BUSINESS COMBINATION, ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

12 Months Ended

Dec. 31, 2023

Business Combination and Asset Acquisition [Abstract]

BUSINESS COMBINATION, ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

On December 13, 2021, the Company completed the Merger with RM 101 (formerly known as IKONICS Corporation) pursuant to which, among other things, the Company effectively acquired RM 101 and became a publicly traded company on the Nasdaq. The consideration in the Merger included, among other things, contractual contingent value rights (“CVR”) per a Contingent Value Rights Agreement (the “CVR Agreement”). Pursuant to the CVR Agreement, each shareholder of RM 101 as of immediately prior to the Merger, received one non-transferable CVR for each outstanding share of common stock of RM 101 then held. The holders of the CVRs were entitled to receive 95% of the Net Proceeds (as defined in the CVR Agreement), if any, from the sale, transfer, disposition, spin-off, or license of all or any part of the pre-merger business of RM 101. 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 the holders thereof any voting or equity or ownership interest in TeraWulf. The CVRs were not transferable, except in limited circumstances, and were not listed on any quotation system or traded on any securities exchange. The CVR Agreement terminated after all payment obligations to the holders thereof were satisfied.

In August 2022, RM 101 sold a certain property, including a warehouse, to a third party for $6.7 million gross with net sale proceeds of $6.2 million. The agreement governing the sale included certain indemnifications which were subject to an $850,000 limitation and which expired in August 2023.

In August 2022, RM 101 sold (i) certain property, including a warehouse and a building which houses manufacturing, operations and administration, (ii) substantially all of its working capital and (iii) its historical business to a third party for $7.7 million gross, including net working capital, with net sale proceeds of $7.0 million. The Asset Purchase Agreement (the “APA”) governing the sale was structured as an asset sale. The APA included certain indemnifications which were subject to a $650,000 limitation and a related escrow of that amount upon consummation of the transaction. Substantially all the remaining purchase price was placed into escrow upon consummation of the transaction pending the completion of certain remaining environmental testing and remediation resulting therefrom, if any. As of December 31, 2022, proceeds from this sale were included in restricted cash in the consolidated balance sheet. In February 2023, all escrowed funds were released to the Company.

The Company made CVR payments of $3.9 million, $5.7 million, and $1.4 million in February, May, and November of 2023, respectively. In accordance with the CVR Agreement, as of December 31, 2023, all RM 101 assets previously held for sale had been sold and the Company has made all of the aggregate distributions of $11.0 million of proceeds to the CVR Holders such that the CVR Agreement is deemed terminated as of December 31, 2023.

Upon acquisition, the Company determined the RM 101 business met the assets held-for-sale and discontinued operations criteria and was, prior to sale, reflected as discontinued operations held for sale in these consolidated financial statements. During the year ended December 31, 2022, the Company determined that certain changes in circumstances indicated that the then carrying amount of RM 101’s long-lived assets may not have been recoverable and recognized an impairment loss in loss on discontinued operations, net of tax of $4.5 million to write down the related carrying amounts to their fair values less estimated cost to sell. All net assets held for sale had been sold as of December 31, 2022. The loss from discontinued operations, net of tax presented in the consolidated statements of operations includes the following results of RM 101 (in thousands):


	Year Ended December 31,
	2023		2022
Net sales	$	—	$	10,843
Cost of goods sold	—		8,129
Gross profit	—		2,714
Selling, general and administrative expenses	88		3,451
Research and development expenses	—		437
Impairment on remeasurement or classification as held for sale	—		4,541
Loss on sale of net assets held for sale	—		239
Loss from discontinued operations before other income	(88)		(5,954)
Interest expense	—		(12)
Other income	23		23
Loss from discontinued operations before income tax	(65)		(5,943)
Income tax expense	—		(14)
Loss from discontinued operations, net of tax	$	(65)	$	(5,957)

Loss from discontinued operations, net of tax in the consolidated statements of operations also included a (loss) gain on CVR remeasurement of $(0.1) million and $1.1 million for the years ended December 31, 2023 and 2022, respectively. Total cash flows provided by (used in) operating activities from discontinued operations was $0.1 million and $(1.8) million in the consolidated statements of cash flows for the years ended December 31, 2023 and 2022, respectively.