to over 16,500 BTC in 2023.

Source: TeraWulf’s June 2021 Investor Deck, Pg. 18

Fast forward, the company has not even come close to reaching its initial financial projections. In 2023, the company reported only $69.2 million in revenues and a gross profit of 42%, missing their forecasts by over 90%.

Source: TeraWulf’s March 20, 2024 – 10-K: Annual report for year ending December 31, 2023

Additionally, the company was only recently able to reach a total hash rate of 8.8 EH/s and only mined 1,750 BTC during 2024.

Source: August 12, 2024 Investor Presentation, page 9

The company was projected to have 201,000 Bitcoin miners and 700 MW online by the first quarter 2024. The company has not come close to achieving this, with having only 245 MW online and 74,200 miners as of June 2024.

Source: TeraWulf’s June 2021 Investor Deck, Pg. 21

While ambitious, the company’s 2021 projections are now scrutinized. We encourage you to review the entire deck and compare it with their recent financials.

Note: 2024 #’s are 1H 2024 Annualized

We believe Management is Lying to Shareholders – TeraWulf is one of the Worst Diluters in the Industry

“I’m not going to dilute shareholders to pay bills.”

CEO Paul Prager August 28^th, 2023, NcNallie Money

Source: Company Filings

With a focus on keeping operations running smoothly, TeraWulf has undertaken several significant and costly financing rounds to ensure the lights stay on and the cash continues to flow to Beowulf.

The most egregious was their December 2021 debt “Loan, Guaranty, and Security Agreement (LGSA)”, which gave TeraWulf access to up to $123.5 million. The LGSA has been amended FIVE times, allowing TeraWulf to draw on an additional $65 million. However, it’s important to note that these amendments were not without cost, as the company had to give up millions of free shares each time. All combined, the company issued nearly 51 million warrants/shares in conjunction with the LGSA.

The company has used its $200 million at-the-market program to help pay off its debt and keep itself afloat. Over the last 2.5 years, the company has issued 87,673,903 shares through the ATM alone.

Adding up the ATM and cheap paper issued to LSGA holders, the company has issued nearly 200 million shares, or about 52% of its total shares outstanding since going public in December 2021.

“I kinda find the non-accretive growth and dilution of shareholders to be an unfortunate reality of public Bitcoin mining stocks. That’s not what Wulf is about.”

CEO Paul Prager March 26^th, 2024, McNallie Money YouTube Account

The company likes to highlight, and Paul Prager repeats this repeatedly, that TeraWulf was not and is not about diluting shareholders, even going as far as saying, “I think our dilution tends to be on the very low end of all our peers”.

We find this claim to be flat out wrong.

Source: August 12, 2024 Investor Presentation, page 11

The company highlights this slide, on its first quarter 2024 earnings call, with Paul Prager, CEO, telling sell-side analysts “These other companies on this page 11 use equity with a fire hose.” However, the company cleverly likes to use absolute terms to describe companies’ at-the-market usage when we believe that the proper way to look at dilution is as a percentage increase year-over-year.

Using the same peer set that TeraWulf provided in its August 12, 2024 presentation, we can see that it ranks among the worst in terms of shareholder dilution as a percentage of shares outstanding.

Source: Compiled Internally from Company Filings

The company continuously takes advantage of its liquid stock, as they announced a new $200 million ATM at the end of May.

Since then, the company utilized $123 million of the $200 million ATM, issuing 40.5 million shares. The company additionally issued another 3.5 million shares for $15.5 million in proceeds after the June 30th, 2024 period ended. We believe this money went to paying down the $106 million in debt.

On a side note, the company completely removed Cipher Mining from its peer set in the new August investor presentation. The May presentation has been deleted from their website but can be found in their SEC filings.

Source: May 13, 2024 Investor Presentation, Page 11

We believe they did this intentionally to make them look better among their peers, as Cipher mining has some of the lowest dilution rates in the industry, as seen below.

Source: Compiled Internally from Company Filings

The company’s recent use of their at-the-market program to pay down debt, which some investors would see as an accretive use of proceeds, but this is just a company diluting investors to pay back money lent to them by insiders, and their largest shareholders, including Bryan Pascual and Lauren O’Rourke.

Company Giving Family & Friends Cheap Shares

A significant source of dilution for TeraWulf investors has come from the previously mentioned “Loan, Guaranty, and Security Agreement”, which started as a $123.5 million loan facility at an 11.5% back in December 2021.

Source: Loan, Guaranty and Security Agreement, dated as of December 1, 2021

Paul Prager, TeraWulf’s CEO, and Nazar Khan, TeraWulf’s CTO, made a significant investment of $15 million into this debt via NovaWulf Digital Master Fund, L.P, accounting for approximately 12% of the total term loan.

Significantly, in connection with this term offering, TeraWulf was compelled to issue 1.5% of the company’s equity at the time or 839,398 shares, after the loan’s closing. The company then proceeded to amend the loan five times, resulting in an additional 50 million shares in the combination of penny and dollar warrants being issued. This equates to about 17% of the total shares outstanding as of March 31st, 2024.

Alongside this massive share issuance with each amendment, the interest rate has also seen an enormous uptick, rising to 25% by the fifth amendment. Given that insiders were such big investors in the loan, we do not find it surprising that debt holders got aggressive terms at the detriment of the public shareholders.

Yet another example of self-dealing is that the Board of Directors consists of Paul Prager, Nazar Khan, and Paul’s sister, Lisa Prager. Again, the company is run for the benefit of insiders rather than public shareholders.

TeraWulf’s Auditor Has a History of High Deficiency Rates

Since its inception in 2021, the company’s auditors have been RSM LLP, specifically Erin Peterson. RSM is a low-tier-two auditor with many issues with its audit quality. The company has received two separate fines from the US Securities and Exchange Commission.

In 2019, they misrepresented their relationship with clients. The SEC Complaint alleges that the audit firm “violated the auditor independence provisions of the federal securities laws” and found that RSM US or its associated entities, including other member firms of the RSM International network, provided non-audit services to and had an employment relationship with, affiliates of RSM US audit clients, which violated the SEC’s auditor independence rules.

Like clockwork, the company settled with the SEC without admitting or denying the findings and was ordered to cease and desist from future violations and agreed to pay a $950,000 penalty and be censured.

Then again in late 2022, the audit firm ran afoul of the SEC and PCAOB. The SEC charged the company and three senior-level employees with improper professional conduct for failing to properly audit Revolution Lighting Technologies Inc.’s financial statements over a four-year period when Revolution was violating accounting principles by inflating revenue with bill and hold sales.

SEC Director of the Division of Enforcement Gurbir Grewal said, “Auditors are important checks against fraud, and they should be scrutinizing arrangements like bill and hold sales,” he said. “RSM failed to do this at all levels, from the engagement team up through the firm’s national office. And by giving Revolution a pass, investors learned only too late that Revolution was committing a multi-year fraud.”

The SEC stated that RSM “all failed to adhere to the Public Company Accounting Oversight Board’s auditing and quality control standards.” Once again, without admitting or denying the SEC’s findings, RSM agreed to pay a $3.75 million penalty, to be censured, and to retain an independent consultant to review and evaluate its audit, review, and quality control policies and procedures.

RSM also has a history of inferior PCAOB inspection reports. The company has a long-standing history of a very high rate of audit deficiencies in its auditing work.

Source: PCAOB Inspection Reports 2017-2022

In RSM’s worst year, 2017, the PCAOB highlighted several issues. One of the most alarming was RSM’s failure to sufficiently test controls over or sufficiently test the accuracy and completeness of issuer-produced data or reports, specifically when relating to the companies’ revenues!

In 2020, RSM’s deficiency rate of 46.7% was higher than 6 of the top 7 firms, with BDO being the only auditor with a higher deficiency rate than them at 54.1%! The PCAOB highlighted RSM’s inability to perform proper audits of internal control over financial reporting, as the majority of errors called out by inspectors had to do with not performing sufficient testing of the design and/or operating effectiveness of controls selected for testing, not identifying and/or sufficiently testing controls over the accuracy and completeness of data or reports that the issuer used in the operation of controls; and not identifying and testing any controls that addressed the risks related to a significant account or relevant assertion.

Across the seven deficient audits, inspectors found several instances in which auditing standards were not followed correctly, including 12 mistakes regarding internal controls, three in responding to risks of material misstatement, and three in evaluating audit results.

The lack of professionalism and expertise when auditing is showcased in TeraWulf, when the company had to refile their first, second, and third quarter financial results for 2023 due to “incorrectly classifying “payments of contingent value rights liability related to proceeds from the sale of net asset held for sale” as an investing activity instead of as a financing activity in the respective unaudited interim consolidated statements of cash flows.”

Conclusion – TeraWulf seems Focused on Selling Stock, Not Building a Successful Crypto Mining Operation

We believe we uncovered a story materially different from the narrative that TeraWulf management is pushing. We believe that TeraWulf is exclusively run for the benefit of insiders and to the detriment of public shareholders. The fact that notorious investors affiliated with the Barry Honig pump-and-dump racket are secretly behind the company fits into the picture. While insiders enrich themselves through related party dealings and juicy deal terms, public investors will ultimately have to carry the burden of TeraWulf continuously falling short of its financial projections.